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River Valley Bancorp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 15, 2011 11:39AM
River Valley Bancorp. (RIVR) filed Quarterly Report for the period ended 2011-06-30.
Highlight of Business Operations:
At June 30, 2011, the Corporation s consolidated assets totaled $399.9 million, an increase of $13.3 million, or 3.4%, from December 31, 2010. The change in assets was driven by a $5.8 million decrease in loan receivables, including loans held for sale, as the difficult lending environment continued to affect loan production and $2.5 million of real estate collateral for non-performing loans was foreclosed upon and transferred to real estate held for sale. Countering the decrease in the loan portfolio was growth in available-for-sale investments, with investments held by the Corporation increasing $15.1 million, period to period, an overall increase of 20.0% from $75.2 million at December 31, 2010 to $90.3 million as of June 30, 2011. A portion of this increase in investments was attributable to mark-to-market changes on available-for-sale securities, with the unrealized gain on the Corporation s portfolio increasing from $695,000 at December 31, 2010 to $2.1 million at June 30, 2011. Over the period, the Corporation increased borrowings with the Federal Home Loan Bank of Indianapolis (FHLB) by $2.0 million and restructured a group of advances totaling $10.0 million, taking advantage of lower borrowing costs to lock in advances over a range of terms. The FHLB is the Corporation s primary source of wholesale funding. The rates on advances from the FHLB decreased 32 basis points across the period, from 3.84% as of December 31, 2010 to 3.52% as of June 30, 2011. Total deposits increased $9.7 million from December 31, 2010 to June 30, 2011, with the majority of the increase in interest-bearing deposits. Other significant changes during the period included $270,000 received from the FHLB for a repurchase of FHLB stock and a decrease in prepaid balances, primarily the prepaid FDIC assessment which decreased $227,000 over the period.
The Corporation s consolidated allowance for loan losses totaled $3.6 million at June 30, 2011 as compared to $3.8 million at December 31, 2010. Provision expense of $848,000 for the six months ended June 30, 2011 was offset by net charge-offs of $1.1 million. This compared to provision expense for the six months ended June 30, 2010 of $525,000 and net charge-offs of $748,000. Net charge-offs for the six-month period ended June 30, 2011 were primarily comprised of a $200,000 unsecured loan charged off due to bankruptcy, a $370,000 loan charged off of a specific reserve established in 2010, and additional write-downs totaling $340,000 on the carrying values for three loans currently in foreclosure. Net charge-offs for the six months ended June 30, 2010 included a first quarter 2010 recovery of $240,000. Funding for the allowance represented 1.36% of total loans as of June 30, 2011 as compared to 1.41% as of December 31, 2010. The allowance at June 30, 2011 declined from the balance outstanding at December 31, 2010 primarily due to the charge off of a $370,000 specific reserve outstanding at December 30, 2010.
Borrowing totaled $67.2 million at June 30, 2011 versus $65.2 million at December 31, 2010, an increase of $2.0 million, or 3.1%, period to period, as the Corporation took advantage of low rates to lock in borrowings with a variety of terms. Of total borrowings, $60.0 million and $58.0 million, respectively, represented Federal Home Loan Bank (FHLB) advances with average rates of 3.52% and 3.84% at the respective dates. These balances and average rates on advances from the FHLB represent a reduction from the same at June 30, 2010, which were $64.0 million and 4.65%. The drop in average balances and rates, June 2010 to June 2011, resulted in a $583,000, or 33.2%, decrease in the cost of borrowing period to period. Borrowing costs of $1.2 million for the six months ended June 30, 2011 compared to $1.8 million for the same period in 2010. A significant contributor to the decrease in the cost of borrowing, period to period, was the restructuring of $29.0 million in advances over the last 12 months, with the Corporation taking advantage of lower borrowing costs and locking in those low costs against future rate volatility.
The Corporation s net income for the six months ended June 30, 2011 totaled $1.4 million, a slight decrease of only $12,000, or 0.8%, from an almost identical net income reported for the six-month period ended June 30, 2010. The change in income period to period was not representative of the variety of changes that occurred over the period. Total interest income decreased $578,000, or 6.1%, from $9.5 million for the six months ended June 30, 2010 to $8.9 million for the same period in 2011, as yields and average balances on interest-earning assets dropped. Offsetting the decrease in interest income was a more dramatic decrease in interest expense, with interest expense for the six months ended June 30, 2011 of $2.9 million as compared to $3.9 million for the same period in 2010, a decrease of $969,000, or 24.8%, period to period, as deposit and borrowing costs of funds dropped from 2.05% at June 30, 2010 to 1.59% at June 30, 2011. Meanwhile, provision expense for the six-month period ended June 30, 2011 was $848,000 as compared to $525,000 for the same period in 2010, an increase of $323,000, reflecting the continuing economic stagnation. Noninterest income, which includes income from the sale of loans into the secondary markets and fee income from charges associated with overdrawn/non-sufficient fund deposit accounts (NSF fees), decreased $63,000, period to period, while noninterest expense increased $54,000. Overall, the two combined for a net decrease in income of $117,000. Expense for FDIC insurance for the six-month period ended June 30, 2011 was $243,000, relatively unchanged from the expense for the six-month period ended June 30, 2010 of $241,000.
Total interest expense for the same period decreased more significantly, $969,000, or 24.8%, from the $3.9 million reported at June 30, 2010 to $2.9 million at June 30, 2011. For the six months ended June 30, 2011, interest expense from deposits totaled $1.8 million while interest expense from borrowings totaled $1.2 million, as compared to $2.2 million and $1.8 million for the same period in 2010. Of the overall decrease in interest expense, $386,000 was attributable to interest expense on deposits, primarily fixed-maturity deposits, as repricing of these deposits was done at constantly lowering rates. Over the same period, the Corporation experienced a dramatic decrease of $583,000 for interest expense on borrowings as advances were repaid or restructured and the average balance of funds borrowed from the FHLB dropped. The average rate paid on those borrowings dropped from 4.65% at June 30, 2010 to 3.52% at June 30, 2011, as $4.0 million in advances were repaid over the period and $29.0 million in advances were restructured to take advantage of lower rates currently and into the future. Borrowing at the FHLB as of June 30, 2011 totaled $60.0 million with an additional $42.0 million available by authorization of the board of directors of the Corporation.
Other income decreased slightly by $63,000, or 3.8%, during the six months ended June 30, 2011 to $1.6 million, as compared to the $1.7 million reported for the same period in 2010. The decrease was due primarily to net losses on premises, equipment and other real estate owned due primarily to a $100,000 loss recorded on foreclosed real estate as a result of updated fair value information. Net losses on premises, equipment and other real estate owned were $149,000 for the six-month period ended June 30, 2011, as compared to $9,000 for the same period in 2010, a change of $140,000. These losses were offset by increases in income from merchant interchange fees, $200,000 for the six months ended June 30, 2011 as compared to $177,000 for the same period in 2010, increased gains on the sale of available-for-sale securities, $165,000 for the six months ended June 30, 2011 as compared to $131,000 for the same period in 2010, and gains on the sale of loans into the secondary market, primarily to Freddie Mac, $229,000 for the six months ended June 30, 2011 as compared to $162,000 for the same six months in 2010. While sales into the secondary market for the first six months of 2011 exceeded the same for 2010, this trend is not expected to continue into the remainder of 2011 as origination of loans for sale are expected to decline as underwriting continues to be tight and refinance activity nearly nonexistent. The only other notable decrease in other income for the six-month period was in fees and charges relative to deposit accounts, primarily overdraft fees, which dropped $28,000, period to period, with the total income from these fees $914,000 for the six-month period ended June 30, 2011 as compared to $942,000 for the same period in 2010. Unlike interest income, “Other Income” is not always readily predictable and is subject to variations depending on outside influences, including regulatory changes.
Stocks Discussed: RIVR,