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River Valley Bancorp. Reports Operating Results (10-Q)

August 13, 2009 | About:

River Valley Bancorp. (RIVR) filed Quarterly Report for the period ended 2009-06-30.

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 $18.4 million; its shares were traded at around $12.23 with a P/E ratio of 13.3 and P/S ratio of 0.8. The dividend yield of River Valley Bancorp. stocks is 6.9%. River Valley Bancorp. had an annual average earning growth of 2.8% over the past 5 years.

Highlight of Business Operations:

The Corporation s consolidated allowance for loan losses totaled $4.7 million at June 30, 2009 as compared to the total at December 31, 2008 of $2.4 million as the Corporation increased specific reserve levels for potential losses on delinquent loans. These levels represented 1.68%, and .82% of total loans, respectively. As the national and local economy worsened, the Corporation aggressively managed delinquencies, with overall delinquencies 30 or more days past due as of June 30, 2009 at 4.66%, compared to 1.36% 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 June 30, 2009 were $9.9 million, compared to $2.0 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 3.56%, .75% and .36%, respectively for those periods. While the Corporation experienced increased delinquencies in commercial and mortgage lending during the first half of 2009, the increases in non-performing loans were primarily due to the addition of two troubled relationships of approximately $4.9 million and $1.6 million. 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 $2.1 million specific reserve on the relationship as of June 30, 2009. For the period ended June 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. In connection with the decline in the local economy during the first half of 2009 and the increase in non-performing loans, the Corporation established higher levels of provision expense. The provision for loan losses increased to $2.4 million for the six months ended June 30, 2009, as compared to $400,000 for the same period in 2008. Net charge offs for the six month period ended June 30, 2009 were $100,000 as compared to $441,000 for the same period in 2008.

Total interest expense for the same period exhibited significant declines with a decrease of $865,000, or 15.5%, from the $5.6 million reported at June 30, 2008 to $4.7 million at June 30, 2009. For the six months ended June 30, 2009 interest expense from deposits totaled $2.5 million while interest expense from borrowings totaled $2.2 million, as compared to $3.2 million and $2.4 million for the same period in 2008. Of the overall decrease in interest expense, $623,000 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 $242,000 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 $2.4 million provision for losses on loans for the six months ended June 30, 2009, as compared to $400,000 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 June 30, 2008 to $3.0 million at June 30, 2009. Non-performing loans, defined as loans past due 90 or more days as of June 30, 2009 were $9.9 million, an increase of $7.9 million, or 393.1%, from the $2.0 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 June 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 $630,000 or 15.0%, to $4.8 million during the six months ended June 30, 2009, as compared to the $4.2 million reported for the same period in 2008. Increased FDIC assessment expense ($425,000 in 2009 as compared to $31,000 in 2008), increased donations expense (including the $32,000 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 ($127,000 in 2009 as compared to $17,000 in 2009) contributed largely to the increase. Increases in personnel, occupancy, advertising and office supply costs relative to the May 2008 opening of the Floyds Knobs, Indiana branch also contributed to the increase in total other expense.

Total interest expense for the same period decreased by $322,000, or 12.1%, from the $2.7 million reported at June 30, 2008 to $2.3 million at June 30, 2009. For the three months ended June 30, 2009 interest expense from deposits totaled $1.3 million while interest expense from borrowings totaled $1.1million, as compared to $1.5 million and $1.2 million for the same period in 2008. Of the overall decrease in interest expense, $198,000 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 $124,000 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 4.63% at June 30, 2008 to 4.58% at June 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 $2.1million provision for losses on loans for the three months ended June 30, 2009, as compared to $200,000 for the same period in 2008. Non-performing loans as of June 30, 2009 were $9.9 million, an increase of $7.9 million, or 395%, from the $2.0 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 June 30, 2009. 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 June 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.

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Rating: 3.5/5 (2 votes)

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