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River Valley Bancorp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 16, 2009 02:20PM

River Valley Bancorp. (RIVR) filed Quarterly Report for the period ended 2009-09-30. River Valley Bancorp was organized to acquire the common stock of Madison First Federal Savings and Loan Association. The bank historically has concentrated its lending activities on the origination of loans secured by first mortgage liens for the purchase, construction or refinancing of one- to four- family residential real property. One- to four-family residential mortgage loans continue to be the major focus of the bank's loan origination activities. River Valley Bancorp. has a market cap of $19.7 million; its shares were traded at around $13.1 with a P/E ratio of 12.72 and P/S ratio of 0.84. The dividend yield of River Valley Bancorp. stocks is 6.41%. River Valley Bancorp. had an annual average earning growth of 2.8% over the past 5 years.

Highlight of Business Operations:

Non-performing loans (defined as loans delinquent greater than 90 days and loans on non-accrual status) as of September 30, 2009 were $10.0 million, compared to $1.0 million at the same date in 2008 and at December 31, 2008. Non-performing loans as a percent of total loans were 3.59%, .36% and .70%, respectively for those periods. While the Corporation experienced increased delinquencies in commercial and mortgage lending during the first nine months of 2009, the increases in non-performing loans were primarily due to the addition of the two troubled relationships of approximately $4.9 million and $1.6 million, mentioned above. The larger relationship was previously discussed in the Corporation s 2008 Annual Report on Form 10-K. Management is working with the borrower and legal representatives to attempt a workout of this situation, but based on an estimate of potential losses, the Corporation placed a $2.0 million specific reserve on the relationship as of June 30, 2009. For the period ended September 30, 2009 the allowance for loan losses was funded at a level in line with current and estimated losses. Appropriate and documented specific loss reserves have been established as necessary. The provision for loan losses increased to $2.6 million for the nine months ended September 30, 2009, as compared to $645,000 for the same period in 2008. Net charge offs for the nine month period ended September 30, 2009 were $120,000 as compared to $581,000 for the same period in 2008.

Total interest expense for the same period exhibited significant declines with a decrease of $1.3 million, or 15.1%, from the $8.3 million reported at September 30, 2008 to $7.0 million at September 30, 2009. For the nine months ended September 30, 2009 interest expense from deposits totaled $3.8 million while interest expense from borrowings totaled $3.2 million, as compared to $4.6 million and $3.7 million for the same period in 2008. Of the overall decrease in interest expense, $819,000 was attributable to interest expense on deposits as the effect of the Fed rate cuts continued to affect depositors and widen the spread on interest bearing balances. Over the same period, the Corporation experienced a decrease of $432,000 on interest expense for borrowings as the average balance of funds borrowed from the FHLB, and the average rate paid on those funds dropped as advances were repaid.

A provision for losses on loans is charged to income to bring the total allowance for loan losses to a level considered appropriate by management based upon historical experience, the volume and type of lending conducted by the Corporation, the status of past due principal and interest payment, general economic conditions, particularly as such conditions relate to the Corporation s market area, and other factors related to the collectibility of the Corporation s loan portfolio. As a result of such analysis, management recorded a $2.6 million provision for losses on loans for the nine months ended September 30, 2009, as compared to $645,000 for the same period in 2008. Reserves established specifically for potential losses, including two large relationships of $4.9 and $1.6 million each, increased from $900,000 at September 30, 2008 to $3.0 million at September 30, 2009. Non-performing loans, defined as loans past due 90 or more days as of September 30, 2009 were $10.0 million, an increase of $9.0 million from the $1.0 million at the same point in 2008, primarily due to the addition of the two aforementioned large relationships. The increase in the provision year-to-year has been predicated primarily on estimated losses with some impact for the current economic environment. While management believes that the allowance for losses on loans is adequate at September 30, 2009, based upon the available facts and circumstances, there can be no assurance that the loan loss allowance will be adequate to cover losses on non-performing assets in the future.

Total other expense increased by $744,000 or 11.7%, to $7.1 million during the nine months ended September 30, 2009, as compared to the $6.4 million reported for the same period in 2008. Increased FDIC assessment expense ($665,000 in 2009 as compared to $50,000 in 2008), increased donations expense (including the $32,000 donation of a piece of repossessed real estate to Habitat for Humanity), increased expense relating to building rents ($8,000 per month for the new branch in Floyd Knobs, Indiana) and increased expense relating to the sale of loans into the secondary market ($148,000 in 2009 as compared to $12,000 in 2008) contributed largely to the increase. These increases were offset by reduced costs of loan administration in general and reduced administrative expenses, such as communications cost and travel expense, all a result of the Corporation s aggressive cost cutting measures. The Corporation managed personnel costs through staff reductions resulting from attrition, rather than forced reductions, minimizing the effect on the Corporation s employees, while maintaining an experienced personnel base.

Total interest expense for the same period decreased by $385,000, or 14.3%, from the $2.7 million reported at September 30, 2008 to $2.3 million at September 30, 2009. For the three months ended September 30, 2009 interest expense from deposits totaled $1.3 million while interest expense from borrowings totaled $1.0 million, as compared to $1.5 million and $1.2 million for the same period in 2008. Of the overall decrease in interest expense, $196,000 was attributable to interest expense on deposits as the effect of the Fed rate cuts in 2008 continued to affect depositors and widen the spread on interest bearing balances. Over the same period, the Corporation experienced a decrease of $189,000 on interest expense for borrowings as the average balance of funds borrowed from the FHLB dropped, as advances were repaid, and the average rate paid on those borrowings dropped from 4.61% at September 30, 2008 to 4.55% at September 30, 2009.

A provision for losses on loans is charged to income to bring the total allowance for loan losses to a level considered appropriate by management based upon historical experience, the volume and type of lending conducted by the Corporation, the status of past due principal and interest payment, general economic conditions, particularly as such conditions relate to the Corporation s market area, and other factors related to the collectibility of the Corporation s loan portfolio. As a result of such analysis, management recorded a $135,000 provision for losses on loans for the three months ended September 30, 2009, as compared to $245,000 for the same period in 2008. Non-performing loans as of September 30, 2009 were $10.0 million, an increase of $9.0 million, from the $1.0 million at the same point in 2008, primarily reflecting the addition of two large relationships representing $4.9 million and $1.6 million of loans past due more than 90 days at September 30, 2009. The decrease in the provision year-to-year has been predicated primarily on estimated losses, of which the majority are represented by specific reserves established during the second quarter; declining levels of loan activity and shrinkage in the loan portfolio; and some impact for the current economic environment. Net charge offs for the nine month period ended September 30, 2009 were $120,000 as compared to $581,000 for the same period in 2008. While management believes that the allowance for losses on loans is adequate at September 30, 20

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