FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File Number 2-47541
RIVER VALLEY BANCORP
(Exact name of registrant as specified in its charter)
Indiana 35-1984567
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 Clifty Drive
Madison, Indiana 47250
- ------------------------------------ --------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (812) 273-4949
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
As of November 7, 1997, the latest practicable date 1,190,250 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 18 pages
River Valley Bancorp
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
River Valley Bancorp
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, December 31,
ASSETS 1997 1996
Cash and due from banks $ 3,150 $ 4,209
Federal funds sold 300 -
Interest bearing deposits in other financial institutions 954 4,476
---------- ---------
Cash and cash equivalents 4,404 8,685
Certificates of deposit in other financial institutions 896 100
Investment securities designated as available for sale - at market 767 3,448
Investment securities - at amortized cost, approximate market value of
$3,467 and $5,434 as of September 30, 1997 and December 31, 1996 3,500 5,500
Mortgage-backed securities designated as available for sale - at market 4,385 5,041
Mortgage-backed and related securities - at cost, approximate market
value of $6,087 and $7,794 as of September 30, 1997 and December 31, 1996 6,096 7,805
Loans receivable - net 112,525 107,918
Loans held for sale - at lower of cost or market - 1,076
Office premises and equipment - at depreciated cost 1,812 2,057
Real estate acquired through foreclosure 82 -
Federal Home Loan Bank stock - at cost 943 943
Federal Reserve Bank stock - at cost 144 80
Accrued interest receivable on loans 978 819
Accrued interest receivable on mortgage-backed securities 62 78
Accrued interest receivable on investments and interest-earning deposits 56 171
Goodwill, net of accumulated amortization 252 272
Cash surrender value of life insurance 773 747
Prepaid expenses and other assets 94 169
Prepaid federal income taxes 39 4
Deferred tax asset 653 628
---------- ----------
Total assets $138,461 $145,541
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $115,676 $125,656
Advances from the Federal Home Loan Bank 3,000 1,100
Advances by borrowers for taxes and insurance 74 70
Accrued interest payable 238 279
Other liabilities 1,634 1,422
Dividends payable 48 -
Minority interest in consolidated subsidiary 180 209
---------- ----------
Total liabilities 120,850 128,736
Stockholders' equity
Preferred stock - 2,000,000 shares without par value
authorized; no shares issued - -
Common stock - 5,000,000 shares without par value authorized;
1,190,250 shares issued and outstanding - -
Additional paid in capital 11,173 11,173
Retained earnings - substantially restricted 7,520 6,635
Shares acquired by stock benefit plans (1,033) (952)
Unrealized losses on securities designated as available for sale,
net of related tax effects (49) (51)
----------- -----------
Total stockholders' equity 17,611 16,805
-------- --------
Total liabilities and stockholders' equity $138,461 $145,541
======= =======
3
River Valley Bancorp
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Nine months ended Three months ended
September 30, September 30,
1997 1996 1997 1996
Interest income
Loans $6,834 $3,364 $2,347 $1,113
Mortgage-backed and related securities 564 424 180 133
Investment securities 220 426 64 135
Interest-earning deposits and other 261 136 65 27
------ ------ ------- -------
Total interest income 7,879 4,350 2,656 1,408
Interest expense
Deposits 3,654 2,492 1,203 801
Borrowings 93 47 59 3
------- ------- ------- --------
Total interest expense 3,747 2,539 1,262 804
----- ----- ----- ------
Net interest income 4,132 1,811 1,394 604
Provision for losses on loans 238 18 68 6
------ ------- ------- --------
Net interest income after provision for losses on loans 3,894 1,793 1,326 598
Other income
Insurance commissions 10 156 3 52
Loss on sale of investment and mortgage-backed securities (4) - (7) -
Gain on sale of loans 73 - 59 -
Gain (loss) on sale of office premises and equipment 202 - (1) -
Service fees, charges and other operating 589 172 192 75
------ ------ ------ -------
Total other income 870 328 246 127
General, administrative and other expense
Employee compensation and benefits 1,663 890 581 298
Occupancy and equipment 376 142 128 44
Federal deposit insurance premiums 27 637 12 549
Amortization of goodwill 20 5 6 1
Data processing 189 206 56 65
Other operating 849 274 281 90
------ ------ ------ -------
Total general, administrative and other expense 3,124 2,154 1,064 1,047
----- ----- ----- -----
Earnings (loss) before income taxes (credits) 1,640 (33) 508 (322)
Income taxes (credits)
Current 685 58 197 (90)
Deferred (25) (68) (4) (28)
------- ------- -------- -------
Total income taxes (credits) 660 (10) 193 (118)
------ ------- ------ ------
NET EARNINGS (LOSS) $ 980 $ (23) $ 315 $ (204)
====== ======= ====== ======
EARNINGS PER SHARE $.90 N/A $.29 N/A
=== === === ===
4
River Valley Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(In thousands)
1997 1996
Cash flows from operating activities:
Net earnings (loss) for the period $ 980 $ (23)
Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:
Amortization of premiums and discounts on investments and
mortgage-backed securities - net (5) (2)
Loss on sale of investment and mortgage-backed securities designated
as available for sale 4 -
Loans originated for sale in the secondary market (5,415) -
Proceeds from sale of loans in the secondary market 6,521 -
Gain on sale of loans (30) -
Amortization of deferred loan origination costs 5 11
Provision for losses on loans 238 18
Depreciation and amortization 147 41
Amortization of goodwill 20 5
Gain on sale of office premises and equipment (202) -
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (159) 35
Accrued interest receivable on mortgage-backed securities 16 8
Accrued interest receivable on investments and interest-bearing deposits 115 145
Prepaid expenses and other assets 77 (331)
Accrued interest payable (41) 9
Other liabilities 231 581
Income taxes
Current (35) (40)
Deferred (25) (68)
--------- ---------
Net cash provided by operating activities 2,442 389
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 2,000 3,500
Proceeds from sale of investment securities designated as available for sale 2,698 -
Proceeds from sale of mortgage-backed securities designated as available for sale 1,473 -
Purchase of mortgage-backed securities (1,010) -
Principal repayments on mortgage-backed securities 1,886 1,686
Loan principal repayments 24,034 13,301
Loan disbursements (28,966) (14,110)
Purchase of Federal Reserve Bank stock (64) -
Purchase of office equipment (107) -
Proceeds from sale of office premises and equipment 407 -
(Increase) decrease in certificates of deposit in other financial institutions - net (796) 200
Purchase of single premium life insurance - (188)
Increase in cash surrender value of life insurance (26) (18)
--------- ---------
Net cash provided by investing activities 1,529 4,371
------- -------
Net cash provided by operating and investing
activities (subtotal carried forward) 3,971 4,760
------- -------
5
River Valley Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(In thousands)
1997 1996
Net cash provided by operating and investing
activities (subtotal brought forward) $3,971 $4,760
Cash flows provided by (used in) financing activities:
Increase (decrease) in deposit accounts (9,980) 1,595
Proceeds from Federal Home Loan Bank advances 5,000 -
Repayment of Federal Home Loan Bank advances (3,100) (4,471)
Advances by borrowers for taxes and insurance 4 20
Dividends on common stock (95) -
Purchase of shares for stock benefit plans (81) -
------- ----
Net cash used in financing activities (8,252) (2,856)
----- -----
Net increase (decrease) in cash and cash equivalents (4,281) 1,904
Cash and cash equivalents at beginning of period 8,685 2,389
----- -----
Cash and cash equivalents at end of period $4,404 $4,293
===== =====
Supplemental disclosure of cash flow information: Cash paid during the year for:
Federal income taxes $ 438 $ 84
====== =======
Interest on deposits and borrowings $3,788 $2,530
===== =====
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ 82 $ -
======= ====
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 2 $ 62
======== ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 122 $ 43 $ -
======= ====
6
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 5, 1996, the Board of Directors of Madison First Federal Savings and
Loan Association ("First Federal") adopted an overall plan of conversion and
reorganization (the "Plan") whereby First Federal would convert to the stock
form of ownership, followed by the issuance of all of First Federal's
outstanding stock to a newly formed holding company, River Valley Bancorp
("River Valley" or the "Corporation"). Pursuant to the Plan, the Corporation
offered for sale up to 1,190,250 common shares to certain depositors of First
Federal and members of the community. The conversion was completed on December
20, 1996, and resulted in the issuance of 1,190,250 common shares of the
Corporation which, after consideration of offering and acquisition expenses
totaling approximately $730,000, and shares purchased by the ESOP totaling
$952,000, resulted in net capital proceeds of $10.2 million. The financial
statements included herein for periods prior to December 20, 1996, are those of
First Federal prior to the conversion to stock form.
In connection with the Conversion, River Valley acquired 95.6% of the
outstanding stock of Citizens National Bank of Madison (the "Bank" or
"Citizens") for $3.1 million. This acquisition was accounted for using the
purchase method of accounting and as such, the September 30, 1996, financial
statements presented herein have not been restated for this acquisition.
The Corporation is a financial institution holding company whose activities are
primarily limited to holding the stock of First Federal and the Bank
(collectively, "the Institutions"). The Institutions conduct a general banking
business in southeastern Indiana which consists of attracting deposits from the
general public and applying those funds to the origination of loans for
consumer, residential and commercial purposes. The Institutions' profitability
is significantly dependent on net interest income, which is the difference
between interest income generated from interest-earning assets (i.e. loans and
investments) and the interest expense paid on interest-bearing liabilities (i.e.
customer deposits and borrowed funds). Net interest income is affected by the
relative amount of interest-earning assets and interest-bearing liabilities and
the interest received or paid on these balances. The level of interest rates
paid or received by First Federal and the Bank can be significantly influenced
by a number of competitive factors, such as governmental monetary policy, that
are outside of management's control.
1. Basis of Presentation
The accompanying unaudited financial statements were prepared in accordance with
instructions for Form 10-QSB and, therefore, do not include information or
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. Accordingly, these financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of the
Corporation included in the Annual Report on Form 10-KSB for the year ended
December 31, 1996. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for a fair
presentation of the financial statements have been included. The results of
operations for the nine and three month periods ended September 30, 1997 and
1996 are not necessarily indicative of the results which may be expected for an
entire year.
7
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries, the Bank and First Federal and its subsidiary, Madison
First Service Corporation ("First Service"). All significant intercompany
balances and transactions have been eliminated in the accompanying consolidated
financial statements.
3. Effect of Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and reporting
standards for stock-based compensation plans. SFAS No. 123 encourages all
entities to adopt a new method of accounting to measure compensation cost of all
stock compensation plans based on the estimated fair value of the award at the
financial statement date. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense recognition
for most plans. Companies that elect to remain with the existing accounting are
required to disclose in a footnote to the financial statements pro forma net
earnings and, if presented, earnings per share, as if SFAS No. 123 had been
adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into during fiscal years that begin after December 15,
1995, although companies are required to disclose information for awards granted
in their first fiscal year beginning after December 15, 1994. Management has
determined that the Corporation will continue to account for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25, and
therefore the disclosure provisions of SFAS No. 123 have no effect on
consolidated financial position or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights, and Extinguishment of Liabilities", that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, referred to
as the financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse.
8
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effect of Recent Accounting Pronouncements (continued)
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on River Valley's consolidated financial position or results of
operations.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which is
effective for financial statements for periods ending after December 15, 1997,
including interim periods. SFAS No. 128 simplifies the calculation of earnings
per share by replacing primary EPS with basic EPS. It also requires dual
presentation of basic EPS and diluted EPS for entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in earnings, such as stock options, warrants or
other common stock equivalents. All prior period EPS data will be restated to
conform with the new presentation. SFAS No. 128 is not expected to have a
material impact on the Corporation's financial statements.
In February 1997, the FASB issued SFAS No. 129, "Disclosures of Information
about Capital Structure." SFAS No. 129 consolidated existing accounting guidance
relating to disclosure about a company's capital structure. SFAS No. 129 is
effective for financial statements for periods ending after December 15, 1997.
SFAS No. 129 is not expected to have a material impact on the Corporation's
financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
9
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effect of Recent Accounting Pronouncements (continued)
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on the Corporation's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 is not expected to have a material impact on the
Corporation's financial statements.
4. Earnings Per Share
Earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares deemed outstanding,
which gives effect to 95,220 unallocated ESOP shares, totaled 1,095,050 for each
of the three and nine month periods ended September 30, 1997. The provisions of
Accounting Principles Board Opinion No. 15, "Earnings Per Share", is not
applicable for the three and nine months ended September 30, 1997, as the
Corporation completed its conversion to stock form in December 1996.
5. Reclassifications
Certain reclassifications have been made to the 1996 consolidated financial
statements to conform to the September 30, 1997 presentation.
6. Proposed Legislation
Congress is considering legislation to eliminate the federal savings and loan
charter and separate federal regulation of savings and loan associations.
Pursuant to such legislation, Congress may develop a common charter for all
financial institutions, eliminate the OTS and regulate First Federal as a bank
or require it to change its charter to that of a national bank. Management does
not believe the pending legislation would have a material effect on the
financial statements of the Corporation.
10
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 1997 and 1996
Forward-Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Corporation's operations and the Corporation's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, legislative changes with respect to the federal thrift
charter and the effect of certain accounting pronouncements.
Discussion of Financial Condition Changes from December 31, 1996 to
September 30, 1997
At September 30, 1997, River Valley's consolidated assets totaled $138.5
million, a decrease of $7.1 million, or 4.9%, from the December 31, 1996 total
of $145.5 million. The decrease in assets resulted primarily from a decrease in
the deposit portfolio of $10.0 million, which was partially offset by an
increase in advances from the Federal Home Loan Bank of $1.9 million and
undistributed net earnings of $885,000.
Liquid assets (i.e., cash, federal funds sold, interest-earning deposits and
certificates of deposit) decreased by $3.5 million from December 31, 1996 levels
to a total of $5.3 million at September 30, 1997. Investment securities totaled
$4.3 million at September 30, 1997, a decrease of $4.7 million, or 52.3%, from
December 31, 1996 levels. During the nine month period ended September 30, 1997,
maturities of investment securities totaled $2.0 million, while sales of
investment securities designated as available for sale totaled $2.7 million.
Mortgage-backed securities decreased by $2.4 million, or 18.4%, to a total of
$10.5 million at September 30, 1997, primarily due to principal repayments of
$1.9 million and sales of mortgage-backed securities designated as available for
sale of $1.5 million.
The decrease in liquid assets, investments and mortgage-backed securities
resulted from the utilization of these assets to fund loan originations and the
sale of deposits related to the disposition of the Hanover, Indiana branch which
was consummated in February 1997.
Loans receivable, including loans held for sale, totaled $112.5 million at
September 30, 1997, an increase of $3.5 million, or 3.2%, over the $109.0
million total at December 31, 1996. The increase resulted primarily from loan
originations during the period of $34.4 million, which were partially offset by
principal repayments of $24.0 million and sales of $6.5 million.
The Corporation's consolidated allowance for loan losses totaled $1.2 million
and $1.1 million at September 30, 1997 and December 31, 1996, respectively,
which represented 1.1% and 1.0% of total loans at those dates. Nonperforming
loans (defined as loans delinquent greater than 90 days and loans on nonaccrual
status) totaled $897,000 and $819,000 at September 30, 1997 and December 31,
1996, respectively.
11
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Discussion of Financial Condition Changes from December 31, 1996 to September
30, 1997 (continued)
Although management believes that its allowance for loan losses at September 30,
1997 was adequate based upon the available facts and circumstances, there can be
no assurance that additions to such allowance will not be necessary in future
periods, which could negatively affect the Corporation's results of operations.
Deposits decreased by $10.0 million, or 7.9%, to a total of $115.7 million,
compared to the $125.7 million total at December 31, 1996. The decline can be
attributed primarily to $6.8 million of deposits sold in conjunction with the
aforementioned sale of First Federal's Hanover branch.
Advances from the Federal Home Loan Bank totaled $3.0 million at September 30,
1997, an increase of $1.9 million, or 172.7%, over the $1.1 million total at
December 31, 1996. The increase was due to current period borrowings of $5.0
million, offset by repayments of $3.1 million. The borrowings were deployed
primarily into loan originations.
Stockholders' equity totaled $17.6 million at September 30, 1997, an increase of
$806,000, or 4.8%, over the $16.8 million total at December 31, 1996. The
increase resulted primarily from current period earnings of $980,000 and a
$2,000 decrease in the unrealized losses on securities designated as available
for sale, partially offset by the declaration and payment of dividends totaling
$95,000 and the funding of certain stock benefit plans totaling $81,000. The
Institutions are each required to maintain minimum regulatory capital pursuant
to federal regulations. At September 30, 1997, each of the Institutions'
regulatory capital exceeded all applicable regulatory capital requirements.
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996
Increases in the level of income and expenses during the nine month period ended
September 30, 1997, as compared to the comparable period in 1996, are mainly due
to the inclusion of the accounts of Citizens National Bank of Madison, which was
acquired by River Valley on December 20, 1996, in a transaction accounted for
using the purchase method of accounting. Accordingly, the statement of earnings
and the statement of cash flows for the nine month period ended September 30,
1996, were not restated for the acquisition.
General
River Valley's net earnings for the nine months ended September 30, 1997,
totaled $980,000, an increase of $1.0 million, over the $23,000 net loss
reported in the comparable 1996 period. The increase in earnings in the 1997
period is primarily attributable to an increase in net interest income of $2.3
million and an increase of $542,000 in other income, which were partially offset
by an increase in the provision for losses on loans of $220,000, an increase in
general, administrative and other expense of $970,000 and an increase in the
provision for federal income taxes of $670,000.
12
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996 (continued)
Net Interest Income
Total interest income for the nine months ended September 30, 1997, amounted to
$7.9 million, an increase of $3.5 million, or 81.1%, over the comparable period
in 1996, reflecting the effects of growth in average interest-earning assets
outstanding, coupled with an increase in yield year-to-year. Interest income on
loans and mortgage-backed securities totaled $7.4 million for the nine months
ended September 30, 1997, an increase of $3.6 million, or 95.3%, over the
comparable 1996 period. The increase resulted primarily from the $55.4 million,
or 82.8%, increase in the average balance of loans and mortgage-backed
securities outstanding year-to-year, coupled with a 46 basis point increase in
yield, to 8.07% in 1997. Interest income on investments and interest-earning
deposits decreased by $81,000, or 14.4%, due to a decrease in the average
balance outstanding of $1.1 million and an approximate 34 basis point decrease
in yield from the comparable 1996 period.
Interest expense on deposits increased by $1.2 million, or 46.6%, to a total of
$3.7 million for the nine months ended September 30, 1997, due primarily to a
$43.2 million increase in the average balance of deposits outstanding, which was
partially offset by a decline in the weighted-average cost of deposits of 15
basis points, to 4.09% in 1997. Interest expense on borrowings totaled $93,000
for the nine months ended September 30, 1997, an increase of $46,000, or 97.9%,
over the comparable period in 1996. The increase resulted primarily from an
increase in average borrowings outstanding year-to-year, coupled with an
increase in average cost.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $2.3 million, or 128.2%, for the nine months
ended September 30, 1997, compared to the comparable period in 1996. The
interest rate spread increased by approximately 73 basis points for the nine
months ended September 30, 1997, to 3.81% from 3.08% in the 1996 period, while
the net interest margin amounted to approximately 3.12% in 1997 and 2.31% in
1996.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
upon historical experience, the volume and type of lending conducted by the
Institutions, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Institutions'
market area, and other factors related to the collectibility of the Institutions
loan portfolio. As a result of such analysis, management recorded a $238,000
provision for losses on loans for the nine months ended September 30, 1997. The
current period provision generally reflects the provision associated with
Citizens loan portfolio, as compared to the primarily residential loan portfolio
of First Federal prior to the acquisition. During the 1997 period, Citizens net
charge-offs amounted to approximately $111,000, primarily related to the
consumer loan portfolio. While management believes that the allowance for losses
on loans is adequate at September 30, 1997, based upon the available facts and
circumstances, there can be no assurance that the loan loss allowance will be
adequate to cover losses on nonperforming assets in the future.
13
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996 (continued)
Other Income
Other income increased by $542,000, or 165.2%, for the nine months ended
September 30, 1997, as compared to the same period in 1996, due primarily to a
$202,000 gain on sale of office premises and equipment, coupled with a $417,000
increase in service fees, charges and other operating income and a $73,000 gain
on sale of loans, which were partially offset by a decline of $146,000, or
93.6%, in insurance commissions year-to-year. The gain on sale of office
premises resulted from First Federal's sale of a branch office facility, located
in Hanover, Indiana, which was consummated on February 28, 1997, as required in
accordance with the terms of regulatory approval of the acquisition of the Bank.
The decline in insurance commissions resulted from First Federal's sale of its
insurance agency subsidiary during the last quarter of 1996. The increase in the
service fees, charges and other operating income primarily reflects inclusion of
the effect of the Bank's operations during the period.
General, Administrative and Other Expense
General, administrative and other expense increased by $970,000, or 45.0%,
during the nine months ended September 30, 1997, compared to the same period in
1996. This increase resulted primarily from a $773,000, or 86.9%, increase in
employee compensation and benefits, a $234,000, or 164.8%, increase in occupancy
and equipment expense and a $575,000, or 209.9%, increase in other operating
expense, which were partially offset by a $610,000, or 95.8%, decrease in
federal deposit insurance premiums. As previously discussed, the 1997
consolidated statements of operations include the accounts of Citizens, while
the 1996 statements have not been restated to include the effects of the
acquisition of Citizens. The increase in general, administrative and other
expense is primarily attributable to the addition of the Bank partially offset
by the absence of the SAIF recapitalization assessment for the nine month period
ended September 30, 1997, and the resulting lower insurance premiums.
Income Taxes
The provision for income taxes increased by $670,000 for the nine months ended
September 30, 1997, as compared to the same period in 1996. This increase
resulted primarily from an increase in net earnings before tax of $1.7 million.
The effective tax rates were 40.2% and 30.3% for the nine months ended September
30, 1997 and 1996, respectively.
14
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended September 30,
1997 and 1996
Increases in the level of income and expense during the three month period ended
September 30, 1997, as compared to the comparable quarter in 1996, is mainly due
to the inclusion of the accounts of Citizens National Bank of Madison, which was
acquired by River Valley on December 20, 1996, in a transaction accounted for
using the purchase method of accounting. Accordingly, the statement of earnings
for the quarter ended September 30, 1996 has not been restated for the
acquisition.
General
River Valley's net earnings for the three months ended September 30, 1997,
totaled $315,000, an increase of $519,000, over the $204,000 net loss in the
comparable 1996 period. The increase in earnings in the 1997 period is primarily
attributable to an increase in net interest income of $790,000 and an increase
of $119,000 in other income, which were partially offset by an increase in the
provision for losses on loans of $62,000, an increase in general, administrative
and other expense of $17,000, and an increase in the provision for federal
income taxes of $311,000.
Net Interest Income
Total interest income for the three months ended September 30, 1997 amounted to
$2.7 million, an increase of $1.2 million, or 88.6%, over the comparable quarter
in 1996, reflecting the effects of growth in average interest-earning assets
outstanding, coupled with an increase in average yield year-to-year. Interest
income on loans and mortgage-backed securities totaled $2.5 million for the
three months ended September 30, 1997, an increase of $1.3 million, or 102.8%,
over the comparable 1996 quarter. The increase resulted primarily from the $56.6
million, or 85.0%, increase in the average balance outstanding year-to-year.
Interest income on investments and interest-earning deposits decreased by
$33,000, or 20.4%, due to a decrease in the average balance outstanding of $2.0
million and an approximate 7 basis point decrease in yield over the comparable
1996 period.
Interest expense on deposits increased by $402,000, or 50.2%, to a total of $1.2
million for the quarter ended September 30, 1997, due primarily to a $40.1
million increase in the average balance of deposits outstanding. Interest
expense on borrowings totaled $59,000 for the three months ended September 30,
1997, an increase of $56,000 over the comparable quarter in 1996. The increase
resulted primarily from a $4.0 million increase in average borrowings
outstanding year-to-year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $790,000, or 130.8%, for the three months ended
September 30, 1997, as compared to the comparable quarter in 1996. The interest
rate spread amounted to approximately 3.87% for the 1997 quarter, compared to
3.07% in 1996, while the net interest margin totaled approximately 4.24% in the
1997 quarter, compared to 3.14% in 1996.
15
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended September 30,
1997 and 1996 (continued)
Provision for Losses on Loans
The provision for losses on loans increased by $62,000 over the comparable 1996
quarter to a total of $68,000. The current period provision generally reflects
the growth in the non-residential real estate and commercial loans portfolios,
integrated with a stable level of nonperforming loans in the period.
Other Income
Other income increased by $119,000, or 93.7%, for the three months ended
September 30, 1997, as compared to the same period in 1996, due primarily to a
$59,000 gain on sale of loans coupled with a $117,000 increase in service fees,
charges, and other operating income, which were partially offset by decline of
$49,000, in insurance commissions year-to-year. The decline in insurance
commissions resulted from First Federal's sale of its insurance subsidiary
during the last quarter of 1996.
General, Administrative and Other Expense
General, administrative and other expense increased by $17,000, or 1.6%, during
the three months ended September 30, 1997, compared to the same period in 1996.
This increase resulted primarily from a $283,000, or 95.0%, increase in employee
compensation and benefits, an $84,000 increase in occupancy and equipment and a
$191,000 increase in other operating expense, which were partially offset by a
$537,000, or 97.8%, decrease in federal deposit insurance premiums. As
previously discussed, the 1997 consolidated statements of operations include the
accounts of Citizens while the 1996 statements have not been restated to include
the effects of the acquisition of Citizens. The increase in general,
administrative and other expense is primarily attributable to the addition of
the Bank partially offset by the absence of the SAIF recapitalization assessment
for the three month period ended September 30, 1997, and the resulting lower
insurance premiums.
Income Taxes
The provision for income taxes increased by $311,000 for the three months ended
September 30, 1997, as compared to the same period in 1996. This increase
resulted primarily from an increase in net earnings before tax of $830,000. The
effective tax rates amounted to 38.0% and 36.6% for the three months ended
September 30, 1997 and 1996, respectively.
16
River Valley Bancorp
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
On September 26, 1997, River Valley Bancorp, Citizens National
Bank of Madison (the "Bank") and Madison First Federal Savings
and Loan Association executed an Agreement and Plan of
Reorganization (the "Merger Agreement") which provides for the
merger of the Bank into First Federal. The Merger Agreement
also changes the corporate title of the post-merger
institution to River Valley Financial Bank. Upon consummation
of the merger, the Bank's status as a national bank will
terminate and all of its assets and liabilities will be
assumed by First Federal. In addition, River Valley's status
as a bank holding company subject to regulation by the Federal
Reserve Board will terminate and River Valley will become a
savings and loan holding company subject to regulation by the
Office of Thrift Supervision ("OTS"). The parties submitted a
merger application to the OTS on September 26, 1997 and are
awaiting regulatory approval of the merger. Management
anticipates that the OTS will approve the merger application
and that the merger will be consummated by November 22, 1997.
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None
Exhibit 10.1: Recognition and Retention Plan
and Trust
Exhibit 10.2: Stock Option Plan
Exhibit 27: Financial Data Schedule for the nine
month period ended September 30, 1997
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 10, 1997 By: /s/James E. Fritz
------------------------ -----------------
James E. Fritz
CEO/President
Date: November 10, 1997 By: /s/J. Wayne Deveary
----------------------- -------------------
J. Wayne Deveary
Chief Financial Officer
18