1
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period ended March 31, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________.
Commission File Number 0-25971
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INDIAN VILLAGE BANCORP, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 34-1891199
------------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 South Walnut Street, Gnadenhutten, Ohio 44629
--------------------------------------------------
(Address of principal executive offices)
(740) 254-4313
--------------
(Issuer's telephone number)
As of May 1, 2000, the latest practical date, 445,583 of the issuer's common
shares, $.01 par value, were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
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1.
2
INDIAN VILLAGE BANCORP, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets .................................. 3
Consolidated Statements of Income ............................ 4
Consolidated Statements of Comprehensive Income .............. 5
Consolidated Statements of Changes in Shareholders' Equity.... 6
Consolidated Statements of Cash Flows ........................ 7
Notes to Consolidated Financial Statements ................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 13
Part II - Other Information
Item 1. Legal Proceedings........................................ 19
Item 2. Changes in Securities.................................... 19
Item 3. Defaults on Senior Securities............................ 19
Item 4. Submission of Matters to a Vote of Security Holders...... 19
Item 5. Other Information........................................ 19
Item 6. Exhibits and Reports on Form 8-K......................... 19
SIGNATURES ................................................................. 20
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2.
3
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
March 31, December 31,
2000 1999
-------- --------
ASSETS
Cash and due from banks $ 864 $ 824
Interest-bearing deposits in other banks 336 516
-------- --------
Total cash and cash equivalents 1,200 1,340
Time deposits 299 299
Securities available for sale at fair value 20,100 17,074
Loans, net of allowance for loan losses 39,230 37,291
Premises and equipment, net 1,574 1,591
Real estate owned 118 118
Federal Home Loan Bank stock 1,079 925
Accrued interest receivable 391 466
Other assets 282 258
-------- --------
Total assets $ 64,273 $ 59,362
======== ========
LIABILITIES
Deposits $ 33,915 $ 33,153
Federal Home Loan Bank advances 21,250 17,200
Accrued interest payable 128 107
Other liabilities 165 153
-------- --------
Total liabilities 55,458 50,613
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 5,000,000 shares authorized,
445,583 shares issued and outstanding 4 4
Additional paid-in capital 4,022 4,021
Retained earnings - substantially restricted 5,456 5,393
Unearned employee stock ownership plan shares (338) (344)
Accumulated other comprehensive income (329) (325)
-------- --------
Total shareholders' equity 8,815 8,749
-------- --------
Total liabilities and shareholders' equity $ 64,273 $ 59,362
======== ========
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See accompanying notes to consolidated financial statements.
3.
4
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
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Three Months Ended
March 31,
---------
2000 1999
------ ------
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 774 $ 663
Securities 341 104
Interest-bearing deposits and Federal funds sold 8 10
------ ------
Total interest income 1,123 777
INTEREST EXPENSE
Deposits 400 368
Federal Home Loan Bank advances 265 64
------ ------
Total interest expense 665 432
------ ------
NET INTEREST INCOME 458 345
Provision for loan losses 1 3
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 457 342
NONINTEREST INCOME
Service charges and other fees 9 4
Gain on sale of securities available for sale, net -- 2
Other income 3 5
------ ------
Total noninterest income 12 11
NONINTEREST EXPENSE
Salaries and employee benefits 159 106
Occupancy, furniture and fixtures 45 19
Professional and consulting fees 37 15
Franchise taxes 23 18
Data processing 22 22
Director and committee fees 16 19
Advertising 10 12
Stationary and supplies 9 12
Other expense 48 32
------ ------
Total noninterest expense 369 255
------ ------
INCOME BEFORE INCOME TAXES 100 98
Income tax expense 37 34
------ ------
NET INCOME $ 63 $ 64
====== ======
EARNINGS PER COMMON SHARE $ 0.15 N/A
====== ======
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See accompanying notes to consolidated financial statements.
4.
5
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
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Three Months Ended
March 31,
---------
2000 1999
---- ----
NET INCOME $ 63 $ 64
Other comprehensive income, net of tax
Unrealized gains (losses) on securities available for sale
arising during period (4) (16)
Reclassification adjustment for accumulated gains included in
net income -- (1)
---- ----
Net unrealized gains (losses) on securities (4) (17)
Additional minimum pension liability adjustment -- --
---- ----
Other comprehensive income (4) (17)
---- ----
COMPREHENSIVE INCOME $ 59 $ 47
==== ====
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See accompanying notes to consolidated financial statements.
5.
6
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
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Unrealized
Additional Gain on
Additional Unearned Minimum Securities
Common Paid-In Retained ESOP Pension Available
Stock Capital Earnings Shares Liability for Sale Total
------- ------- -------- ------- --------- -------- -------
Balance at January 1, 1999 $ -- $ -- $ 5,105 $ -- $ (53) $ 50 $ 5,102
Net income for the period -- -- 64 -- -- -- 64
Change in fair value of securities
available for sale -- -- -- -- -- (17) (17)
------- ------- ------- ------- ------- ------- -------
Balance at March 31, 1999 $ -- $ -- $ 5,169 $ -- $ (53) $ 33 $ 5,149
======= ======= ======= ======= ======= ======= =======
Balance at January 1, 2000 $ 4 $ 4,021 $ 5,393 $ (344) $ (52) $ (273) 8,749
Net income for the period -- -- 63 -- -- -- 63
Release of 594 ESOP shares -- 1 -- 6 -- -- 7
Change in fair value of securities
available for sale -- -- -- -- -- (4) (4)
------- ------- ------- ------- ------- ------- -------
Balance at March 31, 2000 $ 4 $ 4,022 $ 5,456 $ (338) $ (52) $ (277) $ 8,815
======= ======= ======= ======= ======= ======= =======
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See accompanying notes to consolidated financial statements.
6.
7
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
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Three Months Ended
March 31,
---------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 63 $ 64
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation 26 7
Net premium amortization (discount accretion) (5) 7
Provision for loan losses 1 3
Federal Home Loan Bank stock dividends (17) (7)
Gain on sale of securities available for sale -- (2)
Compensation expense on ESOP shares 7 --
Net change in accrued interest receivable and other assets 53 (137)
Net change in accrued expenses and other liabilities 33 62
------- -------
Net cash from operating activities 161 (3)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (3,657) (1,040)
Proceeds from sales of securities available for sale 436 652
Proceeds from maturities of securities available for sale 194 517
Net change in loans (1,940) (2,293)
Premises and equipment expenditures (9) (37)
Purchases of Federal Home Loan Bank stock (137) --
------- -------
Net cash from investing activities (5,113) (2,201)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 762 (42)
Net change in short-term FHLB advances (450) 1,750
Proceeds from long-term FHLB advances 4,500 --
------- -------
Net cash from financing activities 4,812 1,708
------- -------
Net change in cash and cash equivalents (140) (496)
Cash and cash equivalents at beginning of period 1,340 797
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,200 $ 301
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 644 $ 418
Income taxes 25 --
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See accompanying notes to consolidated financial statements.
7.
8
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the financial position of Indian Village Bancorp, Inc. (the "Corporation") at
March 31, 2000, and its results of operations and cash flows for the periods
presented. All such adjustments are normal and recurring in nature. The
accompanying consolidated financial statements have been prepared in accordance
with the instructions for Form 10-QSB and, therefore, do not purport to contain
all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances,
and should be read in conjunction with the audited financial statements and
notes thereto of the Corporation for the year ended December 31, 1999. The
accounting policies of the Corporation described in the notes to consolidated
financial statements contained in the Corporation's December 31, 1999, financial
statements, have been consistently followed in preparing this Form 10-QSB. The
results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results of operations that may be expected for the
full year.
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiary, Indian Village Community Bank (the "Bank"). All
significant intercompany transactions and balances have been eliminated.
The Corporation's and Bank's revenues, operating income and assets are primarily
from the financial institution industry. The Bank is engaged in the business of
residential mortgage lending and consumer banking with operations conducted
through its main office located in Gnadenhutten, Ohio and a branch office in New
Philadelphia, Ohio. These communities and the contiguous areas are the source of
substantially all the Bank's loan and deposit activities. The majority of the
Bank's income is derived from residential and consumer lending activities and
investments.
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and disclosures provided, and future results could differ.
The allowance for loan losses, fair values of financial instruments and pension
liabilities are particularly subject to change.
The provision for income taxes is based on the effective tax rate expected to be
applicable for the entire year. Income tax expense is the total of the
current-year income tax due or refundable and the change in deferred tax assets
and liabilities. Deferred tax assets and liabilities are the expected future tax
amounts for the temporary differences between carrying amounts and tax bases of
assets and liabilities, computed using enacted tax rates. A valuation allowance,
if needed, reduces deferred tax assets to the amount expected to be realized.
Basic earnings per common share is net income divided by the weighted average
number of common shares outstanding during the period. The weighted average
number of shares outstanding during the three months ended March 31, 2000 was
411,431. Employee Stock Ownership Plan ("ESOP") shares are considered
outstanding for this calculation unless unallocated. The Corporation currently
has no potentially dilutive common shares. No earnings per common share is shown
for the three months ended March 31, 1999, as prior to July 1, 1999, the Bank
was a mutual company. The financial information for the three months ended March
31, 1999 reflects the Bank prior to the conversion.
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(Continued)
8.
9
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
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NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN ASSOCIATION
WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY
On January 20, 1999, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, unanimously adopted a Plan of
Conversion under which the Bank would convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank and concurrently form a
holding company to own 100% of the Bank's stock. The conversion was consummated
on July 1, 1999, and the Corporation sold its common stock in an amount equal to
the pro forma market value of the Bank after giving effect to the conversion. A
total of 445,583 common shares of the Corporation were sold at $10.00 per share.
The Corporation received net proceeds of $4,024,000, after deducting conversion
costs of $432,000.
The Corporation retained 50% of the net proceeds from the sale of common shares.
The remainder of the net proceeds was invested in the capital stock issued by
the Bank to the Company.
As part of the conversion, the Bank established a liquidation account in an
amount equal to its regulatory capital as of December 31, 1998. The liquidation
account will be maintained for the benefit of eligible depositors who continue
to maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent that eligible depositors have
reduced their qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible depositor will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held. The Bank may not
pay dividends that would reduce shareholders' equity below the required
liquidation account balance.
Under Office of Thrift Supervision ("OTS") regulations, limitations have been
imposed on all "capital distributions" by savings institutions, including cash
dividends. Under OTS regulations, the Bank is not permitted to pay a cash
dividend on its common shares if its regulatory capital would, as a result of
payment of such dividend, be reduced below the amount required for the
liquidation account, or applicable regulatory capital requirements prescribed by
the OTS.
NOTE 3 - SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
----------------------March 31, 2000------------------------
U.S. Government agencies $ 8,433 $ -- $ (176) $ 8,257
Obligations of states and
political subdivisions 1,801 29 (2) 1,828
Mortgage-backed securities 10,285 5 (275) 10,015
-------- -------- -------- --------
$ 20,519 $ 34 $ (453) $ 20,100
======== ======== ======== ========
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(Continued)
9.
10
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
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NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
----------------------March 31, 2000------------------------
U.S. Government agencies $ 7,432 $ -- $ (188) $ 7,244
Obligations of states and
political subdivisions 1,470 1 (7) 1,464
Mortgage-backed securities 8,586 16 (236) 8,366
-------- -------- -------- --------
$ 17,488 $ 17 $ (431) $ 17,074
======== ======== ======== ========
The amortized cost and estimated fair values of securities available for sale,
by contractual maturity, are shown below. Actual maturities could differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Securities not due at
a single maturity date, primarily mortgage-backed securities, are shown
separately.
Estimated
Amortized Fair
Cost Value
---- -----
Due after one year through five years $ 1,142 $ 1,115
Due after five years through ten years 5,689 5,622
Due after ten years 3,403 3,348
Mortgage-backed securities 10,285 10,015
------- -------
$20,519 $20,100
======= =======
Proceeds from sales of securities available for sale during the three months
ended March 31, 2000 and 1999 were $436,000 and $652,000. Gross gains of $3,000
and gross losses of $3,000 were realized on those sales during the three months
ended March 31, 2000. Gross gains of $2,000 were realized on those sales during
the three moths ended March 31, 1999.
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(Continued)
10.
11
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
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NOTE 4 - LOANS
Loans are summarized as follows:
March 31, December 31,
2000 1999
--------- ------------
Real estate loans:
One- to four-family residential $ 29,834 $ 28,413
Multi-family residential 1,629 1,669
Nonresidential 2,250 2,172
Construction 1,062 1,251
Land 580 437
-------- --------
35,355 33,942
Consumer loans:
Home equity loans and lines of credit 1,520 1,185
Home improvement 455 420
Automobile 827 789
Loans on deposit accounts 224 231
Unsecured 105 89
Other 1,020 898
-------- --------
4,151 3,612
Commercial business loans 56 60
-------- --------
39,562 37,614
Less:
Net deferred loan fees and costs (70) (68)
Loans in process (29) (23)
Allowance for loan losses (233) (232)
-------- --------
$ 39,230 $ 37,291
======== ========
Activity in the allowance for loan losses is summarized as follows:
Three Months Ended
March 31,
---------
2000 1999
---- ----
Balance at beginning of period $232 $218
Provision for losses 1 3
Charge-offs -- --
Recoveries -- --
---- ----
Balance at end of period $233 $221
==== ====
As of and for the three months ended March 31, 2000 and 1999, no loans were
considered impaired within the scope of SFAS No. 114.
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(Continued)
11.
12
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
- -------------------------------------------------------------------------------
NOTE 5 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on financial condition or results of operations.
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of customers. These
financial instruments include commitments to make loans. The Corporation's
exposure to credit loss in case of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Corporation follows the same credit
policy to make such commitments as is followed for those loans recorded in the
financial statements.
As of March 31, 2000, variable rate and fixed rate commitments to make loans or
fund outstanding lines of credit amounted to approximately $556,000 and
$756,000. As of December 31, 1999, variable rate and fixed rate commitments to
make loans or fund outstanding lines of credit amounted to approximately
$494,000 and $1,891,000. Since loan commitments may expire without being used,
the amounts do not necessarily represent future cash commitments.
NOTE 6 - EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has established an employee stock ownership plan ("ESOP") for the
benefit of substantially all employees of the Corporation and the Bank. The
Corporation intends to request a determination letter from the Internal Revenue
Service regarding the qualified status of the ESOP under applicable provisions
of the Internal Revenue Code. Although no assurances can be given, the
Corporation expects that the ESOP will receive a favorable determination letter.
The ESOP borrowed funds from the Corporation with which to acquire common shares
of the Corporation. The loan is secured by the shares purchased with the loan
proceeds and will be repaid by the ESOP with funds from the Bank's discretionary
contributions to the ESOP and earnings on ESOP assets. Dividends on unallocated
shares received by the ESOP are used to pay debt service. The shares purchased
with the loan proceeds are held in a suspense account for allocation among
participants as the loan is repaid. As payments are made and the shares are
released from the suspense account, such shares will be validly issued, fully
paid and nonassessable. ESOP compensation expense was $7,000 for the three
months ended March 31, 2000. The ESOP shares as of March 31, 2000 were as
follows:
Shares released for allocation 1,782
Unreleased shares 33,855
--------
Total ESOP shares 35,637
========
Fair value of unreleased shares at March 31, 2000 $ 364
========
The ESOP provides for the repurchase of any stock distributed to a participant
at its fair market value in the event the stock is not readily tradable on an
established market. As the Corporation's common stock is listed on the OTC
Bulletin Board under the symbol "IDVB," the repurchase provision currently has
no effect.
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(Continued)
12.
13
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
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INTRODUCTION
In the following pages, management presents an analysis of the financial
condition of Indian Village Bancorp, Inc. as of March 31, 2000 compared to
December 31, 1999, and results of operations for the three months ended March
31, 2000 compared with the same period in 1999. This discussion is designed to
provide a more comprehensive review of the operating results and financial
position than could be obtained from an examination of the financial statements
alone. This analysis should be read in conjunction with the interim financial
statements and related footnotes included herein.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the federal securities laws. The Corporation intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995, and is
including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Corporation, are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. The Corporation's ability to
predict results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material effect on the operations of the
Corporation and the subsidiaries include, but are not limited to, changes in:
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Corporation's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Corporation
and its business, including additional factors that could materially affect the
Corporation's financial results, is included in the Corporation's filings with
the SEC.
FINANCIAL CONDITION
Total assets at March 31, 2000 were $64.3 million compared to $59.4 million at
December 31, 1999, an increase of $4.9 million, or 8.3%. The increase in total
assets was primarily due to an increase in securities available for sale of $3.0
million and an increase in loans of $1.9 million. The increase in loans
consisted primarily of an increase in one- to four-family residential real
estate loans of $1.4 million, as well as an increase in consumer loans of
$539,000. These increases are reflective of a stable local economy and the
Bank's more aggressive promotion of consumer loans. The increase in securities
available for sale and loans was funded primarily by Federal Home Loan Bank
("FHLB") advances.
The $539,000, or 14.9%, increase in the consumer loan portfolio between December
31, 1999 and March 31, 2000 consisted primarily of increases in home equity
loans and lines of credit of $335,000 and other consumer loans of $122,000.
Consumer loans represented 10.5% and 9.6% of gross loans at March 31, 2000 and
December 31, 1999, respectively.
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13.
14
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- -------------------------------------------------------------------------------
Total deposits were $33.9 million on March 31, 2000 compared to $33.2 million at
December 31, 1999, an increase of $762,000 or 2.3%. The Corporation experienced
an increase in noninterest-bearing demand deposits of $601,000 that was
partially offset by a decrease in negotiable order of withdrawal ("NOW")
accounts of $336,000. Increases in certificates of deposit, money market
accounts and savings accounts totaled $497,000. Management attributes the
increase in deposits to the opening of the new branch office in New
Philadelphia, Ohio in the fourth quarter of 1999. The certificate of deposit
portfolio as a percent of total deposits decreased slightly from 75.1% at
December 31, 1999 to 74.2% at March 31, 2000. Almost all certificates of deposit
held by the Corporation mature in less than three years with the majority
maturing in the next year.
As a secondary source of liquidity, the Corporation obtains borrowings from the
Federal Home Loan Bank of Cincinnati, from which it held advances totaling $21.3
million at March 31, 2000 and $17.2 million at December 31, 1999. Due to
continued loan demand and in order to better leverage the Corporation's capital,
the Corporation used these funds to originate mortgage and consumer loans and
purchase securities available for sale, as well as provide for short-term
liquidity needs. FHLB advances at March 31, 2000 consisted of $2.3 million in
short-term advances and $19.0 million in long-term callable fixed-rate advances.
The long-term callable advances have specified call dates ranging from one to
five years at which time the advances may be called at the option of the Federal
Home Loan Bank. Additional advances may be obtained from the Federal Home Loan
Bank to fund future loan growth and liquidity as needed.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND MARCH 31, 1999
The general economic conditions, the monetary and fiscal policies of federal
agencies and the regulatory policies of agencies that regulate financial
institutions affect the operating results of the Corporation. Interest rates on
competing investments and general market rates of interest influence the
Corporation's cost of funds. Lending activities are influenced by the demand for
real estate loans and other types of loans, which in turn is affected by the
interest rates at which such loans are made, general economic conditions and the
availability of funds for lending activities.
The Corporation's net income primarily depends on its net interest income, which
is the difference between the interest income earned on interest-earning assets,
such as loans and securities, and interest expense incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is dependent on the interest rate environment and the volume and composition of
interest-earning assets and interest-bearing liabilities. Provisions for loan
losses, service charges, gains on the sale of assets, other income, noninterest
expense and income taxes also affect net income.
Net income was $63,000 for the three months ended March 31, 2000, compared to
$64,000 for the three months ended March 31, 1999. Earnings per common share was
$0.15 for the three months ended March 31, 2000. No earnings per common share
was shown for the three months ended March 31, 1999, as prior to July 1, 1999,
the Bank was a mutual company.
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14.
15
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- -------------------------------------------------------------------------------
Net interest income totaled $458,000 for the three months ended March 31, 2000,
as compared to $345,000 for the three months ended March 31, 1999, representing
an increase of $113,000, or 32.8%. The change in net interest income is
attributable to an increase in the ratio of average interest-earning assets to
average interest-bearing liabilities offset by a decrease in the interest rate
spread. The increase in the ratio of average interest-bearing assets to average
interest bearing liabilities is primarily due to the net proceeds received from
the Conversion of $4.0 million.
Interest and fees on loans increased approximately $111,000, or 16.7%, from
$663,000 for the three months ended March 31, 1999 to $774,000 for the three
months ended March 31, 2000 while interest earned on securities totaled $341,000
for the three months ended March 31, 2000, as compared to $104,000 for the three
months ended March 31, 1999. The increases in interest income were due to higher
average balances of loans and securities partially offset by a decrease in the
yield earned.
Interest income on interest-bearing deposits and overnight deposits remained
relatively unchanged at $8,000 for the three months ended March 31, 2000, as
compared to $10,000 for the same period in 1999.
Interest paid on deposits increased $32,000 for the three months ended March 31,
2000, compared to the three months ended March 31, 1999. The increase in
interest expense was due to an increase in the cost of funds combined with an
increase in the average balances of deposits.
Interest on Federal Home Loan Bank advances totaled $265,000 for the three
months ended March 31, 2000, compared to $64,000 for the three months ended
March 31, 1999. The increase was the result of a higher average balance combined
with a higher cost of funds. The additional borrowings were used to provide
funding for loan demand and to better leverage the Corporation's capital.
The Corporation maintains an allowance for loan losses in an amount that, in
management's judgment, is adequate to absorb probable losses inherent in the
loan portfolio. While management utilizes its best judgment and information
available, the ultimate adequacy of the allowance depends on a variety of
factors, including past loan loss experience, known and inherent risks in the
nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions and other
factors. The provision for loan losses is determined by management as the amount
to be added to the allowance for loan losses after net charge-offs have been
deducted to bring the allowance to a level which is considered adequate to
absorb probable losses inherent in the loan portfolio.
The provision for loan losses for the three months ended March 31, 2000 totaled
$1,000 compared to $3,000 for the three months ended March 31, 1999. The
Corporation did not experience any net charge-offs during the three months ended
March 31, 2000 and March 31, 1999. The Corporation's low charge-off history is
the product of a variety of factors, including the Corporation's underwriting
guidelines, which generally require a loan-to-value or projected completed value
ratio of 80% for the purchase or construction of one- to four-family residential
properties and 75% for commercial real estate and land loans, established income
information and defined ratios of debt to income. Despite this history, the
Corporation cannot give any assurances as to the level of future charge-offs.
The allowance for loan losses totaled $233,000 or .59% of gross loans at March
31, 2000, compared with $232,000, or .62% of gross loans at December 31, 1999.
- --------------------------------------------------------------------------------
15.
16
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- -------------------------------------------------------------------------------
Noninterest income includes service charges and other fees, net gains on sales
of securities available for sale and other income. For the three months ended
March 31, 2000, noninterest income totaled $12,000 compared to $11,000 for the
three months ended March 31, 1999. During the 2000 period, the Corporation
experienced an increase in service charges and other fees that was partially
offset by a slight decrease in net gains on sales of securities available for
sale and other miscellaneous income.
Noninterest expense totaled $369,000 for the three months ended March 31, 2000
compared to $255,000 for same period in 1999. The increase in noninterest
expense was primarily the result of increases in salaries and employee benefits
expense of $53,000, occupancy expense of $26,000 and professional and consulting
expense of $22,000. The increase in salaries and employee benefits expense was
due primarily to increased staffing due to the opening of the new branch office
in the fourth quarter of 1999, normal annual merit increases and the
establishment of the Corporation's ESOP. Additionally, the increase in occupancy
expense also resulted from the opening of the new branch office. The increase in
professional and consulting expense was due to the increased public reporting
obligations associated with being a public company.
The volatility of income tax expense is primarily attributable to the change in
income before income taxes. The provision for income taxes totaled $37,000 for
the three months ended March 31, 2000 compared to $34,000 for the three months
ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. These
activities are summarized below for the three months ended March 31, 2000 and
1999.
Three Months Ended
March 31,
---------
2000 1999
------- -------
Net income $ 63 $ 64
Adjustments to reconcile net income to
net cash from operating activities 98 (67)
------- -------
Net cash from operating activities 161 (3)
Net cash from investing activities (5,113) (2,201)
Net cash from financing activities 4,812 1,708
------- -------
Net change in cash and cash equivalents (140) (496)
Cash and cash equivalents at beginning of period 1,340 797
------- -------
Cash and cash equivalents at end of period $ 1,200 $ 301
======= =======
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16.
17
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- -------------------------------------------------------------------------------
The Corporation's principal sources of funds are deposits, loan repayments,
maturities of securities, Federal Home Loan Bank advances and other funds
provided by operations. While scheduled loan repayments and maturing securities
are relatively predictable, deposit flows and early loan prepayments are
influenced by interest rates, general economic conditions, and competition. The
Corporation maintains investments in liquid assets based on management's
assessment of (1) need for funds, (2) expected deposit flows, (3) yields
available on short-term liquid assets and (4) objectives of the asset/liability
management program.
OTS regulations presently require the Bank to maintain an average daily balance
of investments in United States Treasury, federal agency obligations and other
investments having maturities of five years or less in an amount equal to 4% of
the sum of the Bank's average daily balance of net withdrawable deposit accounts
and borrowings payable in one year or less. 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 on which the Bank may
rely, if necessary, to fund deposit withdrawals or other short-term funding
needs. At March 31, 2000, the Bank's regulatory liquidity was 60.09%. The Bank
considers its liquidity and capital reserves sufficient to meet its outstanding
short- and long-term needs. See Note 5 of the Notes to Consolidated Financial
Statements.
The Corporation is not subject to any separate regulatory capital requirements.
The Bank, however, is subject to various regulatory capital requirements
administered by federal regulatory agencies. Failure to meet minimum capital
requirements can initiate certain mandatory actions that, if undertaken, could
have a direct material affect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines involving quantitative measures
of the Bank's assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by regulators about
the Bank's components, risk weightings and other factors. At March 31, 2000, and
December 31, 1999, the Bank complies with all regulatory capital requirements.
Based on the Bank's computed regulatory capital ratios, the Bank is considered
well capitalized under the Federal Deposit Act at March 31, 2000 and December
31, 1999.
At March 31, 2000, and December 31, 1999 the Bank's actual capital levels and
minimum required levels were:
Minimum
Required To Be
Minimum Required Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
MARCH 31, 2000
Total capital (to risk-
weighted assets) $ 7,326 24.2% $ 2,427 8.0% $ 3,034 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 7,093 23.4 1,214 4.0 1,821 6.0
Tier 1 (core) capital (to
adjusted total assets) 7,093 11.0 2,589 4.0 3,236 5.0
Tangible capital (to
adjusted total assets) 7,093 11.0 971 1.5 N/A
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17.
18
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- -------------------------------------------------------------------------------
Minimum
Required To Be
Minimum Required Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
DECEMBER 31, 1999
Total capital (to risk-
weighted assets) $ 7,237 25.3% $ 2,287 8.0% $ 2,859 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 7,005 24.5 1,143 4.0 1,715 6.0
Tier 1 (core) capital (to
adjusted total 7,005 11.7 2,394 4.0 2,992 5.0
Tangible capital (to
adjusted total assets) 7,005 11.7 898 1.5 N/A
In May 2000, the Indian Village Bancorp, Inc. 2000 Stock Based Incentive Plan
was approved by shareholders at the Corporation's Annual Meeting. Subject to
certain adjustments to prevent dilution of awards to participants, the number of
shares of common stock reserved for awards under the plan is 62,381 shares,
consisting of 44,558 shares reserved for options and 17,823 shares reserved for
restricted stock awards. Authorized but unissued shares or shares previously
issued and reacquired by the Corporation may be used to satisfy awards under the
plan. If authorized but unissued shares are used to satisfy restricted stock
awards and the exercise of options granted under the plan, the number of
outstanding shares will increase and will have a dilutive effect on the holdings
of existing stockholders. The plan provides that it shall become effective on
July 2, 2000. Accordingly, the plan may not be implemented and no awards may be
made before July 2, 2000.
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18.
19
INDIAN VILLAGE BANCORP, INC.
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults on Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. 3.1: Articles of Incorporation of Indian Village
Bancorp, Inc. (1)
Exhibit No. 3.2: Bylaws of Indian Village Bancorp, Inc. (1)
Exhibit No. 4.0: Form of Stock Certificate of Indian Village
Bancorp, Inc. (1)
Exhibit No. 10.1: Indian Village Community Bank Employee Stock
Ownership Plan Trust Agreement (2)
Exhibit No. 10.2: ESOP Loan Commitment Letter and ESOP Loan
Documents (2)
Exhibit No. 10.3: Employment Agreement between Indian Village
Community Bank, Indian Village Bancorp,
Inc. and Marty R. Lindon (2)
Exhibit No. 10.4: Employment Agreement between Indian Village
Community Bank, Indian Village Bancorp,
Inc. and Lori S. Frantz (2)
Exhibit No. 10.5: Indian Village Community Bank Employee
Severance Compensation Plan (2)
Exhibit No. 10.6: Indian Village Bancorp, Inc. 2000 Stock
Based Incentive Plan (3)
Exhibit No. 11.0: Statement re: computation of per share
earnings (4)
Exhibit No. 27.0: Financial Data Schedule
----------------------------
(1) Incorporated herein by reference from the Exhibits to Form
SB-2, Registration Statement and amendments thereto,
initially filed on March 18, 1998, Registration No.
333-74621.
(2) Incorporated herein by reference from the Exhibits to Form
10-QSB for the quarter ended September 30, 1999, filed
November 15, 2000.
(3) Incorporated herein be reference from the Proxy Statement
filed March 27, 2000.
(4) Reference is hereby made to Consolidated Statements of
Income on page 4, hereof.
(b) No current reports on Form 8-K were filed by the small business
issuer during the quarter ended March 31, 2000.
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19.
20
INDIAN VILLAGE BANCORP, INC.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirement of the Securities Exchange Act of 1934, the small
business issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 11, 2000 /s/ Marty R. Lindon
------------------------------ -------------------
Marty R. Lindon
President and Chief Executive Officer
Date: May 11, 2000 /s/ Lori S. Frantz
------------------------------ ------------------
Lori S. Frantz
Vice President, Treasurer and Chief
Financial Officer
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20.
21
INDIAN VILLAGE BANCORP, INC.
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
11.0 Statement re: computation of per share earnings Reference is hereby made to Consolidated
Statements of Income on page 4 and Note 1
of Notes to Consolidated Financial
Statements on page 8, hereof.
27.0 Financial Data Schedule 22
- --------------------------------------------------------------------------------
21.