FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES 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
0-24501
BLUE RIVER BANCSHARES, INC.
----------------------------------------
(Exact name of small business issuer as specified in its charter)
Indiana 35-2016637
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
29 East Washington Street
Shelbyville, Indiana 46176
- ------------------------------- -------------------------------
(Address of principal executive (Zip Code)
office)
Issuer's telephone number, including area code:
(317) 398-9721
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 June 30, 1998, there were 1,500,000 shares of the Registrant's Common
Stock issued and outstanding.
Transitional Small Business Disclosure Format.
(Check one):
Yes No X
--- ---
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
INDEX
-----
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Statement of Financial Condition as of
June 30, 1998 of the Successor (Unaudited) 3
Consolidated Statements of Earnings for the three month
period ended June 30, 1998 and 1997 of the Predecessor
(Unaudited) 4
Consolidated Statements of Earnings for the six month
period ended June 30, 1998 and 1997 of the Predecessor
(Unaudited) 5
Consolidated Statements of Cash Flows for the six month
period ended June 30, 1998 and 1997 of the Predecessor
(Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-14
PART II. OTHER INFORMATION: 15-16
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE PAGE 17
2
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Unaudited)
AS OF JUNE 30, 1998
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS SUCCESSOR
--------------
<S> <C>
Cash and due from banks $ 686,317
Interest-bearing deposits with banks 1,839,056
Securities available for sale 22,007,835
Securities held-to-maturity 718,805
Loans receivable, net 88,556,965
Accrued interest receivable 714,137
FHLB stock of Indianapolis 998,900
Prepaid expenses and other assets 612,040
Premises and equipment, net 1,744,829
Goodwill, net 3,823,319
-------------
TOTAL ASSETS $ 121,702,203
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 75,590,952
FHLB advances and other borrowings 18,881,683
Amounts payable to former shareholders of Shelby County Bancorp 10,505,250
Accrued expenses and other liabilities 710,632
Accrued interest payable 146,875
-------------
Total liabilities 105,835,392
-------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, without par value: 1,500,000 shares
issued and outstanding 16,193,094
Accumulated deficit (326,283)
-------------
Total shareholders' equity 15,866,811
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 121,702,203
=============
</TABLE>
See notes to consolidated financial statements (unaudited).
3
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1998 AND 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
1998 1997
<S> <C> <C>
INTEREST INCOME:
Loans receivable $ 1,839,025 $ 1,543,321
Securities 108,608 102,491
Interest-bearing deposits 13,984 29,030
Dividends from FHLB 19,923 14,673
----------- -----------
Total interest income 1,981,540 1,689,515
----------- -----------
INTEREST EXPENSE:
Interest expense on deposits 913,644 732,286
Interest expense on FHLB advances and other borrowings 275,259 251,333
----------- -----------
Total interest expense 1,188,903 983,619
----------- -----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOSSES 792,637 705,896
PROVISION FOR LOAN LOSSES (75,000) (27,000)
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 717,637 678,896
----------- -----------
NON-INTEREST INCOME:
Service charges and fees 61,792 62,286
Other 33,534 20,216
----------- -----------
Total non-interest income 95,326 82,502
----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 249,092 235,386
Premises and equipment 69,215 68,867
Federal deposit insurance 35,731 17,184
Data processing 69,140 59,709
Advertising 25,653 43,540
Bank fees and charges 22,225 25,074
Professional fees 224,701 45,715
Other 53,077 59,683
----------- -----------
Total non-interest expense 748,834 555,158
----------- -----------
EARNINGS BEFORE INCOME TAX EXPENSE 64,129 206,240
INCOME TAX EXPENSE 28,397 74,472
----------- -----------
NET EARNINGS $ 35,732 $ 131,768
=========== ===========
BASIC EARNINGS PER SHARE N/A N/A
DILUTIVE EARNINGS PER SHARE N/A N/A
</TABLE>
See notes to consolidated financial statements (unaudited).
4
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
1998 1997
<S> <C> <C>
INTEREST INCOME:
Loans receivable $ 3,548,608 $ 3,026,988
Securities 218,483 226,446
Interest-bearing deposits 49,006 75,099
Dividends from FHLB 38,075 28,706
----------- -----------
Total interest income 3,854,172 3,357,239
----------- -----------
INTEREST EXPENSE:
Interest expense on deposits 1,763,279 1,499,134
Interest expense on FHLB advances and other borrowings 527,044 494,424
----------- -----------
Total interest expense 2,290,323 1,993,558
----------- -----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOSSES 1,563,849 1,363,681
PROVISION FOR LOAN LOSSES (480,000) (54,000)
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 1,083,849 1,309,681
----------- -----------
NON-INTEREST INCOME:
Service charges and fees 122,338 121,887
Other 91,125 43,470
----------- -----------
Total non-interest income 213,463 165,357
----------- -----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 489,553 479,726
Premises and equipment 132,766 133,825
Federal deposit insurance 69,123 26,128
Data processing 138,281 121,166
Advertising 52,767 69,106
Bank fees and charges 34,801 48,103
Professional fees 307,243 82,655
Environmental charges 145,780
Other 147,108 122,214
----------- -----------
Total non-interest expense 1,517,422 1,082,923
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (220,110) 392,115
PROVISION (CREDIT) FOR INCOME TAXES (83,642) 140,315
----------- -----------
NET EARNINGS (LOSS) $ (136,468) $ 251,800
=========== ===========
BASIC EARNINGS PER SHARE N/A N/A
DILUTIVE EARNINGS PER SHARE N/A N/A
</TABLE>
See notes to consolidated financial statements (unaudited).
5
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (136,468) $ 251,800
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and amortization 79,288 87,933
Gain on sale of securities available for sale 13,569 5,009
Provision for loan losses 480,000 54,000
Changes in assets and liabilities:
Accrued interest receivable 53,570 (5,221)
Other assets (254,462) (5,109)
Other liabilities 112,898 (92,842)
------------ -----------
Net cash provided by operating activities 348,395 295,570
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations, net of principal repayments (10,438,581) (5,517,060)
Principal maturities collected on securities 234,534 373,467
Investment in FHLB stock (78,700) (125,000)
Capital expenditures (52,657) (4,450)
Proceeds from sale of securities available for sale 3,380,483 2,165,291
Purchase of securities available for sale (3,315,370) (2,217,397)
------------ -----------
Net cash used in investing activities (10,270,291) (5,325,149)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
FHLB advances and other borrowings 2,409,293 2,503,359
Payment of FHLB advances and other borrowings (1,581,787)
Net change in deposits 4,069,563 (286,638)
Cash dividends paid (21,994) (35,179)
Proceeds from issuance of Common Stock 65,550
------------ -----------
Net cash provided by financing activities 4,940,625 2,181,542
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,981,271) (2,848,037)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,667,588 5,092,614
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 686,317 $ 2,244,577
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid (predecessor) $ 2,544,000 $ 1,443,000
Income taxes paid (predecessor) $ 265,000 $ 100,000
</TABLE>
Successor - During the four day period from June 26, 1998 (the effective date
of the merger), and June 30, 1998, the Successor received approximately $16.2
million, net of offering costs of approximately $1.8 million, due to the
issuance and sale of 1,500,000 shares of Common Stock at $12 per share.
See notes to consolidated financial statements (unaudited).
6
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND 1997
- ------------------------------------------------------------------------------
1. BASIS OF CONSOLIDATION AND PRESENTATION
The unaudited consolidated financial statements include the accounts of
Blue River Bancshares, Inc. (the "Successor"), Shelby County Bancorp (the
"Predecessor") and its wholly-owned subsidiary Shelby County Bank
(formerly, Shelby County Savings Bank, FSB - the "Bank"). Summary of
significant accounting policies is set forth in Note 1 of the Notes to the
Consolidated Financial Statements of the Predecessor included in the
September 30, 1997 Annual Report to Shareholders.
The accompanying consolidated interim financial statements at June 30,
1998 and for the six month periods ended June 30, 1998 and 1997 are
unaudited and have been prepared in accordance with instructions to Form
10-QSB. In the opinion of management, the financial statements include all
the adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations
and cash flows for such periods.
2. SHAREHOLDER'S EQUITY (SUCCESSOR)
On June 26, 1998, the Successor completed an initial public offering. The
Successor issued 1,500,000 common shares at a offering price of $12 per
share. The Successor received approximately $16.2 million in net proceeds
from the offering. The Successor's Common Stock currently trades on the
Nasdaq SmallCap Market under the BRBI symbol.
Effective June 18, 1998, the Company amended and restated its articles of
incorporation to revise the total number of authorized shares of capital
stock to 12,000,000 shares, consisting of 10,000,000 shares designated as
"Common Stock" and 2,000,000 shares designated as "Preferred Stock."
Stock Option Plan - The Successor has adopted separate stock option
plans for Directors and for key employees. Under the option plans,
options for the purchase of 150,000 shares of Common Stock may be
granted. Options for 105,000 shares at an option price of $12 per share
have been granted and remain unexercised under the plans as of June 30,
1998.
3. ACQUISITION OF SHELBY COUNTY BANCORP
On February 5, 1998, the Successor, the Predecessor and the Bank entered
into an Agreement of Affiliation and Merger as amended and restated on
March 12, 1998 and further amended on June 2, 1998, pursuant to which the
Successor would acquire the Bank pursuant to the merger of the Predecessor
into the Successor. On June 26, 1998, the effective date of the merger,
pursuant to the merger agreement each outstanding share of common stock of
the Predecessor was converted into the right to receive $56.00 per share
from the Successor. The merger has been accounted for by the purchase
method of accounting. Accordingly, the excess of the purchase price over
the fair value of the net assets acquired has been allocated to goodwill.
For financial reporting purposes, the Successor reported the transaction
as if it was effective June 30, 1998. The statement of earnings and
statement of cash flows for the four day period from June 26, 1998 to June
30, 1998, of the Successor was not material.
7
<PAGE>
The consideration given and the assets acquired and liabilities assumed
were comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 10,626,000
Acquisition costs 168,263
------------
Total purchase price $ 10,794,263
============
Net cost of acquisition $ 10,794,263
Less Shelby County Bancorp, Inc. shareholders' equity at June 26, 1998 (7,770,311)
------------
Excess consideration over book value 3,023,952
------------
Adjustments to reflect fair value:
Investment securities held to maturity 14,406
Loans (375,478)
Deposits (737,602)
Other liabilities (225,000)
Tax effect of above adjustments 524,307
------------
Total fair value adjustments (799,367)
------------
Total goodwill $ 3,823,319
============
</TABLE>
Generally accepted accounting principles provide for an allocation period,
generally not to exceed one year, to identify and quantify the fair value
of assets acquired and liabilities assumed. Therefore, the allocations
reflected in the accompanying financial statements are subject to change
as additional information concerning fair values becomes available.
4. NEW ACCOUNTING PRONOUNCEMENTS AND POLICIES (SUCCESSOR)
Goodwill - The excess of the cost over the fair value of net assets
acquired is amortized using the straight-line method over 15 years.
The Successor adopted Statement of Financial Accounting Standards (SFAS)
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The adoption of SFAS No. 125 had no
effect on the Successor's financial statements due to no covered
transactions existing.
The Successor adopted SFAS No. 130, "Comprehensive Income". It requires
that changes in the amounts of certain items, including foreign currency
translation adjustments and gains and losses on certain securities be
shown in the financial statements. SFAS No. 130 does not require a
specific format for the financial statement in which comprehensive income
is reported, but does require that an amount representing total
comprehensive income be reported in that statement. The unrealized gains
on securities available for sale for the six months ended June 30, 1998
and 1997 were $54,000 and $197,000, respectively. The unrealized gains on
securities available for sale for the three months ended June 30, 1998 and
1997 were $2,000 and $183,000, respectively. The Successor elected to
present the required disclosures as noted above, and in combination with
the information presented in the Consolidated Statement of Earnings on
pages 4 and 5. The captions "Net income from the Consolidated Statements
of Earnings and unrealized gains", noted above, represents total
comprehensive income.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", was issued in June 1997. This statement is effective for
fiscal years beginning after December 15, 1997, and will change the way
corporations report information about products, services and segments of
their business in their annual financial statements and requires them to
report selected segment information in their quarterly reports issued to
shareholders. Management has not yet determined the additional
disclosures, if any, SFAS No. 131 will require for the consolidated
financial statements.
8
<PAGE>
SFAS No. 132 "Employers Disclosures about Pensions and other Post
Retirement Benefits", was issued in February 1998. This statement is
effective for fiscal years beginning after December 15, 1997, and
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable. Management has not yet
determined the additional disclosures, if any, SFAS No. 132 will require
for the consolidated financial statements.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998. This statement is effective for
fiscal years beginning after June 15, 1999, and standardizes the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. Management has not yet
determined the adjustments or additional disclosures, if any, SFAS No. 133
will require for the consolidated financial statements.
5. SHAREHOLDERS' EQUITY (PREDECESSOR)
In connection with the acquisition of Shelby County Bancorp by Blue River
Bancshares, Inc., all outstanding options of the predecessor were
exercised prior to the acquisition. Upon completion of the merger, the
Predecessor stock option plan was terminated.
On March 16, 1998, the Board of Directors of the Predecessor declared a
quarterly cash dividend of $.125 per share. The dividend was paid April
13, 1998 to shareholders of record as of March 30, 1998.
Earnings per share are not presented for the consolidated statements of
earnings of the predecessor since the information is not considered
meaningful.
9
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Certain statements throughout this section regarding the Successor's,
Predecessor's and the Bank's financial position, business strategy and
plans and objectives of management for future operations are
forward-looking statements rather than historical or current facts. When
used in this section, words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, as they relate to the
Successor, Predecessor and the Bank or their respective managements,
identify forward-looking statements. Such forward-looking statements
are based on the beliefs of management of the Successor, Predecessor and
the Bank as well as assumptions made by and information currently
available to management of the Successor, Predecessor and the Bank. Such
statements are inherently uncertain, and there can be no assurance that
the underlying assumptions will prove to be valid. Actual results could
differ materially from those contemplated by the forward-looking
statements as a result of certain factors, including but not limited to
competitive factors and pricing pressures, changes in legal and
regulatory requirements, technological change, product development risks
and general economic conditions, including, but not limited to, changes
in interest rates, loss of deposits and loans to other savings and
financial institutions, substantial changes in financial markets,
substantial changes in real estate values and the real estate market and
unanticipated results in pending legal proceedings. Such statements
reflect the current view of the Successor, Predecessor and the Bank with
respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to the operations, results of
operations, growth strategy and liquidity of the Successor, Predecessor
and the Bank.
FINANCIAL CONDITION:
--------------------
The merger was accounted for by the purchase method of accounting.
Accordingly, the fair value of the assets acquired and liabilities
assumed have been adjusted in accordance with APB 16, "Business
Combinations" as noted in footnote 3 on pages 7 and 8. Therefore, the
changes in financial condition described below include purchase
accounting adjustments recorded by the Successor.
Total assets at June 30, 1998, were $121,702,000, an increase of
$31,093,000 from total assets of $90,609,000 at September 30, 1997. The
most significant increases in assets were securities available for sale,
net loans receivable and goodwill attributable to the acquisition.
Investment securities at June 30, 1998 were $22,727,000, an increase of
$14,032,000 from $8,695,000 at September 30, 1997. Included in this
category were approximately $14 million of short-term investments
acquired with the proceeds of the offering. Total net loans receivable
increased from $76,038,000 at September 30, 1997 to $88,557,000 at June
30, 1998. Residential mortgages at June 30, 1998 were $55,099,000, an
increase of $8,604,000 from $46,495,000 at September 30, 1997. This
growth demonstrates continued strong demand and the Bank's increasing
market share in mortgage lending activities. Commercial loans secured
with real estate were $15,605,000 at June 30, 1998 compared to
$12,867,000 at September 30, 1997. Goodwill of $3,823,000 was recognized
due to the acquisition of the Bank by Blue River Bancshares, Inc. which
was accounted for by the purchase method of accounting.
10
<PAGE>
<TABLE>
<CAPTION>
(SUCCESSOR) (PREDECESSOR)
JUNE 30, SEPTEMBER 30,
1998 1997
<S> <C> <C>
Residential mortgages $ 55,098,542 $ 46,495,268
Commercial loans secured by real estate 15,604,586 12,866,733
Commercial, agriculture 10,435,566 9,441,544
Consumer loans 6,835,318 6,563,125
Home equity loans 1,359,455 1,062,927
Less allowance for Loan Losses (776,502) (391,677)
------------ ------------
Total Net Loans $ 88,556,965 $ 76,037,920
============ ============
</TABLE>
Total liabilities at June 30, 1998 were $105,835,000, an increase of
$22,397,000 compared to $83,438,000 at September 30, 1997. Deposits at
June 30, 1998 were $75,591,000 compared to $64,633,000 at September 30,
1997. Transaction accounts, including Savings, NOW, and Money Market
accounts resulted in $7,156,000 of the increase for the comparative
periods. Also included in liabilities at June 30, 1998 is amounts
payable to former shareholders of Shelby County Bancorp for the
acquisition of $10,505,000 which is anticipated to be paid in August
1998.
Shareholders' equity at June 30, 1998 was $15,867,000, which is a result
of the capital raised from the initial public offering of Blue River
Bancshares, Inc.
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
<S> <C> <C>
Non-performing loans consists of the following:
Non-accrual loans $ 674,268 $ 416,601
Real estate owned-net 101,943 36,727
--------- --------
Total non-performing loans $ 776,211 $ 453,328
========= =========
Non-performing loans to total assets 0.64 % 0.50 %
</TABLE>
The Bank stops accruing interest on loans that become delinquent in
excess of 90 days. At June 30, 1998 loans in non-accruing status were
$674,000, an increase of $257,000 over September 30, 1997. Of the loans
in such status, $606,000 were comprised of residential mortgage loans.
The Bank's real estate owned, containing properties foreclosed upon,
have increased to $102,000 at June 30, 1998 compared to $37,000 at
September 30, 1997.
11
<PAGE>
Activity in the allowance for loan losses consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED SEPTEMBER 30,
JUNE 30, 1998 1997
<S> <C> <C>
Balance, beginning of period $ 422,376 $ 325,900
Add:
Provision for loan losses 480,000 104,000
Recoveries of loans previously charged off 7,677 1,146
Less gross charge-offs:
Residential real estate loans (80,000)
Consumer loans (53,551) (39,369)
--------- ---------
Balance, end of period $ 776,502 $ 391,677
========= =========
Net charge-offs to total average loans outstanding 0.16% 0.05%
Allowance to total average loans outstanding 0.92% 0.55%
</TABLE>
Allowance for loan losses at June 30, 1998 was $777,000, an increase of
$385,000 from September 30, 1997. The increase in the allowance resulted
from additional provisions being recorded in the preceding quarter to
address conditions observed during an OTS safety and soundness
examination prior to the effective date of merger. Specific reserves had
been established to address concerns related to certain classified
loans. In addition, the shift in loan mix to higher levels of
non-residential mortgage lending increased the inherent risks of the
underlying portfolio, and slight declines in asset quality ratios have
been factored in to strengthen the allowance position of the Bank.
RESULTS OF OPERATIONS: Three Month Period Ended June 30, 1998
--------------------------------------------------------------
During the three month period ended June 30, 1998, net earnings
decreased to $36,000 compared to net earnings of $132,000 during the
three month period ended June 30, 1997. This decrease is primarily the
result of increased expenses, including costs related to the merger.
Net interest income was $718,000, after provision for loan losses, for
the three month period ended June 30, 1998, compared to $679,000 for the
three month period ended June 30, 1997. Net interest income before
provision for loan losses improved to $793,000 compared to $706,000 for
the three month period ended June 30, 1998 and 1997, respectively.
Interest income increased from $1,690,000 for the three month period
ended June 30, 1997 to $1,982,000 for the three month period ended June
30, 1998. Interest income from loans was $1,839,000 for the three month
period ended June 30, 1998, an increase of $296,000 over the same period
in 1997. The increase in loan interest income consists of a favorable
volume variance of $311,000 offset by an unfavorable rate variance of
$15,000. Interest expense for the three month period ended June 30, 1998
was $1,189,000 compared to $984,000 for the three month period ended
June 30, 1997. Interest expense on deposit accounts increased from
$732,000 for the three month period ended June 30, 1997 to $914,000 for
the three month period ended June 30, 1998. The increase in interest
expense on deposits consists of a $145,000 increase due to increased
deposit balances, and $37,000 due to an increase in the rates related to
the deposit portfolio. Interest expense on advances from the Federal
Home Loan Bank ("FHLB") increased to $275,000 for 1998 compared to
$251,000 for 1997. The increase in balances related to FHLB funding
accounts for an increase of $50,000, however, rates on such advances
declined, resulting in a $26,000 favorable rate variance.
12
<PAGE>
Total non-interest income was $95,000 for the three month period ended
June 30, 1998, compared to $83,000 for the same period in 1997.
Non-interest expense totaled $749,000 for the three month period ended
June 30, 1998 compared to $555,000 for the same period in the prior
year. The primary increase in non-interest expense relates to
professional services for the merger with Blue River Bancshares, Inc.
Professional expenses for the three month period ended June 30, 1998
increased $179,000 for the same period in 1997.
RESULTS OF OPERATIONS: Six Month Period Ended June 30, 1998
------------------------------------------------------------
During the six month period ended June 30, 1998, net losses were
$136,000 compared to net earnings of $252,000 during the six month
period ended June 30, 1997. The decrease in earnings is primarily the
result of an increase in the provision for loan losses of $426,000,
expensing $146,000 in estimated costs of environmental remediation at
the St. Paul site, and an increase of $224,000 of professional expenses
associated with the merger.
Net interest income was $1,084,000, after provision for loan losses, for
the six month period ended June 30, 1998, compared to $1,310,000 for the
six month period ended June 30, 1997. Net interest income before
provision for loan losses improved to $1,564,000 compared to $1,364,000
for the six month period ended June 30, 1998 and 1997, respectively. Net
interest margin before provision for loan losses declined by 1 basis
point from the six month period ended June 30, 1997.
Interest income increased from $3,357,000 for the six month period ended
June 30, 1997 to $3,854,000 for the six month period ended June 30,
1998. Interest income from loans was $3,549,000 for the six month period
ended June 30, 1998, an increase of $522,000 over the same period in
1997. This variance in loan income contains a favorable volume variance
of $556,000 offset by an unfavorable rate variance of $34,000. Interest
expense for the six month period ended June 30, 1998 was $2,290,000
compared to $1,994,000 for the six month period ended June 30, 1997.
Interest expense on deposit accounts increased from $1,499,000 for the
six month period ended June 30, 1997 to $1,763,000 for the six month
period ended June 30, 1998. The increased interest expense on deposits
was comprised of a $195,000 increase due to increased deposit balances,
and $69,000 due to an increase in the rates related to the deposit
portfolio. Interest expense on advances from the FHLB increased to
$527,000 for 1998 compared to $494,000 for 1997. The increase in
balances related to FHLB funding accounts for an increase of $110,000,
however, rates on such advances declined, resulting in a $77,000
favorable rate variance.
Total non-interest income was $213,000 for the six month period ended
June 30, 1998, compared to $165,000 for the same period in 1997.
Non-interest expense totaled $1,517,422 for the six month period ended
June 30, 1998 compared to $1,083,000 for the same period in the prior
year. The primary increase in non-interest expense was related to
professional services for the merger with Blue River Bancshares, Inc.
and expensing costs associated with environmental remediation at the St.
Paul branch. Professional expenses for the six month period ended June
30, 1998 included $224,000 for services performed by legal counsel,
auditors, and Shelby County Bancorp's investment advisor with respect to
the merger. Also included in the six month period is a charge of
$146,000 for remediation programs at the St. Paul branch.
CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
The Successor is subject to regulation as a savings and loan holding
company, and is subject to certain restrictions in its dealings with the
Bank. The Bank is subject to the regulatory requirements applicable to a
federal savings bank.
13
<PAGE>
Current capital regulations required savings institutions to have
minimum tangible capital equal to 1.5% to total assets and a core
capital ratio equal to 4.0% of total assets. Additionally, savings
institutions are required to meet a risk based capital ratio equal to
8.0% for risk-weighted assets. At June 30, 1998, the Bank satisfied all
capital requirements.
The following is a summary of the Bank's regulatory capital and capital
requirements at June 30, 1998 based on capital regulations currently in
effect for savings institutions.
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
<S> <C> <C> <C>
Regulatory capital $ 8,227,000 $ 8,227,000 $ 8,959,000
Minimum capital requirements 1,531,000 4,083,000 6,127,000
----------- ----------- -----------
Excess capital $ 6,696,000 $ 4,144,000 $ 2,832,000
=========== =========== ===========
Regulatory captal ratio 8.06% 8.06% 11.70%
Required capital ratio 1.50% 4.00% 8.00%
</TABLE>
Liquidity measures the Bank's ability to meet its savings withdrawals
and lending commitments. Management believes that the Bank's liquidity
is adequate to meet current requirements, such as the funding of
$3,205,000 in loan commitments as of June 30, 1998. The Bank maintains
liquidity of at least 4% of net withdrawable assets. At June 30, 1998,
its regulatory liquidity ratio was 6.07%.
A Year 2000 Committee has been established by the Successor consisting
of officers and employees to address problems which could arise from the
forthcoming Year 2000 rollover. The Committee is charged with providing
regular reports to the Board of Directors detailing progress in this
area. Based on progress by the Committee to date, it is anticipated that
the Year 2000 rollover will not present material financial or
operational burdens for the Successor.
14
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Neither the Successor nor the Bank are engaged in any legal
proceedings of a material nature at the present time. From time to
time, the Bank is a party to legal proceedings wherein it enforces
its security interest in mortgage loans made by it.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
(1) The Successor completed its initial public offering pursuant to
a Registration Statement on Form SB-2 (File No. 333-48269)
declared effective by the Securities and Exchange Commission on
June 22, 1998 and issued 1,500,000 shares of its Common Stock,
no par, to the public at a price of $12.00 per share.
(2) The offering pursuant to the Registration Statement was
commenced on June 23, 1998.
(3) The offer terminated after 1,500,000 shares of common stock
registered under the Registration Statement were sold.
(i) The underwriter for the initial public offering was Roney
Capital markets, a division of First Chicago Capital
Markets, Inc.
(ii) The Registration Statement registered 1,725,000 shares of
common stock which included 225,000 shares of common stock
for the Underwriter to cover over-allotments. The
Underwriter did not exercise its option to purchase these
225,000 shares of common stock.
(iii) From June 22, 1998 through June 30, 1998, the Successor
incurred the following expenses in connection with the
issuance and distribution of the securities registered
pursuant to the Registration Statement, none of which
constituted direct or indirect payments to directors,
officers or general partners of the Successor (other
expenses represent a reasonable estimate of actual costs
incurred):
Underwriting discounts and commissions $1,194,000
Finders fees
Expenses paid to or for Underwriters
Other expenses 10,500
----------
Total expenses $1,204,500
----------
(iv) The net proceeds to the Successor of the offering pursuant
to the Registration Statement, after deducting the
expenses listed in (iii) above are $16,795,500. The
Successor received approximately $16,200,000 of cash from
the initial public offering, net of underwriting
discounts, commissions, and other offering costs and
expenses.
(v) From June 22, 1998 through June 30, 1998, the Successor
has applied the following amounts of its net proceeds from
the offering pursuant to the Registration Statement, none
of which constituted direct or indirect payments to the
Company's affiliates, 10 percent stockholders, directors,
officers or general partners or their associates, direct
or indirect payments to others, except for repayment of
indebtedness to Steven R. Abel, Robert C. Reed and D.
Warren Robison (collectively, the "Founders"), each of
whom is an officer and shareholder of the Successor:
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Construction of plant, building and facilities $
Purchase and installation of machinery and equipment
Purchases of real estate
Acquisitions of other business(es)
Repayment of indebtedness to the Founders 346,000
Working capital (Holding Company) 2,848,750
Contribution of Capital to the Bank 2,500,000
Temporary investments (specified below) 10,505,250
Other uses of at least $100,000 (specified below)
</TABLE>
Temporary investments consist of high quality, short term,
liquid investments.
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On June 5, 1998 the shareholders of the Successor by unanimous
written consent approved and adopted Amended and Restated Articles of
Incorporation of the Successor. On June 6, 1998 the shareholders of
the Successor by unanimous written consent elected Wendell L. Bernard
and Ralph W. Van Natta as directors of the Successor and designated
classes of directors as follows:
Class 1 - Robert C. Reed
Class 2 - Steven R. Abel and Wendell L. Bernard
Class 3 - Ralph W. Van Natta and D. Warren Robison
The Director in Class 1 holds office initially for one year, the
Directors in Class 2 hold office initially for a term of two years;
and the Directors in Class 3 hold office initially for a term of
three years. Upon the expiration of the initial terms and thereafter,
the Directors in each of the classes shall be elected for terms of
three years and until their successors have been elected and
qualified.
Item 5. Other information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibit 27--Financial Data Schedule
b) Report on Form 8-K, dated July 2, 1998 reporting the
consummation of the merger of the Predecessor into the Successor
and the acquisition of the Bank by the Successor. The Form 8-K
also reported the removal by the Office of the Thrift
Supervision of certain restrictions on commercial lending by the
Bank effective on June 26, 1998 (the effective date of the
merger).
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 behalf of the
undersigned thereto duly authorized.
Blue River Bancshares, Inc.
Date: August 11, 1998 By /s/ Bradley A. Long
--------------- -------------------
Bradley A. Long, Vice President,
Chief Financial Officer and Treasurer
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ISSUER'S
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 686,317
<INT-BEARING-DEPOSITS> 1,839,056
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 718,805
<INVESTMENTS-MARKET> 22,007,835
<LOANS> 89,333,467
<ALLOWANCE> 776,502
<TOTAL-ASSETS> 121,702,202
<DEPOSITS> 75,590,952
<SHORT-TERM> 29,533,808
<LIABILITIES-OTHER> 710,632
<LONG-TERM> 0
0
0
<COMMON> 16,193,094
<OTHER-SE> (326,283)
<TOTAL-LIABILITIES-AND-EQUITY> 121,702,202
<INTEREST-LOAN> 3,548,608
<INTEREST-INVEST> 218,483
<INTEREST-OTHER> 87,081
<INTEREST-TOTAL> 3,854,172
<INTEREST-DEPOSIT> 1,763,279
<INTEREST-EXPENSE> 527,044
<INTEREST-INCOME-NET> 1,563,849
<LOAN-LOSSES> 480,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,517,422
<INCOME-PRETAX> (220,110)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136,468)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.1
<LOANS-NON> 674,268
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 422,376
<CHARGE-OFFS> 133,551
<RECOVERIES> 7,677
<ALLOWANCE-CLOSE> 776,502
<ALLOWANCE-DOMESTIC> 776,502
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
