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, 2000
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 (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, 2000, there were 1,549,913 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 June 30, 2000 3
Consolidated Statement of Operations (Unaudited)
three month periods ended June 30, 2000 and 1999 4
Consolidated Statement of Operations (Unaudited)
six month periods ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows (Unaudited)
six month periods ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
PART II. OTHER INFORMATION: 15-17
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 18
2
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Unaudited)
AS OF JUNE 30, 2000
-------------------
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash and due from banks $ 8,673,869
Interest-bearing deposits with banks 1,456,097
Investment securities available for sale 36,632,807
Investment securities held to maturity 330,471
Loans receivable, net 117,215,099
Stock of FHLB Indianapolis 2,153,000
Accrued interest receivable 1,268,762
Deferred and refundable income taxes 1,109,182
Premises and equipment, net 3,050,204
Prepaid expenses and other assets 282,666
Goodwill, net 2,747,699
-------------
TOTAL ASSETS $ 174,919,856
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits $ 120,658,075
FHLB advances 37,900,000
Accrued expenses and other liabilities 475,089
Accrued interest payable 557,301
-------------
Total liabilities 159,590,465
-------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, without par value: 1,549,913 shares
issued and outstanding
16,568,618
Accumulated deficit (839,534)
Unrealized loss on available for sale securities (399,693)
-------------
Total shareholders' equity 15,329,391
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 174,919,856
=============
</TABLE>
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 JUNE 30, 2000 AND 1999
--------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
INTEREST INCOME:
Loans receivable $ 2,475,160 $ 1,887,085
Securities 582,975 292,298
Interest-bearing deposits 25,785 51,144
Dividends from FHLB 42,824 18,626
------------ ------------
Total interest income 3,126,744 2,249,153
------------ ------------
INTEREST EXPENSE:
Interest expense on deposits 1,450,805 950,305
Interest expense on FHLB and other borrowings 474,357 274,498
------------ ------------
Total interest expense 1,925,162 1,224,803
------------ ------------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 1,201,582 1,024,350
PROVISION FOR LOAN LOSSES 200,000 45,000
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,001,582 979,350
------------ ------------
NON-INTEREST INCOME:
Service charges and fees 64,707 62,337
Gain on sale of available-for-sale securities 91,001
Other 79,575 46,545
------------ ------------
Total non-interest income 144,282 199,883
------------ ------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 560,191 399,854
Premises and equipment 207,630 133,429
Federal deposit insurance 26,028 63,030
Data processing 121,651 87,223
Advertising and promotion 88,679 36,045
Bank fees and charges 24,293 15,880
Directors fees 29,100 45,450
Professional fees 253,502 220,969
Stationery, supplies and printing 29,848 35,426
Goodwill amortization 53,103 53,103
Other 156,632 79,545
------------ ------------
Total non-interest expense 1,550,657 1,169,954
(LOSS)/EARNINGS BEFORE INCOME TAX (404,793) 9,279
INCOME TAX (BENEFIT)/EXPENSE (145,904) 20,761
------------ ------------
NET LOSS/EARNINGS $(258,889) $(11,482)
============ ============
BASIC AND DILUTIVE LOSS PER SHARE $(0.17) $(0.01)
</TABLE>
See notes to consolidated financial statements (unaudited).
4
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
INTEREST INCOME:
Loans receivable $ 4,798,303 $ 3,714,277
Securities 1,021,615 550,764
Interest-bearing deposits 112,465 155,034
Dividends from FHLB 85,649 45,410
------------ ------------
Total interest income 6,018,032 4,465,485
------------ ------------
INTEREST EXPENSE:
Interest expense on deposits 2,773,775 1,889,356
Interest expense on FHLB and other borrowings 929,917 569,144
------------ ------------
Total interest expense 3,703,692 2,458,500
------------ ------------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 2,314,340 2,006,985
PROVISION FOR LOAN LOSSES 275,000 90,000
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,039,340 1,916,985
------------ ------------
NON-INTEREST INCOME:
Service charges and fees 117,911 121,966
Gain on sale of available-for-sale securities 248,253
Other 118,517 79,699
------------ ------------
Total non-interest income 236,428 449,918
------------ ------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,115,684 777,828
Premises and equipment 400,760 253,040
Federal deposit insurance 54,467 123,538
Data processing 230,214 173,215
Advertising and promotion 164,685 68,806
Bank fees and charges 43,151 34,246
Directors fees 54,300 62,100
Professional fees 332,458 312,104
Stationery, supplies and printing 54,238 63,722
Goodwill amortization 106,206 99,871
Other 321,982 172,382
------------ ------------
Total non-interest expense 2,878,145 2,140,852
------------ ------------
(LOSS)/EARNINGS BEFORE INCOME TAX (602,377) 226,051
INCOME TAX (BENEFIT)/EXPENSE (206,401) 132,688
------------ ------------
NET (LOSS)/EARNINGS $(395,976) $93,363
============ ============
BASIC AND DILUTIVE (LOSS)/EARNINGS PER SHARE $(0.26) $0.06
</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, 2000 AND 1999
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/earnings $ (395,976) $ 93,363
Adjustments to reconcile net (loss)/earnings to net cash
from operating activities
Depreciation and amortization 305,413 339,172
Provision for loan losses 275,000 90,000
Gain/(loss) on sales of available-for-sale securities (248,253)
Changes in assets and liabilities:
Accrued interest receivable (226,076) (174,254)
Other assets (137,063) (771,444)
Other liabilities 270,090 11,885,391
------------- -------------
Net cash from operating activities 91,388 11,213,975
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations, net of principal repayments (6,432,962) (9,800,226)
Principal maturities collected on securities 1,788,287 2,320,811
Capital expenditures (90,569) (891,887)
Proceeds from sale of loans 5,639,634
Purchases of available-for-sale securities (14,114,386) (8,562,463)
Proceeds from sale of available-for-sale securities 3,971,792
------------- -------------
Net cash used in investing activities (18,849,630) (7,322,339)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from FHLB advances and other borrowings 52,000,000 11,050,000
Payment of FHLB advances and other borrowings (48,708,800) (17,550,000)
Net change in deposits 18,004,083 (6,803,714)
Proceeds from issuance of Common Stock 309,935 22,660
------------- -------------
Net cash from financing activities 21,605,218 (13,281,054)
------------- -------------
NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS 2,719,159 (9,389,418)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 7,282,990 19,232,359
------------- -------------
CASH AND EQUIVALENTS, END OF PERIOD $ 10,129,966 $9,842,941
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid 3,327,000 2,420,000
Loans transferred to real estate owned 84,000
Income taxes paid 120,000 85,000
</TABLE>
See notes to consolidated financial statements (unaudited)
6
<PAGE>
BLUE RIVER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
------------------------------------------------------
1. BASIS OF CONSOLIDATION AND PRESENTATION
The unaudited consolidated financial statements include the accounts of
Blue River Bancshares, Inc. (the Company") and its wholly-owned
subsidiary Shelby County Bank (the "Bank"). Summary of significant
accounting policies is set forth in Note 1 of the Notes to the
Consolidated Financial Statements of the Company included in the
December 31, 1999 Annual Report to Shareholders.
The accompanying consolidated interim financial statements at June 30,
2000, the three month periods ended June 30, 2000 and 1999, and the six
month periods ended June 30, 2000 and 1999, 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. COMPREHENSIVE INCOME
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
are presented within those statements for the six month periods ended
June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
<S> <C> <C>
Other comprehensive income before tax:
Net unrealized gains/(losses) on available-for-sale
securities $ 63,425 $ (698,225)
Less: reclassification adjustment for gains
realized in net income 0 (248,253)
-------- -----------
Other comprehensive income/(loss) before income taxes 63,425 (946,477)
Income tax expense/(benefit) related to items of other
comprehensive income 25,217 (376,310)
-------- -----------
Other comprehensive income/(loss), net of tax $ 38,208 $ (570,167)
======== ===========
</TABLE>
3. NEW ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncements - Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments
and Hedging Activities," as amended, 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. Management has not yet
quantified the effect, if any, of this new standard on the consolidated
financial statements.
7
<PAGE>
7
4. SEGMENT INFORMATION
In accordance with SFAS No. 131, the Company has disclosed all required
information relating to its one operating segment, Community Banking.
5. SHAREHOLDERS' EQUITY
In April 2000, the Company sold 49,913 shares of its common stock in a
private placement at an offering price of $6.00 per share. The Company
raised $299,570 in gross proceeds. The offering was conducted by the
Company and no commission was paid on the sale of the shares. The
proceeds will be used for general corporate purposes and in part to
replenish the capital contributed by the Company in connection with the
establishment of First Community Bank of Fort Wayne.
6. SUBSEQUENT EVENT
On July 10, 2000 the Office of Thrift Supervision issued a letter which
formally designated the Bank to be in "troubled condition" based upon
the preliminary findings of the OTS' then ongoing examination of the
Bank. The OTS expressed supervisory concern relating to the Bank's
management, operating losses, interest rate risk sensitivity, internal
controls and loan documentation. Pursuant to the letter, the Bank is
subject to the following restrictions: (i) no increase in total assets
during any quarter in excess of an amount equal to interest credited on
deposits during the quarter without prior written approval of the OTS,
(ii) prior OTS approval of all executive compensation and agreements and
the hiring of any executive officer, director or consultant or changing
the responsibilities of any current executive officer, (iii) prior
notice to the OTS of all transactions between the Bank and its
affiliates, (iv) prior OTS approval of all transactions between the Bank
and third parties outside the normal course of business and (v) no
golden parachute payments by the Bank, unless permissible pursuant to
applicable law. The Company and the Bank are taking action to address
the concerns set forth in this letter. The growth restrictions imposed
by the OTS may have a material adverse effect on the Bank's operations.
8
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Certain statements throughout this section regarding the Company'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 Company and the Bank or their respective management,
identify forward-looking statements. Such forward-looking statements are based
on the beliefs of management of the Company and the Bank as well as assumptions
made by and information currently available to management of the Company 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 Company 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
Company and the Bank.
FINANCIAL CONDITION:
--------------------
Total assets at June 30, 2000, were $174,920,000, an increase of $43,856,000
from total assets of $131,064,000 at June 30, 1999. Investment securities at
June 30, 2000 were $36,963,900, an increase of $17,282,000 from $19,681,000 at
June 30, 1999. The Bank's investment portfolio is used to maintain adequate
liquidity and to reduce the Bank's 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 as
well as repricing opportunities which results in less volatility in fair value
caused by changing market rates. Total net loans receivable increased from
$92,183,000 at June 30, 1999 to $117,215,000 at June 30, 2000. Residential
mortgages at June 30, 2000 were $44,937,000, an increase of $156,000 from
$44,781,000 at June 30, 1999. Commercial loans and Commercial loans secured with
real estate were $48,967,000 at June 30, 2000 compared to $30,639,000 at June
30, 1999. Consumer and home equity loans increased $6,826,000 to $24,402,000 at
June 30, 2000. The Company has structured its loan portfolio to resemble that of
a commercial bank rather than that of a traditional thrift which is consistent
with the Company's Business Plan. Non-residential loans typically present
shorter maturities than do residential loans, offering higher yields, with less
interest rate risk due to their shorter duration.
9
<PAGE>
JUNE 30, JUNE 30,
2000 1999
Residential mortgages $ 44,936,960 $ 44,781,008
Commercial loans secured by real estate 32,230,387 24,830,981
Commercial and agriculture 16,736,740 5,808,468
Consumer loans 21,673,985 15,575,055
Home equity loans 2,728,328 2,000,771
Less allowance for loan losses (1,091,301) (790,836)
------------- -------------
Total loans receivable, net $ 117,215,099 $ 92,205,447
============= =============
JUNE 30, JUNE 30,
2000 1999
Non-performing loans consists of the following:
Non-accrual loans $ 520,591 $ 816,952
Real estate owned - net 12,672 65,377
------------- -------------
Total non-performing loans $ 533,263 $ 882,329
============= =============
Non-performing loans to total loans 0.46% 0.67%
The Bank stops accruing interest on loans that become delinquent in excess of 90
days. At June 30, 2000 loans in non-accruing status were $521,000, a decrease of
$296,000 from June 30, 1999. The Bank's real estate owned, containing properties
foreclosed upon, has decreased to $13,000 at June 30, 2000 compared to $65,000
at June 30, 1999.
Total liabilities at June 30, 2000 were $159,590,000, an increase of $44,546,000
compared to $115,044,000 at June 30, 1999. Deposits at June 30, 2000 were
$120,658,000 compared to $82,516,000 at June 30, 1999, an increase of
$38,142,000.
Shareholders' equity at June 30, 2000 was $15,329,000, a decrease of ($691,000)
compared to June 30, 1999. This decrease is the result of an operating loss
along with net unrealized losses on available for sale securities. The decreases
due to the net unrealized losses on available-for-sale securities and the
operating loss were partially offset by the net cash proceeds of approximately
$300,000 from a private placement completed in the second quarter.
10
<PAGE>
Activity in the allowance for loan losses consists of the following:
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
Balance, beginning of period $ 854,985 $ 750,022
Add:
Provision for loan losses 275,000 90,000
Recoveries of loans previously charged off 110 597
Less: Gross charge-offs:
Residential real estate loans 0 (30,118)
Consumer/Commercial loans (38,794) (19,665)
----------- -----------
Balance, end of period $ 1,091,301 $ 790,836
=========== ===========
Net charge-offs to total average loans outstanding 0.07% 0.11%
Allowance to total average loans outstanding 0.95% 0.87%
Allowance for loan losses at June 30, 2000 was $1,091,000, an increase of
$300,000 from June 30, 1999. The Company has increased its allowance for loan
losses due to overall portfolio growth and to recognize the incremental inherent
risks in diversifying the portfolio into non-residential lending. Historically,
such loans do exhibit higher charge-off rates than do residential mortgages. An
analysis of the allowance for loan losses is performed quarterly by management
to assess the appropriate levels of allowance for loan losses. This analysis is
performed to recognize specific reserves allocated to classified assets, assess
portfolio growth, and to monitor trends in loan delinquencies and charge-offs.
RESULTS OF OPERATIONS: Three Month Period Ended June 30, 2000
--------------------------------------------------------------
During the three month period ended June 30, 2000, net earnings decreased to a
net loss of ($259,000) compared to a net loss of ($11,000) during the three
month period ended June 30, 1999. This decrease includes an increase in net
interest income before provision for loan losses of $177,000, a decrease in
non-interest income of ($56,000), and an increase in non-interest expenses of
$381,000, and an increase in provision for loan losses of $155,000. Non-interest
income in 1999 included $91,000 in securities gains. Non-interest expenses have
increased over the prior three month period due to the Company's growth
strategies. Salaries and benefits costs have increased $160,000 over 1999, in
part due to additional staffing retained to operate the two Fort Wayne
facilities which commenced operations in September 1999. Premises and equipment
costs have increased $74,000 over 1999 due to additional leases and depreciation
of equipment in Fort Wayne, increased lease costs at the remodeled and expanded
Morristown facility, and increased depreciation from remodeling and equipment
related to the Main office. Data processing expenses have increased over 1999 by
$34,000, much of this increase is due to increased volumes of accounts and
transactions, and also additional monthly charges due to additional branch
automation equipment and communications lines required to conduct business in
the Fort Wayne facilities. Advertising and promotional expenditures increased
$53,000 over 1999 as the Company has pursued growth both in Shelby County and
the Fort Wayne markets.
Net interest income after provision for loan losses was $1,002,000 for the three
month period ended June 30, 2000, compared to $979,000 for the three month
period ended June 30, 1999, an increase of $23,000. Net interest income before
provision for loan losses increased $177,000 to $1,201,000 compared to
$1,024,000 for the three month period ended June 30, 2000 and 1999,
respectively.
11
<PAGE>
Interest income increased $878,000 from $2,249,000 for the three month period
ended June 30, 1999 to $3,127,000 for the three month period ended June 30,
2000. Interest income from loans was $2,475,000 for the three month period ended
June 30, 2000, an increase of $588,000 over the same period in 1999. The
increase in loan interest income consists of a favorable variance of $449,000
due to higher loan balances and a favorable rate variance of $139,000. Interest
income on investment securities increased $291,000 to $583,000 for the three
month period ended June 30, 2000, resulting from a favorable variance of
$271,000 due to a larger portfolio and a favorable rate variance of $20,000 due
to higher yields. Interest income on interest bearing deposits decreased $25,000
to $26,000 for the three month period ended June 30, 2000, resulting from an
unfavorable variance of $39,000 due to smaller balances and a favorable rate
variance of $14,000 due to higher yields. Income from stock held in the Federal
Home Loan Bank of Indianapolis increased $24,000 to $43,000 due to increased
holdings. Interest expense for the three month period ended June 30, 2000 was
$1,925,000 compared to $1,225,000 for the three month period ended June 30,
1999. Interest expense on deposit accounts increased from $950,000 for the three
month period ended June 30, 1999 to $1,451,000 for the three month period ended
June 30, 2000. The increase in interest expense on deposits consists of a
$324,000 increase due to increased deposit balances and a $177,000 increase due
to increased market rates and a higher average level of certificates of deposit
balances compared to 1999. Interest expense on advances from the Federal Home
Loan Bank ("FHLB") increased to $474,000 for 2000 compared to $274,000 for 1999.
The increase in balances related to FHLB advances accounts for an increase of
$143,000 and a $57,000 unfavorable rate variance due to increased rates
associated with short-term borrowings.
Total non-interest income was $144,000 for the three month period ended June 30,
2000, compared to $200,000 for the same period in 1999. However, included in the
1999 non-interest income was $91,000 in gains recognized from the sale of
available-for-sale securities.
Non-interest expense totaled $1,551,000 for the three month period ended June
30, 2000 compared to $1,170,000 for the same period in 1999. Salaries and
benefits costs have increased $160,000 over 1999, in part due to additional
staffing retained to operate the two Fort Wayne facilities. Premises and
equipment costs have increased $74,000 over 1999 with additional leases and
depreciation of equipment in Fort Wayne, increased lease costs related to the
remodeled and expanded Morristown facility, and increased depreciation for
remodeling and equipment at the Main office. Data processing expenses have
increased over 1999 by $34,000, much of this increase is due to increased
volumes of accounts and transactions, and also additional monthly charges due to
additional branch automation equipment and communication lines required to
conduct business in the Fort Wayne facilities. Advertising and promotional
expenditures increased $53,000 over 1999 as the Company has pursued growth both
in Shelby County and the Fort Wayne markets.
RESULTS OF OPERATIONS: Six Month Period Ended June 30, 2000
------------------------------------------------------------
During the six month period ended June 30, 2000, net earnings decreased to a net
loss of ($396,000) compared to net income of $93,000 during the six month period
ended June 30, 1999. This decrease includes an increase in net interest income
before provision for loan losses of $307,000, a decrease in non-interest income
of ($213,000), and an increase in non-interest expenses of $737,000, and an
increase in provision for loan losses of $185,000. Non-interest income in 1999
included $248,000 in securities gains. Non-interest expenses have increased in
several key areas related to the Company's growth strategies. Salaries and
benefits costs have increased $338,000 over 1999, in part due to additional
staffing retained to operate the two Fort Wayne facilities. Premises and
equipment costs have increased $148,000 over 1999 with additional leases and
depreciation of equipment in Fort Wayne, increased lease costs related to the
remodeled and expanded Morristown facility, and increased depreciation for
remodeling and equipment at the Main office. Data processing expenses have
increased over 1999 by $57,000, much of this increase is due to increased
volumes of accounts and transactions, and also additional monthly charges due to
additional branch automation equipment and communications lines required to
conduct business in the Fort Wayne facilities. Advertising and promotional
expenditures increased $96,000 over 1999 as the Company has pursued growth both
in Shelby County and the Fort Wayne markets.
Net interest income was $2,039,000, after provision for loan losses, for the six
month period ended June 30, 2000, compared to $1,917,000 for the six month
period ended June 30, 1999, an increase of $122,000. Net interest income before
provision for loan losses increased $307,000 to $2,314,000 compared to
$2,007,000 for the six month period ended June 30, 2000 and 1999, respectively.
12
<PAGE>
Interest income increased $1,553,000 from $4,465,000 for the six month period
ended June 30, 1999 to $6,018,000 for the six month period ended June 30, 2000.
Interest income from loans was $4,798,000 for the six month period ended June
30, 2000, an increase of $1,084,000 over the same period in 1999. The increase
in loan interest income consists of a favorable variance of $923,000 due to
higher loan balances and a favorable rate variance of $141,000, and a $20,000
favorable calendar variance. Interest income on investment securities increased
$471,000 to $1,022,000 for the six months ended June 30, 2000, resulting from a
favorable variance of $372,000 due to a larger portfolio and a favorable rate
variance of $96,000 due to higher yields and a $3,000 favorable calendar
variance. Interest income on interest bearing deposits decreased $43,000 to
$112,000 for the six months ended June 30, 2000, resulting from an unfavorable
variance of $101,000 due to smaller balances and a favorable rate variance of
$57,000 due to higher yields and a $1,000 favorable calendar variance. Income
from stock held in the Federal Home Loan Bank of Indianapolis increased $40,000
to $86,000 due to increased holdings. Interest expense for the six month period
ended June 30, 2000 was $3,704,000 compared to $2,459,000 for the six month
period ended June 30, 1999. Interest expense on deposit accounts increased from
$1,889,000 for the six month period ended June 30, 1999 to $2,774,000 for the
six month period ended June 30, 2000. The increase in interest expense on
deposits consists of a $597,000 increase due to increased deposit balances and a
$277,000 increase due to increased market rates and a higher level of
certificates of deposit balances compared to 1999 and an $11,000 unfavorable
calendar variance. Interest expense on advances from the Federal Home Loan Bank
("FHLB") increased to $930,000 for 2000 compared to $569,000 for 1999. The
increase in balances related to FHLB advances accounts for an increase of
$273,000, an $85,000 unfavorable rate variance due to increased rates associated
with short-term borrowings, and a $3,000 unfavorable calendar variance. The
calendar variance results from an extra day in 2000 due to leap year.
Total non-interest income was $236,000 for the six month period ended June 30,
2000, compared to $450,000 for the same period in 1999. However, included in the
1999 non-interest income was $248,000 in gains recognized from the sale of
available-for-sale securities.
Non-interest expense totaled $2,878,000 for the six month period ended June 30,
2000 compared to $2,141,000 for the same period in 1999. Salaries and benefits
costs have increased $338,000 over 1999, in part due to additional staffing
retained to operate the two Fort Wayne facilities. Premises and equipment costs
have increased $148,000 over 1999 with additional leases and depreciation of
equipment in Fort Wayne, increased lease costs related to the remodeled and
expanded Morristown facility, and increased depreciation for remodeling and
equipment at the Main office. Data processing expenses have increased over 1999
by $57,000, much of this increase is due to increased volumes of accounts and
transactions, and also additional monthly charges due to additional branch
automation equipment and communications lines required to conduct business in
the Fort Wayne facilities. Advertising and promotional expenditures increased
$96,000 over 1999 as the Company has pursued growth both in Shelby County and
the Fort Wayne markets.
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CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
The Company 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 require savings institutions to have minimum
tangible capital equal to 1.5% of 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, as defined. At
June 30, 2000, the Bank satisfied all capital requirements.
The following is a summary of the Bank's regulatory capital and capital
requirements at June 30, 2000 based on capital regulations currently in effect
for savings institutions.
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
Regulatory capital $10,941 $10,941 $12,032
Minimum capital requirement 2,564 5,128 9,246
------- ------- -------
Excess capital $ 8,377 $ 5,813 $ 2,786
======= ======= =======
Regulatory capital ratio 6.40% 6.40% 10.41%
Required capital ratio 1.50% 3.00% 8.00%
------- ------- -------
Ratio excess 4.90% 3.40% 2.41%
======= ======= =======
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, 2000, its regulatory liquidity ratio was
27.06%.
14
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V. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Neither the Company 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
-----------------------------------------
In April 2000, the Company sold 49,913 shares of its common stock
in a private placement at an offering price of $6.00 per share.
The Company raised $299,570 in gross proceeds. The offering was
conducted by the Company and no commission was paid on the sale
of the shares. The proceeds will be used for general corporate
purposes and in part to replenish the capital contributed by the
Company in connection with the establishment of First Community
Bank of Fort Wayne.
The private placement was not registered under the Securities Act
of 1933, as amended (the "Securities Act"), and was made in
reliance on Section 4(2) of the Securities Act and Rule 506
promulgated under the Securities Act. The offers and sales were
made without public solicitation, and the stock certificates bear
restrictive legends. The purchasers of the shares were accredited
investors.
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the May 4, 2000 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
--- --------
Steven R. Abel 1,317,228 146,370
Wendell Bernard 1,320,078 143,520
Ratification of the appointment of Independent Public Accountants -
Deloitte & Touche LLP, Indianapolis, Indiana.
For Withheld Abstained
--- -------- ---------
1,423,183 27,295 13,120
Ratification of 2000 Directors Stock Option Plan
For Withheld Abstained
--- -------- ---------
284,222 205,290 37,750
Ratification of 2000 Key Employee Stock Option Plan
For Withheld Abstained
--- -------- ---------
310,928 197,309 19,025
15
<PAGE>
Ratification of 2000 Blue River Bancshares Employee Stock Purchase
Plan
For Withheld Abstained
--- -------- ---------
423,828 93,609 9,825
Item 5. Other information
-----------------
On June 27, 2000, Robert C. Reed, Vice-Chairman of the Company
and President and Chief Executive Officer of the Company and the
Bank, was placed on administrative leave pending the completion
of an internal review of certain at the Bank involving Mr. Reed.
On June 28, 2000, the Bank informed the Office of Thrift
Supervision that Mr. Reed had been placed on administrative
leave.
On July 10, 2000 the Office of Thrift Supervision issued a letter
which formally designated the Bank to be in "troubled condition"
based upon the preliminary findings of the OTS' then ongoing
examination of the Bank. The OTS expressed supervisory concern
relating to the Bank's management, operating losses, interest
rate risk sensitivity, internal controls and loan documentation.
Pursuant to the letter, the Bank is subject to the following
restrictions: (i) no increase in total assets during any quarter
in excess of an amount equal to interest credited on deposits
during the quarter without prior written approval of the OTS,
(ii) prior OTS approval of all executive compensation and
agreements and the hiring of any executive officer, director or
consultant or changing the responsibilities of any current
executive officer, (iii) prior notice to the OTS of all
transactions between the Bank and its affiliates, (iv) prior OTS
approval of all transactions between the Bank and third parties
outside the normal course of business and (v) no golden parachute
payments by the Bank, unless permissible pursuant to applicable
law.
On July 19, 2000, the Chairman of the Company and the Bank called
a special meeting of the Boards of Directors of the Company and
the Bank to be held on July 21, 2000, for the purpose of removing
Mr. Reed as a director and officer of the Bank and as an officer
of the Company. On July 20, 2000, Mr. Reed tendered his
resignation and attempted to terminate his employment pursuant to
his employment agreement. The Boards of Directors of the Company
and the Bank found no basis for accepting Mr. Reed's resignation
and termination of employment under his employment agreement. On
July 21, 2000, based upon the internal review and other matters,
the Boards of Directors of the Company and the Bank removed Mr.
Reed as Vice-Chairman, President and Chief Executive Officer of
the Company and as the President, Chief Executive Officer and as
a director of the Bank. The Company and the Bank have not agreed
to make any severance payments to Mr. Reed in connection with his
removal and termination of his employment agreement.
Mr. Steven R. Abel, a director of the Company for three years and
the Chairman of the Board of Directors, has been appointed acting
President and Chief Executive Officer of the Company and the
Bank. Mr. Abel previously served as Vice President of Fifth Third
Bank of Central Indiana and its predecessor and served on their
management teams. His banking career began in 1974.
The Company has experienced significant growth since the
acquisition of the Bank in June 1998. Accordingly, the growth
restrictions imposed by the OTS may have a material adverse
effect on the Bank's business strategy to grow its operations in
the Fort Wayne market. The Company and the Bank have been taking
action to address the concerns set forth in the letter. In
particular, a committee of the Board of Directors has been formed
to search for a permanent President and Chief Executive Officer
for the Company and the Bank. Further, Larry Toombs, the former
Executive Vice President of the Company and the Bank, has been
retained as a consultant to assist the Bank prior to the
employment of a permanent President and Chief Executive Officer.
The Company is also focusing on reducing the non-interest
expenses of the Bank through a detailed review and analysis of
these expenses.
Although no direct losses have been discovered during the
internal review, other than the loss of interest on certain
undocumented loans, additional charges have been incurred. Due to
the findings of the internal review, the scope of the assessment
of adequacy of loan loss reserves was expanded, resulting in
additional reserves being taken in the second quarter. In
addition, the Company has incurred charges related to
professional firms participating in the internal review.
16
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(1) Exhibit 27--Financial Data Schedule
(2) The Company filed Form 8-K on July 21, 2000.
* * * * *
17
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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 14, 2000 By: /s/ Bradley A. Long
----------------------------
Bradley A. Long, Vice President,
Chief Financial Officer and Treasurer
