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 $21 million; its shares were traded at around $14 with a P/E ratio of 9.2 and P/S ratio of 0.9. The dividend yield of River Valley Bancorp. stocks is 6%. River Valley Bancorp. had an annual average earning growth of 2.8% over the past 5 years. Highlight of Business Operations:At March 31, 2009, the Corporation s consolidated assets totaled $384.2 million, an increase of $11.8 million, or 3.2% from December 31, 2008. New deposits during the quarter totaling $14.9 million, the majority of which came from a single depositor in the public sector, were invested in short term callable agency bonds. The Bank experienced a slight decrease in the loan portfolio of $5.0 million year-to-date, due primarily to the refinancing of conventional Bank owned 1-4 family mortgages which were then sold into the secondary market. Sales to the Federal Home Loan Mortgage Corporation (Freddie Mac) during the first quarter topped $15.5 million, more than three times the March 2008 level of $4.9 million. Profit from these sales contributed significantly to the overall profit of the Bank. Other lending remained stable or dropped slightly during the period. Over the same period, interest receivable on interest earning assets decreased by $205,000, or 9.4%, reflecting the drop in interest rates resulting from the 2008 reductions of the Prime rate by the Federal Reserve (Fed). Most radically affected by the drops in the Prime interest rate were commercial loans and home equity lines of credit which change directly with the rate. The average yield on loans at March 31, 2009 was 6.01%, a decrease from the rate of 6.62% at the same period in 2008. Other changes for the period included: a 13.9% decrease in non-earning “Other Assets,” primarily due to a decline in prepaid expenses and deferred tax assets; a 32.4% decrease in the volume of repossessed real estate held from $259,000 at December 31, 2008 to a single piece of property valued at $175,000 at March 31, 2009; and a slight increase in the volume of loans held for sale from $130,000 at December 31, 2008 to $306,000 as of March 31, 2009, reflecting Freddie Mac sales in process.
The Corporation s consolidated allowance for loan losses totaled $2.6 million at March 31, 2009 as compared to the total at December 31, 2008 of $2.4 million. These levels represented .92%, and .82% of total loans, respectively. As the national and local economy worsened, the Bank aggressively managed delinquencies, with overall delinquencies 30 or more days past due as of March 31, 2009 at 3.21%, compared to 1.53% at the same date in 2008 and 1.07% at December 31, 2008. Non-performing loans (defined as loans delinquent greater than 90 days and loans on non-accrual status) as of March 31, 2009 were $4.3 million, compared to $2.5 million at the same date in 2008 and $1.0 million at December 31, 2008. Non-performing loans as a percent of total loans were 1.51%, .95% and .37%, respectively for those periods. The increases in non-performing loans were primarily due to the addition of one troubled relationship of approximately $3.0 million, added during the first quarter of 2009 and 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 while working to quantify the negative impact this relationship could have on the Bank s allowance. Due to the classification of this relationship, the Bank s allowance for loan losses was increased based on the allowance methodology employed by the Bank related to classified credits. At March 31, 2009, the Bank has not assigned additional specific reserves to this relationship due to the current loan-to-value percentages which range from 71% to 80%. Based on recent declines in the current real estate market, the Bank is in the process of having the properties reappraised. As additional information becomes available, adjustments to the allowance may be necessary. For the period ended March 31, 2009 the allowance for loan losses was funded at a level in line with current and estimated losses. With the exception of a few loans delinquent due to administrative delays in refinancing, and the aforementioned single relationship, the Bank s non-performing loans represent loans in the lengthy process of foreclosure. Appropriate and documented specific loss reserves have been established as necessary. In connection with the decline in the local economy during the first quarter of 2009 and the increase in non-performing loans, the Bank established higher levels of provision expense. The provision for loan losses increased to $385,000 for the quarter ended March 31, 2009, as compared to $200,000 for the same period in 2008. Net charge offs for the three month period ended March 31, 2009 were $130,000 as compared to $30,000 for the same period in 2008.
Shareholders equity totaled $25.0 million at March 31, 2009, a slight increase of $465,000, or 1.9% from the $24.5 million at December 31, 2008. Of this change, $543,000 was income from operations, $315,000 was paid out in dividends to shareholders, and the remainder of the increase came from unrealized gain/losses on available for sale securities as the portfolio moved in a gain direction from the net loss of $253,000 at December 31, 2008 to a net loss position of $17,000 at March 31, 2009.
Total interest expense for the same period exhibited significant declines with a decrease of $543,000, or 18.6%, from the $2.9 million reported at March 31, 2008 to $2.4 million at March 31, 2009. For the three months ended March 31, 2009 interest expense from deposits totaled $1.3 million while interest expense from borrowings totaled $1.1million, as compared to $1.7 million and $1.2 million for the same period in 2008. Of the overall decrease in interest expense, $425,000, or 25.0%, 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 Bank experienced a decrease of $118,000, or 9.6%, on interest expense for borrowings as the average balance of funds borrowed from the FHLB dropped as advances were repaid.
Total other expense increased by $398,000 or 19.5%, to $2.4 million during the three months ended March 31, 2009, as compared to the $2.0 million reported for the same period in 2008. Increased FDIC assessment expense ($240,000 in 2009 as compared to $13,000 in 2008), increased donations expense (including the $20,000 donation of a piece of repossessed real estate to Habitat for Humanity), and increased expense relating to the sale of loans into the secondary market ($52,000 in 2009 as compared to $3,600 in 2009) contributed largely to the increase. Increases in personnel, occupancy, advertising and office supply costs relative to the 2008 opening of the Floyds Knobs, Indiana branch also contributed to the increase in total other expense.
Historically, the Bank has maintained its liquid assets at a level believed adequate to meet requirements of normal daily activities, repayment of maturing debt and potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained. Cash for these purposes is generated through loan sales and repayments, increases in deposits, and through the sale or maturity of investment securities. Loan payments are a relatively stable source of funds, while deposit flows are influenced significantly by the level of interest rates and general money market conditions. Borrowings may be used to compensate for reductions in other sources of funds such as deposits. As a member of the Federal Home Loan Bank (FHLB) system, the Bank may borrow from the FHLB of Indianapolis. At March 31, 2009, the Bank had $86.0 million in such borrowings, with an additional $16.0 million available, previously approved by the Bank s board of directors. Based on collateral, an additional $9.0 million could be available, if the board of directors determines the need. In addition, at March 31, 2009 the Bank had commitments to fund loan originations of $12.9 million, unused home equity lines of credit of $15.5 million and unused commercial lines of credit of $11.7 million. Commitments to sell loans as of that date were $8.6 million. Generally, a significant portion of amounts available in lines of credit will not be drawn.
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