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River Valley Bancorp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 14, 2012 12:21PM
River Valley Bancorp. (RIVR) filed Quarterly Report for the period ended 2012-03-31.
Highlight of Business Operations:Proceeds from sales of securities available for sale during the three-month period ended March 31, 2012 were $1,958,000 and $2,796,000 during the same period in 2011. Gross gains of $134,000 and $126,000 resulting from sales and calls of available-for-sale securities were realized for the three-month periods ended March 31, 2012 and March 31, 2011, respectively. No losses were recorded for the three-month period ended March 31, 2012 or March 31, 2011. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
The Corporation recognizes the rights to service mortgage loans as separate assets in the consolidated balance sheet. Under the servicing assets and liabilities accounting guidance (ASC 860-50), servicing rights resulting from the sale or securitization of loans originated by the Corporation are initially measured at fair value at the date of transfer. Mortgage servicing rights are subsequently carried at the lower of the initial carrying value, adjusted for amortization, or fair value. Mortgage servicing rights are evaluated for impairment based on the fair value of those rights. Factors included in the calculation of fair value of the mortgage servicing rights include, estimating the present value of future net cash flows, market loan prepayment speeds for similar loans, discount rates, servicing costs, and other economic factors. Servicing rights are amortized over the estimated period of net servicing revenue. It is likely that these economic factors will change over the life of the mortgage servicing rights, resulting in different valuations of the mortgage servicing rights. The differing valuations will affect the carrying value of the mortgage servicing rights on the consolidated balance sheet as well as the income recorded from loan servicing in the consolidated income statement. As of March 31, 2012 and December 31, 2011, mortgage servicing rights had carrying values of $673,000 and $641,000 respectively. The December 31, 2011 amount included a $26,000 valuation allowance for impairment on certain pools of servicing rights as of that date. The March 31, 2012 amount included no valuation for impairment.
The difficult lending environment continued to challenge loan production for the Corporation. Total loans, net of the allowance for loan losses, decreased $2.6 million, or 0.6%, from $253.1 million at December 31, 2011 to $250.5 million at March 31, 2012. Over the three-month period, $828,000 in non-performing loans moved from the portfolio into real estate held for sale, while sales of conventional mortgages into the secondary market remained strong. Sales to the Federal Home Loan Mortgage Corporation (Freddie Mac) for the three months ended March 31, 2012 were $8.7 million, down from fourth quarter 2011 sales of $11.2 million, but a strong increase over the $5.6 million recorded for the three-month period ended March 31, 2011. The Corporation s consolidated allowance for loan losses totaled $3.2 million at March 31, 2012, a decrease of $825,000 from the $4.0 million total at December 31, 2011. This decrease was primarily the result of a decrease in specific valuation allowances as $1,020,000 in such valuations were permanently charged off. For the period, $474,000 was expensed and placed in the provision for loan losses, $1.3 million in non-performing loans were charged off, and the reserve for specific valuation allowances decreased from $1.4 million as of December 31, 2011 to $582,000 as of March 31, 2012. Charge offs for the period were primarily comprised of 1-4 family rental property, most of which has been in the process of foreclosure for more than twelve months, and write-down, or “partial charge off,” of existing loans totaling $694,000. Of these write-downs, all but $128,000 was expensed in prior periods and carried in the allowance as specific valuation allowances. The portion of the allowance for loan losses that is attributed to “general” losses remained virtually unchanged, period to period, at $2.6 million, despite a continued decline in the average balances of loans outstanding. Total funding for the allowance represented 1.25% of total loans as of March 31, 2012, as compared to 1.56% as of December 31, 2011, with the decrease attributable to the aforementioned reduction in specific valuation allowances. The portion targeted for “general” losses as a percent of gross loans, $2.6 million at both period ends, increased slightly, period to period, 1.02% at March 31, 2012, as compared to 1.00% at December 31, 2011. The allowance at March 31, 2012 is directionally consistent with the balance outstanding at December 31, 2011.
During 2011, the Corporation realized strong income from the widening of the margin between interest-earning assets and interest-bearing liabilities. This trend has stabilized, with net interest income nearly identical for the three-month periods, 2012 to 2011. Total interest income for the three-month period ended March 31, 2012 was $4.4 million as compared to $4.5 million for the same period in 2011, a decrease of $160,000, or 3.5%. Conversely, total interest expense for the three-month period ended March 31, 2012 was $1.3 million as compared to $1.5 million for the same period in 2011, a decrease of $165,000, or 11.2%. Provision expense remained identical for the two periods, at $474,000 each three-month period.
Other income decreased by $33,000, or 3.6%, during the three months ended March 31, 2012 to $882,000, as compared to the $915,000 reported for the same period in 2011. The decrease was due primarily to disposal losses and valuation write-downs on real estate held for sale as a result of foreclosure. Losses on real estate held for sale for the three-month period ended March 31, 2012 were $292,000, an increase of $243,000 over the $49,000 reported for the same three-month period in 2011. These losses were offset somewhat by increases in income from the sale of loans into the secondary market, period to period. Gains on sales to the FHLMC (Freddie Mac) for the three months ending March 31, 2012 totaled $284,000, an increase of $124,000 over the $160,000 recorded for the same period ended March 31, 2011. Sales to the Federal Home Loan Mortgage Corporation (Freddie Mac) for the three months ended March 31, 2012 were $8.7 million, down from fourth quarter 2011 sales of $11.2 million, but a strong increase over the $5.6 million recorded for the three-month period ended March 31, 2011. Other notable increases in other income, period to period, included service fees and charges, which includes income from ATM and debit card processing. Service fees and charges increased to $496,000 for the three-month period ended March 31, 2012 from $455,000 for the comparable period in 2011, an increase of $41,000. Unlike interest income, “other income” is not always readily predictable and is subject to variations depending on outside influences.
Stocks Discussed: RIVR,