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, 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 November 10, 1999, the latest practicable date 1,021,576 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)
September 30, December 31,
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 3,853 $ 4,014
Federal funds sold 500 825
Interest-earning deposits in other financial institutions 3,454 7,468
------- -------
Cash and cash equivalents 7,807 12,307
Investment securities designated as available for sale - at market 4,277 283
Investment securities held to maturity - at amortized cost, approximate market
value of $990 and $980 as of September 30, 1999 and December 31, 1998 1,000 1,000
Mortgage-backed securities designated as available for sale - at market 2,195 2,796
Mortgage-backed and related securities held to maturity - at cost, approximate
market value of $2,403 and $3,220 as of September 30, 1999 and December 31, 1998 2,410 3,190
Loans receivable - net 110,918 108,684
Loans held for sale - at lower of cost or market - 3,701
Property acquired in settlement of loans 3 82
Office premises and equipment - at depreciated cost 2,012 2,023
Federal Home Loan Bank stock - at cost 943 943
Accrued interest receivable on loans 1,100 987
Accrued interest receivable on mortgage-backed and related securities 29 40
Accrued interest receivable on investments and interest-earning deposits 115 29
Goodwill, net of accumulated amortization 45 50
Cash surrender value of life insurance 845 818
Prepaid expenses and other assets 273 373
Prepaid federal income taxes 524 405
Deferred tax asset 660 658
------- -------
Total assets $135,156 $138,369
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $113,838 $118,151
Other borrowed money 2,655 270
Advances by borrowers for taxes and insurance 49 34
Accrued interest payable 308 468
Other liabilities 1,100 763
Dividends payable 71 70
------- -------
Total liabilities 118,021 119,756
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;
1,026,343 and 1,173,440 shares issued and outstanding at
September 30, 1999 and December 31, 1998 - -
Additional paid in capital 8,995 11,036
Retained earnings - substantially restricted 9,244 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 (25) (13)
------- -------
Total stockholders' equity 17,135 18,613
------- -------
Total liabilities and stockholders' equity $135,156 $138,369
======= =======
</TABLE>
3
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Nine months ended Three months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $6,467 $6,985 $2,134 $2,428
Mortgage-backed and related securities 233 341 72 110
Investment securities 221 131 94 27
Interest-earning deposits and other 315 181 83 53
----- ----- ----- -----
Total interest income 7,236 7,638 2,383 2,618
Interest expense
Deposits 3,382 3,505 1,072 1,159
Borrowings 73 137 43 81
----- ----- ----- -----
Total interest expense 3,455 3,642 1,115 1,240
----- ----- ----- -----
Net interest income 3,781 3,996 1,268 1,378
Provision for losses on loans 110 215 10 65
----- ----- ----- -----
Net interest income after provision for losses on loans 3,671 3,781 1,258 1,313
Other income
Gain on sale of loans 41 202 2 75
Gain on sale of office premises and equipment - 57 - 57
Service fees, charges and other operating 575 634 203 223
----- ----- ----- -----
Total other income 616 893 205 355
General, administrative and other expense
Employee compensation and benefits 1,768 1,669 757 598
Occupancy and equipment 389 348 123 125
Amortization of goodwill 38 20 35 7
Data processing 90 86 36 30
Other operating 873 937 265 340
----- ----- ----- -----
Total general, administrative and other expense 3,158 3,060 1,216 1,100
----- ----- ----- -----
Earnings before income taxes 1,129 1,614 247 568
Income taxes
Current 468 734 66 424
Deferred (4) (93) 56 (195)
----- ----- ----- -----
Total income taxes 464 641 122 229
----- ----- ----- -----
NET EARNINGS $ 665 $ 973 $ 125 $ 339
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.65 $.88 $.13 $.31
=== === === ===
Diluted $.65 $.86 $.13 $.30
=== === === ===
</TABLE>
4
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the nine months For the three months
ended September 30, ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings $665 $973 $125 $339
Other comprehensive income, net of tax:
Unrealized holding gains (losses) during the period, net of tax (12) 17 14 3
--- --- --- ---
Comprehensive income $653 $990 $139 $342
=== === === ===
Accumulated other comprehensive losses $(25) $(15) $(25) $(15)
=== === === ===
</TABLE>
5
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 665 $ 973
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 14 13
Loans originated for sale in the secondary market (9,596) (12,763)
Proceeds from sale of loans in the secondary market 13,246 11,144
(Gain) loss on sale of loans 51 (103)
Amortization of deferred loan origination costs 67 75
Provision for losses on loans 110 215
Depreciation and amortization 178 170
Amortization of goodwill 38 20
Amortization of stock benefit plans 120 -
Gain on sale of office premises and equipment - (57)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (113) (146)
Accrued interest receivable on mortgage-backed securities 11 46
Accrued interest receivable on investments and interest-bearing deposits (86) 34
Prepaid expenses and other assets 100 (59)
Accrued interest payable (160) (49)
Other liabilities 338 (264)
Income taxes
Current (119) (142)
Deferred (4) (93)
------ ------
Net cash provided by (used in) operating activities 4,860 (986)
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 13,639 2,500
Purchase of investment securities designated as available for sale (17,579) -
Principal repayments on mortgage-backed securities 1,349 2,570
Loan principal repayments 28,021 28,621
Loan disbursements (30,432) (30,640)
Purchase of office equipment (167) (159)
Proceeds from sale of office premises and equipment - 68
Decrease in certificates of deposit in other financial institutions - net - 797
Increase in cash surrender value of life insurance (27) (33)
------ ------
Net cash provided by (used in) investing activities (5,196) 3,724
------ ------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) (336) 2,738
------ ------
</TABLE>
6
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Net cash provided by (used in) operating and investing
activities (subtotal brought forward) $ (336) $ 2,738
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (4,313) (3,803)
Proceeds from Federal Home Loan Bank advances and other borrowings 2,385 12,221
Repayment of Federal Home Loan Bank advances and other borrowings - (9,221)
Advances by borrowers for taxes and insurance 15 (1)
Dividends on common stock (210) (191)
Purchase of shares for stock benefit plans - (429)
Proceeds from exercise of stock options - 18
Purchase of shares (2,041) -
------ ------
Net cash used in financing activities (4,164) (1,406)
------ ------
Net increase (decrease) in cash and cash equivalents (4,500) 1,332
Cash and cash equivalents at beginning of period 12,307 4,868
------ ------
Cash and cash equivalents at end of period $ 7,807 $ 6,200
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 465 $ 516
====== ======
Interest on deposits and borrowings $ 3,615 $ 3,691
====== ======
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (12) $ 17
====== ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 92 $ 99
====== ======
</TABLE>
7
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine month periods ended September 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 nine and three month periods ended September 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 nine month periods ended September 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 September 30, 1999, totaled
1,029,313 and 961,776 for the nine and three month periods ended September 30,
1999, respectively. Weighted-average common shares outstanding, which gives
effect to 83,124 unallocated ESOP shares at September 30, 1998, totaled
1,107,261 and 1,107,527 for the nine and three month periods ended September 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
1,029,313 and 961,776 for the nine and three month periods ended September 30,
1999, respectively. Weighted-average common shares deemed outstanding for
purposes of computing diluted earnings per share totaled 1,126,345 and 1,113,865
for the nine and three month periods ended September 30, 1998, respectively.
There were 19,084 and 6,338 incremental shares related to the assumed exercise
of stock options included in the computation of diluted earnings per share for
the nine and three month periods ended September 30, 1998, respectively. Options
to purchase 103,959 shares of common stock with a weighted average exercise
price of $14.81 were outstanding at September 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 September 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 nine and three month periods ended September 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 September
30, 1999
At September 30, 1999, the Corporation's consolidated assets totaled $135.2
million, a decrease of $3.2 million, or 2.3%, from the December 31, 1998 total.
The decrease in assets resulted primarily from a decrease in deposits of $4.3
million and a $1.5 million decrease in stockholders' equity, which were
partially offset by an increase in other borrowed money of $2.4 million.
Liquid assets (i.e., cash, federal funds sold and interest-earning deposits)
decreased by $4.5 million from December 31, 1998 levels, to a total of $7.8
million at September 30, 1999. Mortgage-backed and investment securities
increased by $2.6 million, or 35.7%, to a total of $9.9 million at September 30,
1999, due primarily to purchases of short-term investments of $17.6 million,
which were partially offset by principal repayments on mortgage-backed and
related securities totaling $1.3 million and maturities of investment securities
of $13.6 million.
Loans receivable, including loans held for sale, totaled $110.9 million at
September 30, 1999, a decrease of $1.5 million, or 1.3%, from the $112.4 million
total at December 31, 1998. The decrease resulted primarily from principal
repayments of $28.0 million and sales of $13.3 million, which were offset by
loan originations during the period of $40.0 million.
The Corporation's consolidated allowance for loan losses totaled $1.5 million at
both September 30, 1999 and December 31, 1998, which represented 1.4% of total
loans at each of those respective dates. Nonperforming loans (defined as loans
delinquent greater than 90 days and loans on nonaccrual status) totaled $1.6
million and $1.9 million at September 30, 1999 and December 31, 1998,
respectively. Although management believes that its allowance for loan losses at
September 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 nine and three month periods ended September 30, 1999 and 1998
Discussion of Financial Condition Changes from December 31, 1998 to September
30, 1999 (continued)
Deposits totaled $113.8 million at September 30, 1999, a decrease of $4.3
million, or 3.7%, compared to the $118.2 million total at December 31, 1998.
During the nine month period ended September 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 $17.1 million at September 30, 1999, a decrease of
$1.5 million, or 7.9%, from the $18.6 million total at December 31, 1998. The
decrease resulted primarily from the Corporation's repurchase of 147,097 shares
of its stock totaling $2.0 million, a $12,000 increase in unrealized losses on
securities designated as available for sale, and the declaration of dividends
totaling $210,000. These decreases were partially offset by current period
earnings of $665,000.
The Bank is required to maintain minimum regulatory capital pursuant to federal
regulations. At September 30, 1999, the Bank's regulatory capital exceeded all
applicable regulatory capital requirements.
Comparison of Results of Operations for the Nine Month Periods Ended September
30, 1999 and 1998
General
The Corporation's net earnings for the nine months ended September 30, 1999,
totaled $665,000, a decrease of $308,000, or 31.7%, from the $973,000 of net
earnings reported in the comparable 1998 period. The decrease in earnings in the
1999 period was primarily attributable to a decrease in net interest income of
$215,000, a decrease in other income of $277,000 and an increase in general,
administrative and other expense of $98,000, which were partially offset by a
$105,000 decrease in the provision for losses on loans and a decrease in the
provision for income taxes of $177,000.
Net Interest Income
Total interest income for the nine months ended September 30, 1999 amounted to
$7.2 million, a decrease of $402,000, or 5.3%, 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 $6.7 million for the nine months
ended September 30, 1999, a decrease of $626,000, or 8.5%, from the comparable
1998 period. The decrease resulted primarily from a $5.3 million, or 4.4%,
decrease in the average balance outstanding year-to-year, coupled with a decline
in yield of approximately 41 basis points, to 7.66% for the nine months ended
September 30, 1999. Interest income on investments and interest-earning deposits
increased by $224,000, or 71.8%, due to an increase in the average balance
outstanding of approximately $6.9 million.
11
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 1999 and 1998
Comparison of Results of Operations for the Nine Month Periods Ended September
30, 1999 and 1998 (continued)
Net Interest Income (continued)
Interest expense on deposits decreased by $123,000, or 3.5%, to a total of $3.4
million for the nine month period ended September 30, 1999, due primarily to a
decrease in the average cost of deposits to 3.82% for fiscal 1999, partially
offset by a $4.7 million, or 4.1%, increase in the average balance of deposits
outstanding year to year. Interest expense on borrowings totaled $73,000 for the
nine months ended September 30, 1999, a decrease of $64,000, or 46.7%, 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 decreased by $215,000, or 5.4%, for the nine months ended
September 30, 1999, as compared to the comparable period in 1998. The interest
rate spread amounted to approximately 3.53% for the 1999 period, compared to
3.85% in 1998, while the net interest margin totaled approximately 3.86% in the
1999 period, compared to 4.24% 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 $110,000 provision for losses
on loans for the nine months ended September 30, 1999, compared to the $215,000
amount recorded in the 1998 period. The 1999 provision amount was predicated on
the decline in the balance of the loan portfolio, coupled with a decline in the
level of nonperforming loans year to year. While management believes that the
allowance for losses on loans is adequate at September 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 $277,000, or 31.0%, for the nine months ended
September 30, 1999, as compared to the same period in 1998, due primarily to a
decrease of $161,000, or 79.7%, in gain on sale of loans and a $59,000, or 9.3%,
decrease in service fees, charges and other operating income.
12
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 1999 and 1998
Comparison of Results of Operations for the Nine Month Periods Ended September
30, 1999 and 1998 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $98,000, or 3.2%, during
the nine months ended September 30, 1999, compared to the same period in 1998.
This increase resulted primarily from a $99,000, or 5.9%, increase in employee
compensation and benefits and a $41,000, or 11.8%, increase in occupancy and
equipment expense, which were partially offset by a $64,000, or 6.8%, decrease
in other operating expense. The increase in employee compensation and benefits
resulted primarily from a one time pre-tax charge of $184,000 related to
severance benefits recorded following the resignation of the Bank's executive
vice-president. This charge was offset by a reduction in costs of employee
benefit plans and an increase in deferred loan origination costs year to year.
The increase in occupancy and equipment expense was due primarily to increases
in depreciation, maintenance and repairs, and property tax expense.
Income Taxes
The provision for income taxes totaled $464,000 for the nine months ended
September 30, 1999, a decrease of $177,000, or 27.6%, as compared to the same
period in 1998. This decrease resulted primarily from a decrease in net earnings
before taxes of $485,000, or 30.0%. The effective tax rates amounted to 41.1%
and 39.7% for the nine months ended September 30, 1999 and 1998, respectively.
Comparison of Results of Operations for the Three Month Periods Ended September
30, 1999 and 1998
General
The Corporation's net earnings for the three months ended September 30, 1999,
totaled $125,000, a decrease of $214,000, or 63.1%, from the $339,000 of net
earnings reported in the comparable 1998 period. The decrease in earnings in the
1999 period was primarily attributable to a decrease in net interest income of
$110,000, a decrease in other income of $150,000 and an increase in general,
administrative and other expense of $116,000, which were partially offset by a
decrease in the provision for losses on loans of $55,000 and a decrease in the
provision for income taxes of $107,000.
Net Interest Income
Total interest income for the three months ended September 30, 1999 amounted to
$2.4 million, a decrease of $235,000, or 9.0%, 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 $2.2 million for the three
months ended September 30, 1999, a decrease of $332,000, or 13.1%, from the
comparable 1998 quarter. The decrease resulted primarily from a decrease in the
average balance outstanding year-to-year. Interest income on investments and
interest-earning deposits increased by $97,000, or 121.3%, due to a increase in
the average balance outstanding.
13
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 1999 and 1998
Comparison of Results of Operations for the Three Month Periods Ended September
30, 1999 and 1998 (continued)
Net Interest Income (continued)
Interest expense on deposits decreased by $87,000, or 7.5%, to a total of $1.1
million for the quarter ended September 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 $43,000
for the three months ended September 30, 1999, a decrease of $38,000, or 46.9%,
from the comparable quarter 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 decreased by $110,000, or 8.0%, for the three months ended
September 30, 1999, as compared to the comparable quarter 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 $10,000 provision for losses on
loans for the three months ended September 30, 1999, compared to the $65,000
amount recorded in the 1998 period. While management believes that the allowance
for losses on loans is adequate at September 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 $150,000, or 42.3%, for the three months ended
September 30, 1999, as compared to the same period in 1998, due primarily to a
decrease of $73,000 in gain on sale of loans, coupled with a $20,000, or 9.0%,
decrease in service fees, charges and other operating income.
General, Administrative and Other Expense
General, administrative and other expense increased by $116,000, or 10.5%,
during the three months ended September 30, 1999, compared to the same period in
1998. This increase resulted primarily from a $159,000, or 26.6%, increase in
employee compensation and benefits, which was partially offset by a $75,000, or
22.1%, decrease in other operating expense. The increase in employee
compensation and benefits was due primarily to a one time charge for severance
benefits, as previously discussed.
14
<PAGE>
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the nine and three month periods ended September 30, 1999 and 1998
Comparison of Results of Operations for the Three Month Periods Ended September
30, 1999 and 1998 (continued)
Income Taxes
The provision for income taxes totaled $122,000 for the three months ended
September 30, 1999, a decrease of $107,000, or 46.7%, as compared to the same
period in 1998. This decrease resulted primarily from a decrease in net earnings
before taxes of $321,000, or 56.5%. The effective tax rates amounted to 49.4%
and 40.3% for the three months ended September 30, 1999 and 1998, respectively.
Year 2000 Compliance Matters
As with all providers of financial services, the Bank's operations are heavily
dependent on information technology systems. The Bank has addressed 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'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.
The Bank had previously identified certain expenses that would be incurred by
the Bank in connection with this issue. Such expenses total approximately
$19,000. 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 to 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 and record
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, a majority 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
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 nine month
period ended September 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: November 15, 1999 By: /s/Matthew P. Forrester
-------------------------- --------------------------------
Matthew P. Forrester
Chief Executive Officer
and President
Date: November 15, 1999 By: /s/Larry C. Fouse
-------------------------- --------------------------------
Larry C. Fouse
Chief Financial Officer
17
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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<SHORT-TERM> 0
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<LONG-TERM> 2,655
0
0
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<INCOME-PRETAX> 1,129
<INCOME-PRE-EXTRAORDINARY> 665
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