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, 1999
-----------------------------------------------
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 August 12, 1999, the latest practicable date 1,026,343 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 17 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 10
PART II - OTHER INFORMATION 16
SIGNATURES 17
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 1999 1998
<S> <C> <C>
Cash and due from banks $ 3,172 $ 4,014
Federal funds sold 1,050 825
Interest-earning deposits in other financial institutions 4,746 7,468
------- -------
Cash and cash equivalents 8,968 12,307
Investment securities designated as available for sale - at market 7,609 283
Investment securities held to maturity - at amortized cost, approximate market
value of $987 and $980 as of June 30, 1999 and December 31, 1998 1,000 1,000
Mortgage-backed securities designated as available for sale - at market 2,333 2,796
Mortgage-backed and related securities held to maturity - at cost, approximate
market value of $2,588 and $3,220 as of June 30, 1999 and December 31, 1998 2,579 3,190
Loans receivable - net 107,322 108,684
Loans held for sale - at lower of cost or market 300 3,701
Real estate acquired through foreclosure - 82
Property acquired in settlement of loans 12 -
Office premises and equipment - at depreciated cost 2,061 2,023
Federal Home Loan Bank stock - at cost 943 943
Accrued interest receivable on loans 1,034 987
Accrued interest receivable on mortgage-backed and related securities 31 40
Accrued interest receivable on investments and interest-earning deposits 28 29
Goodwill, net of accumulated amortization 47 50
Cash surrender value of life insurance 836 818
Prepaid expenses and other assets 316 373
Prepaid federal income taxes 296 405
Deferred tax asset 731 658
------- -------
Total assets $136,446 $138,369
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $115,607 $118,151
Other borrowed money 1,896 270
Advances by borrowers for taxes and insurance 38 34
Accrued interest payable 359 468
Other liabilities 736 763
Dividends payable 70 70
------- -------
Total liabilities 118,706 119,756
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;
1,075,343 and 1,173,440 shares issued and outstanding at
June 30, 1999 and December 31, 1998 - -
Additional paid in capital 9,666 11,036
Retained earnings - substantially restricted 9,192 8,789
Shares acquired by stock benefit plans (1,079) (1,199)
Unrealized losses on securities designated as available for sale,
net of related tax effects (39) (13)
------- -------
Total stockholders' equity 17,740 18,613
------- -------
Total liabilities and stockholders' equity $136,446 $138,369
======= =======
</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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $4,439 $4,557 $2,233 $2,310
Mortgage-backed and related securities 161 231 78 112
Investment securities 127 104 88 48
Interest-earning deposits and other 232 128 115 62
----- ----- ----- -----
Total interest income 4,959 5,020 2,514 2,532
Interest expense
Deposits 2,310 2,346 1,126 1,152
Borrowings 30 56 26 22
----- ----- ----- -----
Total interest expense 2,340 2,402 1,152 1,174
----- ----- ----- -----
Net interest income 2,619 2,618 1,362 1,358
Provision for losses on loans 100 150 40 75
----- ----- ----- -----
Net interest income after provision for losses on loans 2,519 2,468 1,322 1,283
Other income
Gain on sale of loans 39 127 23 31
Service fees, charges and other operating 372 411 183 203
----- ----- ----- -----
Total other income 411 538 206 234
General, administrative and other expense
Employee compensation and benefits 1,117 1,071 584 559
Occupancy and equipment 266 223 134 123
Amortization of goodwill 3 13 1 6
Data processing 54 56 29 24
Other operating 608 597 306 274
----- ----- ----- -----
Total general, administrative and other expense 2,048 1,960 1,054 986
----- ----- ----- -----
Earnings before income taxes 882 1,046 474 531
Income taxes
Current 402 310 250 258
Deferred (60) 102 (70) (40)
----- ----- ----- -----
Total income taxes 342 412 180 218
----- ----- ----- -----
NET EARNINGS $ 540 $ 634 $ 294 $ 313
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.51 $.57 $.29 $.28
=== === === ===
Diluted $.51 $.56 $.29 $.28
=== === === ===
</TABLE>
4
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the six months For the three months
ended June 30, ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings $540 $634 $294 $313
Unrealized holding gains (losses) during the period, net of tax (26) 14 (19) 3
--- --- --- ---
Comprehensive income $514 $648 $275 $316
=== === === ===
Accumulated other comprehensive losses $(39) $(18) $(39) $(18)
=== === === ===
</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)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 540 $ 634
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 (58) 24
Loans originated for sale in the secondary market (7,039) (12,538)
Proceeds from sale of loans in the secondary market 10,435 8,090
(Gain) loss on sale of loans 5 (54)
Amortization of deferred loan origination costs 66 52
Provision for losses on loans 100 150
Amortization expense of stock benefit plans 120 -
Depreciation and amortization 118 105
Amortization of goodwill 3 13
Proceeds from sale of office premises and equipment 76 -
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (47) (42)
Accrued interest receivable on mortgage-backed securities 9 (42)
Accrued interest receivable on investments and interest-
earning deposits 1 (16)
Prepaid expenses and other assets 57 (102)
Accrued interest payable (109) (57)
Other liabilities (27) (278)
Income taxes
Current 109 (276)
Deferred (60) 102
------ ------
Net cash provided by (used in) operating activities 4,299 (4,235)
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 8,300 1,000
Purchase of investment securities designated as available for sale (15,569) -
Principal repayments on mortgage-backed and related securities 1,036 1,281
Loan principal repayments 18,313 19,906
Loan disbursements (17,117) (17,811)
Proceeds from sale of real estate acquired through foreclosure 82 -
Acquisition of property in settlement of loans (12) -
Purchase of office equipment (232) (139)
Decrease in certificates of deposit in other financial institutions - net - 697
Increase in cash surrender value of life insurance (18) (24)
------ ------
Net cash provided by (used in) investing activities (5,217) 4,910
------ ------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) (918) 675
------ ------
</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)
1999 1998
<S> <C> <C>
Net cash provided by (used in) operating and investing
activities (subtotal brought forward) $ (918) $ 675
Cash flows provided by (used in) financing activities:
Decrease in deposit accounts (2,544) (4,502)
Proceeds from Federal Home Loan Bank advances - 6,000
Repayment of Federal Home Loan Bank advances - (3,000)
Proceeds from other borrowings 1,626 -
Purchase of shares for stock benefit plan - (21)
Purchase of shares (1,370) -
Dividends paid on common stock (137) (126)
Advances by borrowers for taxes and insurance 4 (25)
------ -----
Net cash used in financing activities (2,421) (1,674)
------ -----
Net decrease in cash and cash equivalents (3,339) (999)
Cash and cash equivalents at beginning of period 12,307 4,868
------ -----
Cash and cash equivalents at end of period $ 8,968 $3,869
====== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 215 $ 271
====== =====
Interest on deposits and borrowings $ 2,449 $2,459
====== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (26) $ 14
====== =====
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 44 $ 73
====== =====
</TABLE>
7
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six month periods ended June 30, 1999 and 1998
River Valley Bancorp (the "Corporation") is a unitary savings and loan holding
company whose activities are primarily limited to holding the stock of River
Valley Financial Bank ("River Valley" 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'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, 1998. 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, 1999
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 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
8
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six month periods ended June 30, 1999 and 1998
3. Effect of Recent Accounting Pronouncements (continued)
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale or trading category
without calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 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 71,730 unallocated ESOP shares at June 30, 1999, totaled
1,063,641 and 1,029,445 for the six and three month periods ended June 30, 1999,
respectively. Weighted-average common shares outstanding, which gives effect to
83,123 unallocated ESOP shares at June 30, 1998, totaled 1,107,126 for each of
the six and three month periods ended June 30, 1998, 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
1,063,641 and 1,029,445 for the six and three month periods ended June 30, 1999,
respectively. Weighted-average common shares deemed outstanding for purposes of
computing diluted earnings per share totaled 1,131,729 for each of the six and
three month periods ended June 30, 1998, respectively.
There were 24,603 incremental shares related to the assumed exercise of stock
options included in the computation of diluted earnings per share for the
periods ended June 30, 1998. Options to purchase 103,959 shares of common stock
with a weighted average price of $14.81 were outstanding at June 30, 1999, but
were excluded from the computation of common share equivalents because their
exercise prices were greater than the average market price of the common shares.
5. Reclassifications
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the June 30, 1999 presentation.
9
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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, 1999 and 1998
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, 1998 to June 30,
1999
At June 30, 1999, the Corporation's consolidated assets totaled $136.4 million,
a decrease of $1.9 million, or 1.4%, from the December 31, 1998 total. The
decrease in assets resulted primarily from a decrease in deposits of $2.5
million and an $873,000 decrease in stockholders' equity, which were partially
offset by an increase in other borrowed money of $1.6 million.
Liquid assets (i.e., cash, federal funds sold and interest-earning deposits)
decreased by $3.3 million from December 31, 1998 levels, to a total of $9.0
million at June 30, 1999. Mortgage-backed and investment securities increased by
$6.3 million, or 86.0%, to a total of $13.5 million at June 30, 1999, due
primarily to purchases of short-term investments of $15.6 million, which were
partially offset by principal repayments on mortgage-backed and related
securities totaling $1.0 million and maturities of investment securities of $8.3
million.
Loans receivable, including loans held for sale, totaled $107.6 million at June
30, 1999, a decrease of $4.8 million, or 4.2%, from the $112.4 million total at
December 31, 1998. The decrease resulted primarily from principal repayments of
$18.3 million and sales of $10.4 million, which were offset by loan originations
during the period of $24.1 million.
The Corporation's consolidated allowance for loan losses totaled $1.5 million at
both June 30, 1999 and December 31, 1998, which represented 1.4% of total loans
at each of those dates. Nonperforming loans (defined as loans delinquent greater
than 90 days and loans on nonaccrual status) totaled $2.0 million and $1.9
million at June 30, 1999 and December 31, 1998, respectively. Although
management believes that its allowance for loan losses at June 30, 1999, 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.
10
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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, 1999 and 1998
Discussion of Financial Condition Changes from December 31, 1998 to June 30,
1999 (continued)
Deposits totaled of $115.6 million at June 30, 1999, a decrease of $2.5 million,
or 2.2%, compared to the $118.2 million total at December 31, 1998. During the
six month period ended June 30, 1999, as rising loan rates caused a decline in
loan demand, the Bank elected not to match higher interest rates on deposits
offered within its highly competitive market area.
Stockholders' equity totaled $17.7 million at June 30, 1999, a decrease of
$873,000, or 4.7%, from the $18.6 million total at December 31, 1998. The
decrease resulted primarily from the Corporation's repurchase of 98,097 shares
of its stock totaling $1.4 million, a $26,000 increase in unrealized losses on
securities designated as available for sale, and the declaration of dividends
totaling $137,000. These decreases were partially offset by current period
earnings of $540,000.
The Bank is required to maintain minimum regulatory capital pursuant to federal
regulations. At June 30, 1999, the Bank's regulatory capital exceeded all
applicable regulatory capital requirements.
Comparison of Results of Operations for the Six Months Ended June 30, 1999 and
1998
General
The Corporation's net earnings for the six months ended June 30, 1999, totaled
$540,000, a decrease of $94,000, or 14.8%, from the $634,000 of net earnings
reported in the comparable 1998 period. The decrease in earnings in the 1999
period was primarily attributable to a decrease in other income of $127,000 and
an increase in general, administrative and other expense of $88,000, which were
partially offset by a $50,000 decrease in the provision for losses on loans and
a decrease in the provision for income taxes of $70,000.
Net Interest Income
Total interest income for the six months ended June 30, 1999 amounted to $5.0
million, a decrease of $61,000, or 1.2%, from the comparable period in 1998,
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 $4.6 million for the six months
ended June 30, 1999, a decrease of $188,000, or 3.9%, from the comparable 1998
period. The decrease resulted primarily from a $3.7 million, or 3.1%, decrease
in the average balance outstanding year-to-year. Interest income on investments
and interest-earning deposits increased by $127,000, or 54.7%, due to an
increase in the average balance outstanding of $7.9 million.
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, 1999 and 1998
Comparison of Results of Operations for the Six Months Ended June 30, 1999 and
1998 (continued)
Net Interest Income (continued)
Interest expense on deposits decreased by $36,000, or 1.5%, to a total of $2.3
million for the six month period ended June 30, 1999, due primarily to a
decrease in the average cost of deposits, partially offset by an increase in the
average balance of deposits outstanding of $5.0 million, or 4.4%, year to year.
Interest expense on borrowings totaled $30,000 for the six months ended June 30,
1999, a decrease of $26,000, or 46.4%, from the comparable period in 1998. The
decrease resulted primarily from a decrease 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 $1,000 for the six months ended June 30, 1999,
as compared to the comparable period in 1998. The interest rate spread amounted
to approximately 3.73% for the 1999 period, compared to 3.82% in 1998, while the
net interest margin totaled approximately 4.03% in the 1999 period, compared to
4.16% in 1998.
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 $100,000 provision for losses
on loans for the six months ended June 30, 1999, compared to the $150,000 amount
recorded in the 1998 period. While management believes that the allowance for
losses on loans is adequate at June 30, 1999, 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 $127,000, or 23.6%, for the six months ended June 30,
1999, as compared to the same period in 1998, due primarily to a decrease of
$88,000 in gain on sale of loans and a $39,000, or 9.5%, decrease in service
fees, charges and other operating income.
General, Administrative and Other Expense
General, administrative and other expense increased by $88,000, or 4.5%, during
the six months ended June 30, 1999, compared to the same period in 1998. This
increase resulted primarily from a $46,000, or 4.3%, increase in employee
compensation and benefits, due primarily to normal merit increases, and a
$43,000, or 19.3%, increase in occupancy and equipment expense. The increase in
occupancy and equipment expense was due primarily to increases in depreciation,
maintenance and repairs and property tax expense.
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, 1999 and 1998
Comparison of Results of Operations for the Three Months Ended June 30, 1999 and
1998 (continued)
Income Taxes
The provision for income taxes totaled $342,000 for the six months ended June
30, 1999, a decrease of $70,000, or 17.0%, as compared to the same period in
1998. This decrease resulted primarily from a decrease in net earnings before
taxes of $164,000, or 15.7%. The effective tax rates amounted to 38.8% and 39.4%
for the six months ended June 30, 1999 and 1998, respectively.
Comparison of Results of Operations for the Three Months Ended June 30, 1999 and
1998
General
The Corporation's net earnings for the three months ended June 30, 1999, totaled
$294,000, a decrease of $19,000, or 6.1%, from the $313,000 of net earnings
reported in the comparable 1998 period. The decrease in earnings in the 1999
period was primarily attributable to a decrease in other income of $28,000 and
an increase in general, administrative and other expense of $68,000, which were
partially offset by a decrease in the provision for losses on loans of $35,000
and a decrease in the provision for income taxes of $38,000.
Net Interest Income
Total interest income for the three months ended June 30, 1999 amounted to $2.5
million, a decrease of $18,000, or .7%, from the comparable quarter in 1998,
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 $2.3 million for the three
months ended June 30, 1999, a decrease of $111,000, or 4.6%, from the comparable
1998 quarter. The decrease resulted primarily from a $2.7 million, or 2.3%,
decrease in the average balance outstanding year-to-year. Interest income on
investments and interest-earning deposits increased by $93,000, or 84.5%, due to
a increase in the average balance outstanding of approximately $10.0 million.
Interest expense on deposits decreased by $26,000, or 2.3%, to a total of $1.1
million for the quarter ended June 30, 1999, due primarily to a decrease in the
average cost of deposits, partially offset by an increase in the average balance
of deposits outstanding. Interest expense on borrowings totaled $26,000 for the
three months ended June 30, 1999, an increase of $4,000, or 18.2%, over the
comparable quarter in 1998. The increase resulted primarily from an increase in
average borrowings outstanding from year to year.
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, 1999 and 1998
Comparison of Results of Operations for the Three Months Ended June 30, 1999 and
1998 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $4,000, or .3%, for the three months ended June
30, 1999, as compared to the comparable quarter in 1998. The interest rate
spread amounted to approximately 3.79% for the 1999 quarter, compared to 4.01%
in 1998, while the net interest margin totaled approximately 4.12% in the 1999
quarter, compared to 4.36% in 1998.
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 $40,000 provision for losses on
loans for the three months ended June 30, 1999, compared to the $75,000 amount
recorded in the 1998 period. While management believes that the allowance for
losses on loans is adequate at June 30, 1999, 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 $28,000, or 12.0%, for the three months ended June 30,
1999, as compared to the same period in 1998, due primarily to a $20,000, or
9.9%, decrease in service fees, charges and other operating income, coupled with
a decrease of $8,000 in gain on sale of loans.
General, Administrative and Other Expense
General, administrative and other expense increased by $68,000, or 6.9%, during
the three months ended June 30, 1999, compared to the same period in 1998. This
increase resulted primarily from a $25,000, or 4.5%, increase in employee
compensation and benefits, due primarily to normal merit increases, an $11,000,
or 8.9%, increase in occupancy and equipment expense and a $32,000, or 11.7%,
increase in other operating expense.
Income Taxes
The provision for income taxes totaled $180,000 for the three months ended June
30, 1999, a decrease of $38,000, or 17.4%, as compared to the same period in
1998. This decrease resulted primarily from a decrease in net earnings before
taxes of $57,000, or 10.7%. The effective tax rates amounted to 38.0% and 41.1%
for the three months ended June 30, 1999 and 1998, respectively.
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, 1999 and 1998
Year 2000 Compliance 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.
The Bank's core data processing relative to customer loan and deposit accounts,
as well as the general ledger, is performed in-house through use of a purchased
software product. Management has been advised, and certain testing has been
performed to verify, that the system will continue to function upon arrival of
the year 2000.
As of the date of this Form 10-QSB, the Bank has identified certain expenses
that will be incurred by the Bank in connection with this issue. Such expenses
total approximately $15,000. The Bank has established a budget of approximately
$65,000 for year 2000 related costs. From a review of the systems and vendors,
management believes the budgeted amount should be sufficient. 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 the event that the Bank is unable to process transactions as normal upon
arrival of the year 2000, the Bank has access to a third-party contingency site
with its software vendor. Additionally, the Bank could conduct transactions
manually for a period of time, if necessary.
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. The Bank has contacted, in
person or by mail, most of its larger loan customers to make them aware of the
year 2000 issues. A brochure has also been distributed to customers by mail and
in person. 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.
15
<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
On April 21,1999, the Annual Meeting of the Corporation's Stockholders
was held. Two directors were elected to terms expiring in 2002 by the
following votes:
Michael J. Hensley For: 790,716 Withheld: 123,371
Fred W. Koehler For: 790,686 Withheld: 123,401
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, 1999.
16
<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 13, 1999 By: /s/Fred W. Koehler
Fred W. Koehler
Chairman of the Board
Date: August 13, 1999 By: /s/Larry C. Fouse
Larry C. Fouse
Chief Financial Officer
17
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