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 December 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 February 5, 2001, the latest practical date, 402,139 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. Condensed 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 .................................................. 8
Notes to Consolidated Financial Statements ............................................. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 23
Item 2. Changes in Securities.............................................................. 23
Item 3. Defaults Upon Senior Securities.................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders................................ 23
Item 5. Other Information.................................................................. 23
Item 6. Exhibits and Reports on Form 8-K................................................... 23
SIGNATURES ........................................................................................... 24
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2.
3
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
December 31, June 30,
2000 2000
---- ----
ASSETS
Cash and due from banks $ 1,003 $ 980
Interest-bearing deposits in other banks 1,611 107
-------- --------
Total cash and cash equivalents 2,614 1,087
Time deposits -- 200
Securities available for sale at fair value 19,149 20,061
Loans, net of allowance for loan losses 44,777 40,799
Premises and equipment, net 1,559 1,564
Real estate owned 149 118
Federal Home Loan Bank stock 1,140 1,099
Accrued interest receivable 464 517
Other assets 71 199
-------- --------
Total assets $ 69,923 $ 65,644
======== ========
LIABILITIES
Deposits $ 40,569 $ 36,586
Federal Home Loan Bank advances 21,200 20,250
Accrued interest payable 128 136
Other liabilities 58 15
-------- --------
Total liabilities 61,955 56,987
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares authorized,
none outstanding -- --
Common stock, $.01 par value, 5,000,000 shares authorized
445,583 shares issued 4 4
Additional paid-in capital 3,244 4,022
Retained earnings - substantially restricted 5,554 5,498
Unearned employee stock ownership plan shares (386) (333)
Treasury stock, at cost, 43,444 shares (514) (273)
Accumulated other comprehensive income 66 (261)
-------- --------
Total shareholders' equity 7,968 8,657
-------- --------
Total liabilities and shareholders' equity $ 69,923 $ 65,644
======== ========
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See accompanying notes to financial statements.
3.
4
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
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Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 895 $ 760 $ 1,746 $ 1,482
Securities 371 301 751 494
Interest-bearing deposits and
Federal funds sold 11 11 26 35
------- ------- ------- -------
Total interest income 1,277 1,072 2,523 2,011
INTEREST EXPENSE
Deposits 522 376 1,004 713
Federal Home Loan Bank advances 324 220 639 372
------- ------- ------- -------
Total interest expense 846 596 1,643 1,085
------- ------- ------- -------
NET INTEREST INCOME 431 476 880 926
Provision for loan losses 6 3 14 8
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 425 473 866 918
NONINTEREST INCOME
Service charges and other fees 22 7 38 14
Gain on sale of securities
available for sale, net 11 (1) 26 4
Other income (8) 1 (9) (3)
------- ------- ------- -------
Total noninterest income 25 7 55 15
NONINTEREST EXPENSE
Salaries and employee benefits 185 245 356 373
Occupancy and equipment 49 28 88 50
Professional and consulting fees 40 4 83 19
Franchise taxes 13 18 26 35
Date processing 22 19 42 36
Director and committee fees 14 19 33 38
Other expense 77 99 143 157
------- ------- ------- -------
Total noninterest expense 400 432 771 708
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 50 48 150 225
Income tax expense 11 38 39 98
------- ------- ------- -------
NET INCOME $ 39 $ 10 $ 111 $ 127
======= ======= ======= =======
EARNINGS PER COMMON SHARE $ 0.11 $ 0.02 $ 0.29 $ 0.31
======= ======= ======= =======
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See accompanying notes to financial statements.
4.
5
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
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Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
NET INCOME $ 39 $ 10 $ 111 $ 127
Other comprehensive income, net of tax
Unrealized gains (losses) on securities
available for sale arising during period 239 (162) 344 (208)
Reclassification adjustment for
accumulated (gains) losses included in
net income (7) 1 (17) (3)
----- ----- ----- -----
Net unrealized gains (losses)
on securities 232 (161) 327 (211)
Additional minimum pension
liability adjustment -- 1 -- 1
----- ----- ----- -----
Other comprehensive income 232 (160) 327 (210)
COMPREHENSIVE INCOME $ 271 $(150) $ 438 $ (83)
===== ===== ===== =====
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See accompanying notes to 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 July 1, 1999 $ -- $ -- $ 5,266 $ -- $ (53) $ (62) $ 5,151
Net income for the period -- -- 127 -- -- -- 127
Additional minimum pension -- -- -- -- 1 -- 1
liability adjustment
Sale of 445,483 shares of par
common stock, net of
conversion costs 4 4,020 -- -- -- -- 4,024
Purchase of 35,637 shares
under ESOP plan -- -- -- (356) -- -- (356)
Release of 1,188 ESOP shares -- 1 -- 12 -- -- 13
Change in fair value of securities
available for sale -- -- -- -- -- (211) (211)
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 1999 $ 4 $ 4,021 $ 5,393 $ (344) $ (52) $ (273) $ 8,749
======= ======= ======= ======= ======= ======= =======
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See accompanying notes to financial statements.
6.
7
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
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Unrealized
Gain on
Additional Unearned Securities
Common Paid-In Retained ESOP Treasury Available
Stock Capital Earnings Shares Stock for Sale Total
----- ------- -------- ------ ----- -------- -----
Balance at July 1, 2000 $ 4 $ 4,022 $ 5,498 $ (333) $ (273) $ (261) $ 8,657
Net income for the period -- -- 111 -- -- -- 111
Cash dividend - $.14 per share -- -- (55) -- -- -- (55)
Return of capital - $2.00 per share -- (780) -- (66) -- -- (846)
Purchase of 21,165 shares of -- -- -- -- (241) -- (241)
treasury stock
Release of 1,297 ESOP shares -- 2 -- 13 -- -- 15
Change in fair value of securities
available for sale -- -- -- -- -- 327 327
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 2000 $ 4 $ 3,244 $ 5,554 $ (386) $ (514) $ 66 $ 7,968
======= ======= ======= ======= ======= ======= =======
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See accompanying notes to financial statements.
7.
8
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
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Six Months Ended
December 31,
------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 111 $ 127
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation 55 21
Premium amortization, net of accretion (107) (36)
Provision for loan losses 14 8
Federal Home Loan Bank stock dividends (41) (26)
Gain/Loss on sale of securities available for sale (26) (4)
Compensation expense on ESOP shares 15 13
Net change in accrued interest receivable and other assets 181 (92)
Net change in accrued expenses and other liabilities (119) (2,792)
-------- --------
Net cash from operating activities 83 (2,781)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in time deposits 200 200
Purchases of securities available for sale (9,288) (12,496)
Proceeds from sales of securities available for sale 9,927 361
Proceeds from maturities of securities available for sale 901 914
Net change in loans (4,037) (1,544)
Premises and equipment expenditures, net (50) (904)
Purchases of Federal Home Loan Bank stock -- (478)
-------- --------
Net cash from investing activities (2,347) (13,947)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 3,983 2,202
Net change in short-term Federal Home Loan Bank advances (2,250) 200
Repayment of long-term FHLB advances -- (2,000)
Proceeds from long-term Federal Home Loan Bank advances 3,200 11,500
Proceeds from issuance of common stock, net of conversion costs -- 4,024
Cash dividends paid (55) --
Return of capital distribution (846) --
Purchases of treasury stock (241) --
Cash provided to ESOP -- (356)
-------- --------
Net cash from financing activities 3,791 15,570
-------- --------
Net change in cash and cash equivalents 1,527 (1,158)
Cash and cash equivalents at beginning of period 1,087 2,498
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,614 $ 1,340
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 858 $ 1,029
Income taxes 12 144
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See accompanying notes to financial statements.
8.
9
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. ("Corporation") at
December 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 financial statements and notes
thereto of the Corporation for the transition period ended June 30, 2000. On May
18, 2000, the Corporation changed its fiscal year end from December 31 to June
30, effective June 30, 2000. Therefore, the Corporation filed a transition
report on Form 10-KSB covering the transition period from January 1, 2000
through June 30, 2000. The accounting policies of the Corporation described in
the notes to financial statements contained in the Corporation's June 30, 2000,
financial statements, have been consistently followed in preparing this Form
10-QSB. The results of operations for the three and six months ended December
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 and fair values of financial instruments 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.
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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 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 and six months ended December 31,
2000 used for this calculation were 383,031 and 380,505, respectively. Employee
Stock Ownership Plan ("ESOP") shares are considered outstanding for this
calculation unless unallocated. The Corporation currently has no potentially
dilutive common shares.
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 the regulatory capital would, as a result of
the payment of such dividend, be reduced below the amount required for the
liquidation account, or applicable regulatory capital requirements prescribed by
the OTS.
Effective June 29, 2000, the Bank converted from a federally chartered stock
savings bank to an Ohio-chartered institution and assumed the obligation of the
liquidation account.
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(Continued)
10.
11
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
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
---- ----- ------ -----
December 31, 2000
U.S. Government agencies $ 2,685 $ 10 $ (19) $ 2,676
Obligations of states and
political subdivisions 1,373 31 (1) 1,403
Corporate debt securities 500 -- (5) 495
Mortgage-backed securities 13,592 119 (40) 13,671
Equity securities 899 5 -- 904
-------- -------- -------- --------
$ 19,049 $ 165 $ (65) $ 19,149
======== ======== ======== ========
June 30, 2000
U.S. Government agencies $ 7,934 $ -- $ (233) $ 7,700
Obligations of states and
political subdivisions 1,986 40 -- 2,026
Corporate debt securities 149 -- -- 149
Mortgage-backed securities 9,888 25 (230) 9,684
Equity Securities 500 2 -- 502
-------- -------- -------- --------
$ 20,457 $ 67 $ (463) $ 20,061
======== ======== ======== ========
The amortized cost and estimated fair values of securities available for sale at
December 31, 2000, 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 $ 600 $ 598
Due after five years through ten years 937 946
Due after ten years 3,920 3,934
Mortgage-backed securities 13,592 13,671
------- -------
$19,049 $19,149
======= =======
Proceeds from sales of securities available for sale during the six months ended
December 31, 2000 were $9,927,000. Gross gains of $29,000 and gross losses of
$3,000 were realized on those sales. Proceeds from sales of securities available
for sale during the six months ended December 31, 1999 were $361,000. Gross
gains of $5,000 and gross losses of $1,000 were realized on those sales.
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(Continued)
11.
12
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:
December 31, June 30,
2000 2000
---- ----
Real estate loans:
One- to four-family residential $ 31,648 $ 29,618
Multi-family residential 2,372 2,307
Nonresidential 2,471 2,102
Construction 989 1,632
Land 283 254
-------- --------
37,763 35,913
Consumer loans:
Home equity loans and lines of credit 1,974 1,703
Home improvement 908 738
Automobile 1,322 961
Loans on deposit accounts 291 251
Unsecured 196 85
Other 1,464 1,408
-------- --------
6,155 5,146
Commercial business loans 1,205 94
-------- --------
45,123 41,153
Less:
Net deferred loan fees and costs (70) (68)
Loans in process (31) (49)
Allowance for loan losses (245) (237)
-------- --------
$ 44,777 $ 40,799
======== ========
Activity in the allowance for loan losses is summarized as follows:
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
Balance at beginning of period $ 239 $ 229 $ 237 $ 224
Provision for losses 6 3 14 8
Charge-offs -- -- (6) --
Recoveries -- -- -- --
----- ----- ----- -----
Balance at end of period $ 245 $ 232 $ 245 $ 232
===== ===== ===== =====
As of and for the three and six months ended December 31, 2000 and 1999, no
loans were considered impaired within the scope of SFAS No. 114.
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(Continued)
12.
13
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
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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 December 31, 2000, variable rate and fixed rate commitments to make loans
or fund outstanding lines of credit amounted to approximately $842,000 and
$847,000. As of June 30, 2000, variable rate and fixed rate commitments to make
loans or fund outstanding lines of credit amounted to approximately $808,000 and
$1,506,000. 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 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. The shares purchased with
the loan proceeds are held in a suspense account for allocation among
participants as the loan is repaid. When loan payments are made, ESOP shares are
allocated to participants based on relative compensation.
In September 2000, the Corporation declared and paid a $2.00 per share capital
distribution. The ESOP received $67,000 from the capital distribution on 33,261
unallocated shares. The ESOP purchased an additional 5,783 shares with the
proceeds from the capital distribution. The additional shares purchased will be
held in suspense and allocated to participants in a manner similar to the
original ESOP shares.
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(Continued)
13.
14
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 6 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
ESOP compensation expense was $7,000 and $13,000 for the three and six months
ended December 31, 2000. ESOP shares as of December 31, 2000 and June 30, 2000
were as follows:
December 31, June 30,
2000 2000
---- ----
Shares released for allocation 3,673 2,376
Unreleased shares 37,747 33,261
------- -------
Total ESOP shares 41,420 35,637
======= =======
Fair value of unreleased shares $ 429 $ 392
======= =======
The ESOP provides for the repurchase of any stock distributed to a participant
at its fair market value. The fair market value of the allocated shares subject
to repurchase was approximately $42,000 and $28,000 at December 31, 2000 and
June 30, 2000.
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(Continued)
14.
15
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 December 30, 2000 compared to
June 30, 2000, and results of operations for the three and six months ended
December 31, 2000 compared with the same periods 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 December 31, 2000 were $69.9 million compared to $65.6 million
at June 30, 2000, an increase of $4.3 million, or 6.6%. The increase in total
assets was primarily due to an increase in net loans of $4.0 million. The
increase in loans consisted primarily of an increase in one- to four-family
residential real estate loans of $2.0 million, as well as increases in
commercial business loans and consumer loans of $1.1 million and $1.0 million,
respectively. These increases are reflective of a stable local economy and the
Bank's aggressive promotion of commercial business and consumer loans.
The $1.0 million, or 19.6%, increase in the consumer loan portfolio between June
30, 2000 and December 31, 2000 consisted primarily of increases in automobile
loans of $361,000, home equity loans and lines of credit of $271,000, and home
improvement loans of $170,000. Consumer loans represented 13.6% and 12.5% of
gross loans at December 31, 2000 and June 30, 2000, respectively.
- --------------------------------------------------------------------------------
15.
16
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
Total deposits were $40.6 million on December 31, 2000 compared to $36.6 million
at June 30, 2000, an increase of $4.0 million, or 10.9%. The Corporation
experienced an increase in noninterest-bearing demand deposits of $269,000 that
was offset by a decrease in negotiable order of withdrawal ("NOW") accounts of
$426,000 and a decrease in savings accounts of $270,000. Increases in
certificates of deposit and money market accounts totaled $4.5 million.
Management attributes the increase in deposits to the opening of the new branch
office in New Philadelphia, Ohio in November 1999 along with the related
promotion of deposit products in order to help establish the office. The
certificate deposit portfolio as a percent of total deposits increased from
73.2% at June 30, 2000 to 73.6% at December 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 $21.2
million at December 31, 2000 and $20.3 million at June 30, 2000. Due to
continued loan demand and in order to better leverage the Corporation's capital,
the Corporation used these funds to originate mortgage loans and purchase
securities available for sale as well as provide for short-term liquidity needs.
FHLB advances at December 31, 2000 consisted of $21.2 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.
Total shareholders' equity decreased from $8.7 million at June 30, 2000 to $8.0
million at December 31, 2000. The decrease resulted from the $2.00 per share
capital distribution, which reduced shareholders' equity by $846,000. The
decrease in shareholder' equity is part of management's capital planning
strategy to utilize or distribute excess capital.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2000
AND DECEMBER 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.
- --------------------------------------------------------------------------------
16.
17
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
Net income was $111,000 for the six months ended December 31, 2000, compared to
$127,000 for the six months ended December 31, 1999. Earnings per common share
was $0.29 for the six months ended December 31, 2000 compared to $0.31 for the
six months ended December 31, 1999.
Net interest income totaled $880,000 for the six months ended December 31, 2000,
as compared to $926,000 for the six months ended December 31, 1999, representing
an decrease of $46,000, or 5.0%. 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 interest rate
spread.
Interest and fees on loans increased approximately $264,000, or 17.8%, from $1.5
million for the six months ended December 31,1999 to $1.7 million for the six
months ended December 31, 2000. The increase in interest income was due to an
increase in the average balance of loans, partially offset by a decrease in the
yield earned.
Interest earned on securities totaled $751,000 for the six months ended December
31, 2000, as compared to $494,000 for the six months ended December 31, 1999.
The increase was a result of higher average balances on securities.
Interest on interest-bearing deposits and overnight deposits decreased to
$26,000 for the six months ended December 31, 2000, as compared to $35,000 for
the same period in 1999.
Interest paid on deposits increased $291,000 for the six months ended December
31, 2000, compared to the six months ended December 31, 1999. The increase in
interest expense was due to an increase in the cost funds combined with an
increase in the average balance of deposits.
Interest on Federal Home Loan Bank advances totaled $639,000 for the six months
ended December 31, 2000, compared to $372,000 for the six months ended December
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 reasonably foreseeable losses
inherent in the loan portfolio. While management utilizes its best judgment and
information available, the ultimate adequacy of the allowance is dependent 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 losses inherent in the loan portfolio.
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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)
- --------------------------------------------------------------------------------
The provision for loan losses for the six months ended December 31, 2000 totaled
$14,000 compared to $8,000 for the six months ended December 31, 1999. The
Corporation experienced net charge-offs of $6,000 during the six months ended
December 31, 2000 and no charge-offs during the six months ended December 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 $245,000 or .54% of gross loans at December 31, 2000,
compared with $237,000, or .58% of gross loans at June 30, 2000.
Noninterest income includes service charges and other fees, net gains on sales
of securities available for sale and other income. For the six months ended
December 31, 2000, noninterest income totaled $55,000 compared to $15,000 for
the six months ended December 31, 1999. During the 2000 period, the Corporation
experienced an increase in service charges and other fees as well as increased
net gains on sales of securities available for sale.
Noninterest expense totaled $771,000 for the six months ended December 31, 2000
compared to $708,000 for same period in 1999. The increase in noninterest
expense was primarily the result of a $64,000 increase in professional and
consulting expense and a $38,000 increase in occupancy expense. The increase in
professional and consulting expense was due to the increased reporting
obligations associated with being a public company. Additionally, the increase
in occupancy expense was due to the opening of the new branch office.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The provision for income taxes totaled $39,000
for the six months ended December 31, 2000 compared to $98,000 for the six
months ended December 31, 2000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000
AND DECEMBER 31, 1999
Net income was $39,000 for the three months ended December 31, 2000, compared to
$10,000 for the three months ended December 31, 1999. The increase in net income
for the three months ended December 31, 2000 was primarily the result of an
increase in noninterest income and a decrease in noninterest expense partially
offset by a decrease in net interest income.
Net interest income totaled $431,000 for the three months ended December 31,
2000, as compared to $476,000 for the three months ended December 31, 1999,
representing a decrease of $45,000, or 9.5%. 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.
Interest and fees on loans increased approximately $135,000, or 17.8%, from
$760,000 for the three months ended December 31, 1999 to $895,000 for the three
months ended December 31, 2000. The increase in interest income was due to
higher average loans.
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18.
19
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
Interest earned on securities totaled $371,000 for the three months ended
December 31, 2000, as compared to $301,000 for the three months ended December
31, 1999. The increase was a result of higher average balances of securities.
Interest on interest-bearing deposits and overnight deposits for the three
months ended December 31, 2000 totaled $11,000, compared to $11,000 in the same
quarter in 1999.
Interest paid on deposits increased $146,000 for the three months ended December
31, 2000, compared to the three months ended December 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 $324,000 for the three
months ended December 31, 2000, compared to $220,000 for the three months ended
December 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 provision for loan losses for the three months ended December 31, 2000
totaled $6,000 compared to $3,000 for the three months ended December 31, 1999.
The Corporation did not experience any net charge-offs during the three months
ended December 31, 2000 or 1999.
For the three months ended December 31, 2000, noninterest income totaled
$25,000, compared to $7,000 for the three months ended December 31,1999. During
the 2000 period, the Corporation experienced an increase in service charges,
other fees, and in net gains on sales of securities available for sale.
Noninterest expense totaled $400,000 for the three months ended December 31,
2000 compared to $432,000 for same period in 1999. The decrease in noninterest
expense was primarily the result of a $60,000 decrease in salaries and employee
benefits expense partially offset by an increase of $36,000 in professional and
consulting expenses and $21,000 in occupancy expense. The decrease in salaries
and employee benefits expense was the result of losses incurred in 1999 as a
result of the Corporation terminating its pension plan.
The volatility of income tax expense is primarily attributable to the change in
net income before income taxes. The provision for income taxes totaled $11,000
for the three months ended December 31, 2000 compared to $38,000 for the three
months ended December 31, 1999.
- --------------------------------------------------------------------------------
19.
20
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
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 six months ended December 31, 2000 and
1999.
Six Months Ended
December 31,
------------
2000 1999
---- ----
Net income $ 111 $ 127
Adjustments to reconcile net income to
net cash from operating activities (28) (2,908)
-------- --------
Net cash from operating activities 83 (2,781)
Net cash from investing activities (2,347) (13,947)
Net cash from financing activities 3,791 15,570
-------- --------
Net change in cash and cash equivalents 1,527 (1,158)
Cash and cash equivalents at beginning of period 1,087 2,498
-------- --------
Cash and cash equivalents at end of period $ 2,614 $ 1,340
======== ========
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.
The Corporation has the ability to borrow funds from the Federal Home Loan Bank
and has various federal fund sources from correspondent banks, should the
Corporation need to supplement its future liquidity needs in order to meet loan
demand or to fund investment opportunities. Management believes the
Corporation's liquidity position is strong based on its level of cash, cash
equivalents, core deposits, the stability of its other funding sources and the
support provided by its capital base.
Total shareholders' equity decreased $689,000 between June 30, 2000 and December
31, 2000, primarily due to the $2.00 per share capital distribution, which
reduced shareholders' equity by $846,000, partially offset by earnings retained
and other comprehensive income. There were 21,165 shares of treasury stock
purchased by the Corporation during the three and six months ended December 31,
2000. The number of shares to be purchased in the future and the price to be
paid will depend upon the availability of shares, the prevailing market prices
and any other considerations which may, in the opinion of the Corporation's
Board of Directors or management, affect the advisability of purchasing shares.
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20.
21
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
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 December 31, 2000,
and June 30, 2000, the Bank complies with all regulatory capital requirements.
Based on the Bank's computed regulatory capital ratios at December 31, 2000 and
June 30, 2000, the Bank is considered well capitalized under the Federal Deposit
Insurance Corporation Act.
At December 31, 2000, and June 30, 2000 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
------ ----- ------ ----- ------ -----
December 31, 2000
- -----------------
Total capital (to risk-
weighted assets) $7,654 20.4% $3,001 8.0% $3,752 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 7,406 19.7 1,501 4.0 2,251 6.0
Tier 1 (core) capital (to
adjusted total assets) 7,406 10.7 2,070 3.0 3,451 5.0
Tangible capital (to
adjusted total assets) 7,406 10.7 1,035 1.5 N/A
June 30, 2000
- -------------
Total capital (to risk-
weighted assets) $7,479 22.0% $2,719 8.0% $3,398 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 7,242 21.3 1,359 4.0 2,039 6.0
Tier 1 (core) capital (to
adjusted total 7,242 11.4 2,545 3.0 3,181 5.0
Tangible capital (to
adjusted total assets) 7,242 11.4 954 1.5 N/A
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21.
22
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
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 was effective on July 2, 2000. As of December
31, 2000, no awards had been granted under the plan.
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22.
23
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)
---------------
(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, 1999.
(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 Corporation
during the quarter ended December 31, 2000.
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23.
24
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: February 12, 2001 /s/ Marty R. Lindon
------------------------- -------------------
Marty R. Lindon
President and Chief Executive Officer
Date: February 12, 2001 /s/ Lori S. Frantz
------------------------- ------------------
Lori S. Frantz
Vice President, Treasurer and
Chief Financial Officer
- --------------------------------------------------------------------------------
24.