River Valley Bancorp
P.O. Box 1590 o Madison, Indiana 47250-0590 o (812)273-4949 o Fax (812)273-4944
To Our Shareholders:
It is my pleasure to present to you River Valley Bancorp's third Annual Report
to Shareholders covering the year ending December 31, 1998.
This past year has been one of great achievement for River Valley Bancorp. At
this time last year, I reported that we were spending much of our efforts on
developing a strategy to take advantage of the strengths of both banks. In 1998,
that strategy allowed us to come a long way toward meshing two distinct cultures
into one great bank and, although the process is not complete, we are encouraged
by the results reflected in the day to day operations.
Our strategic planning process established critical guidelines that we will
continue to address in the upcoming years in order for River Valley Financial
Bank to be an effective leader in this region. Providing a distinct difference
in the personal service offered to our customers, matched with technology to
provide increased access, will make us the bank of choice.
Net earnings for 1998 totaled $1,253,000, or basic earnings per share of $1.13,
compared to $1,310,000 reported in 1997. The results in 1997 reflected a
one-time pre-tax gain on the sale of a branch in Hanover of $206,000, while 1998
earnings reflected a one-time pre-tax gain on the sale of premises of $57,000.
Current year earnings were favorably impacted by increased secondary market
activity which resulted in $339,000 in gains on sale of loans, compared to
$127,000 in gains recorded in 1997. The current year reflected additional
general and administrative costs related mainly to increased staffing and
advertising.
During 1998 we continued to implement our capital management strategy with the
declaration of dividends totaling $0.22 per share, compared to $0.13 per share
in 1997. Our shareholders also benefited from the fact that the dividends paid
in 1998 and 1997 were considered a 100% return of capital and thus no federal
taxes were due upon their receipt.
Additionally, during 1998, we commenced a stock repurchase program targeted at
acquiring 5% of outstanding shares. At December 31, 1998, we had repurchased
18,000 shares. The repurchase of shares will serve to increase return on equity
and earnings per share in future periods.
It is now time for us to focus on setting the standard of personal service and
increased access that will make us the bank of choice for our area. As we
continue this journey, we again extend a special thanks to all our friends and
shareholders who have supported us with their business and referrals. Thank you
for your trust and support.
Sincerely,
/s/ James E. Fritz
James E. Fritz
President
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
five 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 1,173,440 common shares of River Valley Bancorp outstanding at March
11, 1999, held of record by 422 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 below are the high and low sale prices for the Corporation's common
shares, as well as cash distributions paid thereon since December 1996. 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 (1)
1998
December 31, 1998 $ 16.00 $13.25 $ 0.060
September 30, 1998 19.00 13.75 0.055
June 30, 1998 20.75 18.38 0.055
March 31, 1998 19.75 18.50 0.050
1997
December 31, 1997 $ 19.00 $16.25 $ 0.050
September 30, 1997 17.25 14.75 0.040
June 30, 1997 15.00 13.63 0.040
March 31, 1997 15.50 13.00 --
1996
December 31, 1996 $ 12.50 $10.00 $ --
(1) River Valley Financial had filed a request with the Internal Revenue
Service ("IRS") in 1995 to deconsolidate the Bank's subsidiaries in future
federal income tax return filings. In August 1998, the Corporation
finalized a closing agreement with the IRS that enabled the Corporation and
each of its subsidiaries to file separate returns. By definition, the 1998
and 1997 cash distributions have been deemed a tax-free return of capital.
The high and low sales prices for River Valley's common shares between December
31, 1998 and March 10, 1999 were $15.75 and $14.00, 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 takes 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. All financial information prior to 1996
relates to River Valley Financial as a mutual savings association.
Selected consolidated financial condition data: (1) At December 31,
1998 1997 1996 1995 1994
Total amount of: (In thousands)
Assets $138,369 $136,933 $145,541 $86,604 $87,072
Loans receivable - net (2) 112,385 111,887 108,994 57,945 56,287
Cash and cash equivalents (3) 12,307 5,765 8,785 2,689 2,416
Mortgage-backed and related securities (4) 5,986 8,978 12,846 9,917 11,328
Investment securities (4) 1,283 4,272 8,948 13,018 14,097
Deposits 118,151 114,955 125,656 75,233 75,458
FHLB advances and other borrowings 270 2,000 1,100 4,471 4,986
Shareholders' equity- net (5) 18,613 17,989 16,805 6,574 6,304
Summary of consolidated earnings data: (1) Year Ended December 31,
1998 1997 1996 1995 1994
(In thousands, except share data)
Total interest income $10,108 $10,362 $ 5,875 $ 5,794 $ 5,419
Total interest expense 4,842 5,049 3,412 3,594 2,854
------- ------- --------- ------- -------
Net interest income 5,266 5,313 2,463 2,200 2,565
Provision for losses on loans 275 304 22 150 29
-------- -------- ----------- -------- ---------
Net interest income after provision for
losses on loans 4,991 5,009 2,441 2,050 2,536
Other income:
Insurance commissions - - 200 175 181
Gain on sale of loans 339 127 - - -
Service fees, charges and other operating 792 807 246 187 189
Gain on sale of subsidiary - - 141 - -
Gain on sale of office premises and equipment 57 206 - - -
Loss on sale of investment, mortgage-backed
and related securities - (6) (9) - -
------- ---------- ------------ ------- ------
Total other income 1,188 1,134 578 362 370
General, administrative and other expense:
Employee compensation and benefits 2,309 2,165 1,203 998 888
Occupancy and equipment 484 527 284 212 193
Data processing 127 224 282 237 243
Federal deposit insurance premiums 42 50 684 177 178
Other 1,131 1,037 417 342 356
------- --------- ---------- -------- --------
Total general, administrative and other expense 4,093 4,003 2,870 1,966 1,858
------- --------- --------- ------- -------
Earnings before income tax expense 2,086 2,140 149 446 1,048
Income tax expense 833 830 76 188 412
-------- -------- ----------- -------- --------
Net earnings $ 1,253 $ 1,310$ 73 $ 258 $ 636
======= ======= =========== ======== ========
Basic earnings per share (6) $1.13 $1.20 N/A N/A N/A
==== ==== === === ===
Diluted earnings per share (6) $1.12 $1.18 N/A N/A N/A
==== ==== === === ===
(1) River Valley acquired Citizens as of December 20, 1996. The acquisition was
accounted for using the purchase method of accounting. The 1998 and 1997
consolidated financial statements reflect the results of operations for a
full year while the 1996 financial statements reflect only eleven days of
activity with respect to Citizens.
(2) Includes loans held for sale.
(3) Includes certificates of deposit in other financial institutions.
(4) Includes securities designated as available for sale.
(5) Consists solely of retained earnings at December 31, 1994 and 1995.
(6) Earnings per share is not applicable for the years ended December 31, 1996,
1995 and 1994 as River Valley converted to stock form in 1996.
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND
OTHER DATA (CONTINUED)
Selected financial ratios and other data:
Year ended December 31,
1998 1997 1996 1995 1994
Interest rate spread during period 3.66% 3.64% 2.79% 2.36% 3.00%
Net yield on interest-earning assets (1) 4.08 4.00 2.98 2.61 3.15
Return on assets (2) 0.92 0.99 0.08 0.30 0.74
Return on equity (3) 6.85 7.53 1.05 4.01 10.62
Equity to assets (4) 13.45 13.12 11.55 7.59 7.24
Average interest-earning assets to
average interest-bearing liabilities 111.07 109.56 104.64 105.62 104.43
Non-performing assets to total assets (4) 1.47 0.58 0.56 0.01 0.01
Allowance for loan losses to total
loans outstanding (4) 1.28 1.13 1.06 0.70 0.45
Allowance for loan losses to
non-performing loans (4) 75.78 177.72 145.30 5,087.50 1,938.46
Net charge-offs to average total
loans outstanding 0.06 0.20 0.01 0.01 0.01
General, administrative and other expense
to average assets (5) (6) 3.01 2.83 3.33 2.26 2.20
Number of full service offices (4) 5 6 6 3 3
(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.
(6) Includes a $503,000 charge (or .94% of weighted-average assets) in 1996
related to the SAIF recapitalization assessment.
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, 1998 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;
4. Management's opinion as to the effect of recent accounting
pronouncements on River Valley's consolidated financial position and
results of operations;
5. Management's opinion as to the effect of the Year 2000 on River
Valley's information technology systems.
Discussion of Changes in Financial Condition from December 31, 1997 to December
31, 1998
At December 31, 1998, River Valley's consolidated assets totaled $138.4 million,
representing an increase of $1.4 million, or 1.0%, over the December 31, 1997
total. The increase in assets was funded primarily by a $3.2 million, or 2.8%,
increase in deposits and undistributed period earnings of $992,000, which were
partially offset by a $1.7 million decrease in borrowings.
Liquid assets (i.e., cash, federal funds sold, interest-earning deposits and
certificates of deposit) increased by $7.5 million from December 31, 1997 levels
to a total of $12.3 million at December 31, 1998. Investment securities totaled
$1.3 million at December 31, 1998, a decrease of $3.0 million, or 70.0%, from
December 31, 1997 levels, due to maturities of investment securities totaling
$3.0 million during 1998. Mortgage-backed securities decreased by $3.0 million,
or 33.3%, to a total of $6.0 million at December 31, 1998, primarily due to
principal repayments.
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, 1997 to December
31, 1998 (continued)
Loans receivable, including loans held for sale, totaled $112.4 million at
December 31, 1998, an increase of $498,000, or .4%, over the $111.9 million
total at December 31, 1997. The increase resulted primarily from loan
originations during 1998 of $69.5 million, which were partially offset by
principal repayments of $51.6 million and sales of $17.0 million. Loan
origination volume for 1998 exceeded that of 1997 by $15.9 million, or 29.7%.
The volume of loan sales into the secondary mortgage market increased during
1998 over 1997 volume by $10.1 million, or 145.7%.
River Valley's consolidated allowance for loan losses totaled $1.5 million and
$1.3 million at December 31, 1998 and 1997, respectively, which represented
1.28% and 1.13% of total loans at those dates. Nonperforming loans (defined as
loans delinquent greater than 90 days and loans on nonaccrual status) totaled
$1.9 million and $718,000 at December 31, 1998 and 1997, respectively. The
consolidated allowance for loan losses represented 76% and 178% of nonperforming
loans at December 31, 1998 and 1997, respectively.
Although management believes that its allowance for loan losses at December 31,
1998 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 $3.2 million, or 2.8%, to a total of $118.2 million at
December 31, 1998, compared to the $115.0 million total at December 31, 1997.
Savings and demand deposits increased by $1.4 million, or 2.7%, during 1998,
while certificates of deposit increased by $1.8 million, or 2.8%. The increase
in deposits can be attributed to management's efforts to obtain a moderate rate
of growth primarily through marketing and pricing strategies.
Advances from the Federal Home Loan Bank and other borrowed money declined by
$1.7 million from the total at December 31, 1997, as current period borrowings
of $6.3 million were offset by repayments of $8.0 million.
Shareholders' equity totaled $18.6 million at December 31, 1998, an increase of
$624,000, or 3.5%, over the $18.0 million total at December 31, 1997. The
increase resulted primarily from net earnings of $1.3 million, which were
partially offset by cash dividends of $261,000, repurchases of shares totaling
$270,000 and a net increase in shares for stock benefit plans of $194,000.
Comparison of Results of Operations for the Years Ended December 31, 1998 and
1997
General
River Valley's net earnings for the year ended December 31, 1998, totaled $1.3
million, a decrease of $57,000, or 4.4%, from net earnings reported in 1997. The
decrease in net earnings in the 1998 period was primarily attributable to a
decrease in net interest income of $47,000, an increase in general,
administrative and other expense of $90,000 and an increase in the provision for
federal income taxes of $3,000, which were partially offset by a decrease in the
provision for losses on loans of $29,000 and an increase in other income of
$54,000.
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, 1998 and
1997 (continued)
Net Interest Income
Total interest income for the year ended December 31, 1998, amounted to $10.1
million, a decrease of $254,000, or 2.5%, from the 1997 total, reflecting the
effects of a $3.5 million, or 2.6%, decline in the balance of average
interest-earning assets outstanding year-to-year. Interest income on loans and
mortgage-backed securities totaled $9.7 million for 1998, a decrease of $38,000,
or .4%, from 1997. The decrease resulted primarily from a $315,000, or .3%,
decrease in the average balance of loans and mortgage-backed securities
outstanding year-to-year, coupled with a one basis point decrease in yield, to
7.97% in 1998. Interest income on investments and interest-earning deposits
decreased by $216,000, or 36.1%, due to a decrease in the average balance
outstanding of $3.2 million, coupled with an approximate 45 basis point decrease
in yield from the comparable 1997 period.
Interest expense on deposits decreased by $232,000, or 4.7%, to a total of $4.7
million for the year ended December 31, 1998, due primarily to a $5.1 million
decrease in the average balance of deposits outstanding, coupled with a one
basis point decline in the weighted-average cost of deposits to 4.12% in 1998.
Interest expense on borrowings totaled $160,000 for the year ended December 31,
1998, an increase of $25,000, or 18.5%, over 1997. The increase resulted
primarily from an increase in average borrowings outstanding year-to-year,
coupled with an increase in average cost.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased during 1998 by $47,000, or .9%, compared to 1997.
The interest rate spread increased by two basis points for 1998, to 3.66% from
3.64% in the 1997 period, while the net interest margin amounted to 4.08% in
1998 and 4.00% in 1997.
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 $275,000
provision for losses on loans in 1998, a decrease of $29,000, or 9.5%, compared
to the $304,000 provision recorded in 1997. The current period provision
generally reflects growth in the loan portfolio, coupled with an increase in the
level of nonperforming loans year-to-year. Net charge-offs amounted to $74,000
in 1998, compared to $218,000 in 1997. While management believes that the
allowance for losses on loans is adequate at December 31, 1998, 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.
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, 1998 and
1997 (continued)
Other Income
Other income amounted to $1.2 million for the year ended December 31, 1998, an
increase of $54,000, or 4.8%, compared to 1997, due primarily to a $212,000, or
166.9%, increase in gain on sale of loans and a $57,000 gain on sale of office
premises and equipment, which were partially offset by a nonrecurring gain on
sale of branch office and related deposits in 1997 totaling $206,000. The 1997
gain on sale of office premises resulted from River Valley Financial's sale of
the Hanover branch facility, which was consummated in accordance with the terms
of regulatory approval of the Citizens acquisition.
General, Administrative and Other Expense
General, administrative and other expense totaled $4.1 million for the year
ended December 31, 1998, an increase of $90,000, or 2.2%, over the 1997 total.
This increase resulted primarily from a $144,000, or 6.7%, increase in employee
compensation and benefits, and a $94,000, or 9.3%, increase in other operating
expense, which were partially offset by a $43,000, or 8.2%, decrease in
occupancy and equipment expense and a $97,000, or 43.3%, decrease in data
processing. The increase in employee compensation and benefits resulted
primarily from normal merit increases coupled with an increase in staffing
levels year to year. The increase in other operating expense resulted from
increases in advertising, office supplies, and pro-rata increases in operating
expenses due to the Corporation's overall growth year-to-year. The decline in
occupancy and equipment resulted from reduced costs following the sale of the
Hanover branch location in 1997. The decrease in data processing was due to the
conversion to the in-house data processing system used by Citizens after the
merger in November 1997.
Income Taxes
The provision for income taxes increased by $3,000, or .4%, for the year ended
December 31, 1998, as compared to 1997. The effective tax rates were 39.9% and
38.8% for the years ended December 31, 1998 and 1997, respectively.
Comparison of Results of Operations for the Years Ended December 31, 1997 and
1996
Increases in the level of income and expenses during the year ended December 31,
1997, as compared to 1996, were primarily due to River Valley's acquisition of
Citizens, which was consummated on December 23, 1996. As stated previously, the
business combination was accounted for using the purchase method of accounting,
which does not provide for restatement of the financial statements to give
effect to the combination. Accordingly, the statement of earnings and the
statement of cash flows for the year ended December 31, 1996, were not restated
for the acquisition.
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, 1997 and
1996 (continued)
General
River Valley's net earnings for the year ended December 31, 1997, totaled $1.3
million, an increase of $1.2 million over the $73,000 net earnings reported in
the comparable 1996 period. The increase in net earnings in the 1997 period was
primarily attributable to an increase in net interest income of $2.9 million and
an increase of $556,000 in other income, which were partially offset by an
increase in the provision for losses on loans of $282,000, an increase in
general, administrative and other expense of $1.1 million and an increase in the
provision for federal income taxes of $754,000.
Net Interest Income
Total interest income for the year ended December 31, 1997, amounted to $10.4
million, an increase of $4.5 million, or 76.4%, over the 1996 year, reflecting
the effects of growth in average interest-earning assets outstanding, coupled
with an increase in yield year-to-year. Interest income on loans and
mortgage-backed securities totaled $9.8 million for 1997, an increase of $4.6
million, or 90.5%, over the 1996 year. The increase resulted primarily from the
$53.3 million, or 77.2%, increase in the average balance of loans and
mortgage-backed securities outstanding year-to-year, coupled with a 56 basis
point increase in yield, to 7.98% in 1997. Interest income on investments and
interest-earning deposits decreased by $151,000, or 20.1%, due to a decrease in
the average balance outstanding of $3.2 million, partially offset by an
approximate 24 basis point increase in yield from the comparable 1996 period.
Interest expense on deposits increased by $1.6 million, or 46.7%, to a total of
$4.9 million for the year ended December 31, 1997, due primarily to a $41.2
million increase in the average balance of deposits outstanding, which was
partially offset by an 18 basis point decline in the weighted-average cost of
deposits to 4.13% in 1997. Interest expense on borrowings totaled $135,000 for
the year ended December 31, 1997, an increase of $72,000, or 114.3%, over 1996.
The increase resulted primarily from an increase in average borrowings
outstanding year-to-year, coupled with an increase in average cost.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased during 1997 by $2.9 million, or 115.7%, compared
to 1996. The interest rate spread increased by approximately 85 basis points for
1997, to 3.64% from 2.79% in the 1996 period, while the net interest margin
amounted to approximately 4.00% in 1997 and 2.98% in 1996.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
upon historical experience, the volume and type of lending conducted by 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 $304,000
provision for losses on loans in 1997. The provision generally reflected the
higher charge-off experience attendant to Citizens' installment loan portfolio,
as compared to the primarily residential loan portfolio of River Valley
Financial prior to the acquisition.
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, 1997 and
1996 (continued)
Other Income
Other income increased by $556,000, or 96.2%, for the year ended December 31,
1997, as compared to 1996, due primarily to a $206,000 gain on sale of office
premises and equipment, coupled with a $561,000 increase in service fees,
charges and other operating income and a $127,000 gain on sale of loans, which
were partially offset by a decline of $200,000, or 100%, in insurance
commissions year-to-year. The gain on sale of office premises resulted from
River Valley Financial's sale of the Hanover branch facility, which was
consummated in accordance with the terms of regulatory approval of the Citizens
acquisition. The decline in insurance commissions year-to-year resulted from
River Valley's sale of its insurance agency subsidiary during the last quarter
of 1996. The increase in the service fees, charges, and other operating income
primarily reflects the beneficial effects of Citizens' operations on the 1997
year.
General, Administrative and Other Expense
General, administrative and other expense increased by $1.1 million, or 39.5%,
during 1997, compared to 1996. This increase resulted primarily from a $962,000,
or 80.0%, increase in employee compensation and benefits, a $243,000, or 85.6%,
increase in occupancy and equipment expense and a $600,000, or 146.3%, increase
in other operating expense, which were partially offset by a $634,000, or 92.7%,
decrease in federal deposit insurance premiums. As previously discussed, the
1997 consolidated statements of operations include the accounts of Citizens,
while the 1996 statements have not been restated to include the acquisition of
Citizens. The increase in general, administrative and other expense during 1997
was primarily attributable to the Citizens' acquisition, offset somewhat by the
absence of the $503,000 SAIF recapitalization assessment recorded in 1996.
Income Taxes
The provision for income taxes increased by $754,000 for the year ended December
31, 1997, as compared to 1996. This increase resulted primarily from an increase
in net earnings before tax of $2.0 million. The effective tax rates were 38.8%
and 51.0% for the years ended December 31, 1997 and 1996, 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 monthly balance of interest-earning assets or interest-bearing
liabilities, respectively, for the years presented. Average balances are derived
from month-end balances, which include nonaccruing loans in the loan portfolio.
Year ended December 31,
1998 1997
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits and other $ 4,337 $ 233 5.37% $ 5,351 $ 322 6.02%
Investment securities (1) 2,871 150 5.22 5,043 277 5.49
Mortgage-backed and related securities (1) 7,542 462 6.13 10,874 733 6.74
Loans receivable, net (2) 114,440 9,263 8.09 111,423 9,030 8.10
------- ------- -------- ------- ------- --------
Total interest-earning assets $129,190 10,108 7.82 $132,691 10,362 7.81
======= =======
Interest-bearing liabilities:
Deposits $113,770 4,682 4.12 $118,872 4,914 4.13
FHLB advances and other borrowings 2,549 160 6.28 2,244 135 6.02
--------- -------- -------- --------- -------- --------
Total interest-bearing liabilities $116,319 4,842 4.16 $121,116 5,049 4.17
======= ------- -------- ======= ------- --------
Net interest income $ 5,266 $ 5,313
======= =======
Interest rate spread (3) 3.66% 3.64%
======== ========
Net yield on weighted average interest-earning
assets (4) 4.08% 4.00%
======== ========
Average interest-earning assets to average
interest-bearing liabilities 111.07% 109.56%
====== ======
1996
Average Interest
outstanding earned/ Yield/
balance paid rate
Interest-earning assets:
Interest-earning deposits and other $ 3,291 $ 188 5.71%
Investment securities (1) 10,295 562 5.46
Mortgage-backed and related securities (1) 9,176 574 6.26
Loans receivable, net (2) 59,828 4,551 7.61
------ ----- --------
Total interest-earning assets $82,590 5,875 7.11
======
Interest-bearing liabilities:
Deposits $77,710 3,349 4.31
FHLB advances and other borrowings 1,221 63 5.16
------- ------- --------
Total interest-bearing liabilities $78,931 3,412 4.32
====== ----- --------
Net interest income $2,463
=====
Interest rate spread (3) 2.79%
========
Net yield on weighted average interest-earning
assets (4) 2.98%
========
Average interest-earning assets to average
interest-bearing liabilities 104.64%
======
(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.
River Valley Bancorp
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,
1998 vs. 1997 1997 vs. 1996
Increase Increase
(decrease) (decrease)
due to due to
Volume Rate Total Volume Rate Total
(In thousands)
Interest-earning assets:
Interest-earning deposits and other $ (57) $ (32) $ (89) $ 123 $ 11 $ 134
Investment securities (114) (13) (127) (288) 3 (285)
Mortgage-backed and related securities (210) (61) (271) 112 47 159
Loans receivable, net 244 (11) 233 4,168 311 4,479
--- ----- ---- ----- --- -----
Total (137) (117) (254) 4,115 372 4,487
Interest-bearing liabilities:
Deposits (210) (22) (232) 1,699 (134) 1,565
FHLB advances and other borrowings 19 6 25 60 12 72
---- ------ ----- ------- ---- -------
Total (191) (16) (207) 1,759 (122) 1,637
--- ----- ---- ----- --- -----
Net change in interest income $ 54 $(101) $ (47) $2,356 $494 $2,850
==== ==== ===== ===== === =====
Asset and Liability Management
Like other financial institutions, River Valley Financial is subject to interest
rate risk to the extent that interest-earning assets reprice 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 below is an analysis of River Valley Financial's interest rate risk,
as of September 30, 1998 (the latest information available) and September 30,
1997, as measured by changes in NPV for an instantaneous and sustained parallel
shift of 100 through 400 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)
As illustrated in the tables, River Valley Financial's NPV is more sensitive to
rising rates than declining rates. Such difference in sensitivity occurs
principally because, as rates rise, borrowers do not prepay fixed-rate loans as
quickly as they do when interest rates are declining. As a result, in a rising
interest rate environment, the amount of interest River Valley Financial would
receive on loans would increase relatively slowly as loans are slowly prepaid
and new loans at higher rates are made. Moreover, the interest River Valley
Financial would pay on deposits would increase rapidly because the Bank's
deposits generally have shorter periods of repricing.
As of September 30, 1998
(Dollars in thousands)
Change in
Interest Rates Estimated Amount
(basis points) NPV of Change Percent
+400 $14,046 $(2,875) (17)%
+300 15,746 (1,175) (7)
+200 16,651 (270) (2)
+100 16,947 26 -
- 16,921 - -
- -100 16,470 (451) (3)
- -200 16,009 (912) (5)
- -300 15,857 (1,064) (6)
- -400 15,788 (1,133) (7)
As of September 30, 1997
(Dollars in thousands)
Change in
Interest Rates Estimated Amount
(basis points) NPV of Change Percent
+400 $ 9,294 $(4,234) (31)%
+300 10,986 (2,542) (19)
+200 12,410 (1,118) (8)
+100 13,255 (273) (2)
- 13,528 - -
- -100 13,273 (255) (2)
- -200 12,921 (607) (4)
- -300 12,744 (784) (6)
- -400 12,544 (984) (7)
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 repricing, 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.
If interest rates rise, River Valley's net interest income will be negatively
affected. Moreover, rising interest rates may negatively affect River Valley's
earnings due to diminished loan demand.
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.
OTS regulations presently require River Valley Financial to maintain an average
daily balance of cash, investments in United States Treasury and agency
securities and other investments in an amount equal to 4% of the sum of River
Valley Financial's average daily balance of net withdrawable deposit accounts.
The liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which River Valley Financial may rely if necessary
to fund deposit withdrawals or other short-term funding needs. At December 31,
1998, River Valley Financial's regulatory liquidity ratio was 16.2%. At such
date, River Valley Financial had commitments to originate loans totaling $2.8
million and, in addition, had undisbursed loans in process, unused lines of
credit and standby letters of credit totaling $7.2 million. At December 31,
1998, River Valley Financial had $3.7 million in commitments to sell loans and
no outstanding commitments to purchase loans. The Corporation considers River
Valley Financial's liquidity and capital resources sufficient to meet
outstanding short- and long-term needs. At December 31, 1998, the Corporation
had no material commitments for capital expenditures.
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, 1998, 1997, and 1996:
Year ended December 31,
1998 1997 1996
(In thousands)
Cash flows from operating activities $(1,913) $ 2,395 $ (194)
Cash flows from investing activities:
Investment maturities/sales 3,000 4,698 5,653
Mortgage-backed securities purchases - (1,350) (729)
Mortgage-backed securities repayments 2,970 3,072 2,110
Net loan (originations) repayments 2,145 (3,859) (458)
Other 731 1,374 2,279
Cash flows from financing activities:
Net increase (decrease) in deposits 3,196 (10,701) (6,222)
Net increase (decrease) in borrowings (1,730) 900 (6,371)
Net proceeds from issuance of common stock - - 10,221
Other (960) (346) 7
------- ------- ----------
Net increase (decrease) in cash and cash
equivalents $ 7,439 $(3,817) $ 6,296
====== ====== =======
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 of at least 3%
of the association's total assets. The OTS has proposed to increase such
requirement to 4% or 5%, except for 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 $1.4
million at December 31, 1998.
River Valley Financial exceeded all of its regulatory capital requirements at
December 31, 1998. The following table summarizes River Valley Financial's
regulatory capital requirements and regulatory capital at December 31, 1998:
OTS Requirement Actual Amount
Percent of Percent of Amount
Assets Amount Assets (1) Amount of Excess
(Dollars in thousands)
Tangible capital 1.5% $2,079 13.5% $18,729 $16,650
Core capital (2) 3.0 4,159 13.5 18,729 14,570
Risk-based capital 8.0 7,793 20.6 20,084 12,291
(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 OCC for national
banks. The regulation, as proposed, would require 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. The final form of such new OTS core capital
requirement may differ from that which has been proposed. River Valley
Financial expects to be in compliance with such new requirements.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effect of Recent Accounting Pronouncements (continued)
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
that provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, referred to
as the financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse.
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management adopted SFAS No. 125 effective January 1, 1998, as required, without
material effect on River Valley's consolidated financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effect of Recent Accounting Pronouncements (continued)
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Management adopted SFAS No. 130 effective January 1, 1998, as required, without
material impact on the Corporation's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management adopted SFAS No. 131 effective January 1, 1998, as
required, without material impact on the Corporation's consolidated financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category without calling into question their
intent to hold other debt securities to maturity in the future. SFAS No. 133 is
not expected to have a material impact on the Corporation's consolidated
financial statements.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters
As with all providers of financial services, the Bank's operations are heavily
dependent on information technology systems. The Bank is addressing the
potential problems associated with the possibility that the computers that
control or operate the Bank's information technology system and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. The Bank is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
The Bank's core data processing relative to customer loan and deposit accounts,
as well as the general ledger, is performed in-house through use of a purchased
software product. Management has been advised, and certain testing has been
performed to verify, that the system will continue to function upon arrival of
the year 2000. Additional testing is scheduled to be performed through June
1999.
In addition, financial institutions may experience increases in problem loans
and credit losses in the event that borrowers fail to prepare properly for Year
2000, and higher funding costs would result if consumers react to publicity
about the issue by withdrawing deposits. The Bank has assessed such risks among
its customers; specifically, management has sent letters to its commercial loan
borrowers with outstanding balances greater than $250,000, to request specific
information as to the borrowers awareness and status of their Year 2000
compliance efforts. Because the Bank's loan portfolio is highly diversified with
regard to individual borrowers and types of businesses and the Bank's primary
market area is not significantly dependent upon one employer or industry, the
Bank does not expect any significant or prolonged difficulties that will affect
net earnings or cash flow. The Bank could also be materially adversely affected
if other third parties, such as governmental agencies, clearing houses,
telephone companies, utilities, and other service providers fail to prepare
properly. The Bank is therefore attempting to assess these risks and take action
to minimize their effect.
The Bank has established a budget of approximately $65,000 for Year 2000 related
costs. As of the date of this Annual Report, the Bank has identified certain
expenses, totaling $15,000, that will be incurred by the Bank in connection with
this issue. During the year ended December 31, 1998, the Bank has incurred
charges totaling approximately $8,000. From a review of the systems and vendors,
management believes the budgeted amount should be sufficient. No assurance can
be given, however, that significant expense will not be incurred in future
periods. In the event that the Bank is ultimately required to purchase
replacement computer systems, programs and equipment, or incur substantial
expense to make the Bank's current systems, programs and equipment Year 2000
compliant, the Bank's net earnings and financial condition could be adversely
affected.
Management has developed a contingency plan in connection with the Year 2000
issue, which includes the Bank's ability to process transactions manually should
the purchased software be unable to function, or given an interruption in
electrical power, upon arrival of the Year 2000. Management of the Bank does not
consider contingency planning to be a static process; therefore, the plan will
be amended should testing results indicate greater concern.
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 changes in monetary and fiscal
policies.
PAGE LEFT BLANK INTENTIONALLY
Report of Independent Certified Public Accountants
Board of Directors
River Valley Bancorp
We have audited the accompanying consolidated statements of financial condition
of River Valley Bancorp as of December 31, 1998 and 1997, and the related
consolidated statements of earnings, comprehensive income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of River Valley
Bancorp as of December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Cincinnati, Ohio
March 4, 1999
River Valley Bancorp
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands, except share data)
ASSETS 1998 1997
Cash and due from banks $ 4,014 $ 3,542
Federal funds sold 825 300
Interest-earning deposits in other financial institutions 7,468 1,026
--------- ---------
Cash and cash equivalents 12,307 4,868
Certificates of deposit in other financial institutions - 897
Investment securities designated as available for sale - at market 283 772
Investment securities held to maturity - at amortized cost, approximate
market value of $980 and $3,444 as of December 31, 1998 and 1997 1,000 3,500
Mortgage-backed and related securities designated as available
for sale - at market 2,796 3,604
Mortgage-backed and related securities held to maturity - at cost, approximate
market value of $3,220 and $5,432 as of December 31, 1998 and 1997 3,190 5,374
Loans receivable - net 108,684 111,203
Loans held for sale - at lower of cost or market 3,701 684
Real estate acquired through foreclosure 82 82
Office premises and equipment - at depreciated cost 2,023 2,065
Federal Home Loan Bank stock - at cost 943 943
Accrued interest receivable on loans 987 916
Accrued interest receivable on mortgage-backed and related securities 40 117
Accrued interest receivable on investments and interest-earning deposits 29 65
Goodwill - net of accumulated amortization 50 245
Cash surrender value of life insurance 818 776
Prepaid expenses and other assets 373 141
Prepaid federal income taxes 405 -
Deferred tax asset 658 681
---------- ----------
Total assets $138,369 $136,933
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
Deposits $118,151 $114,955
Advances from the Federal Home Loan Bank - 2,000
Other borrowed money 270 -
Advances by borrowers for taxes and insurance 34 53
Accrued interest payable 468 463
Other liabilities 763 1,408
Dividends payable 70 60
Accrued federal income taxes - 5
--------- ------------
Total liabilities 119,756 118,944
Commitments - -
Shareholders' equity
Preferred stock - 2,000,000 shares without par value
authorized; no shares issued - -
Common stock - 5,000,000 shares without par value authorized;
1,173,440 and 1,190,250 shares issued and outstanding - -
Additional paid in capital 11,036 11,229
Retained earnings - substantially restricted 8,789 7,797
Shares acquired by stock benefit plans (1,199) (1,005)
Unrealized losses on securities designated as available for sale,
net of related tax effects (13) (32)
----------- -----------
Total shareholders' equity 18,613 17,989
-------- --------
Total liabilities and shareholders' equity $138,369 $136,933
======= =======
The accompanying notes are an integral part of these statements.
River Valley Bancorp
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
(In thousands, except share data)
1998 1997 1996
Interest income
Loans $ 9,263 $ 9,030 $4,551
Mortgage-backed and related securities 462 733 574
Investment securities 150 277 562
Interest-earning deposits and other 233 322 188
-------- -------- ------
Total interest income 10,108 10,362 5,875
Interest expense
Deposits 4,682 4,914 3,349
Borrowings 160 135 63
-------- -------- -------
Total interest expense 4,842 5,049 3,412
------- ------- -----
Net interest income 5,266 5,313 2,463
Provision for losses on loans 275 304 22
-------- -------- -------
Net interest income after provision for losses on loans 4,991 5,009 2,441
Other income
Insurance commissions - - 200
Gain on sale of loans 339 127 -
Gain on sale of Hanover branch and related deposits - 206 -
Loss on sale of investment, mortgage-backed and related securities - (6) (9)
Gain on sale of office premises 57 - -
Gain on sale of subsidiary - - 141
Service fees, charges and other operating 792 807 246
-------- -------- ------
Total other income 1,188 1,134 578
General, administrative and other expense
Employee compensation and benefits 2,309 2,165 1,203
Occupancy and equipment 484 527 284
Federal deposit insurance premiums 42 50 684
Amortization of goodwill 27 27 7
Data processing 127 224 282
Other operating 1,104 1,010 410
------- ------- ------
Total general, administrative and other expense 4,093 4,003 2,870
------- ------- -----
Earnings before income taxes 2,086 2,140 149
Income taxes
Current 819 893 124
Deferred 14 (63) (48)
--------- --------- -------
Total income taxes 833 830 76
-------- -------- -------
NET EARNINGS $ 1,253 $ 1,310 $ 73
======= ======= =======
EARNINGS PER SHARE
Basic $1.13 $1.20 N/A
==== ==== ===
Diluted $1.12 $1.18 N/A
==== ==== ===
The accompanying notes are an integral part of these statements.
River Valley Bancorp
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31,
(In thousands)
1998 1997 1996
Net earnings $1,253 $1,310 $ 73
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period 19 15 (69)
Reclassification adjustment for realized losses
included in earnings, net of tax of $2 and $3 for the
years ended December 31, 1997 and 1996 -- 4 6
------ ------ ------
Comprehensive income $1,272 $1,329 $ 10
====== ====== ======
The accompanying notes are an integral part of these statements.
River Valley Bancorp
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996 (In thousands,
except share data)
Unrealized
Shares gains (losses)
acquired on securities
Additional by stock designated
Common paid-in benefit as available Retained
stock capital plans for sale earnings Total
Balance at January 1, 1996 $ - $ - $ - $ 12 $6,562 $ 6,574
Reorganization to common stock form and
issuance of shares in connection therewith - net - 11,173 (952) - - 10,221
Net earnings for the year ended December 31, 1996 - - - - 73 73
Unrealized losses on securities designated as
available for sale, net of related tax effects - - - (63) - (63)
--- ------- ------ ----- ----- ---------
Balance at December 31, 1996 - 11,173 (952) (51) 6,635 16,805
Purchase of shares for stock benefit plans - - (174) - - (174)
Amortization expense related to stock benefit plans - 56 121 - 7 184
Cash dividends of $0.13 per common share - - - - (155) (155)
Net earnings for the year ended December 31, 1997 - - - - 1,310 1,310
Unrealized gains on securities designated as
available for sale, net of related tax effects - - - 19 - 19
--- ------- ------ ---- ----- ---------
Balance at December 31, 1997 - 11,229 (1,005) (32) 7,797 17,989
Purchase of shares - (270) - - - (270)
Issuance of shares under stock option plan - 18 - - - 18
Purchase of shares for stock benefit plans - - (428) - - (428)
Amortization expense related to stock benefit plans - 59 234 - - 293
Cash dividends of $0.22 per common share - - - - (261) (261)
Net earnings for the year ended December 31, 1998 - - - - 1,253 1,253
Unrealized gains on securities designated as
available for sale, net of related tax effects - - - 19 - 19
-- ------- ------ ---- ----- ---------
Balance at December 31, 1998 $- $11,036 $(1,199) $ (13) $8,789 $18,613
== ====== ====== ==== ===== ======
The accompanying notes are an integral part of these statements.
River Valley Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31,
(In thousands)
1998 1997 1996
Cash flows from operating activities:
Net earnings for the year $ 1,253 $ 1,310 $ 73
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Amortization of premiums and discounts on
investments, mortgage-backed and related securities - net 39 1 2
Loss on sale of investment, mortgage-backed and related securities
designated as available for sale - 6 9
Depreciation and amortization 223 223 91
Gain on sale of office premises (57) - -
Gain on sale of Hanover branch and related deposits - (206) -
Gain on sale of subsidiary - - (141)
Loans originated for sale in the secondary market (20,042) (6,538) (1,076)
Proceeds from sale of loans in the secondary market 17,194 6,996 -
Gain on sale of loans in the secondary market (169) (66) -
Amortization of deferred loan origination costs 99 73 83
Provision for losses on loans 275 304 22
Amortization of goodwill 27 27 7
Amortization expense of stock benefit plans 293 184 -
Increase (decrease) in cash, net of acquisition of Citizens National Bank in
1996, due to changes in:
Accrued interest receivable on loans (71) (97) 29
Accrued interest receivable on mortgage-backed and related securities 77 (39) (1)
Accrued interest receivable on investments and interest-earning deposits 36 106 100
Prepaid expenses and other assets (232) 28 262
Accrued interest payable 5 184 (41)
Other liabilities (467) (47) 413
Income taxes
Current (410) 9 22
Deferred 14 (63) (48)
---------- --------- ---------
Net cash provided by (used in) operating activities (1,913) 2,395 (194)
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 3,000 2,000 3,500
Proceeds from sales of investment securities designated as
available for sale - 2,698 2,153
Purchase of mortgage-backed and related securities designated as available
for sale - (1,350) (729)
Principal repayments on mortgage-backed and related securities 2,970 3,072 2,110
Proceeds from sale of mortgage-backed and related securities
designated as available for sale - 2,146 -
Loan principal repayments 51,624 43,220 17,114
Loan disbursements (49,479) (47,079) (17,572)
Additions to real estate acquired through foreclosure - (1) -
Proceeds from sale of office premises and equipment 67 405 -
Purchase of office premises and equipment (191) (430) (9)
(Increase) decrease in certificates of deposit in other financial institutions 897 (797) 200
Purchase of Federal Reserve Bank stock - (64) -
Proceeds from sale of Federal Reserve Bank stock - 144 -
Purchase of single premium life insurance - - (188)
Increase in cash surrender value of life insurance (42) (29) (24)
Proceeds from sale of subsidiary - net - - 282
Acquisition of Citizens National Bank common stock - net - - 2,018
------- ------- -------
Net cash provided by investing activities 8,846 3,935 8,855
------- ------- -------
Net cash provided by operating and investing
activities (subtotal carried forward) 6,933 6,330 8,661
------- ------- -------
River Valley Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended December 31,
(In thousands)
1998 1997 1996
Net cash provided by operating and investing
activities (subtotal brought forward) $ 6,933 $ 6,330 $ 8,661
Cash flows provided by (used in) financing activities:
Increase (decrease) in deposit accounts 3,196 (3,913) (6,222)
Decrease in deposit accounts due to the sale of a branch - (6,788) -
Proceeds from Federal Home Loan Bank advances 6,000 7,000 -
Repayment of Federal Home Loan Bank advances (8,000) (6,100) (6,371)
Proceeds from other borrowed money 270 - -
Advances by borrowers for taxes and insurance (19) (17) 7
Purchase of shares (270) - -
Stock options exercised 18 - -
Proceeds from issuance of common stock - - 11,173
Acquisition of common stock for stock benefit plans (428) (174) (952)
Dividends on common stock (261) (155) -
-------- -------- ------
Net cash provided by (used in) financing activities 506 (10,147) (2,365)
--------- ------ -------
Net increase (decrease) in cash and cash equivalents 7,439 (3,817) 6,296
Cash and cash equivalents at beginning of year 4,868 8,685 2,389
------- ------- -------
Cash and cash equivalents at end of year $12,307 $ 4,868 $ 8,685
====== ======= =======
Supplemental disclosure of cash flow information: Cash paid during the year for:
Federal income taxes $ 1,014 $ 618 $ 84
======= ======== =========
Interest on deposits and borrowings $ 4,837 $ 4,865 $ 3,201
======= ======= =======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ - $ 81 $ -
======= ========= ======
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 19 $ 19 $ (63)
========= ========= =========
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 170 $ 61 $ -
======== ========= ======
Liabilities assumed and cash paid in acquisition of
Citizens National Bank $ - $ - $64,055
Less: Fair value of assets received - - 63,783
------- ------- ------
Amount assigned to goodwill $ - $ - $ 272
======= ======== ========
The accompanying notes are an integral part of these statements.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On March 5, 1996, the Board of Directors of River Valley Financial Bank
(formerly Madison First Federal Savings and Loan Association; hereinafter
"River Valley Financial" or the "Bank") adopted an overall plan of
conversion and reorganization (the "Plan") whereby the Bank would convert to
the stock form of ownership, through the issuance of all of the Bank's
outstanding stock to a newly formed holding company, River Valley Bancorp
(the "Corporation"). Pursuant to the Plan, the Corporation offered for sale
up to 1,190,250 common shares to certain depositors of the Bank and members
of the community. The conversion was completed on December 20, 1996, and
resulted in the issuance of 1,190,250 common shares of the Corporation
which, after consideration of offering and acquisition expenses totaling
approximately $730,000, and shares purchased by the ESOP totaling $952,000,
resulted in net capital proceeds of $10.2 million. In December 1996, the
Corporation utilized approximately $3.0 million of the net conversion
proceeds to purchase Citizens National Bank of Madison ("Citizens") in a
transaction accounted for using the purchase method of accounting. On
November 20, 1997, Citizens and River Valley Financial merged. Condensed
financial statements of the Corporation are presented in Note M.
The Corporation is a savings and loan holding company whose activities are
primarily limited to holding the stock of River Valley Financial. 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 Financial'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.
The consolidated financial information presented herein has been prepared in
accordance with generally accepted accounting principles ("GAAP") and
general accounting practices within the financial services industry. In
preparing financial statements in accordance with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from such
estimates.
The following is a summary of significant accounting policies, which have
been consistently applied in the preparation of the accompanying
consolidated financial statements.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its subsidiary, the Bank and its subsidiary, Madison First
Service Corporation ("First Service"). All significant intercompany balances
and transactions have been eliminated in the accompanying consolidated
financial statements.
2. Investment Securities and Mortgage-Backed and Related Securities
The Corporation accounts for investment securities and mortgage-backed and
related securities in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." SFAS No. 115 requires that investments be categorized as
held-to-maturity, trading, or available for sale. Securities classified as
held-to-maturity are carried at cost only if the Corporation has the
positive intent and ability to hold these securities to maturity. Trading
securities and securities available for sale are carried at fair value with
resulting unrealized gains or losses recorded to operations or shareholders'
equity, respectively. At December 31, 1998 and 1997, the Corporation's
shareholders' equity included unrealized losses on securities designated as
available for sale, net of related tax effects, of $13,000 and $32,000,
respectively. Realized gains and losses on sales of investment and
mortgage-backed and related securities are recognized using the specific
identification method.
3. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for unamortized yield adjustments, including deferred loan
origination costs and capitalized mortgage servicing rights, and the
allowance for loan losses. The yield adjustments are amortized and accreted
to operations using the interest method over the average life of the
underlying loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status.
Loans held for sale are carried at the lower of cost (less principal
payments received) or fair value (market value), calculated on an aggregate
basis. At December 31, 1998 and 1997, loans held for sale were carried at
cost, which approximated fair value.
At December 31, 1998 and 1997, the Bank was servicing approximately $34.3
million and $28.6 million, respectively, of mortgage loans that have been
sold to the Federal Home Loan Mortgage Corporation.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3. Loans Receivable (continued)
The Bank retains the servicing on loans sold and agrees to remit to the
investor loan principal and interest at agreed-upon rates. The Bank accounts
for mortgage servicing rights pursuant to the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which requires that the Bank recognize as
separate assets, rights to service mortgage loans for others, regardless of
how those servicing rights are acquired. An institution that acquires
mortgage servicing rights through either the purchase or origination of
mortgage loans and sells those loans with servicing rights retained would
allocate some of the cost of the loans to the mortgage servicing rights.
SFAS No. 125 requires that securitization of mortgage loans be accounted for
as sales of mortgage loans and acquisitions of mortgage-backed securities.
Additionally, SFAS No. 125 requires that capitalized mortgage servicing
rights and capitalized excess servicing receivables be assessed for
impairment. Impairment is measured based on fair value.
The mortgage servicing rights recorded by the Bank, calculated in accordance
with the provisions of SFAS No. 125, were segregated into pools for
valuation purposes, using as pooling criteria the loan term and coupon rate.
Once pooled, each grouping of loans was evaluated on a discounted earnings
basis to determine the present value of future earnings that a purchaser
could expect to realize from each portfolio. Earnings were projected from a
variety of sources including loan servicing fees, interest earned on float,
net interest earned on escrows, miscellaneous income, and costs to service
the loans. The present value of future earnings is the "economic" value for
the pool, i.e., the net realizable present value to an acquirer of the
acquired servicing.
The Bank recorded amortization related to mortgage servicing rights totaling
approximately $34,000 and $18,000 for the years ended December 31, 1998 and
1997, respectively. The Bank had a valuation allowance for mortgage
servicing rights totaling $27,000 at December 31, 1998. The Bank had no
valuation allowance at December 31, 1997. At December 31, 1998 and 1997, the
fair value of the Corporation's mortgage servicing rights totaled
approximately $222,000 and $113,000, respectively.
4. Loan Origination Fees and Costs
The Corporation accounts for loan origination fees and costs in accordance
with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases."
Pursuant to the provisions of SFAS No. 91, all origination fees received,
net of certain direct origination costs, are deferred on a loan-by-loan
basis and amortized to interest income using the interest method, giving
effect to actual loan prepayments. Additionally, SFAS No. 91 generally
limits the definition of loan origination costs to the direct costs
attributable to originating a loan, i.e., principally actual personnel
costs.
Fees received for loan commitments that are expected to be drawn upon, based
on the Corporation's experience with similar commitments, are deferred and
amortized over the life of the related loan using the interest method. Fees
for other loan commitments are deferred and amortized over the loan
commitment period on a straight-line basis.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Losses on Loans
It is the Corporation's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, trends in the level of
delinquent and specific problem loans, loan concentrations to single
borrowers, changes in the composition of the loan portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral and current and anticipated economic
conditions in its primary lending areas. When the collection of a loan
becomes doubtful, or otherwise troubled, the Corporation records a loan loss
provision equal to the difference between the fair value of the property
securing the loan and the loan's carrying value. Such provision is based
upon management's estimate of the fair value of the underlying collateral,
taking into consideration the current and currently anticipated future
operating or sales conditions. As a result, such estimates are particularly
susceptible to changes that could result in a material adjustment to results
of operations in the near term.
The Corporation accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 requires
that impaired loans be measured based upon the present value of expected
future cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loans observable market price or fair value of the
collateral.
Under SFAS No. 114, a loan is defined as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Corporation
considers its investment in one-to-four family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Corporation's investment in nonresidential, commercial, and multifamily
residential real estate loans, and its evaluation of impairment thereof,
such loans are generally collateral dependent and, as a result, are carried
as a practical expedient at the lower of cost or fair value.
It is generally the Corporation's policy to charge off unsecured credits
that are more than ninety days delinquent. Similarly, collateral dependent
loans which are more than ninety days delinquent are considered to
constitute more than a minimum delay in repayment and are evaluated for
impairment under SFAS No. 114 at that time.
At December 31, 1998 and 1997, the Corporation had approximately $1.3
million and $420,000 of loans defined as impaired under SFAS No. 114.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
6. Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are
recorded if the property's fair value subsequently declines below the value
determined at the recording date. In determining the lower of cost or fair
value at acquisition, costs relating to development and improvement of
property are considered. Costs relating to holding real estate acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
7. Office Premises and Equipment
Depreciation of office premises and equipment is computed using the
straight-line method over the estimated useful lives of the assets,
estimated to be thirty to forty-five years for buildings, three to ten years
for furniture and equipment, and three years for automobiles.
8. Amortization of Goodwill
Amortization of goodwill arising from the Corporation's acquisition of 95.6%
of the common stock of Citizens is provided using the straight-line method
over an estimated life of ten years. During 1998, goodwill was reduced by
approximately $168,000 for the favorable resolution of certain
pre-acquisition contingencies, and for the purchase of the remaining 4.4%
minority interest shares of Citizens at a price below the value initially
assigned at acquisition.
Management periodically evaluates the carrying value of goodwill in relation
to the continuing earnings capacity of the acquired assets and assumed
liabilities.
9. Income Taxes
The Corporation accounts for income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes." Pursuant to the provisions of SFAS No. 109, a
deferred tax liability or deferred tax asset is computed by applying the
current statutory tax rates to net taxable or deductible temporary
differences between the tax basis of an asset or liability and its reported
amount in the consolidated financial statements that will result in net
taxable or deductible amounts in future periods. Deferred tax assets are
recorded only to the extent that the amount of net deductible temporary
differences or carryforward attributes may be utilized against current
period earnings, carried back against prior years' earnings, offset against
taxable temporary differences reversing in future periods, or utilized to
the extent of management's estimate of future taxable income. A valuation
allowance is provided for deferred tax assets to the extent that the value
of net deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
The Corporation's principal temporary differences between pretax financial
income and taxable income result primarily from different methods of
accounting for deferred loan origination costs, the allowance for valuation
decline on mortgage-related securities, the general loan loss allowance, the
percentage of earnings bad debt deduction and certain components of
retirement expense. A temporary difference is also recognized for
depreciation expense computed using accelerated methods for federal income
tax purposes.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. Retirement and Incentive Plans
The Bank's employees are covered by a defined benefit non-contributory
pension plan administered by the Pentegra Group, previously the Financial
Institutions Retirement Fund (the "Fund"). Contributions are determined to
cover the normal cost of pension benefits, the one-year cost of the
pre-retirement death and disability benefits and the amortization of any
unfunded accrued liabilities.
The Fund had previously advised the Bank that the pension plan meets the
criteria of a multi-employer pension plan as defined in SFAS No. 87,
"Employers' Accounting for Pensions." In accordance with SFAS No. 87, net
pension cost is recognized for any required contribution for the period. A
liability is recognized for any contributions due and unpaid. Because of the
continuing overfunded status of the Fund, no contributions were made to the
pension plan during the years ended December 31, 1998, 1997, and 1996. The
provision for pension expense was computed by the Fund's actuaries utilizing
the projected unit credit cost method and assuming a 7.5% return on Fund
assets.
During 1997, the Corporation implemented a contributory 401(k) plan covering
all employees who have attained the age of 21 and have completed one year of
service. Contributions to the plan are voluntary and are subject to matching
by the employer. The Bank's contributions to the plan totaled approximately
$28,000 and $48,000 for the years ended December 31, 1998 and 1997,
respectively.
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. Costs of the purchase of the single premium life
insurance policies amounted to $668,000. Expense recognized under the
supplemental retirement plan totaled approximately $22,000 for the year
ended December 31, 1998, and $3,000 for each of the years ended December 31,
1997 and 1996.
In conjunction with its reorganization to stock form, the Corporation
implemented an Employee Stock Ownership Plan ("ESOP"). The ESOP provides
retirement benefits for substantially all employees who have completed one
year of service and have attained the age of 21. The Corporation accounts
for the ESOP in accordance with Statement of Position (SOP) 93-6,
"Employers' Accounting for Employee Stock Ownership Plans." SOP 93-6
requires the measure of compensation expense recorded by employers to equal
the fair value of ESOP shares allocated to participants during the year.
Expense recognized related to the ESOP totaled approximately $200,000,
$200,000 and $65,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
The Corporation also has a Recognition and Retention Plan ("RRP") which
provides for the issuance and grant of 47,610 shares to members of the Board
of Directors and management. During 1998 and 1997, the RRP purchased 32,316
shares of the Corporation's common stock in the open market. At December 31,
1998, 32,316 shares had been granted. Expense recognized under the RRP plan
totaled approximately $113,000 and $61,000 for the years ended December 31,
1998 and 1997, respectively. Common stock granted under the RRP vests
ratably over a five-year period, commencing with the date of the award.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ESOP that are unallocated
and not committed to be released. Weighted-average common shares
outstanding, which gives effect to 83,124 and 95,220 unallocated ESOP
shares, totaled 1,105,930 and 1,095,030 for the years ended December 31,
1998 and 1997, respectively.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
1,121,986 and 1,106,858 for the years ended December 31, 1998 and 1997,
respectively. There were 16,056 and 11,828 incremental shares related to the
assumed exercise of stock options included in the computation of diluted
earnings per share for the years ended December 31, 1998 and 1997,
respectively.
The provisions of SFAS No. 128, "Earnings Per Share," were not applicable
for the year ended December 31, 1996, as the Corporation completed its
conversion to stock form in December 1996.
12. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes
cash and due from banks, federal funds sold, and interest-earning deposits
in other financial institutions with original maturities of less than ninety
days.
13. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1998
consolidated financial statement presentation.
14. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of the fair value of financial instruments, both assets
and liabilities whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from the disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Corporation.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
14. Fair Value of Financial Instruments (continued)
Cash and cash equivalents and certificates of deposit in other
financial institutions: The carrying amounts presented in the
consolidated statements of financial condition for cash and
cash equivalents and certificates of deposit in other
financial institutions are deemed to approximate fair value.
Investment and mortgage-backed and related securities: Fair
values for investment and mortgage-backed and related
securities are based on quoted market prices and dealer
quotes.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one-to-four
family residential, multi-family residential and
nonresidential real estate. These categories were further
delineated into fixed-rate and adjustable-rate loans. The fair
values for the resultant categories were computed via
discounted cash flow analysis, using current interest rates
offered for loans with similar terms to borrowers of similar
credit quality. For loans on deposit accounts, and consumer
and other loans, fair values were deemed to equal the historic
carrying values.
Federal Home Loan Bank stock: The carrying amount presented in
the consolidated statements of financial condition is deemed
to approximate fair value.
Deposits: The fair values of deposits with no stated maturity,
such as NOW and super NOW accounts, passbook accounts and
money market demand accounts are deemed to approximate the
amount payable on demand as of December 31, 1998 and 1997. The
fair values for fixed-rate certificates of deposit are based
on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered
for deposits of similar remaining maturities.
Advances from Federal Home Loan Bank: The fair value of these
advances is estimated using the rates currently offered for
similar advances of similar remaining maturities or, when
available, quoted market prices.
Advances by borrowers for taxes and insurance: The carrying
amount of advances by borrowers for taxes and insurance is
deemed to approximate fair value.
Other borrowed money: The carrying value for these variable
rate borrowings is deemed to approximate fair value.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
14. Fair Value of Financial Instruments (continued)
Commitments to extend credit: 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, 1998 and 1997, was not material.
Based on the foregoing methods and assumptions, the carrying
value and fair value of the Corporation's financial
instruments are as follows at December 31:
1998 1997
Carrying Fair Carrying Fair
value value value value
(In thousands)
Financial assets
Cash and cash equivalents $ 12,307 $ 12,307 $ 4,868 $ 4,868
Certificates of deposit in other financial institutions - - 897 897
Investment securities designated as available for sale 283 283 772 772
Investment securities held to maturity 1,000 980 3,500 3,444
Mortgage-backed and related securities designated
as available for sale 2,796 2,796 3,604 3,604
Mortgage-backed and related securities held to
maturity 3,190 3,220 5,374 5,432
Loans receivable - net 112,385 120,163 111,887 114,560
Federal Home Loan Bank stock 943 943 943 943
---------- ---------- ---------- ----------
$132,904 $140,692 $131,845 $134,520
======= ======= ======= =======
Financial liabilities
Deposits $118,151 $118,496 $114,955 $113,974
Advances from the Federal Home Loan Bank - - 2,000 2,000
Other borrowed money 270 270 - -
Advances by borrowers for taxes and insurance 34 34 53 53
----------- ----------- ----------- -----------
$118,455 $118,800 $117,008 $116,027
======= ======= ======= =======
15. Comprehensive Income
The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income," as
of January 1, 1998. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
general-purpose financial statements. It requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is presented
with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital. Financial statements for earlier periods have
been restated for comparative purposes. Accumulated comprehensive income
consists solely of the change in unrealized gains/losses on securities
designated as available for sale in accordance with SFAS No. 115.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Amortized cost and estimated fair values of investment securities at
December 31 are summarized as follows:
1998 1997
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
Held to maturity:
U.S. Government agency obligations $1,000 $ 980 $3,500 $3,444
Available for sale:
U.S. Government agency obligations - - 498 494
Municipal obligations 276 283 276 278
------ ------ ------ ------
276 283 774 772
------ ------ ------ ------
Total investment securities $1,276 $1,263 $4,274 $4,216
===== ===== ===== =====
At December 31, 1998 and 1997, the cost carrying value of the Corporation's
investment securities held to maturity exceeded fair value by $20,000 and
$56,000, respectively, comprised solely of gross unrealized losses.
The amortized cost and estimated fair value of U. S. Government agency
obligations designated as held to maturity at December 31 by term to
maturity are shown below. Maturity dates do not reflect effects of call
provisions inherent in the bonds' contractual terms.
1998 1997
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
Due in one year or less $1,000 $980 $2,500 $2,492
Due in one to three years - - 1,000 952
----- -- ----- ------
$1,000 $980 $3,500 $3,444
===== === ===== =====
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost and estimated fair value of U.S. Government agency
obligations and municipal obligations designated as available for sale at
December 31, 1998 and 1997, by term to maturity are shown below.
1998 1997
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
Due in three to five years $100 $102 $498 $494
Due in five to ten years 176 181 276 278
--- --- --- ---
$276 $283 $774 $772
=== === === ===
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed and related securities designated
as held to maturity at December 31, 1998 and 1997 are shown below.
1998
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Federal Home Loan Mortgage Corporation
participation certificates $1,343 $- $ (2) $1,341
Government National Mortgage Association
participation certificates 1,190 22 - 1,212
Federal National Mortgage Association
participation certificates 639 10 - 649
Interest-only certificates 18 - - 18
------- -- -- -------
$3,190 $ 32 $ (2) $3,220
===== ==== ===== =====
1997
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Federal Home Loan Mortgage Corporation
participation certificates $2,448 $ 6 $ (17) $2,437
Government National Mortgage Association
participation certificates 1,935 46 - 1,981
Federal National Mortgage Association
participation certificates 973 23 - 996
Interest-only certificates 18 - - 18
------- -- -- -------
$5,374 $ 75 $ (17) $5,432
===== ==== ==== =====
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost of mortgage-backed and related securities held to
maturity at December 31, 1998, by contractual terms to maturity are shown
below. Expected maturities will differ from contractual maturities because
borrowers may generally prepay obligations without prepayment penalties.
Amortized cost
(In thousands)
Due within one year $ 447
Due after one to three years 1,048
Due after three to five years 6
Due after ten to twenty years 987
Due after twenty years 702
------
$3,190
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed and related securities designated
as available for sale at December 31, 1998 and 1997 are shown below.
1998
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Federal Home Loan Mortgage Corporation
participation certificates $ 644 $ 7 $- $ 651
Government National Mortgage Association
participation certificates 277 1 (1) 277
Federal National Mortgage Association
participation certificates 1,275 3 (29) 1,249
Collateralized mortgage obligations 627 - (8) 619
------ -- ----- ------
$2,823 $ 11 $ (38) $2,796
===== ==== ==== =====
1997
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Federal Home Loan Mortgage Corporation
participation certificates $ 915 $ 11 $ (1) $ 925
Government National Mortgage Association
participation certificates 451 - (1) 450
Federal National Mortgage Association
participation certificates 1,657 4 (44) 1,617
Collateralized mortgage obligations 627 - (15) 612
------ -- --- ------
$3,650 $ 15 $(61) $3,604
===== ==== === =====
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost of mortgage-backed and related securities designated as
available for sale at December 31, 1998, by contractual terms to maturity
are shown below. Expected maturities will differ from contractual maturities
because borrowers may generally prepay obligations without prepayment
penalties.
Amortized cost
(In thousands)
Due after one to three years $ 13
Due after three to five years 370
Due after five to ten years 213
Due after ten to twenty years 783
Due after twenty years 1,444
-----
$2,823
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at December 31 is as follows:
1998 1997
(In thousands)
Residential real estate
One-to-four family residential $ 62,206 $ 71,388
Multi-family residential 1,775 2,781
Construction 8,126 3,652
Nonresidential real estate and land 13,904 14,703
Commercial 12,461 4,871
Consumer and other 12,640 14,981
Deferred loan origination costs 200 202
---------- ----------
111,312 112,578
Less:
Undisbursed portion of loans in process 1,151 99
Allowance for loan losses 1,477 1,276
--------- ---------
$108,684 $111,203
As depicted above, the Bank's lending efforts have historically focused on
one-to-four family residential real estate loans, multi-family residential
real estate loans and construction real estate loans, which comprise
approximately $71.0 million, or 65%, of the total loan portfolio at December
31, 1998 and approximately $77.7 million, or 70%, of the total loan
portfolio at December 31, 1997. Generally, such loans have been underwritten
on the basis of no more than an 80% loan-to-value ratio, which has
historically provided the Bank with adequate collateral coverage in the
event of default. Nevertheless, the Bank, as with any lending institution,
is subject to the risk that residential real estate values could deteriorate
in its primary lending areas of southeastern Indiana and northwestern
Kentucky, thereby impairing collateral values. However, management is of the
belief that residential real estate values in the Bank's primary lending
areas are presently stable.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE C - LOANS RECEIVABLE (continued)
In the ordinary course of business, the Bank has granted loans to some of
its officers, directors and their related business interests. Related party
loans are made on the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with unrelated
persons and do not involve more than the normal risk of collectibility. The
aggregate dollar amount of loans outstanding to related parties was
approximately $540,000 and $462,000 at December 31, 1998 and 1997,
respectively.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended December 31:
1998 1997 1996
(In thousands)
Balance at beginning of year $1,276 $1,190 $ 407
Provision for losses on loans 275 304 22
Allowance for loan losses of Citizens - - 764
Charge-offs of loans (223) (269) (3)
Recoveries of loan losses 149 51 -
------ ------- ----
Balance at end of year $1,477 $1,276 $1,190
===== ===== =====
As of December 31, 1998, the Corporation's allowance for loan losses was
comprised of a general loan loss allowance of approximately $1.4 million,
which is includible as a component of regulatory risk-based capital, and a
specific loan loss allowance of approximately $122,000.
The Corporation had nonperforming loans totaling $1.9 million, $718,000 and
$819,000 at December 31, 1998, 1997 and 1996, respectively.
The Corporation had no material loss of interest income related to such
nonperforming loans during the years ended December 31, 1998, 1997, and
1996.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at December 31 are comprised of the following:
1998 1997
(In thousands)
Land and improvements $ 675 $ 662
Office buildings and improvements 1,758 1,750
Leasehold improvements 117 115
Furniture, fixtures and equipment 2,113 1,943
Automobiles 18 32
------- -------
4,681 4,502
Less accumulated depreciation 2,658 2,437
----- -----
$2,023 $2,065
===== =====
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE F - DEPOSITS
Deposits consist of the following major classifications at December 31:
Deposit type and 1998 1997
weighted-average interest rate Amount % Amount %
(Dollars in thousands)
Non-interest bearing accounts $ 8,365 7.0% $ 5,628 4.9%
NOW accounts
1998 - 2.60% 14,417 12.2
1997 - 2.57% 15,424 13.4
Money market demand accounts
1998 - 2.92% 6,984 5.9
1997 - 2.93% 8,257 7.2
Savings accounts
1998 - 3.70% 22,378 19.0
1997 - 3.42% 21,411 18.7
------------ --------- -------- ------
Total demand, transaction and
savings deposits 52,144 44.1 50,720 44.2
Certificates of deposit
3.00 - 4.99%
4.78% in 1998 23,200 19.6
4.82% in 1997 13,016 11.3
5.00 - 5.99%
5.34% in 1998 31,364 26.6
5.40% in 1997 36,010 31.3
6.00 - 6.99%
6.18% in 1998 11,229 9.5
6.22% in 1997 12,312 10.7
7.00 - 7.99%
7.86% in 1998 214 .2
7.50% in 1997 2,896 2.5
8.00 - 8.99%
8.25% in 1997 - - 1 -
--------- ------- -------- ------
Total certificates of deposit 66,007 55.9 64,235 55.8
-------- ------ -------- ------
Total deposit accounts $118,151 100.0% $114,955 100.0%
======= ======= ======= ======
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 totaled approximately $15.1 million and $11.0 million at
December 31, 1998 and 1997, respectively.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE F - DEPOSITS (continued)
Interest expense on deposits for the years ended December 31 is summarized
as follows:
1998 1997 1996
(In thousands)
Savings $ 768 $ 708 $ 539
NOW accounts 344 435 206
Money market deposit accounts 211 480 234
Certificates of deposit 3,359 3,291 2,370
----- ----- -----
$4,682 $4,914 $3,349
===== ===== =====
Maturities of outstanding certificates of deposit are summarized as follows
at December 31:
1998 1997
(In thousands)
Less than one year $53,931 $45,842
One year to three years 10,880 16,970
More than three years 1,196 1,423
------- -------
$66,007 $64,235
====== ======
As a result of the Corporation's acquisition of Citizen's, regulatory
authorities required the sale of one of the Bank's retail branches. A
definitive agreement was reached in 1996, which provided for the purchaser
to acquire the branch facility for a price approximating book value, while
assuming the branch deposits, which totaled $6.8 million, for a premium on
core deposits. The transaction was consummated in 1997 and resulted in an
approximate after-tax gain of $125,000.
NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK
Federal Home Loan Bank advances, collateralized at December 31, 1997, by
certain residential mortgage loans totaling $3.2 million and the Bank's
investment in Federal Home Loan Bank stock, are shown below:
Interest Maturing year
rate ending in 1997
(In thousands)
6.12% 1998 $2,000
======
NOTE H - OTHER BORROWED MONEY
Other borrowed money consisted of a variable-rate two-year line of credit
advance, bearing interest at December 31, 1998 of 6.63%, scheduled to mature
in November 2000. The advance was collateralized by a pledge of the
Corporation's stock of River Valley Financial.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE I - INCOME TAXES
The provision for income taxes on earnings differs from that computed at the
expected statutory corporate tax rate at December 31 as follows:
1998 1997 1996
(Dollars in thousands)
Federal income taxes computed at
expected statutory rate $709 $728 $51
State taxes, net of federal benefits 122 125 9
Increase (decrease) in taxes resulting from:
Amortization of goodwill 9 9 2
Other (primarily nontaxable income in 1997) (7) (32) 14
----- ---- --
Income tax provision per consolidated
financial statements $833 $830 $76
=== === ==
Effective tax rate 39.9% 38.8% 51.0%
==== ==== ====
The composition of the Corporation's net deferred tax asset at December 31
is as follows:
Taxes (payable) refundable on temporary 1998 1997
differences at statutory rate: (In thousands)
Deferred tax liabilities:
Deferred loan origination costs $ (68) $ (69)
Difference between book and tax depreciation (93) (63)
Percentage of earnings bad debt deduction (210) (248)
Mortgage servicing rights (85) (38)
------- -------
Total deferred tax liabilities (456) (418)
Deferred tax assets:
Deferred compensation 97 59
Allowance for valuation decline on
mortgage-related securities 90 90
General loan loss allowance 628 542
Benefit plan expense 65 62
Unrealized loss on securities designated as
available for sale 7 16
Purchase accounting adjustments related to asset
valuation adjustments 227 329
Other - 1
------- --------
Total deferred tax assets 1,114 1,099
----- -----
Net deferred tax asset $ 658 $ 681
====== ======
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE I - INCOME TAXES (continued)
Madison First Federal was allowed a special bad debt deduction based on a
percentage of earnings generally limited to 8% of otherwise taxable income
or the amount of qualifying and nonqualifying loans outstanding, and subject
to certain limitations based on aggregate loans and savings account balances
at the end of the year. Retained earnings at December 31, 1998, includes
approximately $2.4 million for which federal income taxes have not been
provided. If the amounts that qualify as deductions for federal income tax
purposes are later used for purposes other than for bad debt losses,
including distributions in liquidation, such distributions will be subject
to federal income taxes at the then current corporate income tax rate. The
approximate amount of unrecognized deferred tax liability relating to the
cumulative bad debt deduction was approximately $705,000 at December 31,
1998. See Note O for additional information regarding future percentage of
earnings bad debt deductions.
NOTE J - LOAN COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers
including commitments to extend credit. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated statements of financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At December 31, 1998, the Bank had outstanding commitments of approximately
$1.4 million to originate residential one-to-four family variable-rate real
estate loans at interest rates ranging from 7.0% to 7.5%. Additionally, the
Bank had commitments to originate loans secured by other real estate
totaling $1.4 million as of December 31, 1998. The Bank also had unused
lines of credit under home equity loans and commercial loans of
approximately $2.1 million and $3.8 million, respectively, at December 31,
1998, and standby letters of credit totaling $97,000 at that date. In the
opinion of management, all loan commitments equaled or exceeded prevalent
market interest rates as of December 31, 1998, and such commitments have
been underwritten on the same basis as that of the existing loan portfolio.
Management believes that all loan commitments are able to be funded through
cash flows from operations and existing excess liquidity. Fees received in
connection with these commitments have not been recognized in earnings.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE J - LOAN COMMITMENTS (continued)
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 may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Bank, upon extension
of credit, is based on management's credit evaluation of the counterparty.
Collateral on loans may vary but the preponderance of loans granted
generally include a mortgage interest in real estate as security.
NOTE K - LEASES
In connection with the acquisition of Citizens, the Corporation assumed a
lease of branch banking facilities. The lease of the banking facility in the
Wal-Mart Supercenter in Madison requires the Corporation to make payments of
approximately $23,000 in 1999. The original lease expires in September 1999,
but does contain two renewable five year options at a maximum lease payment
of approximately $29,000 per year.
NOTE L - STOCK OPTION PLAN
In June 1997, the Corporation adopted the 1997 Stock Option Plan that
provides for the issuance of 119,025 shares of common stock. Options to
purchase 117,648 shares were granted during 1997 at an exercise price equal
to the fair value at the date of grant.
In 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation
cost at the grant date based on the fair value of the award. Compensation is
then recognized over the service period, which is usually the vesting
period. Alternatively, SFAS No. 123 permits entities to continue to account
for stock options and similar equity instruments under Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities that continue to account for stock options using APB Opinion No. 25
are required to make pro forma disclosures of net earnings and earnings per
share, as if the fair value-based method of accounting defined in SFAS No.
123 had been applied.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE L - STOCK OPTION PLAN (continued)
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plan. Accordingly, no compensation cost has
been recognized for the plan. Had compensation cost for the Corporation's
stock option plan been determined based on the fair value at the grant dates
for awards under the plan consistent with the accounting method utilized in
SFAS No. 123, the Corporation's net earnings and earnings per share would
have been reduced to the pro forma amounts indicated below:
1998 1997
Net earnings (in thousands) As reported $1,253 $1,310
===== =====
Pro-forma $1,253 $1,269
===== =====
Earnings per share
Basic As reported $1.13 $1.20
==== ====
Pro-forma $1.13 $1.16
==== ====
Diluted As reported $1.12 $1.18
==== ====
Pro-forma $1.12 $1.15
==== ====
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in fiscal 1997: dividend yield
of 1.013%, expected volatility of 10.0%, a risk-free interest rate of 5.5%
and expected lives of ten years.
A summary of the status of the Corporation's stock option plan as of
December 31, 1998 and 1997, and changes during the periods then ended is
presented below:
1998 1997
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
Outstanding at beginning of year 105,149 $14.81 - $ -
Granted - - 117,648 14.81
Exercised 1,190 14.78 - -
Forfeited - - 12,499 14.81
--------- ------ --------- -----
Outstanding at end of year 103,959 $14.81 105,149 $14.81
======= ===== ======= =====
Options exercisable at year-end 19,834 -
======== ========
Weighted-average fair value of
options granted during the year N/A $4.85
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE L - STOCK OPTION PLAN (continued)
The following information applies to options outstanding at December 31,
1998:
Number outstanding 103,959
Range of exercise prices $14.78 - $17.875
Weighted-average exercise price $14.81
Weighted-average remaining contractual life 8.5 years
NOTE M - CONDENSED FINANCIAL STATEMENTS OF RIVER VALLEY BANCORP
The following condensed financial statements summarize the financial
position of River Valley Bancorp at December 31, 1998 and 1997, and the
results of its operations and its cash flows for the periods ended December
31, 1998, 1997 and 1996.
River Valley Bancorp
STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands)
ASSETS 1998 1997
Cash and interest-earning deposits $ 198 $ 374
Investment in River Valley Financial Bank 18,788 17,744
Prepaid expenses and other assets 84 65
-------- --------
Total assets $ 19,070 $ 18,183
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other borrowed money $ 270 $ --
Other liabilities 187 194
-------- --------
Total liabilities 457 194
Shareholders' equity
Preferred stock -- --
Common stock -- --
Additional paid in capital 11,036 11,229
Retained earnings 8,789 7,797
Shares acquired by stock benefit plans (1,199) (1,005)
Unrealized losses on securities designated as available
for sale, net of related tax effects (13) (32)
-------- --------
Total shareholders' equity 18,613 17,989
-------- --------
Total liabilities and shareholders' equity $ 19,070 $ 18,183
======== ========
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE M - CONDENSED FINANCIAL STATEMENTS OF RIVER VALLEY BANCORP (continued)
River Valley Bancorp
STATEMENTS OF EARNINGS
Periods ended December 31,
(In thousands)
1998 1997 1996
Revenue
Interest income $ 71 $ 81 $ --
Equity in earnings of subsidiaries 1,274 1,390 2
------ ------ ------
1,345 1,471 2
General, administrative and other expense 105 243 --
------ ------ ------
Earnings before income tax credits 1,240 1,228 2
Income tax credits 13 82 --
------ ------ ------
NET EARNINGS $1,253 $1,310 $ 2
====== ====== ======
River Valley Bancorp
STATEMENTS OF CASH FLOWS
Periods ended December 31,
(In thousands)
1998 1997 1996
Cash flows from operating activities:
Net earnings for the year $ 1,253 $ 1,310 $ 2
Undistributed net earnings of subsidiary (1,274) (1,390) (2)
Amortization expense of stock benefit plans 114 128 --
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (19) (65) --
Other liabilities (7) (109) 94
-------- -------- --------
Net cash provided by (used in) operating activities 67 (126) 94
Cash flows from financing activities:
Purchase of shares (270) -- --
Stock options exercised 18 -- --
Proceeds from other borrowed money 270 -- --
Proceeds from issuance of common stock -- -- 11,173
Acquisition of stock by stock benefit plans -- -- (952)
Acquisition of Citizens National Bank -- -- (4,588)
Purchase of shares in River Valley Financial -- -- (5,072)
Dividends paid on common stock (261) (155) --
-------- -------- --------
Net cash provided by (used in) financing activities (243) (155) 561
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (176) (281) 655
Cash and cash equivalents at beginning of year 374 655 --
-------- -------- --------
Cash and cash equivalents at end of year $ 198 $ 374 $ 655
======== ======== ========
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE N - REGULATORY CAPITAL
The Bank is subject to minimum regulatory capital standards promulgated by
the Office of Thrift Supervision (the "OTS"). Failure to meet minimum
capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, financial institutions must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors. The OTS's minimum capital standards generally require the
maintenance of regulatory capital sufficient to meet each of three tests,
hereinafter described as the tangible capital requirement, the core capital
requirement and the risk-based capital requirement. The tangible capital
requirement provides for minimum tangible capital (defined as shareholders'
equity less all intangible assets) equal to 1.5% of adjusted total assets.
The core capital requirement provides for minimum core capital (tangible
capital plus certain forms of supervisory goodwill and other qualifying
intangible assets) equal to 3.0% of adjusted total assets. An OTS proposal,
if adopted in present form, would increase the core capital requirement to a
range of 4.0% - 5.0% of adjusted total assets for substantially all savings
associations. Management anticipates no material change to the Bank's excess
regulatory capital position as a result of this proposed change in the
regulatory capital requirement. The risk-based capital requirement currently
provides for the maintenance of core capital plus general loss allowances
equal to 8.0% of risk-weighted assets. In computing risk-weighted assets,
the Bank multiplies the value of each asset on its statement of financial
condition by a defined risk-weighting factor, e.g., one-to-four family
residential loans carry a risk-weighted factor of 50%.
At December 31, 1998 and 1997, management believes that the Bank met all
capital adequacy requirements to which it was subject.
1998: To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible capital $18,729 13.5% *$2,079 *1.5% *$6,931 * 5.0%
Core capital $18,729 13.5% *$4,159 *3.0% *$8,318 * 6.0%
Risk-based capital $20,084 20.6% *$7,793 *8.0% *$9,741 *10.0%
* = Greater than or equal to
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE N - REGULATORY CAPITAL (continued)
1997: To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Tangible capital $17,566 12.9% *$2,047 *1.5% *$6,824 * 5.0%
Core capital $17,566 12.9% *$4,095 *3.0% *$8,189 * 6.0%
Risk-based capital $18,703 20.8% *$6,944 *8.0% *$8,680 * 10.0%
* = Greater than or equal to
At December 31, 1998, the Bank met all regulatory requirements for
classification as a "well-capitalized" institution. A "well-capitalized"
institution must have risk-based capital of 10.0%, and core capital of 5.0%.
The Bank's capital exceeded the minimum required amounts for classification
as a "well-capitalized" institution by $10.3 million and $10.4 million,
respectively.
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 takes
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 association 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 savings
association's net income for that year to date plus the savings
association's retained net income for the preceding two years. A savings
association must also file an application for approval of a proposed capital
distribution if, following the proposed distribution, the association would
not be at least adequately capitalized under the OTS prompt corrective
action regulations, or if the proposed distribution would violate a
prohibition contained in any applicable statute, regulation, or agreement
between the OTS or the FDIC.
NOTE O - LEGISLATIVE MATTERS
The deposit accounts of the Bank and of other savings associations are
insured by the FDIC through the Savings Association Insurance Fund ("SAIF").
The reserves of the SAIF were below the level required by law, because a
significant portion of the assessments paid into the fund were used to pay
the cost of prior thrift failures. The deposit accounts of commercial banks
are insured by the FDIC through the Bank Insurance Fund ("BIF"), except to
the extent such banks have acquired SAIF deposits. The reserves of the BIF
met the level required by law in May 1995. As a result of the respective
reserve levels of the funds, deposit insurance assessments paid by healthy
savings associations exceeded those paid by healthy commercial banks by
approximately $.19 per $100 in deposits in 1995. In 1996, no BIF assessments
were required for healthy commercial banks except for a $2,000 minimum fee.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE O - LEGISLATIVE MATTERS (continued)
In 1996, Congress enacted legislation to recapitalize the SAIF that provided
for a special assessment totaling $.657 per $100 of SAIF deposits held at
March 31, 1995, in order to increase SAIF reserves to the level required by
law. The Bank had $76.6 million in deposits at March 31, 1995, resulting in
an assessment of approximately $503,000, or $289,000 after tax, which was
charged to operations in 1996.
The 1996 law also provided for the merger of the SAIF and the BIF by 1999,
but not until such time as bank and thrift charters are combined. Although
Congress has not enacted legislation to combine bank and thrift charters,
any such legislation in the future could require the Bank to become a state
or national commercial bank and become subject to regulation by an agency
other than the OTS. In that event, the Bank's investment authority and the
ability of the Corporation to engage in diversified activities may be
limited or prohibited, and the profitability of the Corporation could be
adversely affected. Under separate legislation related to the
recapitalization plan, the Bank is required to recapture as taxable income
approximately $600,000 of its bad debt reserve, which represents the
post-1987 additions to the reserve, and will be unable to utilize the
percentage of earnings method to compute the reserve in the future. The Bank
has provided deferred taxes for this amount and will amortize the recapture
of the bad debt reserve over six years commencing in 1998.
NOTE P - CONVERSION TO STOCK FORM AND BUSINESS COMBINATION
On March 5, 1996, the Bank's Board of Directors adopted an overall plan of
conversion and reorganization (the "Plan") whereby the Bank would convert to
the stock form of ownership, through the issuance of all of the Bank's
outstanding stock to a newly formed holding company, River Valley Bancorp.
Pursuant to the Plan, the Bank offered for sale up to 1,190,250 common
shares to its depositors and members of the community. The offering was
completed in December 1996, resulting in net capital proceeds of $10.2
million.
At the date of the conversion, the Bank established a liquidation account in
an amount equal to retained earnings reflected in the statement of financial
condition used in the conversion offering circular. The liquidation account
will be maintained for the benefit of eligible deposit account holders who
maintained deposit accounts in the Bank after conversion.
In the event of a complete liquidation (and only in such event), each
eligible deposit account holder will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted balance of deposit accounts held, before any liquidation
distribution may be made with respect to the common shares. Except for the
repurchase of stock and payment of dividends by the Bank, the existence of
the liquidation account will not restrict the use or further application of
such retained earnings.
The Bank may not declare or pay a cash dividend on, or repurchase any of its
common shares if the effect thereof would cause the Bank's shareholders'
equity to be reduced below either the amount required for the liquidation
account or the regulatory capital requirements for insured institutions.
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
NOTE P - CONVERSION TO STOCK FORM AND BUSINESS COMBINATION (continued)
In 1995, the Bank had entered into a purchase agreement (the "Agreement")
with the majority shareholder of Citizens. The Agreement, as subsequently
amended, stated that the Corporation would purchase approximately 120,000
shares, representing 95.6% of Citizen's outstanding common stock, for total
cash consideration of approximately $3.0 million. The acquisition was
consummated in 1996, and was accounted for using the purchase method of
accounting.
Presented below is a pro-forma condensed consolidated statement of earnings
which has been prepared as if the acquisition had been consummated as of the
beginning of the year ended December 31, 1996.
(In thousands)
(Unaudited)
Total interest income $10,211
Total interest expense 5,640
Net interest income 4,571
Provision for losses on loans 252
Other income 1,164
General, administrative and other expense 5,049
-------
Earnings before income taxes 434
Federal income taxes 150
Net earnings $ 284
========
The Bank owns 100% of the outstanding capital stock of First Service which,
until the Banks conversion, owned 100% of the outstanding capital stock of
McCauley Insurance Agency ("McCauley").
As mandated by the regulatory authorities during the approval process of the
Plan, First Service had to divest its interest in McCauley. The sale of
McCauley was consummated in 1996, resulting in a gain on sale totaling
$141,000.
NOTES
GENERAL INFORMATION FOR SHAREHOLDERS
Transfer Agent and Registrar: Shareholder and General Inquiries:
Corporate Trust Services River Valley Bancorp
Fifth Third Center Attn: James E. Fritz
38 Fountain Square Plaza 303 Clifty Drive, P.O. Box 1590
Cincinnati, Ohio 45263 Madison, Indiana 47250
Tel: (513)579-5417 Fax: (513)744-6785 Tel: (812)273-4949 Fax: (812)273-4944
Corporate Counsel: Special Counsel:
Lonnie D. Collins, Attorney Barnes & Thornburg
426 E. Main Street 11 S. Meridian Street
Madison, Indiana 47250 Indianapolis, Indiana 46204
Tel: (812)265-3616 Fax: (812)273-3143 Tel: (317)236-1313 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: 303 Clifty Drive
430 Clifty Drive
Downtown: 233 East Main Street
Drive thru: 401 East Main Street
Wal-Mart: 567 Ivy Tech Drive
Hanover: 10 Medical Plaza
Annual Meeting:
The Annual Meeting of Shareholders of River Valley Bancorp will be held on April
21, 1999, at 3:00 PM, at 430 Clifty Drive, Madison, IN 47250.
BOARD OF DIRECTORS
Fred W. Koehler
Chairman
Cecil L. Dorten
Vice Chairman
Earl W. Johann
Director
Michael J. Hensley
Director
Jonnie L. Davis
Director
James E. Fritz
Director & President
Robert W. Anger
Director
********************
Lonnie D. Collins
Secretary
EXECUTIVE OFFICERS OF RIVER VALLEY FINANCIAL BANK
James E. Fritz
Director & President
Robert D. Hoban
Executive Vice President -
Business Development &
Marketing
Mark A. Goley
Vice President - Senior Loan Officer
Robyne J. Hart
Vice President - Operations Officer
Larry C. Fouse
Controller
OFFICERS OF RIVER VALLEY FINANCIAL BANK
Angela D. Adams
Branch Manager
James B. Allen
Branch Manager
Kenneth L. Cull
Loan Officer
Theresa A. Dryden
Loan Officer
Barbara J. Eades
Customer Service Manager
V. Kay Kimmel
Loan Officer
Deanna J. Liter
Data Processing Officer
Linda L. Ralston
Customer Service Manager
Robert J. Schoenstein Jr.
Loan Officer
Loy M. Skirvin
Human Resources Manager
Rhonda E. Wingham
Customer Service Manager
ADVISORY BOARD MEMBERS
Burton P. Chambers
Advisory Director
Van E. Shelton
Advisory Director
Ralph E. Storm
Advisory Director