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, 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
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
incorporation or organization) Identification Number)
29 East Washington Street
Shelbyville, Indiana 46176
-------------------- -----
(Address of principal executive office) (Zip Code)
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, 1999, there were 1,494,389 shares of the Registrant's Common
Stock issued outstanding.
Transitional Small Business Disclosure Format.
(Check one): Yes X No
--- ---
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
INDEX
-----
PAGE
NUMBER
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Statement of Financial Condition (Unaudited)
as of June 30, 1999 of the Successor 3
Consolidated Statements of Earnings (Unaudited) for
the three month periods ended June 30, 1999 of the
Successor and 1998 of the Predecessor 4
Consolidated Statements of Earnings (Unaudited) for
the six month periods ended June 30, 1999 of the
Successor and 1998 of the Predecessor 5
Consolidated Statements of Cash Flows (Unaudited) for
the six month periods ended June 30, 1999 of the
Successor and 1998 of the Predecessor 6
Notes to Consolidated Financial Statements (Unaudited) 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
PART II. OTHER INFORMATION: 17-18
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 19
2
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Unaudited)
AS OF JUNE 30, 1999
-------------------
ASSETS
- ------
SUCCESSOR
---------
Cash and due from banks $ 2,086,205
Interest-bearing deposits with banks 7,756,736
Securities available for sale 19,298,871
Securities held-to-maturity 381,743
Loans receivable, net 92,182,675
Accrued interest receivable 933,740
FHLB stock of Indianapolis 1,357,800
Prepaid expenses and other assets 1,380,605
Premises and equipment, net 2,690,692
Goodwill, net 2,994,711
-------------
TOTAL ASSETS $ 131,063,778
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits $ 82,516,283
FHLB advances and other borrowings 20,000,000
Accrued expenses and other liabilities 12,293,559
Accrued interest payable 234,298
-------------
Total liabilities 115,044,140
-------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, without par value: 1,494,389 shares
issued and outstanding 16,259,615
Accumulated deficit (49,626)
Unrealized (loss) on available for sale securities (190,351)
-------------
Total shareholders' equity 16,019,638
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 131,063,778
=============
See notes to consolidated financial statements (unaudited).
3
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
--------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------- -------------
1999 1998
<S> <C> <C>
INTEREST INCOME:
- ----------------
Loans receivable 1,887,085 1,839,025
Securities 292,298 108,608
Interest-bearing deposits 51,144 13,984
Dividends from FHLB 18,626 19,923
---------- ----------
Total interest income 2,249,153 1,981,540
---------- ----------
INTEREST EXPENSE:
- -----------------
Interest expense on deposits 950,305 913,644
Interest expense on FHLB advances and other borrowings 274,498 275,259
---------- ----------
Total interest expense 1,224,803 1,188,903
---------- ----------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 1,024,350 792,637
PROVISION FOR LOAN LOSSES (45,000) (75,000)
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 979,350 717,637
---------- ----------
NON-INTEREST INCOME:
- --------------------
Service charges and fees 62,337 61,792
Gain on sale of available-for-sale securities 91,001 0
Other 46,545 33,534
---------- ----------
Total non-interest income 199,883 95,326
---------- ----------
NON-INTEREST EXPENSE:
- ---------------------
Salaries and employee benefits 399,854 249,092
Premises and equipment 133,429 69,215
Federal deposit insurance 63,030 35,731
Data processing 87,223 69,140
Advertising & promotion 36,045 25,653
Bank fees and charge 15,880 22,225
Professional fees 220,969 224,701
Stationery, supplies & printing 35,426 33,899
Other 124,995 19,178
Goodwill amortization 53,103 0
---------- ----------
Total non-interest expense 1,169,954 748,834
---------- ----------
EARNINGS BEFORE INCOME TAX EXPENSE 9,279 64,129
INCOME TAX EXPENSE 20,761 28,397
---------- ----------
NET (LOSS)/EARNINGS (11,482) 35,732
========== ==========
BASIC EARNINGS PER SHARE (0.01) N/A
DILUTIVE EARNINGS PER SHARE (0.01) 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 PERIODS ENDED JUNE 30, 1999 AND 1998
------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------- -------------
1999 1998
<S> <C> <C>
INTEREST INCOME:
- ----------------
Loans receivable 3,714,277 3,548,608
Securities 550,764 218,483
Interest-bearing deposits 155,034 49,006
Dividends from FHLB 45,410 38,075
---------- ----------
Total interest income 4,465,485 3,854,172
---------- ----------
INTEREST EXPENSE:
- -----------------
Interest expense on deposits 1,889,356 1,763,279
Interest expense on FHLB advances and other borrowings 569,144 527,044
---------- ----------
Total interest expense 2,458,500 2,290,323
---------- ----------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 2,006,985 1,563,849
PROVISION FOR LOAN LOSSES (90,000) (480,000)
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,916,985 1,083,849
---------- ----------
NON-INTEREST INCOME:
- --------------------
Service charges and fees 121,966 122,338
Gain on sale of available-for-sale securities 248,253 17,271
Other 79,699 73,854
---------- ----------
Total non-interest income 449,918 213,463
---------- ----------
NON-INTEREST EXPENSE:
- ---------------------
Salaries and employee benefits 777,828 489,553
Premises and equipment 253,040 132,766
Federal deposit insurance 123,538 69,123
Data processing 173,215 138,281
Advertising & promotion 68,806 52,767
Bank fees and charge 34,246 34,801
Professional fees 312,104 307,243
Stationery, supplies & printing 63,722 50,249
Environmental charges 0 145,780
Other 234,482 96,859
Goodwill amortization 99,871 0
---------- ----------
Total non-interest expense 2,140,852 1,517,422
---------- ----------
EARNINGS BEFORE INCOME TAX EXPENSE 226,051 (220,110)
INCOME TAX EXPENSE 132,688 (83,642)
---------- ----------
NET EARNINGS/(LOSS) 93,363 (136,468)
========== ==========
BASIC EARNINGS PER SHARE 0.06 N/A
DILUTIVE EARNINGS PER SHARE 0.06 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 PERIODS ENDED JUNE 30, 1999 AND 1998
------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------- -------------
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net earnings (loss) 93,363 (136,468)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 339,172 79,288
Provision for loan losses 90,000 480,000
Gain on Sale of securities available for sale (248,253) (13,569)
Changes in assets and liabilities:
Accrued interest receivable (174,254) 53,570
Other assets (771,444) (254,462)
Other liabilities 11,885,391 112,898
----------- -----------
Net cash provided by (used in) operating activities 11,213,975 321,256
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Loan originations, net of principal repayments (9,800,226) (10,438,581)
Principal maturities collected on securities 2,320,811 234,534
Investment in FHLB stock 0 (78,700)
Capital expenditures (891,887) (52,657)
Proceeds from sale of securities available for sale 3,971,792 3,407,621
Proceeds from sale of Mortgage Loans 5,639,634 0
Purchase of securities available for sale (8,562,463) (3,315,370)
----------- -----------
Net cash used in investing activities (7,322,339) (10,243,153)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
FHLB advances and other borrowings 11,050,000 2,409,293
Payment of FHLB advances and other borrowings (17,550,000) (1,581,787)
Net change in deposits (6,803,714) 4,069,563
Proceeds from issuance of Common Stock 22,660 65,550
Cash dividends paid 0 (21,994)
----------- -----------
Net cash provided by (used in) financing activities (13,281,054) 4,940,625
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,389,418) (4,981,271)
----------- -----------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 19,232,359 5,667,588
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD 9,842,941 686,317
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid 2,420,000 2,544,000
Income taxes paid 85,000 265,000
Loans transferred to real estate owned 84,000 102,000
</TABLE>
See notes to consolidated financial statements (unaudited)
6
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
----------------------------------------------------------------
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 Successor included in the
December 31, 1998 Annual Report to Shareholders.
The accompanying consolidated interim financial statements at June 30,
1999, the three month periods ended June 30, 1999 and 1998 and the six
month periods ended June 30, 1999 and 1998 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,
1999.
7
<PAGE>
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 consideration given and the assets acquired and liabilities assumed
were comprised of the following:
Cash $10,626,000
Acquisition costs 202,934
-----------
Total purchase price $10,828,934
===========
Net cost of acquisition $10,828,934
Less Shelby County Bancorp, Inc. shareholders'
equity at June 26, 1998 (7,828,531)
-----------
Excess consideration over book value 3,000,403
-----------
Adjustments to reflect fair value:
Investment securities held to maturity 14,406
Loans 554,374
Deposits (737,602)
Other liabilities (421,407)
Other assets 28,082
Tax effect of above adjustments 395,859
-----------
Total fair value adjustments (166,288)
-----------
Total goodwill $ 3,166,691
-----------
8
<PAGE>
4. NEW ACCOUNTING PRONOUNCEMENTS AND POLICIES (SUCCESSOR)
In accordance with SFAS No. 130, reclassification adjustments have been
determined for all components of other comprehensive income reported in
the consolidated statements of changes in shareholders' equity. Amounts
presented within those statements for the successor's six month period
ended June 30, 1999; and the predecessor's six month period ended June
30, 1998 are as follows:
<TABLE>
<CAPTION>
Successor Predecessor
Period from Period from
January 1, 1999 January 1, 1998
through through
June 30, 1999 June 30, 1998
<S> <C> <C>
Other comprehensive income before tax:
Net unrealized holding gains/(losses) $(698,225) $ 103,905
Less: reclassification adjustment for gains
realized in net income (248,253) 13,569
--------- ---------
Other comprehensive income/(loss) before tax (946,477) 90,336
Income tax expense/(benefit) related to items of
other comprehensive income (376,310) 35,917
--------- ---------
Other comprehensive income/(loss), net of tax $(570,167) $ 54,419
========= =========
</TABLE>
New Accounting Pronouncements - Statement of Financial Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 and amended by Statement of
Financial Standards No. 137 ("SFAS 137"), "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of
SFAS 133". SFAS 133, as amended By SFAS 137, is effective for all
fiscal quarters of all fiscal years Beginning after June 15, 2000. This
statement establishes accounting and Reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or Liabilities in the
statement of financial condition and measure those Instruments at fair
value. If certain conditions are met, a derivative may Be specifically
designated as a fair value hedge, a cash flow hedge, or a Hedge of a
foreign currency exposure. The accounting for changes in the fair Value
of a derivative (that is, gains and losses) depends on the intended Use
of the derivative and the resulting designation. The Bank has not
engaged in any derivative or hedging activities.
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 management, 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 in the
Notes to Consolidated Financial Statements (Unaudited) on page 6.
Total assets at June 30, 1999, were $131,064,000, an increase of $9,362,000 from
total assets of $121,702,000 at June 30, 1998. Investment securities at June 30,
1999 were $19,681,000, a decrease of $3,046,000 from $22,727,000 at June 30,
1998. The Bank's investment portfolio is used to manage its liquidity and
interest rate sensitivity. The Bank's current investment strategy also includes
acquiring securities with favorable risk-based capital treatment to continue to
enhance the capital adequacy of the Bank. Total net loans receivable increased
from $88,557,000 at June 30, 1998 to $92,183,000 at June 30, 1999. Residential
mortgages at June 30, 1999 were $44,781,000, a decrease of $10,318,000 from
$55,099,000 at June 30, 1998. This reduction results from increased brokering
activities related to fixed rate mortgage loans, as well as executing a
$5,600,000 sale of portfolio mortgage, enabling the Bank to reduce its interest
rate sensitivity. Commercial loans and Commercial loans secured with real estate
were $30,639,000 at June 30, 1999 compared to $26,040,000 at June 30, 1998.
Consumer and home equity loans increased $9,381,000 to $17,576,000 at June 30,
1999. This shift in loan mix is being strategically pursued to continue to
enhance net interest margin while reducing the interest rate sensitivity
inherent in fixed rate residential mortgages.
10
<PAGE>
(SUCCESSOR) (SUCCESSOR)
JUNE 30, JUNE 30,
1999 1998
Residential mortgages $ 44,781,008 $ 55,098,542
Commercial loans secured by real estate 24,830,981 15,604,586
Commercial, agriculture 5,808,468 10,435,566
Consumer loans 15,575,055 6,835,318
Home equity loans 2,000,771 1,359,455
Less allowance for Loan Losses (790,836) (776,502)
------------ ------------
Total Net Loans $ 92,205,447 $ 88,556,965
============ ============
Total liabilities at June 30, 1999 were $115,044,000, an increase of $9,209,000
compared to $105,835,000 at June 30, 1998. Deposits at June 30, 1999 were
$82,516,000 compared to $75,591,000 at June 30, 1998. Transaction accounts,
including Savings, NOW, and Money Market accounts resulted in $4,596,000 of the
$6,925,000 increase in total deposits for the comparative periods.
Shareholders' equity at June 30, 1999 was $16,020,000, an increase of $153,000
over June 30, 1998. This increase is the result of accumulated earnings offset
by a reduction in the net unrealized appreciation of the available for sale
investment securities portfolio.
(SUCCESSOR)(SUCCESSOR)
JUNE 30, JUNE 30,
1999 1998
Non-performing loans consists of the following:
Non-accrual loans $816,952 $674,268
Real estate owned-net 65,377 101,943
-------- --------
Total non-performing loans $882,329 $776,211
======== ========
Non-performing loans to total assets 0.67 % 0.64 %
The Bank stops accruing interest on loans that become delinquent in excess of 90
days. At June 30, 1999 loans in non-accruing status were $817,000, an increase
of $143,000 over June 30, 1998. The Bank's real estate owned, containing
properties foreclosed upon, have decreased to $65,000 at June 30, 1999 compared
to $102,000 at June 30, 1998.
11
<PAGE>
Activity in the allowance for loan losses consists of the following:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
<S> <C> <C>
Balance, beginning of period $ 750,022 $ 422,376
Add:
Provision for loan losses 90,000 480,000
Recoveries of loans previously charged off 597 7,677
Less gross charge-offs:
Residential real estate loans (30,118) (80,000)
Consumer loans (19,665) (53,551)
--------- ---------
Balance, end of period $ 790,836 $ 776,502
========= =========
Net charge-offs to total average loans outstanding 0.11% 0.16%
Allowance to total average loans outstanding 0.87% 0.92%
</TABLE>
Allowance for loan losses at June 30, 1999 was $791,000, an increase of $14,000
from June 30, 1998. The June 30, 1998 allowance included additional provisions
being recorded to address conditions observed during an OTS safety and soundness
examination prior to the effective date of the acquisition of the Bank by the
Company. As a result, specific reserves had been established to address concerns
related to certain classified loans.
RESULTS OF OPERATIONS: Three Month Period Ended June 30, 1999
- --------------------------------------------------------------
During the three month period ended June 30, 1999, net earnings decreased to a
net loss of ($11,000) compared to the Predecessor's net income of $36,000 during
the three month period ended June 30, 1998. This decrease includes an increase
in net interest income before provision for loan losses of $232,000, a reduction
in provision for loan losses from $75,000 for the three months ended June 30,
1998 to $45,000 for the three months ended June 30, 1999, an increase in
non-interest income of $105,000, offset by an increase in non-interest expenses
of $421,000. The earnings for the quarter were adversely affected by costs of
$119,000 related to the startup of First Community Bank of Fort Wayne. The
effective tax rate of the Company is impacted by the nondeductibility of
goodwill amortization in calculating income taxes.
Net interest income was $979,000, after provision for loan losses, for the three
month period ended June 30, 1999, compared to $718,000 for the three month
period ended June 30, 1998. Net interest income before provision for loan losses
improved to $1,024,000 compared to $793,000 for the three month period ended
June 30, 1999 and 1998, respectively.
12
<PAGE>
Interest income increased from $1,982,000 for the three month period ended June
30, 1998 to $2,249,000 for the three month period ended June 30, 1999. Interest
income from loans was $1,887,000 for the three month period ended June 30, 1999,
an increase of $48,000 over the same period in 1998. The increase in loan
interest income consists of a favorable variance of $134,000 due to higher loan
balances offset by an unfavorable rate variance of $86,000. Interest income on
investment securities and interest bearing deposits increased $220,000 to
$362,000 for the three months ended June 30, 1999, resulting from a favorable
variances of $197,000 due to a larger portfolio and $23,000 due to improved
yields. Interest expense for the three month period ended June 30, 1999 was
$1,225,000 compared to $1,189,000 for the three month period ended June 30,
1998. Interest expense on deposit accounts increased from $914,000 for the three
month period ended June 30, 1998 to $950,000 for the three month period ended
June 30, 1999. The increase in interest expense on deposits consists of a
$203,000 increase due to increased deposit balances, offset by a $167,000
reduction due to a decrease in the rates related to the deposit portfolio.
Interest expense on advances from the Federal Home Loan Bank ("FHLB") decreased
to $274,000 for 1999 compared to $275,000 for 1998. The increase in balances
related to FHLB funding accounts for an increase of $34,000, however, rates on
such advances declined, resulting in a $35,000 favorable rate variance.
Total non-interest income was $200,000 for the three month period ended June 30,
1999, compared to $95,000 for the same period in 1998. Included in the 1999
results is a gain on sale of FHLMC stock of $91,000.
Non-interest expense totaled $1,170,000 for the three month period ended June
30, 1999 compared to $749,000 for the same period in the prior year. The primary
increase in non-interest expense relates to a $151,000 increase in salaries and
employee benefits, resulting in strengthening the Bank's management functions
and increasing staff in sales and service areas to enhance customer service and
to accommodate growth in product offerings and market presence. Expenses related
to premises and equipment increased $64,000 over the three months ended June 30,
1998 due to expanded office space utilization at the main banking facility,
upgraded computer hardware, and enhanced office equipment such as copiers, laser
printers, and fax machines acquired to increase productivity. Deposit insurance
premiums increased $27,000 over 1998, resulting from a larger deposit base
coupled with a higher assessment rate being assigned to the Bank's deposits when
compared to 1998. Goodwill amortization for the three months ended June 30, 1999
were $53,000, expenses not reflected in the three months ended June 30, 1998.
The non-interest expenses for the quarter were adversely affected by costs of
$119,000 related to the startup of First Community Bank of Fort Wayne.
RESULTS OF OPERATIONS: Six Month Period Ended June 30, 1999
- ------------------------------------------------------------
During the six month period ended June 30, 1999, net earnings were increased to
93,000 compared to the Predecessor's net loss of $(136,000) during the six month
period ended June 30, 1998. This increase includes an increase in net interest
income before provision for loan losses of $443,000, a reduction in provision
for loan losses from $480,000 for the six months ended June 30, 1998 to $90,000
for the six months ended June 30, 1999, an increase in non-interest income of
$236,000, offset by an increase in non-interest expenses of $623,000. The
earnings for the quarter were adversely affected by costs of $186,000 related to
the startup of First Community Bank of Fort Wayne. The effective tax rate of the
Company is impacted by the nondeductibility of goodwill amortization in
calculating income taxes.
13
<PAGE>
Net interest income was $1,917,000, after provision for loan losses, for the six
month period ended June 30, 1999, compared to $1,084,000 for the six month
period ended June 30, 1998. Net interest income before provision for loan losses
improved to $2,007,000 compared to $1,564,000 for the six month periods ended
June 30, 1999 and 1998, respectively.
Interest income increased from $3,854,000 for the six month period ended June
30, 1998 to $4,465,000 for the six month period ended June 30, 1999. Interest
income from loans was $3,714,000 for the six month period ended June 30, 1999,
an increase of $166,000 over the same period in 1998. The increase in loan
interest income consists of a favorable volume variance of $310,000 offset by an
unfavorable rate variance of $144,000. Interest income on investment securities
and interest bearing deposits increased $438,000 to $706,000 for the six months
ended June 30, 1999, resulting from a favorable volume variance of $449,000
offset by an unfavorable rate variance of $11,000. Interest expense for the six
month period ended June 30, 1999 was $2,458,000 compared to $2,290,000 for the
six month period ended June 30, 1998. Interest expense on deposit accounts
increased from $1,763,000 for the six month period ended June 30, 1998 to
$1,889,000 for the six month period ended June 30, 1999. The increase in
interest expense on deposits consists of a $451,000 increase due to increased
deposit balances, offset by a $325,000 reduction due to a decrease in the rates
related to the deposit portfolio. Interest expense on advances from the Federal
Home Loan Bank ("FHLB") increased to $569,000 for 1999 compared to $527,000 for
1998. The increase in balances related to FHLB funding accounts for an increase
of $83,000, however, rates on such advances declined, resulting in a $41,000
favorable rate variance.
Total non-interest income was $450,000 for the six month period ended June 30,
1999, compared to $213,000 for the same period in 1998. Included in the 1999
results is a gain on sale of FHLMC stock of $248,000.
Non-interest expense totaled $2,141,000 for the six month period ended June 30,
1999 compared to $1,517,000 for the same period in the prior year. The primary
increase in non-interest expense relates to a $288,000 increase in salaries and
employee benefits, resulting in strengthening the Bank's management functions
and increasing staff in sales and service areas to enhance customer service and
to accommodate growth in product offerings and market presence. Expenses related
to premises and equipment increased $120,000 over the six months ended June 30,
1998 due to expanded office space utilization at the main banking facility,
upgraded computer hardware, and enhanced office equipment such as copiers, laser
printers, and fax machines acquired to increase productivity. Deposit insurance
premiums increased $54,000 over 1998, resulting from a larger deposit base
coupled with a higher assessment rate being assigned to the Bank's deposits when
compared to 1998. Goodwill amortization for the six months ended June 30, 1999
were $100,000, expenses not reflected in the six months ended June 30, 1998. The
non-interest expenses for the quarter were adversely affected by costs of
$186,000 related to the startup of First Community Bank of Fort Wayne.
14
<PAGE>
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.
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
3.0% 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,
1999, the Bank satisfied all capital requirements.
The following is a summary of the Bank's regulatory capital and capital
requirements at June 30, 1999 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 $ 9,695,000 $ 9,695,000 $10,620,000
Minimum capital requirements 1,875,000 3,750,000 7,008,000
----------- ----------- -----------
Excess capital $ 7,820,000 $ 5,945,000 $ 3,612,000
=========== =========== ===========
Regulatory capital ratio 7.75% 7.75% 12.12%
Required capital ratio 1.50% 3.00% 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. The Bank maintains liquidity of at least 4% of net
withdrawable assets. At June 30, 1999, its regulatory liquidity ratio was
20.95%.
YEAR 2000 COMPLIANCE
- --------------------
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Bank's computer
programs and those of third-party computer related providers may recognize a
date using "00" as the year 1900 rather than the year 2000. This situation could
result in system failures or miscalculations causing disruption of operations
that could affect the ability of the Bank to operate effectively and service
customers.
15
<PAGE>
I. THE BANK'S STATE OF READINESS
The Bank is preparing for the year 2000 by testing and evaluating both
its information technology (IT) and non-information technology systems.
The Bank does not have any mission critical processes that are
dependent on non-IT systems. The non-IT systems, such as the telephone
system, are either currently compliant or are expected to be compliant
in the fiscal year 1999. The IT systems used by the Bank have been or
are being tested. The components of the IT systems being examined are:
personal computers (hardware and software), data service bureau, and
other service providers.
In 1998, a comprehensive project plan to address the Year 2000 issue as
it relates to the Bank's operation was developed, approved by the Board
of Directors and implemented. The scope of the plan includes phases of
Awareness, Assessment, Renovation, Validation, and Implementation as
defined by federal banking regulatory agencies. The Bank's project team
consists of key members of the technology staff, representatives of
functional business units, and senior management. The project team
estimates that the Bank's Year 2000 readiness project is 90% complete
and that activities involved in assessing external risks and
operational issues are complete. The Year 2000 Committee is currently
developing detailed training and testing methods to simulate
implementation of its Business Resumption Plan to further prepare for
any action necessary to provide banking services to its customers under
emergency circumstances related to potential Year 2000 disruptions on
normal operations.
The following table provides a summary of the current status of the
five phases involved in Year 2000 readiness and a projected timetable
for completion as of June 30, 1999:
PERCENTAGE PROJECTED
PROJECT PHASE COMPLETED COMPLETION COMMENTS
------------- ---------- ---------- --------
Awareness 100% Completed
Assessment 100% Completed
Renovation 100% Completed
Validation 95% October 31, 1999 Testing
Implementation 95% October 31, 1999 Testing
An assessment of the impact of the Year 2000 issue on the Bank's
computer systems has been completed. The scope of the project also
includes other operational and environmental systems since they may be
impacted if embedded computer chips control the functionality of those
systems. From the assessment, the Bank has identified and prioritized
those systems deemed to be mission critical or those that have a
significant impact on normal operations.
The Bank relies on third party vendors and service providers for its
data processing capabilities and to maintain its computer systems.
Formal communications with these providers were initiated in 1998 to
assess the Year 2000 readiness of their products and services. Their
progress in meeting their targeted schedules is being monitored for any
indication that they may not be able to address the problems in time.
Thus far, responses indicate that most of the significant providers
currently have compliant versions available or are well into the
renovation and testing phases.
16
<PAGE>
Additionally, the Bank has implemented a plan to manage the potential
risk imposed by the impact of the Year 2000 issue on its major
customers. Formal communications were initiated, and the assessment was
significantly completed by December 31, 1998.
II. THE COSTS TO ADDRESS THE BANK'S YEAR 2000 ISSUES
The Bank has thus far primarily used and expects to continue to
primarily use internal resources to implement its readiness plan and to
upgrade or replace and test systems affected by the Year 2000 issue.
The total cost to the Bank of those Year 2000 compliance activities has
not been and is not anticipated to be material to its financial
position or results of operations in any given year. In total, the Bank
estimates that its costs, excluding personnel expenses, for Year 2000
remediation and testing of its computer systems will amount to less
than $60,000 over the eighteen month period from 1998 through 2000. Not
included in this estimate is the cost to replace fully depreciated
systems during this period, which occurs in the normal course of
business and is not directly attributable to the Year 2000 issue.
The costs and the estimated timing in which the Bank plans to complete
the Year 2000 readiness activities are based on management's best
estimates, which were derived using numerous assumptions of future
events including the continued availability of certain resources, third
party readiness plans and other factors. The Bank can make no guarantee
that these estimates will be achieved, and actual results could differ
from such plans.
III. THE RISKS OF THE BANK'S YEAR 2000 ISSUES
The Bank is substantially dependent upon the services of Intrieve,
Incorporated of Cincinnati, Ohio. Intrieve is a provider of data
processing services for financial institutions throughout the United
States. Intrieve is concentrating on Year 2000 preparedness, including
a recent migration to a new processing system upon which testing is
currently being conducted. A proxy test was concluded in October 1998
with results indicating no significant errors under the testing
environment. The Bank continues to monitor the Intrieve efforts related
to Year 2000 compliance due to the potential risk to the Bank in the
failure of Intrieve to realize Year 2000 preparedness.
The Bank has established parameters and processes for management to
identify material customers, evaluate their preparedness, assess their
credit risk and implement controls to manage the risk arising from
their failure to properly address Year 2000 technology issues. The Bank
faces increased credit and liquidity risk when customers encounter Year
2000 related problems. Customers that must be evaluated and monitored
are those that, if adversely impacted by Year 2000 technology issues,
represent a significant financial exposure to the Bank in terms of
either credit loss or liquidity. The organizations that have been
identified as material customers of the Bank will be monitored because
of their reliance on technology for their successful business
operations.
17
<PAGE>
Failure of borrowers, or servicers to address Year 2000 problems may
increase credit risk to the Bank through the inability of these parties
to meet the terms of their contracts and make timely payments of
principal and interest to the Bank. Liquidity risk may result if
depositors, or lenders experience Year 2000 related business disruption
or operational failures and are unable to provide funds or fulfill
funding commitments to the Bank.
IV. THE BANK'S CONTINGENCY PLAN
Realizing that some disruption may occur despite its best efforts, the
Bank has developed contingency plans for each critical system in the
event that one or more of those systems fail. As mentioned previously,
the Bank is currently developing methods of testing the contingency
plans to determine the effectiveness of such plans before activation
under emergency conditions.
V. 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
-----------------------------------------
None
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the May 27, 1999 Annual Meeting of Shareholders, the
Following matters were submitted to a vote of the
shareholders.
Election of Directors - The following directors were elected
for a term of three years.
Vote Count
For Withheld
---------- ----------
Robert C. Reed 1,429,961 9,120
Peter G. DePrez 1,429,961 9,120
Ratification of the appointment of Independent Public
Accountants - Deloitte & Touche LLP, Indianapolis, Indiana.
Vote Count
For Against Abstained Unvoted
1,430,981 6,400 1,700
Item 5. Other information
-----------------
None
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(1) Exhibit 27--Financial Data Schedule
* * * * *
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 13, 1999 By: /s/ Bradley A. Long
--------------- ----------------------------------
Bradley A. Long, Vice President,
Chief Financial Officer and Treasurer
19
<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, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,086,205
<INT-BEARING-DEPOSITS> 7,756,736
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 381,743
<INVESTMENTS-MARKET> 19,298,871
<LOANS> 92,182,675
<ALLOWANCE> 790,836
<TOTAL-ASSETS> 131,063,778
<DEPOSITS> 82,516,283
<SHORT-TERM> 20,000,000
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 16,259,615
<OTHER-SE> (239,977)
<TOTAL-LIABILITIES-AND-EQUITY> 131,063,778
<INTEREST-LOAN> 3,714,277
<INTEREST-INVEST> 596,174
<INTEREST-OTHER> 155,034
<INTEREST-TOTAL> 4,465,485
<INTEREST-DEPOSIT> 1,889,356
<INTEREST-EXPENSE> 569,144
<INTEREST-INCOME-NET> 2,006,985
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 248,252
<EXPENSE-OTHER> 2,148,852
<INCOME-PRETAX> 226,051
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,363
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
<YIELD-ACTUAL> 3.10
<LOANS-NON> 816,952
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 750,022
<CHARGE-OFFS> 49,783
<RECOVERIES> 597
<ALLOWANCE-CLOSE> 790,836
<ALLOWANCE-DOMESTIC> 790,836
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
