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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 September 30, 2002
/ / 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 November 11, 2002, the latest practical date, 404,479 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
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........... 14
Item 3. Controls and Procedures................................. 19
Part II - Other Information
Item 1. Legal Proceedings....................................... 20
Item 2. Changes in Securities................................... 20
Item 3. Defaults Upon Senior Securities......................... 20
Item 4. Submission of Matters to a Vote of Security Holders..... 20
Item 5. Other Information....................................... 20
Item 6. Exhibits and Reports on Form 8-K........................ 20
SIGNATURES ................................................................ 21
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2
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
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September 30, June 30,
2002 2002
---- ----
ASSETS
Cash and due from banks $ 1,745 $ 1,107
Interest-bearing deposits in other banks 620 498
--------------- ----------------
Total cash and cash equivalents 2,365 1,605
Securities available for sale at fair value 32,077 25,721
Loans, net of allowance for loan losses 53,282 52,480
Premises and equipment, net 1,424 1,428
Real estate owned 70 70
Federal Home Loan Bank stock 1,582 1,294
Bank-owned life insurance 2,175 2,149
Accrued interest receivable 486 461
Other assets 114 120
--------------- ----------------
Total assets $ 93,575 $ 85,328
=============== ================
LIABILITIES
Deposits $ 53,674 $ 51,957
Federal Home Loan Bank advances 31,094 24,826
Accrued interest payable 155 122
Other liabilities 177 160
--------------- ----------------
Total liabilities 85,100 77,065
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 3,259 3,255
Retained earnings - substantially restricted 5,944 5,838
Unearned employee stock ownership plan shares (334) (341)
Treasury stock, at cost, 41,904 shares at September 30, 2002 and
43,444 shares at June 30, 2002 (496) (514)
Accumulated other comprehensive income (loss) 98 21
--------------- ----------------
Total shareholders' equity 8,475 8,263
--------------- ----------------
Total liabilities and shareholders' equity $ 93,575 $ 85,328
=============== ================
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See accompanying notes to financial statements.
3
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
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Three Months Ended
September 30,
--------------------
2002 2001
-------- ---------
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 1,019 $ 992
Taxable securities 268 196
Tax exempt securities 37 54
Interest-bearing deposits and
Federal funds sold 5 5
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Total interest income 1,329 1,247
INTEREST EXPENSE
Deposits 457 548
Federal Home Loan Bank advances 362 304
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Total interest expense 819 852
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NET INTEREST INCOME 510 395
Provision for loan losses 15 8
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 495 387
NONINTEREST INCOME
Service charges and other fees 28 28
Gain on sale of securities
available for sale, net 38 25
Other income 28 30
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Total noninterest income 94 83
NONINTEREST EXPENSE
Salaries and employee benefits 200 192
Occupancy and equipment 50 48
Professional and consulting fees 36 27
Franchise taxes 25 22
Data processing 27 21
Director and committee fees 16 17
Other expense 68 57
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Total noninterest expense 422 384
------- -------
INCOME BEFORE INCOME TAXES 167 86
Income tax expense (benefit) 33 (2)
------- -------
NET INCOME $ 134 $ 88
======= =======
EARNINGS PER COMMON SHARE (BASIC) $ 0.36 $ 0.24
======= =======
EARNINGS PER COMMON SHARE (DILUTED) $ 0.36 $ 0.24
======= =======
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See accompanying notes to financial statements.
4
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
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Three Months Ended
September 30,
------------------
2002 2001
---- ----
Net income $ 134 $ 88
Other comprehensive income, net of tax
Unrealized gains (losses) on securities
available for sale arising during period 102 131
Reclassification adjustment for
accumulated (gains) losses included in
net income (25) (16)
----- -----
Net unrealized gains (losses)
on securities 77 115
Comprehensive income (loss) $ 211 $ 203
===== =====
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See accompanying notes to financial statements.
5
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, 2001 $ 4 $ 3,245 $ 5,730 $ (371) $ (514) $ 33 $8,127
Net income for the period -- -- 88 -- -- -- 88
Cash dividend - $0.12 per share -- -- (44) -- -- -- (44)
Release of 833 esop shares -- 1 -- 8 -- -- 9
Change in fair value of securities
available for sale -- -- -- -- -- 115 115
---- ------- ------- ------ ---- -------- --------
Balance at September 30, 2001 $ 4 $ 3,246 $ 5,774 $ (363) $ (514) $ 148 $8,295
===== ======= ======= ====== ====== ======== =======
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See accompanying notes to financial statements.
6
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
(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, 2002 $ 4 $ 3,255 $ 5,838 $ (341) $ (514) $ 21 $ 8,263
Net income for the period -- -- 134 -- -- -- 134
Cash dividend - $0.08 per share -- -- (28) -- -- -- (28)
Release of 805 ESOP shares -- 4 -- 7 -- -- 11
Exercise of 1,540 stock options -- -- -- -- 18 -- 18
Change in fair value of securities
available for sale -- -- -- -- -- 77 77
------- ------- ------- ------- ------- ------- -------
Balance at September 30, 2002 $ 4 $ 3,259 $ 5,944 $ (334) $ (496) $ 98 $ 8,475
======= ======= ======= ======= ======= ======= =======
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See accompanying notes to financial statements.
7
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
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Three Months Ended
September 30,
-------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 134 $ 88
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation 29 29
Premium amortization, net of accretion 45 (8)
Provision for loan losses 15 8
Federal Home Loan Bank stock dividends (17) (21)
Increase in cash surrender value of life insurance (26) (29)
Gain/Loss on sale of securities available for sale (38) (25)
Compensation expense on ESOP shares 11 9
Net change in accrued interest receivable and other assets (19) (44)
Net change in accrued expenses and other liabilities 13 7
-------- --------
Net cash from operating activities 147 14
CASH FLOWS FROM INVESTING ACTIVITIEs
Net change in time deposits -- --
Purchases of securities available for sale (15,326) (4,977)
Proceeds from sales of securities available for sale 6,703 3,291
Proceeds from maturities of securities available for sale 2,376 1,228
Net change in loans (817) (2,591)
Premises and equipment expenditures, net (25) --
Purchases of Federal Home Loan Bank stock (273) --
-------- --------
Net cash from investing activities (7,362) (3,049)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 1,717 314
Net change in short-term Federal Home Loan Bank advances (2,700) 2,000
Repayment of long-term FHLB advances -- (1,000)
Proceeds from long-term Federal Home Loan Bank advances 9,000 --
Principal payments on long-term debt (32) --
Cash dividends paid (28) (44)
Proceeds from exercise of stock options 18 --
-------- --------
Net cash from financing activities 7,975 1,270
-------- --------
Net change in cash and cash equivalents 760 (1,765)
Cash and cash equivalents at beginning of period 1,605 3,499
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,365 $ 1,734
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 779 $ 865
Income taxes 25 --
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See accompanying notes to financial statements.
8
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
(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
September 30, 2002, 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 accounting principles
generally accepted in the United States of America 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 year ended
June 30, 2002. The accounting policies of the Corporation described in the notes
to financial statements contained in the Corporation's June 30, 2002, financial
statements have been consistently followed in preparing this Form 10-QSB. The
results of operations for the three months ended September 30, 2002 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 subsidiaries, Indian Village Community Bank (the "Bank")
and the Delaware Valley Title, LLC (the "Title Company"). All significant
intercompany transactions and balances have been eliminated.
The Corporation's and Bank's revenues, operating income and assets are derived
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. The business of the Title Company is to issue title
insurance underwritten by a third party. The Title Company, which was formed on
September 12, 2001, did not have any significant assets or activity as of or for
the three months ended September 30, 2002.
To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, 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
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
(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 months ended September 30, 2002
used for this calculation were 369,349. The weighted average number of shares
outstanding during the three months ended September 30, 2001 used for this
calculation were 366,185. Employee Stock Ownership Plan ("ESOP") shares are
considered outstanding for this calculation unless unallocated. Diluted earnings
per share shows the dilutive effect of additional common shares issuable under
stock options. The weighted average number of shares outstanding during the
three months ended September 30, 2002 used for this calculation were 375,327.
The weighted average number of shares outstanding during the three months ended
September 30, 2001 used for this calculation were 366,632. There were no shares
that were anti-dilutive for the period ended September 30, 2002.
NOTE 2 -CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN
ASSOCIATION WITH THE CONCURRENT FORMATION OF A HOLDING COMPANY
As part of the conversion from a mutual to a stock company, 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
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
(Unaudited)
(Table dollar amounts in thousands)
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NOTE 3 - SECURITIES AVAILABLE FOR SALE
The estimated fair values of securities available for sale are summarized as
follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Gains Losses Value
----- ------ -----
September 30, 2002
------------------
U.S. Government agencies $ 8 $ -- $ 342
Obligations of states and
political subdivisions 69 (1) 2,449
Corporate debt securities 39 (6) 1,527
Mortgage-backed securities 170 (72) 26,668
Equity securities -- (59) 1,091
-------- -------- --------
$ 286 $ (138) $ 32,077
======== ======== ========
June 30, 2002
-------------
Obligations of states and
political subdivisions $ 78 $ (43) $ 6,081
Corporate debt securities 26 -- 966
Mortgage-backed securities 91 (41) 17,274
Equity securities -- (78) 1,400
-------- -------- --------
$ 195 $ (162) $ 25,721
======== ======== ========
The estimated fair values of debt securities available for sale at September 30,
2002, 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
Fair
Value
-----
Due after one year through five years $ 1,102
Due after five years through ten years 1,308
Due after ten years 2,999
Mortgage-backed securities 26,668
-----------
$ 32,077
===========
Proceeds from sales of securities available for sale during the three months
ended September 30, 2002 were $6.7 million. Gross gains of $43,000 and gross
losses of $5,000 were realized on those sales. Proceeds from sales of securities
available for sale during the three months ended September 30, 2001 were $3.3
million. Gross gains of $27,000 and gross losses of $2,000 were realized on
those sales.
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(Continued)
11
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
(Unaudited)
(Table dollar amounts in thousands)
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NOTE 4 - LOANS
Loans are summarized as follows:
September 30, June 30,
2002 2002
---- ----
Real estate loans:
One- to four-family residential $ 39,184 $ 38,898
Multi-family residential 2,382 2,392
Nonresidential 2,502 2,476
Construction 2,088 1,863
Land 569 610
46,725 46,239
Consumer loans:
Home equity loans and lines of credit 2,148 2,096
Home improvement 1,211 1,346
Automobile 1,523 1,463
Loans on deposit accounts 502 312
Unsecured 124 187
Other 790 556
-------- --------
6,298 5,960
Commercial business loans 674 1,100
-------- --------
53,697 53,299
Less:
Net deferred loan fees and costs (65) (62)
Loans in process (4) --
Allowance for loan losses (346) (757)
-------- --------
$ 53,282 $ 52,480
======== ========
Activity in the allowance for loan losses is summarized as follows:
Three Months Ended
September 30,
----------------
2002 2001
----- -----
Balance at beginning of period $ 757 $ 253
Provision for losses 15 8
Charge-offs (427) (2)
Recoveries 1 --
----- -----
Balance at end of period $ 346 $ 259
===== =====
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(Continued)
12
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
(Unaudited)
(Table dollar amounts in thousands)
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NOTE 4 - LOANS (Continued)
Nonaccrual loans totaled approximately $1,303,000 and $2,045,000 at September
30, 2002, and June 30, 2002, respectively.
Impaired loans were as follows.
September 30, June 30,
2002 2002
---- ----
Loans with no allocated allowance $ -- $ --
for loan losses
Loans with allocated allowance 716 1,225
------ -----
Total $ 716 $ 1,225
2002 2001
---- ----
Amount of the allowance for loan losses allocated $ 184 $ --
Average of impaired loans during the period $1,048 $ --
Interest income recognized during impairment $ -- $ --
Cash-basis interest income recognized $ -- $ --
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 September 30, 2002, variable rate and fixed rate commitments to make loans
or fund outstanding lines of credit amounted to approximately $1,208,000 and
$1,579,000. As of June 30, 2002, variable rate and fixed rate commitments to
make loans or fund outstanding lines of credit amounted to approximately
$1,631,000 and $2,210,000. Since loan commitments may expire without being used,
the amounts do not necessarily represent future cash commitments.
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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 September 30, 2002 compared to
June 30, 2002, and results of operations for the three months ended September
30, 2002 compared with the same period in 2001. 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 September 30, 2002 were $93.6 million compared to $85.3 million
at June 30, 2002, an increase of $8.3 million, or 9.7%. The increase in total
assets was funded by an increase in borrowings of $6.3 million and by deposit
growth of $1.7 million which was used to increase securities available for sale
by $6.4 million and increase net loans by $800,000. The increase in securities
available for sale consisted primarily of an increase in mortgage-backed
securities of $9.3 million which was offset by a decrease in municipal
securities of $3.7 million. The increase in loans consisted primarily of an
increase in one- to four-family residential real estate loans of $286,000 and an
increase in consumer loans of $338,000.
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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 $53.7 million at September 30, 2002 compared to $52.0
million at June 30, 2002, an increase of $1.7 million, or 3.3%. The Corporation
experienced an increase in certificates of deposit of $1.2 million and savings
accounts of $284,000. The certificate deposit portfolio as a percent of total
deposits remained the same at 70.7% at June 30, 2002 and September 30, 2002.
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 $31.1
million at September 30, 2002 and $24.8 million at June 30, 2002. 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 September 30, 2002 consisted of $20.2 million in long-term
callable fixed-rate advances and $10.9 million in fixed rate mortgage-matched
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 increased from $8.3 million at June 30, 2002 to $8.5
million at September 30, 2002.
Nonperforming assets, consisting of $70,000 in real estate owned and $1,303,000
of nonaccrual loans, totaled $1,373,000 at September 30, 2002 or 1.5% of total
assets, a decrease of $742,000 from June 30, 2002. The nonaccrual loans consist
of $637,000 of commercial loans, $395,000 of residential loans and $271,000 of
consumer loans. The allowance for loan losses totaled $346,000 at September 30,
2002, representing 26.6% of nonaccrual loans and 0.64% of gross loans
receivable. At June 30, 2002 the allowance for loan losses totaled $757,000 and
represented 37.0% of nonaccrual loans and 1.42% of gross loans receivable. The
allowance for loan losses at June 30, 2002 included the specific provision of
$460,000 relating to the default of two large commercial loan relationships,
that was expensed in the fourth quarter of 2002. The decrease in the allowance
for loan losses at September 30, 2002 is also reflected in a decrease in
nonaccrual loans as a result of the charge-off of one of the defaulted loan
relationships as described below.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2002 AND SEPTEMBER 30, 2001
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 $134,000 for the three months ended September 30, 2002, compared
to $88,000 for the three months ended September 30, 2001. The increase in net
income for the three months ended September 30, 2002 was
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15
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
primarily the result of an increase in net interest income, partially offset by
an increase in income tax expense and other noninterest operating expenses.
Basic earnings per common share was $0.36 for the three months ended September
30, 2002 compared to $0.24 for the three months ended September 30, 2001.
Diluted earnings per common share was $0.36 for the three months ended September
30, 2002 compared to $0.24 for the three months ended September 30, 2001.
Net interest income totaled $510,000 for the three months ended September 30,
2002, as compared to $395,000 for the three months ended September 30, 2001,
representing an increase of $115,000, or 29.1%. The change in net interest
income is attributable to an increase in average net earning assets offset by a
decrease in the yield on earning assets.
Interest and fees on loans increased approximately $27,000, or 2.7%, from
$992,000 for the three months ended September 30, 2001 to $1.0 million for the
three months ended September 30, 2002. The increase in interest income was due
to higher average loans offset by a lower average yield on loans.
Interest earned on securities totaled $305,000 for the three months ended
September 30, 2002, as compared to $250,000 for the three months ended September
30, 2001. The increase was due to higher average securities offset by a lower
average yield on securities.
Interest on interest-bearing deposits and overnight deposits was $5,000 for the
three months ended September 30, 2002 and September 30, 2001.
Interest paid on deposits decreased $91,000 for the three months ended September
30, 2002, compared to the three months ended September 30, 2001. The decrease in
interest expense was due to a decrease in the cost of funds offset with an
increase in the average balances of deposits.
Interest on Federal Home Loan Bank advances totaled $362,000 for the three
months ended September 30, 2002, compared to $304,000 for the three months ended
September 30, 2001. The increase was the result of a higher average balance
offset by a lower cost of funds. The additional borrowings were used to provide
funding for loan demand and the purchase of investment securities.
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 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 probable losses in the loan portfolio.
The provision for loan losses for the three months ended September 30, 2002
totaled $15,000 compared to $8,000 for the three months ended September 30,
2001. The Corporation experienced net charge-offs of $426,000 and $2,000 during
the three months ended September 30, 2002 and September 30, 2001, respectively.
The increase in net charges-offs compared to the 2001 period was the result of
the charge-off of $427,000 related to a large commercial borrowing relationship.
The borrower, a modular and manufactured homes dealer, who still has a remaining
credit relationship of $678,000 which is classified as impaired, has filed
chapter 7 bankruptcy as of July 29, 2002. This relationship is collateralized by
new and used modular and manufactured homes inventory, receivables and equipment
associated with the business. Management has retained legal counsel specializing
in bankruptcy issues and a receiver has been appointed to liquidate the assets
of the business.
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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
September 30, 2002, noninterest income totaled $94,000, compared to $83,000 for
the three months ended September 30, 2001. During the 2002 period, the
Corporation experienced an increase in net gains on sales of securities
available for sale of $13,000.
Noninterest expense totaled $422,000 for the three months ended September 30,
2002 compared to $384,000 for same period in 2001. The increase in noninterest
expense was primarily the result of a $9,000 increase in professional and
consulting expenses and a $8,000 increase in salaries and employee benefits.
The volatility of income tax expense is primarily attributable to the change in
income before income taxes. The provision for income taxes totaled $33,000 for
the three months ended September 30, 2002 compared to a tax benefit of $2,000
for the three months ended September 30, 2001. The tax benefit for the 2001
period is attributable to tax exempt securities interest income.
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 September 30, 2002
and 2001.
Three Months Ended
September 30,
-------------
2002 2001
---- ----
Net income $ 134 $ 88
Adjustments to reconcile net income to
net cash from operating activities 13 (74)
------- -------
Net cash from operating activities 147 14
Net cash from investing activities (7,362) (3,049)
Net cash from financing activities 7,975 1,270
------- -------
Net change in cash and cash equivalents 760 (1,765)
Cash and cash equivalents at beginning of period 1,605 3,499
------- -------
Cash and cash equivalents at end of period $ 2,365 $ 1,734
======= =======
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, deposit withdrawls, 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.
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17
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
Total shareholders' equity increased $212,000 between June 30, 2002 and
September 30, 2002, the increase was primarily due to increases in earnings
retained and an increase in other comprehensive income.
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 September 30, 2002,
and June 30, 2002, the Bank complies with all regulatory capital requirements.
Based on the Bank's computed regulatory capital ratios at September 30, 2002 and
June 30, 2002, the Bank is considered well capitalized under the Federal Deposit
Insurance Corporation Act.
At September 30, 2002, and June 30, 2002 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
------ ----- ------ ----- ------ ----
September 30, 2002
- ------------------
Total capital (to risk-
weighted assets) $8,253 16.3% $4,047 8.0% $5,059 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 7,907 15.6 2,023 4.0 3,035 6.0
Tier 1 (core) capital (to
adjusted total assets) 7,907 8.9 3,574 4.0 4,467 5.0
Tangible capital (to
adjusted total assets) 7,907 8.9 1,340 1.5 N/A
June 30, 2002
- -------------
Total capital (to risk-
weighted assets) $8,467 16.4% $4,121 8.0% $5,151 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 7,710 15.0 2,060 4.0 3,091 6.0
Tier 1 (core) capital (to
adjusted total 7,710 9.0 3,431 4.0 4,289 5.0
Tangible capital (to
adjusted total assets) 7,710 9.0 1,287 1.5 N/A
- --------------------------------------------------------------------------------
18
INDIAN VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Table dollar amounts in thousands)
- --------------------------------------------------------------------------------
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. The Corporation maintains
controls and procedures designed to ensure that information required to be
disclosed in the reports that the Corporation files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission. Based upon their evaluation of those controls and
procedures performed within 90 days of the filing date of this report, the chief
executive officer and the vice president, controller (principal accounting &
financial officer) of the Corporation concluded that the Corporation's
disclosure controls and procedures were adequate.
Changes in internal controls. The Corporation made no significant changes in its
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and chief financial officer.
- --------------------------------------------------------------------------------
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)
(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) On August 22, 2002, the Corporation filed a Current Report on
Form 8-K reporting that the Corporation's 2002 Annual Meeting of
Shareholders will be held on November 6, 2002. The press
release, issued August 22, 2002, was attached as an exhibit to
the Form 8-K.
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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: November 13, 2002 /s/ Marty R. Lindon
----------------------- ----------------------------------------
Marty R. Lindon
President and Chief Executive Officer
Date: November 13, 2002 /s/ Andrea R. Miley
----------------------- ----------------------------------------
Andrea R. Miley
Vice President, Controller
(principal accounting & financial officer)
- --------------------------------------------------------------------------------
21
INDIAN VILLAGE BANCORP, INC.
CERTIFICATION
- --------------------------------------------------------------------------------
I, Marty R. Lindon, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Indian Village
Bancorp, Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of , and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15-d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Marty R. Lindon
President & Chief Executive Officer
(principal executive officer)
- --------------------------------------------------------------------------------
22
INDIAN VILLAGE BANCORP, INC.
CERTIFICATION
- --------------------------------------------------------------------------------
I, Andrea R. Miley, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Indian Village
Bancorp, Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of , and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15-d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Andrea R. Miley
Vice President - Controller
(principal accounting and
financial officer)
- --------------------------------------------------------------------------------
23