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 June 30, 1998
--------------------------------
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) 265-3421
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 August 10, 1998, 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
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River Valley Bancorp
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, December 31,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 1,715 $ 3,542
Federal funds sold 700 300
Interest earning deposits in other financial institutions 1,454 1,026
------- -------
Cash and cash equivalents 3,869 4,868
Certificates of deposit in other financial institutions 200 897
Investment securities designated as available for sale - at market 776 772
Investment securities - at amortized cost, approximate market value of
$2,462 and $3,444 as of June 30, 1998 and December 31, 1997 2,500 3,500
Mortgage-backed securities designated as available for sale - at market 2,913 3,604
Mortgage-backed and related securities - at cost, approximate market
value of $4,720 and $5,432 as of June 30, 1998 and December 31, 1997 4,777 5,374
Loans receivable - net 109,022 111,319
Loans held for sale - at lower of cost or market 5,186 684
Office premises and equipment - at depreciated cost 2,099 2,065
Real estate acquired through foreclosure 82 82
Federal Home Loan Bank stock - at cost 943 943
Accrued interest receivable on loans 958 916
Accrued interest receivable on mortgage-backed and related securities 159 117
Accrued interest receivable on investments and interest-earning deposits 81 65
Goodwill, net of accumulated amortization 232 245
Cash surrender value of life insurance 800 776
Prepaid expenses and other assets 243 141
Prepaid federal income taxes 271 -
Deferred tax asset 572 681
------- -------
Total assets $135,683 $137,049
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $110,453 $114,955
Advances from the Federal Home Loan Bank 5,000 2,000
Advances by borrowers for taxes and insurance 28 53
Accrued interest payable 406 463
Other liabilities 1,241 1,524
Dividends payable 65 60
Accrued federal income taxes - 5
------- -------
Total liabilities 117,193 119,060
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 11,229 11,229
Retained earnings - substantially restricted 8,305 7,797
Shares acquired by stock benefit plans (1,026) (1,005)
Unrealized losses on securities designated as available for sale,
net of related tax effects (18) (32)
------- -------
Total stockholders' equity 18,490 17,989
------- -------
Total liabilities and stockholders' equity $135,683 $137,049
======= =======
</TABLE>
3
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Six months ended Three months ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $4,576 $4,487 $2,296 $2,286
Mortgage-backed and related securities 249 384 121 178
Investment securities 104 156 48 69
Interest-earning deposits and other 128 196 62 79
----- ----- ----- -----
Total interest income 5,057 5,223 2,527 2,612
Interest expense
Deposits 2,346 2,451 1,152 1,201
Borrowings 56 34 22 30
----- ----- ----- -----
Total interest expense 2,402 2,485 1,174 1,231
----- ----- ----- -----
Net interest income 2,655 2,738 1,353 1,381
Provision for losses on loans 150 170 75 74
----- ----- ----- -----
Net interest income after provision for losses on loans 2,505 2,568 1,278 1,307
Other income
Insurance commissions - 7 - -
Gain on sale of investment and mortgage-backed securities - 3 - 1
Gain on sale of loans 127 14 31 18
Gain on sale of office premises and equipment - 203 - -
Service fees, charges and other operating 411 397 203 194
----- ----- ----- -----
Total other income 538 624 234 213
General, administrative and other expense
Employee compensation and benefits 1,168 1,082 583 521
Occupancy and equipment 223 248 129 120
Federal deposit insurance premiums 20 15 9 9
Amortization of goodwill 13 14 7 8
Data processing 56 133 24 63
Other operating 517 568 229 251
----- ----- ----- -----
Total general, administrative and other expense 1,997 2,060 981 972
----- ----- ----- -----
Earnings before income taxes 1,046 1,132 531 548
Income taxes
Current 310 488 258 238
Deferred 102 (21) (40) (14)
----- ----- ----- -----
Total income taxes 412 467 218 224
----- ----- ----- -----
NET EARNINGS $ 634 $ 665 $ 313 $ 324
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.57 $.61 $.28 $.30
=== === === ===
Diluted $.56 $.61 $.28 $.30
=== === === ===
</TABLE>
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the six months ended June 30,
(In thousands)
1998 1997
<S> <C> <C>
Net earnings $634 $665
Unrealized holding gains (losses) during the period, net of tax 14 (19)
Reclassification adjustment for gains on sale of securities included
in net earnings, net of related taxes - 13
--- ---
Comprehensive income $648 $659
=== ===
Accumulated other comprehensive losses $ (18) $ (70)
==== ====
</TABLE>
5
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands)
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 634 $ 665
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums and discounts on
investments and mortgage-backed securities - net 24 (2)
Gain on sale of investment and mortgage-backed securities designated
as available for sale - (3)
Loans originated for sale in the secondary market (12,538) (1,396)
Proceeds from sale of loans in the secondary market 8,090 2,188
Loss (gain) on sale of loans (54) 8
Amortization of deferred loan origination costs 52 21
Provision for losses on loans 150 170
Depreciation and amortization 105 98
Amortization of goodwill 13 14
Proceeds from sale of office premises and equipment - 402
Gain on sale of office premises and equipment - (203)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (42) (74)
Accrued interest receivable on mortgage-backed securities (42) 19
Accrued interest receivable on investments and interest-
earning deposits (16) 86
Prepaid expenses and other assets (102) 51
Accrued interest payable (57) (17)
Other liabilities (278) 23
Income taxes
Current (276) (23)
Deferred 102 (21)
------ ------
Net cash provided by (used in) operating activities (4,235) 2,006
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 1,000 2,000
Proceeds from sale of investment securities designated as available for sale - 2,200
Proceeds from sale of mortgage-backed securities designated as available for sale - 1,158
Purchase of Federal Reserve Bank stock - (64)
Purchase of mortgage-backed securities designated as available for sale - (67)
Principal repayments on mortgage-backed and related securities 1,281 1,378
Loan principal repayments 19,906 17,271
Loan disbursements (17,811) (22,206)
Purchase of office equipment (139) (50)
(Increase) decrease in certificates of deposit in other financial institutions - net 697 (796)
Increase in cash surrender value of life insurance (24) (19)
------- ------
Net cash provided by investing activities 4,910 805
------- ------
Net cash provided by operating and investing
activities (subtotal carried forward) 675 2,811
------- ------
</TABLE>
6
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30,
(In thousands)
1998 1997
<S> <C> <C>
Net cash provided by operating and investing
activities (subtotal brought forward) $ 675 $2,811
Cash flows provided by (used in) financing activities:
Decrease in deposit accounts (4,502) (9,636)
Proceeds from Federal Home Loan Bank advances 6,000 5,000
Repayment of Federal Home Loan Bank advances (3,000) (1,100)
Purchase of shares for stock benefit plan (21) -
Dividends paid on common stock (126) -
Advances by borrowers for taxes and insurance (25) (15)
----- -----
Net cash used in financing activities (1,674) (5,751)
----- -----
Net decrease in cash and cash equivalents (999) (2,940)
Cash and cash equivalents at beginning of period 4,868 8,685
----- -----
Cash and cash equivalents at end of period $3,869 $5,745
===== =====
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Federal income taxes $ 271 $ 344
====== ======
Interest on deposits and borrowings $2,459 $2,502
===== =====
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ - $ 82
===== =======
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 14 $ (19)
======= =======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 73 $ 22
======= =======
</TABLE>
7
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six and three month periods ended June 30, 1998 and 1997
River Valley Bancorp (the "Corporation") is a financial institution holding
company whose activities are primarily limited to holding the stock of River
Valley Financial Bank ("River Valley Financial" or the "Bank"). The Bank
conducts a general banking business in southeastern Indiana which consists of
attracting deposits from the general public and applying those funds to the
origination of loans for consumer, residential and commercial purposes. River
Valley Financial's profitability is significantly dependent on net interest
income, which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest expense
paid on interest-bearing liabilities (i.e. customer deposits and borrowed
funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or received
by the Bank can be significantly influenced by a number of competitive factors,
such as governmental monetary policy, that are outside of management's control.
1. Basis of Presentation
The accompanying unaudited consolidated 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, 1997. 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 six and three month periods ended June 30, 1998
are not necessarily indicative of the results which may be expected for the
entire year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation
and its subsidiary, the Bank and the Bank's 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 June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
that provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, referred to
as the financial components approach, provides that the carrying
8
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six and three month periods ended June 30, 1998 and 1997
3. Effect of Recent Accounting Pronouncements (continued)
amount of the financial assets transferred be allocated to components of the
transaction based on their relative fair values. SFAS No. 125 provides criteria
for determining whether control of assets has been relinquished and whether a
sale has occurred. If the transfer does not qualify as a sale, it is accounted
for as a secured borrowing. Transactions subject to the provisions of SFAS No.
125 include, among others, transfers involving repurchase agreements,
securitizations of financial assets, loan participations, factoring
arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management adopted SFAS No. 125 effective January 1, 1998, as required, without
material effect on River Valley's consolidated financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
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. Management adopted SFAS No. 130
effective January 1, 1998, as required, without material effect on the
Corporation's financial statements.
9
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six and three month periods ended June 30, 1998 and 1997
3. Effect of Recent Accounting Pronouncements (continued)
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
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares outstanding, which
gives effect to 83,124 and 95,220 unallocated ESOP shares at June 30, 1998 and
1997, respectively, totaled 1,107,126 and 1,095,090 for each of the six and
three month periods ended June 30, 1998 and 1997, respectively.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under the
Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
1,131,729 and 1,095,090 for each of the six and three month periods ended June
30, 1998 and 1997, respectively.
5. Reclassifications
Certain reclassifications have been made to the 1997 consolidated financial
statements to conform to the June 30, 1998 presentation.
10
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the six and three month periods ended June 30, 1998 and 1997
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, the effect of the year 2000 on information technology
systems and the effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from December 31, 1997 to June 30,
1998
At June 30, 1998, River Valley's consolidated assets totaled $135.7 million, a
decrease of $1.4 million, or 1.0%, from the December 31, 1997 total of $137.0
million. The decrease in assets resulted primarily from a decrease in the
deposit portfolio of $4.5 million, which was partially offset by an increase in
advances from the Federal Home Loan Bank of $3.0 million.
Liquid assets (i.e., cash, federal funds sold, interest-earning deposits and
certificates of deposit) decreased by $1.7 million from December 31, 1997
levels, to a total of $4.1 million at June 30, 1998. Mortgage-backed and
investment securities decreased by $2.3 million, or 17.2%, to a total of $11.0
million at June 30, 1998, primarily due to maturities of investments of $1.0
million and principal repayments of mortgage-backed and related securities
totaling $1.3 million.
Loans receivable, including loans held for sale, totaled $114.2 million at June
30, 1998, an increase of $2.2 million, or 2.0%, from the $112.0 million total at
December 31, 1997. The increase resulted primarily from loan originations during
the period of $30.3 million, which were partially offset by principal repayments
of $19.9 million and sales of $8.1 million. Loan origination volume during the
current period exceeded that of the 1997 period by $6.7 million, or 28.6%.
The Corporation's consolidated allowance for loan losses totaled $1.2 million at
both June 30, 1998 and December 31, 1997, which represented 1.0% of total loans
at those dates. Nonperforming loans (defined as loans delinquent greater than 90
days and loans on nonaccrual status) totaled $671,000 and $718,000 at June 30,
1998 and December 31, 1997, respectively. Although management believes that its
allowance for loan losses at June 30, 1998, was adequate based upon the
available facts and circumstances, there can be no assurance that additions to
such allowance will not be necessary in future periods, which could negatively
affect the Corporation's results of operations.
11
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 1998 and 1997
Discussion of Financial Condition Changes from December 31, 1997 to June 30,
1998 (continued)
Deposits decreased by $4.5 million, or 3.9%, to a total of $110.5 million,
compared to the $115.0 million total at December 31, 1997. The decrease is
primarily attributed to increased competition from other local institutions and
other deposit alternatives.
Advances from the Federal Home Loan Bank increased by $3.0 million, or 150%, to
a total of $5.0 million at June 30, 1998, compared to the $2.0 million balance
outstanding at December 31, 1997. The increase was due to current period
borrowings of $6.0 million, offset by repayments of $3.0 million. Management
deployed the advances to fund loan originations.
Stockholders' equity totaled $18.5 million at June 30, 1998, an increase of
$501,000, or 2.8%, over the $18.0 million total at December 31, 1997. The
increase resulted primarily from current period earnings of $634,000 and an
$14,000 decrease in the unrealized losses on securities designated as available
for sale, partially offset by the declaration and payment of dividends totaling
$126,000.
The Bank is required to maintain minimum regulatory capital pursuant to federal
regulations. At June 30, 1998, the Bank's regulatory capital exceeded all
applicable regulatory capital requirements.
Comparison of Results of Operations for the Six Months Ended June 30, 1998 and
1997
General
River Valley's net earnings for the six months ended June 30, 1998, totaled
$634,000, a decrease of $31,000, from the $665,000 net earnings reported in the
comparable 1997 period. The decrease in earnings in the 1998 period is primarily
attributable to a decrease in the gain on sale of office premises and equipment
of $203,000, which was partially offset by an increase of $113,000 in the gain
on sale of loans, a decrease of $63,000 in general, administrative and other
expense, a $55,000 decrease in the provision for federal income taxes and a
$20,000 decrease in the provision for losses on loans, which were partially
offset by a decrease in net interest income of $83,000.
Net Interest Income
Total interest income for the six months ended June 30, 1998, amounted to $5.1
million, a decrease of $166,000, or 3.2%, from the comparable period in 1997,
reflecting the effects of decline in average interest-earning assets
outstanding, partially offset by an increase in yield year-to-year. Interest
income on loans and mortgage-backed securities totaled $4.8 million and $4.9
million for the six months ended June 30, 1998 and 1997, respectively. Interest
income on investments and interest-earning deposits decreased by $120,000, or
34.1%, due to a decrease in the average balance outstanding of $1.5 million and
an approximate 71 basis point decrease in yield from the comparable 1997 period.
12
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Six Months Ended June 30, 1998 and
1997 (continued)
Net Interest Income (continued)
Interest expense on deposits decreased by $105,000, or 4.3%, to a total of $2.3
million for the six months ended June 30, 1998, due primarily to a $7.8 million
decrease in the average balance of deposits outstanding, which was partially
offset by an increase in the weighted-average cost of deposits of 9 basis
points, to 4.15% in 1998. Interest expense on borrowings totaled $56,000 for the
six months ended June 30, 1998, an increase of $22,000 over the comparable
period in 1997. The increase resulted primarily from an increase in average
borrowings outstanding year-to-year, coupled with an increase in average cost.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $83,000, or 3.0%, for the six months ended June
30, 1998, compared to the comparable period in 1997. The interest rate spread
increased by approximately 12 basis points for the six months ended June 30,
1998, to 3.91% from 3.79% in the 1997 period, while the net interest margin
remained virtually unchanged at 4.03%.
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
Bank, the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market area,
and other factors related to the collectibility of the Bank's loan portfolio. As
a result of such analysis, management recorded a $150,000 provision for losses
on loans for the six months ended June 30, 1998, compared to the $170,000 amount
recorded in the 1997 period. While management believes that the allowance for
losses on loans is adequate at June 30, 1998, 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.
Other Income
Other income decreased by $86,000, or 13.8%, for the six months ended June 30,
1998, as compared to the same period in 1997, due primarily to a $203,000 gain
on sale of office premises and equipment recorded during the six months ended
June 30, 1997, coupled with a $7,000 decrease in insurance commissions, which
were partially offset by a $113,000 increase on gain on sale of loans and a
$14,000 increase in service fees, charges, and other operating income. The gain
on sale of office premises resulted from River Valley'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 River
Valley's acquisition of Citizens National Bank of Madison. The decline in
insurance commissions resulted from River Valley's sale of its insurance agency
subsidiary.
13
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Six Months Ended June 30, 1998 and
1997 (continued)
General, Administrative and Other Expense
General, administrative and other expense decreased by $63,000, or 3.1%, during
the six months ended June 30, 1998, compared to the same period in 1997. This
decrease resulted primarily from a $77,000, or 57.9%, decrease in data
processing expense, a $25,000, or 10.1%, decrease in occupancy and equipment
expense and a $51,000, or 9.0%, decrease in other operating expense, which were
partially offset by an $86,000, or 7.9%, increase in employee compensation and
benefits. The decrease in general, administrative and other expense can be
partially attributed to the economies recognized from the merger of River Valley
Financial Bank and Citizens National Bank of Madison in November 1997, coupled
with the sale of the Hanover branch during February 1997.
Income Taxes
The provision for income taxes decreased by $55,000, or 11.8%, for the six
months ended June 30, 1998, as compared to the same period in 1997. This
decrease resulted primarily from a decrease in net earnings before taxes of
$86,000, or 7.6%. The effective tax rates were 39.4% and 41.3% for the six
months ended June 30, 1998 and 1997, respectively.
Comparison of Results of Operations for the Three Months Ended June 30, 1998 and
1997
General
River Valley's net earnings for the three months ended June 30, 1998, totaled
$313,000, a decrease of $11,000, or 3.4%, from the $324,000 of net earnings
reported in the comparable 1997 period. The decrease in earnings in the 1998
period is primarily attributable to a decrease in net interest income of $28,000
and an increase in general, administrative and other expense of $9,000, which
were partially offset by an increase in other income of $21,000 and a decrease
in the provision for federal income taxes of $6,000.
Net Interest Income
Total interest income for the three months ended June 30, 1998 amounted to $2.5
million, a decrease of $85,000, or 3.3%, from the comparable quarter in 1997,
reflecting the effects of a decline in average interest-earning assets
outstanding, coupled with a decrease in the yield year-to-year. Interest income
on loans and mortgage-backed securities totaled $2.4 million for the three
months ended June 30, 1998, a decrease of $47,000, or 1.9%, from the comparable
1997 quarter. The decrease resulted primarily from a $1.3 million, or 1.1%,
decrease in the average balance outstanding year-to-year. Interest income on
investments and interest-earning deposits decreased by $38,000, or 25.7%, due to
a decrease in the average balance outstanding of $1.2 million, coupled with an
approximate 68 basis point decrease in yield from the comparable 1997 period.
14
<PAGE>
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Three Months Ended June 30, 1998 and
1997 (continued)
Net Interest Income (continued)
Interest expense on deposits decreased by $49,000, or 4.1%, to a total of $1.2
million for the quarter ended June 30, 1998, due primarily to an $8.1 million
decrease in the average balance of deposits outstanding. Interest expense on
borrowings totaled $22,000 for the three months ended June 30, 1998, a decrease
of $8,000, or 26.7%, from the comparable quarter in 1997. The decrease resulted
primarily from a $450,000 decrease in average borrowings outstanding year to
year.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $28,000, or 2.0%, for the three months ended
June 30, 1998, as compared to the comparable quarter in 1997. The interest rate
spread amounted to 4.00% for the 1998 quarter, compared to 3.85% in 1997, while
the net interest margin totaled 4.10% in the 1998 quarter, compared to 4.16% in
1997.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
upon historical experience, the volume and type of lending conducted by the
Bank, the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market area,
and other factors related to the collectibility of the Bank's loan portfolio. As
a result of such analysis, management recorded a $75,000 provision for losses on
loans for the three months ended June 30, 1998, compared to the $74,000 amount
recorded in the 1997 period. While management believes that the allowance for
losses on loans is adequate at June 30, 1998, 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.
Other Income
Other income increased by $21,000, or 9.9%, for the three months ended June 30,
1998, as compared to the same period in 1997, due primarily to an increase of
$13,000 in gain on sale of loans coupled with a $9,000 increase in service fees,
charges, and other operating income.
General, Administrative and Other Expense
General, administrative and other expense increased by $9,000, or 0.9%, during
the three months ended June 30, 1998, compared to the same period in 1997. This
increase resulted primarily from a $62,000, or 11.9%, increase in employee
compensation and benefits and a $9,000, or 7.5%, increase in occupancy and
equipment expense, which were partially offset by a $39,000, or 61.9%, decrease
in data processing expense and a $22,000, or 8.8%, decrease in other operating
expense.
15
<PAGE>
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the six and three month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Three Months Ended June 30, 1998 and
1997 (continued)
Income Taxes
The provision for income taxes decreased by $6,000, or 2.7%, for the three
months ended June 30, 1998, as compared to the same period in 1997. This
decrease resulted primarily from a decrease in net earnings before taxes of
$17,000, or 3.1%. The effective tax rates amounted to 41.1% and 40.9% for the
three months ended June 30, 1998 and 1997, respectively.
Other Matters
As with all providers of financial services, the Bank's operations are heavily
dependent on information technology systems. The Bank is addressing the
potential problems associated with the possibility that the computers that
control or operate the Bank's information technology system and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. The Bank is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
As of the date of this Form 10-QSB, the Bank has not identified any specific
expenses that are reasonably likely to be incurred by the Bank in connection
with this issue and does not expect to incur significant expense to implement
the necessary corrective measures. No assurance can be given, however, that
significant expense will not be incurred in future periods. In the event that
the Bank is ultimately required to purchase replacement computer systems,
programs and equipment, or incur substantial expense to make the Bank's current
systems, programs and equipment year 2000 compliant, the Bank's net earnings and
financial condition could be adversely affected.
In addition to possible expense related to its own systems, the Bank could incur
losses if loan payments are delayed due to year 2000 problems affecting any
major borrowers in the Bank's primary market area. Because the Bank's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and the Bank's primary market area is not significantly dependent
upon one employer or industry, the Bank does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.
16
<PAGE>
River Valley Bancorp
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
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
None.
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None
Exhibit 27: Financial Data Schedule for the six month
period ended June 30, 1998
17
<PAGE>
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: August 12, 1998 By: /s/James E. Fritz
--------------------------- -----------------
James E. Fritz
CEO/President
Date: August 12, 1998 By: /s/Larry C. Fouse
--------------------------- -----------------
Larry C. Fouse
Chief Financial Officer
18
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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