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 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
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 September 30, 1999, there were 1,497,790 shares of the Registrant's Common
Stock issued 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 (Unaudited
as of September 30, 1999 of the Successor 3
Consolidated Statements of Operations (Unaudited) for
the three month periods ended September 30, 1999 and
1998 of the Successor 4
Consolidated Statements of Operations (Unaudited) for
the nine month periods ended September 30, 1999 of
the Successor, the period from July 1, 1998 to
September 30, 1998 of the Successor, and January 1,
1998 to June 30, 1998 of the Predecessor 5
Consolidated Statements of Cash Flows (Unaudited) for
the nine month periods ended September 30, 1999 of
the Successor, the period from July 1, 1998 to
September 30, 1998 of the Successor, and January 1,
1998 to June 30, 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: 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 SEPTEMBER 30, 1999
------------------------
ASSETS
- ------
SUCCESSOR
---------
Cash and due from banks $ 3,470,911
Interest-bearing deposits with banks 1,040,676
Securities available for sale 42,160,249
Securities held-to-maturity 368,530
Loans receivable, net 103,450,769
Accrued interest receivable 1,224,031
FHLB stock of Indianapolis 1,487,700
Prepaid expenses and other assets 292,182
Real estate owned 12,672
Income taxes receivable 137,382
Deferred income tax 341,631
Premises and equipment, net 3,018,233
Goodwill, net 2,941,608
-------------
TOTAL ASSETS $ 159,946,574
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits $ 120,919,806
FHLB advances and other borrowings 22,400,000
Accrued expenses and other liabilities 509,563
Accrued interest payable 358,833
-------------
Total liabilities 144,188,202
-------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, without par value: 1,497,790 shares
issued and outstanding 16,295,667
Accumulated deficit (238,763)
Unrealized (loss) on available for sale securities (298,532)
-------------
Total shareholders' equity 15,758,372
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 159,946,574
=============
See notes to consolidated financial statements (unaudited).
3
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
-------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
INTEREST INCOME:
- ----------------
Loans receivable $2,058,918 $1,941,755
Securities 351,071 223,138
Interest-bearing deposits 35,323 53,642
Dividends from FHLB 29,811 24,598
---------- ----------
Total interest income 2,475,123 2,243,133
---------- ----------
INTEREST EXPENSE:
- -----------------
Interest expense on deposits 1,100,444 825,068
Interest expense on FHLB advances and other borrowings 266,102 287,643
---------- ----------
Total interest expense 1,366,546 1,112,711
---------- ----------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 1,108,577 1,130,422
PROVISION FOR LOAN LOSSES 75,000 75,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,033,577 1,055,422
---------- ----------
NON-INTEREST INCOME:
- --------------------
Service charges and fees 51,516 57,695
Gain on sale of available-for-sale securities 1,247 0
Other 15,564 14,085
---------- ----------
Total non-interest income 68,327 71,780
---------- ----------
NON-INTEREST EXPENSE:
- ---------------------
Salaries and employee benefits 570,267 339,833
Premises and equipment 165,499 82,352
Federal deposit insurance 30,488 39,809
Data processing 92,436 71,960
Advertising & promotion 82,093 71,521
Bank fees and charge 22,963 16,087
Professional fees 95,827 77,232
Stationery, supplies & printing 55,568 22,604
Other 199,304 102,832
Goodwill amortization 53,103 63,722
---------- ----------
Total non-interest expense 1,367,548 887,952
---------- ----------
(LOSS)/EARNINGS BEFORE INCOME TAX EXPENSE (265,644) 239,250
INCOME TAX (BENEFIT)/EXPENSE (87,777) 109,619
---------- ----------
NET (LOSS)/EARNINGS $ (177,867) $ 129,631
========== ==========
BASIC EARNINGS PER SHARE (0.12) 0.09
DILUTIVE EARNINGS PER SHARE (0.12) 0.09
</TABLE>
See notes to consolidated financial statements (unaudited).
4
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR PREDECESSOR
--------- --------- -----------
Period from Period from Period from
January 1, 1999 July 1, 1998 January 1, 1998
through through through
September 30,1999 September 30, 1998 June 30, 1998
<S> <C> <C> <C>
INTEREST INCOME:
- ----------------
Loans receivable $5,773,195 $1,941,755 $3,609,590
Securities 901,835 223,138 218,483
Interest-bearing deposits 190,357 53,642 49,006
Dividends from FHLB 75,221 24,598 38,075
---------- ---------- ----------
Total interest income 6,940,608 2,243,133 3,915,154
---------- ---------- ----------
INTEREST EXPENSE:
- -----------------
Interest expense on deposits 2,989,799 825,068 1,763,279
Interest expense on FHLB advances 835,246 287,643 527,044
---------- ---------- ----------
and other borrowings
Total interest expense 3,825,045 1,112,711 2,290,323
---------- ---------- ----------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 3,115,563 1,130,422 1,624,831
PROVISION FOR LOAN LOSSES 165,000 75,000 480,000
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,950,563 1,055,422 1,144,831
---------- ---------- ----------
NON-INTEREST INCOME:
- --------------------
Service charges and fees 173,482 57,695 122,338
Gain on sale of available-for-sale securities 249,500 0 0
Other 95,263 14,085 30,143
---------- ---------- ----------
Total non-interest income 518,245 71,780 152,481
---------- ---------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,348,095 339,833 453,003
Premises and equipment 418,539 82,352 132,766
Federal deposit insurance 154,026 39,809 69,123
Data processing 265,651 71,960 138,281
Advertising & promotion 150,899 71,521 52,767
Bank fees and charge 57,209 16,087 34,801
Professional fees 407,931 77,232 307,243
Stationery, supplies & printing 119,290 22,604 26,269
Environmental charges 0 0 145,780
Other 433,786 102,832 157,389
Goodwill amortization 152,974 63,722 0
---------- ---------- ----------
Total non-interest expense 3,508,400 887,952 1,517,422
---------- ---------- ----------
EARNINGS / (LOSS) BEFORE INCOME TAX EXPENSE (39,592) 239,250 (220,110)
INCOME TAX EXPENSE / (BENEFIT) 44,911 109,619 (83,642)
---------- ---------- ----------
NET EARNINGS/(LOSS) $ (84,503) $ 129,631 $ (136,468)
========== ========== ==========
BASIC EARNINGS PER SHARE (0.06) N/A N/A
DILUTIVE EARNINGS PER SHARE (0.06) 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 NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR PREDECESSOR
--------- --------- -----------
Period from Period from Period from
January 1, 1999 July 1, 1998 January 1, 1998
through through through
September 30, 1999 September 30, 1998 June 30, 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net earnings (loss) (84,503) 129,631 (136,468)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 593,054 161,150 79,288
Provision for loan losses 165,000 75,000 480,000
Gain on Sale of securities available for sale (248,252) 0 (13,569)
Changes in assets and liabilities:
Accrued interest receivable (464,545) (70,654) 53,570
Other assets (493,124) 34,902 (254,462)
Other liabilities 141,898 71,495 112,898
----------- ----------- -----------
Net cash provided by (used in) operating activities (390,472) 401,524 321,257
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Loan originations, net of principal repayments (21,016,871) (178,311) (10,438,581)
Principal maturities collected on securities 3,482,226 11,599,494 234,534
Investment in FHLB stock (129,900) (221,200) (78,700)
Capital expenditures (1,289,459) (82,019) (52,657)
Proceeds from sale of securities available for sale 2,964,336 0 3,407,621
Payment to former shareholders of Shelby County Bancorp 0 (10,367,915) 0
Proceeds from sale of Mortgage Loans 5,639,634 0 0
Purchase of securities available for sale (31,697,672) 0 (3,315,370)
----------- ----------- -----------
Net cash provided by (used in) investing activities (42,047,706) 750,049 (10,243,153)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
FHLB advances and other borrowings 53,800,000 7,400,000 2,409,293
Payment of FHLB advances and other borrowings (57,900,000) (6,237,759) (1,581,787)
Net change in deposits 31,769,965 8,740,459 4,069,563
Proceeds from re-issuance of Common Stock 47,441 0 65,550
Repurchase of stock 0 (106,004) 0
Cash dividends paid 0 0 (21,994)
----------- ----------- -----------
Net cash provided by (used in) financing activities 27,717,406 9,796,696 4,940,625
----------- ----------- -----------
NET INCREASE/(DECREASE)
IN CASH AND CASH EQUIVALENTS (14,720,772) 10,948,269 (4,981,271)
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 19,232,359 2,525,373 5,667,588
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD 4,511,587 13,473,642 686,317
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid 3,023,000 1,067,000 2,544,000
Income taxes paid 196,000 69,000 265,000
</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 MONTH PERIODS ENDED SEPTEMBER 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 September
30, 1999, the three month periods ended September 30, 1999 and 1998 and
the nine month period ended September 30, 1999, three month period
ended September 30, 1998 and six month period ended June 30, 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. CHANGES IN PRESENTATION
Certain amounts and items appearing in the previous periods have been
reclassified to conform to the current period presentation.
3. SHAREHOLDER'S EQUITY (SUCCESSOR)
On June 26, 1998, the Successor completed an initial public offering.
The Successor issued 1,500,000 common shares at an 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
September 30, 1999.
7
<PAGE>
4. 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>
5. 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 nine month period
ended September 30, 1999, the Successor's three month period ended
September 30, 1998, and the Predecessor's six month period ended June
30, 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months Six Months
Ended Ended Ended
September 30 September 30 June 30
1999 1998 1999 1998
Successor Successor Successor Predecessor
--------- --------- --------- -----------
<S> <C> <C> <C>
Net Income (loss) ($177,867) $129,631 ($84,503) ($136,468)
Other comprehensive income,
net of tax:
Unrealized gains/(losses)
on securities available
for sale (108,181) 98,578 (529,396) 54,420
Reclassification adjustment for
(gains)/losses realized in net income/(loss) (148,952)
---------- --------- ----------
Other comprehensive income (108,181) 98,578 (678,348) 54,420
---------- --------- ----------
COMPREHENSIVE INCOME ($286,048) $228,209 ($762,851) ($82,048)
========== ========= ==========
</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
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.
6. SEGMENT INFORMATION
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS No. 131"), Disclosures about
Segments of an Enterprise and Related Information. This statement
redefines how operating segments are determined and requires disclosure
of certain financial and descriptive information about a company's
operating segments. In accordance with SFAS No. 131, the Company has
disclosed all required information relating to its one operating
segment.
7. 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 on page 6.
Total assets at September 30, 1999, were $159,946,000, an increase of
$38,333,000 from total assets of $121,613,000 at September 30, 1998. Investment
securities at September 30, 1999 were $42,429,000, an increase of $31,199,000
from $11,230,000 at September 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 $88,683,000 at September 30, 1998 to
$103,451,000 at September 30, 1999. Residential mortgages at September 30, 1999
were $46,205,000, a decrease of ($9,614,000) from $55,819,000 at September 30,
1998. This reduction results from increased brokering activities related to
fixed rate mortgage loans, as well as executing a $5,640,000 sale of portfolio
mortgage, enabling the Bank to reduce its interest rate sensitivity. Commercial
loans and Commercial loans secured with real estate were $35,703,000 at
September 30, 1999 compared to $25,892,000 at September 30, 1998. Consumer and
home equity loans increased $4,748,000 to $22,324,000 at September 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>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
Residential mortgages $ 46,205,206 $ 55,819,482
Commercial loans secured by real estate 25,168,348 15,795,596
Commercial, agriculture 10,534,927 10,096,328
Consumer loans 19,808,517 6,493,072
Home equity loans 2,515,792 1,335,896
Less allowance for Loan Losses (782,021) (857,477)
------------- -------------
Total Net Loans $ 103,450,769 $ 88,682,897
============= =============
Total liabilities at September 30, 1999 were $144,188,000, an increase of
$38,564,000 compared to $105,624,000 at September 30, 1998. Deposits at
September 30, 1999 were $120,920,000 compared to $84,449,000 at September 30,
1998.
Shareholders' equity at September 30, 1999 was $15,758,000, a decrease of
($231,000) compared to September 30, 1998. This decrease is the result of an
operating loss in the current year along with net unrealized losses on available
for sale securities.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
<S> <C> <C>
Non-performing loans consists of the following:
Non-accrual loans $ 1,387,852 $ 545,497
Real estate owned-net 12,672 118,218
----------- ----------
Total non-performing loans $ 1,400,524 $ 663,715
=========== ==========
Non-performing loans to total loans 1.34 % 0.54 %
</TABLE>
The Bank stops accruing interest on loans that become delinquent in excess of 90
days. At September 30, 1999 loans in non-accruing status were $1,388,000, an
increase of $843,000 over September 30, 1998. The Bank's real estate owned,
containing properties foreclosed upon, have decreased to $13,000 at September
30, 1999 compared to $118,000 at September 30, 1998.
11
<PAGE>
Activity in the allowance for loan losses consists of the following:
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR PREDECESSOR
NINE MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1999 1998 1998
<S> <C> <C>
Balance, beginning of period $ 750,022 $ 776,502 $ 422,376
Add:
Provision for loan losses 165,000 75,000 480,000
Recoveries of loans previously charged off 1,325 17,068 7,677
Less gross charge-offs:
Residential real estate loans (37,481) (11,093) (80,000)
Consumer loans (96,845) 0 (53,551)
--------- --------- ---------
Balance, end of period $ 782,021 $ 857,477 $ 776,502
========= ========= =========
Net charge-offs to total average loans outstanding 0.19% (0.03%) 0.16%
Allowance to total average loans outstanding 0.83% 0.96% 0.92%
</TABLE>
Allowance for loan losses at September 30, 1999 was $782,000, a decrease of
($75,000) from September 30, 1998. The 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 September 30, 1999
- -------------------------------------------------------------------
During the three month period ended September 30, 1999, net earnings decreased
to a net loss of ($178,000) compared to net income of $130,000 during the three
month period ended September 30, 1998. This decrease includes a decrease in net
interest income before provision for loan losses of ($22,000), a decrease in
non-interest income of ($3,000), and an increase in non-interest expenses of
$480,000. The earnings for the quarter were adversely affected by $222,000 of
startup costs related to two branches now operating as First Community Bank of
Fort Wayne.
Net interest income was $1,034,000, after provision for loan losses, for the
three month period ended September 30, 1999, compared to $1,055,000 for the
three month period ended September 30, 1998. Net interest income before
provision for loan losses declined to $1,109,000 compared to $1,130,000 for the
three month period ended September 30, 1999 and 1998, respectively.
12
<PAGE>
Interest income increased from $2,243,000 for the three month period ended
September 30, 1998 to $2,475,000 for the three month period ended September 30,
1999. Interest income from loans was $2,059,000 for the three month period ended
September 30, 1999, an increase of $117,000 over the same period in 1998. The
increase in loan interest income consists of a favorable variance of $382,000
due to higher loan balances offset by an unfavorable rate variance of
($265,000). Interest income on investment securities and interest bearing
deposits increased $115,000 to $416,000 for the three months ended September 30,
1999, resulting from a favorable variance of $125,000 due to a larger portfolio
and a reduction of ($10,000) due to lowered yields. Interest expense for the
three month period ended September 30, 1999 was $1,367,000 compared to
$1,113,000 for the three month period ended September 30, 1998. Interest expense
on deposit accounts increased from $825,000 for the three month period ended
September 30, 1998 to $1,100,000 for the three month period ended September 30,
1999. The increase in interest expense on deposits consists of a $288,000
increase due to increased deposit balances, offset by a ($13,000) 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 $266,000 for 1999
compared to $288,000 for 1998. The increase in balances related to other
borrowings accounts for an increase of $12,000, however, rates on such
borrowings declined, resulting in a $34,000 favorable rate variance.
Total non-interest income was $68,000 for the three month period ended September
30, 1999, compared to $72,000 for the same period in 1998.
Non-interest expense totaled $1,368,000 for the three month period ended
September 30, 1999 compared to $888,000 for the same period in the prior year.
The primary increase in non-interest expense relates to a $230,000 increase in
salaries and employee benefits, with $106,000 of the increase related to
staffing of the new Fort Wayne, Indiana banking affiliate. Expenses related to
premises and equipment increased $83,000 over the three months ended September
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. The occupancy
expense variance for the quarter was also impacted by $35,000 related to new
facilities in Fort Wayne. Deposit insurance premiums decreased ($9,000) from
1998, resulting from a reduced assessment rate being assigned to the Bank's
deposits when compared to 1998. Goodwill amortization for the three months ended
September 30, 1999 were $53,000, a decrease of ($11,000) due to lower
amortization resulting from purchase accounting adjustments reflected at
December 31, 1998. The non-interest expenses for the quarter were adversely
affected by costs of $222,000 related to the startup of First Community Bank of
Fort Wayne.
RESULTS OF OPERATIONS: Nine Month Period Ended September 30, 1999
- ------------------------------------------------------------------
The consolidated statement of earnings for the nine month period ended September
30, 1999 includes the Successor statement of earnings for the three months ended
September 30, 1998 and the Predecessor statement of earnings for the six month
period ended June 30, 1998. Therefore, the results of operations includes
Management's Discussion and Analysis of the Successor for the three months ended
September 30, 1999 (pages 12-13), and the following paragraph containing
Management's Discussion and Analysis contained in the June 1999 10-QSB relating
to comparison of the Successor six months ended June 30, 1999 to the Predecessor
six month period ended June 30, 1998.
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. 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
13
<PAGE>
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 September 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 $11,121,000 $11,121,000 $11,962,000
Minimum capital requirements 2,338,000 4,676,000 8,468,000
----------- ----------- -----------
Excess capital $ 8,783,000 $ 6,445,000 $ 3,494,000
=========== =========== ===========
Regulatory capital ratio 7.13% 7.13% 11.30%
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 September 30, 1999, its regulatory liquidity ratio was
34.10%.
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.
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
tested. The components of the IT systems were examined: 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 has
concluded that the Bank's Year 2000 readiness project is complete and
that activities involved in assessing external risks and operational
issues are complete.
15
<PAGE>
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 September 30, 1999:
PERCENTAGE PROJECTED
PROJECT PHASE COMPLETED COMPLETION COMMENTS
------------- ---------- ---------- --------
Awareness 100% Completed
Assessment 100% Completed
Renovation 100% Completed
Validation 100% Completed
Implementation 100% Completed
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 was 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 will be compliant
before December 31, 1999.
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
completed.
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
16
<PAGE>
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.
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.
17
<PAGE>
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
--- ------- ---------
1,430,981 6,400 1,700
Item 5. Other information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(1) Exhibit 27--Financial Data Schedule
* * * * *
18
<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 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 NINE MONTHS ENDED SEPTEMBER 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,470,911
<INT-BEARING-DEPOSITS> 1,040,676
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 368,530
<INVESTMENTS-MARKET> 42,160,249
<LOANS> 104,232,790
<ALLOWANCE> 782,021
<TOTAL-ASSETS> 159,946,574
<DEPOSITS> 120,919,806
<SHORT-TERM> 22,400,000
<LIABILITIES-OTHER> 0
<LONG-TERM> 00
00
0
<COMMON> 16,295,667
<OTHER-SE> (537,295)
<TOTAL-LIABILITIES-AND-EQUITY> 159,946,574
<INTEREST-LOAN> 5,773,196
<INTEREST-INVEST> 977,056
<INTEREST-OTHER> 190,357
<INTEREST-TOTAL> 6,940,608
<INTEREST-DEPOSIT> 2,989,799
<INTEREST-EXPENSE> 835,246
<INTEREST-INCOME-NET> 3,115,563
<LOAN-LOSSES> 165,000
<SECURITIES-GAINS> 248,252
<EXPENSE-OTHER> 3,508,400
<INCOME-PRETAX> (39,592)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,503)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
<YIELD-ACTUAL> 2.99
<LOANS-NON> 1,387,852
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 750,022
<CHARGE-OFFS> 134,326
<RECOVERIES> 1,325
<ALLOWANCE-CLOSE> 782,021
<ALLOWANCE-DOMESTIC> 782,021
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
