-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EU6sdXqbJDFSdoVYw5hCCeLMQYzF/AIoC0yXgjYT43vKirgsNsUMYllMCXq3pPA3 lG7uWFHxenCiJElszyfENg== 0000908834-04-000743.txt : 20041115 0000908834-04-000743.hdr.sgml : 20041115 20041115092648 ACCESSION NUMBER: 0000908834-04-000743 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041115 DATE AS OF CHANGE: 20041115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVER VALLEY BANCORP CENTRAL INDEX KEY: 0001015593 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 351984567 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21765 FILM NUMBER: 041141983 BUSINESS ADDRESS: STREET 1: 430 CLIFTY DR CITY: MADISON STATE: IN ZIP: 47250 BUSINESS PHONE: 8122734949 MAIL ADDRESS: STREET 1: 430 CLIFTY DR CITY: MADISON STATE: IN ZIP: 47250 10QSB 1 rvb_10qnov.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission file number: 0-21765 RIVER VALLEY BANCORP (Exact name of small business issuer as specified in its charter) Indiana 35-1984567 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 430 Clifty Drive Madison, Indiana 47250 (Address of principal executive offices) (812) 273-4949 (Issuer's telephone number) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the issuer filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: November 8, 2004 - 1,594,377 common shares. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] RIVER VALLEY BANCORP FORM 10-QSB INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheet 3 Consolidated Condensed Statement of Income 4 Consolidated Condensed Statement of Comprehensive Income 5 Consolidated Condensed Statement of Cash Flows 6 Notes to Unaudited Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis or Plan of Operation 9 Item 3. Controls and Procedures. 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits 15 SIGNATURES 16 EXHIBITS 2
PART I FINANCIAL INFORMATION Item 1. Financial Statements RIVER VALLEY BANCORP Consolidated Condensed Balance Sheet September 30, December 31, 2004 2003 (Unaudited) ----------------------------------- (In Thousands, Except Share Amounts) Assets Cash and due from banks $ 4,729 $ 4,443 Interest-bearing demand deposits 5,395 8,069 ----------------------------------- Cash and cash equivalents 10,124 12,512 Investment securities available for sale 19,160 34,557 Loans held for sale 105 100 Loans 229,928 194,222 Allowance for loan losses 2,339 2,056 ----------------------------------- Net loans 227,589 192,166 Premises and equipment 6,201 5,980 Federal Home Loan Bank stock 3,250 2,176 Interest receivable 1,562 1,489 Cash surrender value life insurance 5,251 5,093 Other assets 986 1,003 ----------------------------------- Total assets $274,228 $255,076 =================================== Liabilities Deposits Non-interest-bearing $ 14,929 $ 11,828 Interest-bearing 163,464 168,126 ----------------------------------- Total deposits 178,393 179,954 Borrowings 72,217 50,000 Interest payable 348 381 Other liabilities 923 1,886 ----------------------------------- Total liabilities 251,881 232,221 ----------------------------------- Commitments and Contingencies Shareholders' Equity Preferred stock, without par value Authorized and unissued - 2,000,000 shares Common stock, without par value Authorized - 5,000,000 shares Issued and outstanding - 1,607,385and 1,646,680 shares Additional paid-in capital 8,392 8,705 Retained earnings 14,044 14,088 Shares acquired by stock benefit plans (167) (193) Accumulated other comprehensive income 78 255 ----------------------------------- Total shareholders' equity 22,347 22,855 ----------------------------------- Total liabilities and shareholders' equity $274,228 $255,076 =================================== See notes to consolidated condensed financial statements.
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RIVER VALLEY BANCORP Consolidated Condensed Statement of Income (Unaudited) Nine Months Ended Three Months Ended September 30, September 30, ------------------------------------------------------- 2004 2003 2004 2003 ------------------------------------------------------- (In Thousands, Except Share Amounts) Interest Income Loans receivable $ 9,055 $ 8,495 $ 3,199 $ 2,980 Investment securities 652 777 182 268 Interest-earning deposits and other 135 171 47 61 -------------------------------------------------------- Total interest income 9,842 9,443 3,428 3,309 -------------------------------------------------------- Interest Expense Deposits 2,056 2,492 691 773 Borrowings 1,956 1,526 722 572 -------------------------------------------------------- Total interest expense 4,012 4,018 1,413 1,345 -------------------------------------------------------- Net Interest Income 5,830 5,425 2,015 1,964 Provision for loan losses 266 360 72 180 -------------------------------------------------------- Net Interest Income After Provision for Loan Losses 5,564 5,065 1,943 1,784 -------------------------------------------------------- Other Income Net realized gains (losses) on sales of available-for-sale securities 24 (1) 15 1 Service fees and charges 1,323 1,040 461 356 Net gains on loan sales 342 1,450 80 471 Other income 264 168 79 96 -------------------------------------------------------- Total other income 1,953 2,657 635 924 -------------------------------------------------------- Other Expenses Salaries and employee benefits 2,348 2,022 791 689 Net occupancy and equipment expenses 840 602 361 213 Data processing fees 108 109 35 51 Advertising 170 196 53 65 Legal and professional fees 167 143 67 38 Amortization of mortgage servicing rights 141 475 4 306 Other expenses 826 859 185 123 -------------------------------------------------------- Total other expenses 4,600 4,406 1,496 1,485 -------------------------------------------------------- Income Before Income Tax 2,917 3,316 1,082 1,223 Income tax expense 1,117 1,290 436 473 -------------------------------------------------------- Net Income $ 1,800 $ 2,026 $ 646 $ 750 ======================================================== Basic earnings per share $ 1.12 $ 1.28 $ .41 $ .47 Diluted earnings per share 1.08 1.22 .39 .45 Dividends per share .53 .425 .18 .15 See notes to consolidated condensed financial statements.
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RIVER VALLEY BANCORP Consolidated Condensed Statement of Comprehensive Income (Unaudited) Nine Months Ended Three Months Ended September 30, September 30, ----------------------------------------------------------- 2004 2003 2004 2003 ----------------------------------------------------------- (In Thousands) Net income $ 1,800 $ 2,026 $ 646 $ 750 Other comprehensive income, net of tax Unrealized gains on securities available for sale Unrealized holding gains (losses) arising during the period, net of tax expense (benefit) of $(107), $(18), $42 and $(127) (163) (30) 64 (193) Less: Reclassification adjustment for gains (losses) included in net income, net of tax expense (benefit) of $10, $0, $6 and $0 14 (1) 9 1 ---------------------------------------------------------- (177) (29) 55 (194) ---------------------------------------------------------- Comprehensive income $ 1,623 $ 1,997 $ 701 $ 556 ========================================================== See notes to consolidated condensed financial statements.
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RIVER VALLEY BANCORP Consolidated Condensed Statement of Cash Flows (Unaudited) Nine Months Ended September 30, --------------------------- 2004 2003 --------------------------- (In Thousands) Operating Activities Net income $ 1,800 $ 2,026 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 266 360 Depreciation and amortization 433 375 Investment securities (gains) losses (24) 1 Loans originated for sale in the secondary market (15,798) (64,117) Proceeds from sale of loans in the secondary market 15,960 65,849 Gain on sale of loans (342) (1,450) Amortization of deferred loan origination cost 99 132 Amortization of expense related to stock benefit plans 248 291 Net change in: Interest receivable (73) (145) Interest payable (33) (104) Other adjustments (787) 596 --------------------------- Net cash provided by operating activities 1,749 3,814 --------------------------- Investing Activities Purchases of securities available for sale (3,132) (10,935) Proceeds from maturities of securities available for sale 14,034 3,067 Proceeds from sale of securities available for sale 4,211 2,349 Purchase of Federal Home Loan Bank stock (992) (48) Net change in loans (35,613) (21,927) Premiums paid on life insurance -- (3,635) Purchases of premises and equipment (654) (532) Proceeds from sale of real estate owned 0 43 --------------------------- Net cash used in investing activities (22,146) (31,618) --------------------------- Financing Activities Net change in Noninterest-bearing, interest-bearing demand and savings deposits (1,794) 11,375 Certificates of deposit 233 (1,607) Proceeds from borrowings 34,000 14,000 Repayment of borrowings (12,000) (5,000) Cash dividends (842) (616) Purchase of stock (1,679) (285) Stock options exercised 101 227 Acquisition of stock for stock benefit plans (34) 0 Advances by borrowers for taxes and insurance 24 19 --------------------------- Net cash provided by financing activities 18,009 18,113 --------------------------- Net Change in Cash and Cash Equivalents (2,388) (9,691) Cash and Cash Equivalents, Beginning of Period 12,512 18,610 --------------------------- Cash and Cash Equivalents, End of Period $ 10,124 $ 8,919 =========================== Additional Cash Flows and Supplementary Information Interest paid $ 4,045 $ 4,122 Income tax paid 673 1,041 See notes to consolidated condensed financial statements. 6
RIVER VALLEY BANCORP Notes to Unaudited Consolidated Condensed Financial Statements River Valley Bancorp (the "Corporation" or the "Company") is a unitary savings and loan holding company whose activities are primarily limited to holding the stock of River Valley Financial Bank ("River Valley" or the "Bank"). The Bank conducts a general banking business in southeastern Indiana which consists of attracting deposits from the general public and applying those funds to the origination of loans for consumer, residential and commercial purposes. River Valley's profitability is significantly dependent on net interest income, which is the difference between interest income generated from interest-earning assets (i.e. loans and investments) and the interest expense paid on interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Bank can be significantly influenced by a number of competitive factors, such as governmental monetary policy, that are outside of management's control. Note 1: Basis of Presentation The accompanying unaudited consolidated condensed financial statements were prepared in accordance with instructions for Form 10-QSB and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of the Corporation included in the Annual Report on Form 10-KSB for the year ended December 31, 2003. However, in the opinion of management, all adjustments (consisting of only normal recurring accruals) which are necessary for a fair presentation of the financial statements have been included. The results of operations for the nine and three-month periods ended September 30, 2004, are not necessarily indicative of the results which may be expected for the entire year. The consolidated condensed balance sheet of the Corporation as of December 31, 2003 has been derived from the audited consolidated balance sheet of the Corporation as of that date. Note 2: Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All significant intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. Note 3: Earnings Per Share Earnings per share have been computed based upon the weighted average common shares outstanding. Unearned Employee Stock Ownership Plan shares have been excluded from the computation of average common shares outstanding. 7
Nine Months Ended Nine Months Ended September 30, 2004 September 30, 2003 ------------------ ------------------ Weighted Per Weighted Per Average Share Average Share Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ (In Thousands, Except Share Amounts) Basic earnings per share Income available to common shareholders $ 1,800 1,600,173 $1.12 $ 2,026 1,584,378 $1.28 ===== ===== Effect of dilutive RRP awards and stock options 72,289 77,498 -------------------------- ----------------------------- Diluted earnings per share Income available to common shareholders and assumed conversions $ 1,800 1,672,462 $1.08 $ 2,026 1,661,876 $1.22 ===================================== ======================================== Three Months Ended Three Months Ended September 30, 2004 September 30, 2003 ------------------ ------------------ Weighted Per Weighted Per Average Share Average Share Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ (In Thousands, Except Share Amounts) Basic earnings per share Income available to common shareholders $ 646 1,589,574 $. 41 $ 750 1,591,906 $. 47 ===== ===== Effect of dilutive RRP awards and stock options 69,629 79,088 -------------------------- ----------------------------- Diluted earnings per share Income available to common shareholders and assumed conversions $ 646 1,659,203 $ .39 $ 750 1,670,994 $ .45 ===================================== ========================================
Note 4: Stock Options The Company has a stock-based employee compensation plan, which is described more fully in Notes to Financial Statements included in the December 31, 2003 Annual Report to Shareholders. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the grant date. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. 8
Nine Months Ended Nine Months Ended Three Months Ended Three Months Ended September 30, September 30, September 30, September 30, 2004 2003 2004 2003 ---------------------------------------------------------------------------------- Net income, as reported $ 1,800 $ 2,026 $ 646 $ 750 Less: Total stock-based employee compensation cost determined under the fair value based method, net of income taxes 20 20 7 7 ------------------------------------------------------------------------ Pro forma net income $ 1,780 $ 2,006 $ 639 $ 743 ======================================================================== Earnings per share: Basic - as reported $ 1.12 $ 1.28 $ .41 $ .47 Basic - pro forma 1.11 1.27 .40 .47 Diluted - as reported 1.08 1.22 .39 .45 Diluted - pro forma 1.06 1.21 .39 .45
Note 5: Accounting Changes In previous financial statements and reports, the Corporation had consolidated RIVR Statutory Trust I ("Trust") through which it has issued trust preferred securities ("TPS") and reported the TPS as "guaranteed preferred beneficial interests in the Company's subordinated debentures" in the consolidated balance sheets. The Financial Accounting Standards Board ("FASB") had previously issued FASB Interpretation No. 46 ("FIN 46") and, in December 2003, issued a revision to FIN 46 to clarify certain provisions which affected the accounting for TPS. As a result of the provisions in FIN 46, the Trust should be deconsolidated, with the Company accounting for its investment in the Trust as assets, its subordinated debentures as debt, and the interest paid thereon as interest expense. During 2003, the Corporation classified the TPS as debt and the dividends as interest but eliminated its common stock investment and dividends received from the Trust. FIN 46 permits and encourages restatement of prior period results. The prior period financial information has not been adjusted to give effect to the revised provisions of FIN 46 as the changes are not material to the financial statements and would have had no effect on previously reported net interest margin, net income or earnings per share. Note 6: Reclassifications Certain reclassifications have been made to the 2003 consolidated financial statements to conform to the September 30, 2004 presentation. Item 2. Management's Discussion and Analysis or Plan of Operation Forward Looking Statements This Quarterly Report on Form 10-QSB ("Form 10-QSB") contains statements which constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Form 10-QSB and include statements regarding the intent, belief, outlook, estimate or expectations of the Corporation (as defined in the notes to the consolidated condensed financial statements), its directors or its officers primarily with respect to future events and the future financial performance of the Corporation. Readers of this Form 10-QSB are cautioned that any such forward looking statements are not guarantees of future events or performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors. The accompanying information contained in this Form 10-QSB identifies 9 important factors that could cause such differences. These factors include regional and national economic conditions, changes in monetary and fiscal policies of the federal government, changes in levels of market interest rates, the adequacy of the allowance for losses on loans and the level of future provisions for losses on loans, the change in state leadership and dominance by a different political party in the state legislature, demand for loan products and financial services, and the results the bank has with the new markets in Charlestown and Sellersburg, Indiana, and Carrollton, Kentucky. Critical Accounting Policies The notes to the consolidated financial statements contain a summary of the Company's significant accounting policies presented on pages 25 through 27 of the Annual Report to Shareholders for the year ended December 31, 2003. Certain of these policies are important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan losses and the valuation of mortgage servicing rights. Allowance for loan losses The allowance for loan losses is a significant estimate that can and does change based on management's assumptions about specific borrowers and current general economic and business conditions, among other factors. Management reviews the adequacy of the allowance for loan losses on at least a quarterly basis. The evaluation by management includes consideration of past loss experience, changes in the composition of the loan portfolio, the current condition and amount of loans outstanding, identified problem loans and the probability of collecting all amounts due. The allowance for loan losses represents management's estimate of probable losses inherent in the Corporation's loan portfolios. In determining the appropriate amount of the allowance for loan losses, management makes numerous assumptions, estimates and assessments. The Corporation's strategy for credit risk management includes conservative, centralized credit policies, and uniform underwriting criteria for all loans as well as an overall credit limit for each customer significantly below legal lending limits. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit quality reviews and quarterly management reviews of large credit exposures and loans experiencing deterioration of credit quality. The Corporation's allowance consists of three components: probable losses estimated from individual reviews of specific loans, probable losses estimated from historical loss rates, and probable losses resulting from economic or other deterioration above and beyond what is reflected in the first two components of the allowance. Larger commercial loans that exhibit probable or observed credit weaknesses are subject to individual review. Where appropriate, reserves are allocated to individual loans based on management's estimate of the borrower's ability to repay the loan given the availability of collateral, other sources of cash flow and legal options available to the Corporation. Included in the review of individual loans are those that are impaired as provided in SFAS No. 114, Accounting by Creditors for Impairment of a Loan. Any allowances for impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or fair value of the underlying collateral. The Corporation evaluates the collectibility of both principal and interest when assessing the need for a loss accrual. Historical loss rates are applied to other commercial loans not subject to specific reserve allocations. Homogenous loans, such as consumer installment and residential mortgage loans are not individually risk graded. Rather, standard credit scoring systems are used to assess credit risks. Reserves are established for each pool of loans based on the expected net charge-offs for one year. Loss rates are based on the average net charge-off history by loan category. Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in management's judgment, reflect the impact of any current conditions on loss recognition. Factors which management considers in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs and non-accrual loans), changes in mix, credit score migration comparisons, asset quality trends, risk management and loan administration, changes in the internal lending policies and credit standards, collection practices and examination results from bank regulatory agencies and the Corporation's internal loan review. 10 An unallocated reserve is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pools of loans. Allowances on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience. The Corporation's primary market area for lending is southeastern Indiana and portions of northwestern Kentucky. When evaluating the adequacy of allowance, consideration is given to this regional geographic concentration and the closely associated effect changing economic conditions have on the Corporation's customers. The Corporation has not substantively changed any aspect to its overall approach in the determination of the allowance for loan losses. There have been no material changes in assumptions or estimation techniques as compared to prior periods that impacted the determination of the current period allowance. Valuation of Mortgage Servicing Rights The Company recognizes the rights to service mortgage loans as separate assets in the consolidated balance sheet. The total cost of loans when sold is allocated between loans and mortgage servicing rights based on the relative fair values of each. 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 income statement. As of September 30, 2004 and December 31, 2003, mortgage servicing rights had carrying values of $886,000 and $854,000, respectively. The Bank's Insurance Agency On June 15, 2004, the Board of Directors of the Company approved the purchase by the Company of one unit of common stock of The Bank's Insurance Agency Holding Company LLC ("TBIAHC") and approved a Participating Agency Services Agreement between the Company and TBIAHC's wholly-owned subsidiary, The Bank's Insurance Agency LLC ("TBIA"), thereby joining TBIA as an affiliate bank. The Company's cost for the unit of common stock was $75,000, and the actual transfer of funds for payment occurred on September 28, 2004. The TBIA is an Indiana statewide agency under the direction of the Community Bankers Association of Indiana (CBAI) of which River Valley Financial Bank is a member. TBIAHC's sole business is to own and operate its subsidiary, TBIA, which will be in the business of soliciting, negotiating and selling insurance products though its affiliated members. All business will be conducted through TBIA, and TBIA will provide the clients of its affiliate banks a cost-effective and choice-based insurance distribution program. TBIA will act as an independent agent of multiple insurance companies, focusing on pre-selected products that bank customers are likely to need--including life, health and property and casualty coverages. TBIA will also provide marketing and administration agency distribution services to affiliate banks. Each affiliate bank of TBIA, including the Company, will enter into a contractual relationship with TBIA, whereby such affiliate banks will assign certain rights to their existing and future insurance client relationships to TBIA. In return, affiliate banks will be compensated in relation to their existing relationships and future clients referred to TBIA. Specifically, TBIA will remit to affiliate banks a certain portion of the commissions TBIA receives with respect to the policies and insureds referred to TBIA by that affiliate bank. To accomplish this arrangement, the Company became licensed with the Indiana Department of Insurance. Employees of the affiliate banks will not be licensed as insurance producers and therefore not able to directly solicit, negotiate and sell such products. It is expected that TBIA's insurance products will be offered to the Bank's clients in the last half of 2005. Financial Condition At September 30, 2004, the Corporation's consolidated assets totaled $274.2 million, an increase of $19.2 million, or 7.5% from December 31, 2003. The increase in assets resulted primarily from an increase in net loans receivable, 11 including loans held for sale, of $35.4 million, partially offset by the decrease of the investment portfolio of $15.4 million, which was funded by an increase in borrowed funds of $22.2 million. Liquid assets (i.e., cash and cash equivalents) decreased by $2.4 million from December 31, 2003, to a total of $10.1 million at September 30, 2004. The Corporation's consolidated allowance for loan losses totaled $2.1 million on December 31, 2003 and $2.3 million at September 30, 2004, which represented 1.1% and 1.0% of total loans respectively. Non-performing loans (defined as loans delinquent greater than 90 days and loans on non-accrual status) totaled $493,000 and $1,116,000 at December 31, 2003 and September 30, 2004, respectively. Although management believes that its allowance for loan losses at September 30, 2004, was adequate based upon the available facts and circumstances, there can be no assurance that additions to such allowance will not be necessary in future periods, which could negatively affect the Corporation's results of operations. Deposits totaled $178.4 million at September 30, 2004, a decrease of $1.6 million, or .9 %, compared to total deposits at December 31, 2003. The lack of growth for the nine-month period resulted from very competitive interest rates in some of our markets and the loss of approximately $6.0 million in public funds deposits. Borrowings totaled $50.0 million at December 31, 2003, and $72.2 million on September 30, 2004. The average cost of borrowings at September 30, 2004 was 3.99%, slightly down from 4.08% at December 31, 2003. Shareholders' equity totaled $22.3 million at September 30, 2004, a decrease of $508,000, or 2.2 % from $22.9 million at December 31, 2003. The decrease resulted primarily from the Corporation's cash dividends and stock repurchases. The Bank is required to maintain minimum regulatory capital pursuant to federal regulations. At September 30, 2004, the Bank's regulatory capital exceeded all applicable regulatory capital requirements. Comparison of Operating Results for the Nine Months Ended September 30, 2004 and 2003 General The Corporation's net income for the nine months ended September 30, 2004, totaled $1,800,000, a decrease of $226,000 or 11.2 % from the $2,026,000 reported for the period ended September 30, 2003. The decrease in income in the 2004 period was primarily attributable to a decrease in gains on loan sales of $1,108,000. The decrease was offset in part by an increase in service fees and charges of $283,000, an increase in net interest income of $405,000 and a decrease in other expenses of $194,000. Net Interest Income Total interest income for the nine months ended September 30, 2004 amounted to $9.8 million, an increase of $399,000, or 4.2%, from the comparable period in 2003, reflecting the effects of an increase in average interest-earning assets outstanding but also a decrease in the average loan rate of approximately 0.31%. Interest expense on deposits decreased by $436,000, or 17.5%, to a total of $2.1 million for the nine months ended September 30, 2004, due primarily to a decrease in the average rate paid on deposits outstanding year-to-year. Interest expense on borrowings totaled $2.0 million for the nine months ended September 30, 2004, an increase of $430,000, from the comparable period in 2003. This increase resulted primarily from an increase in average borrowings year-to-year. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $405,000, or 7.5%, for the nine months ended September 30, 2004, as compared to the same period in 2003. Provision for Losses on Loans 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 Bank, the status of past due principal and interest payment, general economic conditions, particularly as such conditions relate to the Bank's market area, and other factors related to the collectibility of the Bank's loan portfolio. As a result of such 12 analysis, management recorded a $266,000 provision for losses on loans for the nine months ended September 30, 2004, compared to the $360,000 amount recorded in the 2003 period. The 2004 provision amount was predicated on the increase in the balance of the loan portfolio, coupled with the level of delinquent loans year-to-year. While management believes that the allowance for losses on loans is adequate at September 30, 2004, 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. Other Income Other income decreased by $704,000, during the nine months ended September 30, 2004, as compared to the same period in 2003. The decrease was due primarily to a $1,108,000 decrease in gains on sale of loans. This decrease, however, was offset partially by the $283,000 increase in service fees and charges due to new programs and services introduced in late 2003. Other Expense Other expense increased by $194,000, or 4.4%, during the nine months ended September 30, 2004, as compared to the same period in 2003. The increase was due primarily to a $326,000 increase in salaries and benefits and a $238,000 increase in net occupancy and equipment expense resulting from an expanded branch network. These increases were in part offset by a decrease in amortization of mortgage servicing rights which was adjusted each period based on the valuation results. Income Taxes The provision for income taxes totaled $1.1 million for the nine months ended September 30, 2004, a decrease of $173,000, or 13.4%, as compared to the same period in 2003. The effective tax rates were 38.3% and 38.9% for the nine months ended September 30, 2004 and 2003, respectively. Comparison of Operating Results for the Three Months Ended September 30, 2004 and 2003 General The Corporation's net income for the three months ended September 30, 2004, totaled $646,000, a decrease of $104,000, or 13.9% from the $750,000 of net income reported in the comparable 2003 period. The decrease in earnings in the 2004 period was primarily attributable to a decrease in net gains on loan sales of $391,000, offset in part by an increase in service fees and charges of $105,000, an increase in net interest income of $51,000 and a decrease in the provision for loan losses of $108,000. Net Interest Income Total interest income for the three months ended September 30, 2004 amounted to $3.4 million, a increase of $119,000, or 3.6%, from the comparable quarter in 2003, reflecting the effects of an increase in average interest-earning assets outstanding, coupled with a decrease in the yield year-to-year. Interest income on loans totaled $3.2 million for the three months ended September 30, 2004, an increase of $219,000, or 7.3 %, from the comparable quarter in 2003, reflecting the effects of an increase in average balance of loans year-to-year. Interest expense on deposits decreased by $82,000, or 10.6%, to a total of $691,000 for the quarter ended September 30, 2004, due primarily to a decrease in the average rate of deposits outstanding. Interest expense on borrowings totaled $722,000 for the three months ended September 30, 2004, an increase of $150,000 over the comparable quarter in 2003. This increase resulted from an increase in average borrowings outstanding from year-to-year. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $51,000, or 2.6%, for the three months ended September 30, 2004, as compared to the same quarter in 2003. 13 Provision for Losses on Loans A provision for losses on loans is charged to earnings 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 Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Bank's market area, and other factors related to the collectibility of the Bank's loan portfolio. As a result of such analysis, management recorded a $72,000 provision for losses on loan for the three months ended September 30, 2004, compared to the $180,000 recorded in the 2003 period. While management believes that the allowance for losses on loans is adequate at September 30, 2004, 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. Other Income Other income decreased by $289,000, for the three months ended September 30, 2004, as compared to the same period in 2003, due primarily to a decrease in net gains on loan sales. Other Expense Other expenses increased by $11,000, or .7%, during the three months ended September 30, 2004, compared to the same period in 2003. The increase was due primarily to the increase in general expense due to growth. Income Taxes The provision for income taxes totaled $436,000 for the three months ended September 30, 2004, a decrease of $37,000, or 7.8%, as compared to the same period in 2003. This decrease resulted primarily from a decrease in net income before income taxes of $141,000, or 29.8%. The effective tax rates were 40.3% and 38.7% for the three months ended September 30, 2004 and 2003, respectively. Other The Securities and Exchange Commission maintains a Web site that contains reports, proxy information statements, and other information regarding registrants that file electronically with the Commission, including the Corporation. The address is http://www.sec.gov. Item 3. Controls and Procedures. A. Evaluation of disclosure controls and procedures. The Company's chief executive officer and chief financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of regulations promulgated under the Securities Exchange Act of 1934, as amended), as of the end of the most recent fiscal quarter covered by this quarterly report (the "Evaluation Date"), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and are designed to ensure that material information relating to the Company would be made known to such officers by others within the Company on a timely basis. B. Changes in internal controls. There were no significant changes in the Company's internal control over financial reporting identified in connection with the Company's evaluation of controls that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. In connection with the Bank's 2004 examination by the Office of Thrift Supervision (the "OTS"), 14 the OTS uncovered certain failures on the part of the Bank to comply with the Bank Secrecy Act, the Flood Disaster Protection Act(the "FDPA"), the Homeowners' Protection Act and the Truth in Lending Act. The OTS made clear that the Bank had already made substantial corrective actions to improve its compliance programs and systems. Nonetheless, because of the Bank's alleged failure to comply with the FDPA with respect to four loans, the OTS assessed civil monetary penalties against the Bank of $1,400. The Bank executed a Stipulation and Consent to the issuance of a cease and desist order and assessment of the $1,400 in civil money penalties with respect to these matters. Management believes it has now taken all necessary steps to resolve these compliance issues. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Purchases of common stock made by or on behalf of the Corporation during the three months ended September 30, 2004 are set forth below: Total Number of Maximum Number of Total Number Shares Purchased as Shares That May of Shares Average Part of Publicly Yet be Purchased Period Purchased Price Announced Plan Under the Plan - -------------------------------------------------------------------------------- July 2004 6,500 $22.25 6,500 * August 2004 3,500 22.46 3,500 * September 2004 ----- ------ ----- -- * Up to 10 % of total shares outstanding may be repurchased at a given time by the Corporation. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits. Exhibit 10 Employment Agreement between River Valley Financial Bank and Gregory T. Siegrist Exhibit 31(1) CEO Certification required by 17 C.F.R. Section 240.13a-14(a) Exhibit 31(2) CFO Certification required by 17 C.F.R. Section 240.13a-14(a) Exhibit 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RIVER VALLEY BANCORP Date: November 15, 2004 By: /s/ Matthew P. Forrester ---------------------------------------- Matthew P. Forrester President and Chief Executive Officer Date: November 15, 2004 By: /s/ Larry C. Fouse ---------------------------------------- Larry C. Fouse Vice President of Finance 16 EX-10 2 rvb_10qnov10.txt 10 - GREGORY T. SIEGRIST EMPLOYMENT AGREEMENT Exhibit 10 EMPLOYMENT AGREEMENT THIS AGREEMENT entered into this 23rd day of April, 2004, by and between River Valley Financial Bank, a federal savings bank (the "Bank"), and Gregory T. Siegrist (the "Employee"). The parties agree, however, that the "Effective Date" of this Agreement shall be April 5, 2004. WHEREAS, the Employee is being employed by the Bank as a Vice President and as such will perform valuable services for the Bank; and WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee to his assigned duties; and WHEREAS, the parties desire by this writing to set forth the continuing employment relationship of the Bank and the Employee. NOW, THEREFORE, it is AGREED as follows: 1. Employment. The Employee is employed as a Vice President of the Bank. The Employee shall render such administrative and management services for the Bank as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Employee shall also promote, by entertainment or otherwise, as and to the extent permitted by law, the business of the Bank. The Employee's other duties shall be such as the Board of Directors (the "Board") of the Bank may from time to time reasonably direct, including normal duties as an officer of the Bank. 2. Base Compensation. The Bank agrees to pay the Employee during the term of this Agreement a salary at the rate of $65,000 per annum, payable in cash not less frequently than monthly, and shall be effective and calculated commencing the Effective Date. The salary shall be reviewed annually by the Board of Directors of the Bank in January of each year commencing January of 2005 and any adjustment in the future on salary shall be effective on January 1st of each year. 3. Bonuses. The Employee shall participate in any year end bonus granted to other employees by the Board. The Employee shall further participate in an equitable manner with all other senior management employees of the Bank in discretionary bonuses that the Board may award from time to time to the Bank's senior management employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such discretionary bonuses. 4. Benefits. (a) Participation in Retirement, Medical and Other Plans. During the term of this Agreement, the Employee shall be eligible to participate in the following benefit plans: group hospitalization, disability, health, dental, sick leave, retirement, pension, and/or other present or future qualified plans provided by the Bank, generally, which benefits, taken as a whole, must be at least as favorable as those in effect on the Effective Date, unless the continued operation of such plans would adversely affect the Bank's operating results or financial condition in a material way, the Bank's Board of Directors concludes that modifications to such plans are necessary to avoid such adverse effects and such modifications apply consistently to all employees of the Bank. (b) Employee Benefits; Expenses. The Employee shall be eligible to participate in any fringe benefits which are or may become available to the Bank's senior management employees, including, for example, any stock option or incentive compensation plans, and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket business expenses which he shall incur in connection with his services under this Agreement, upon substantiation of such expenses in accordance with the policies of the Bank. 5. Term. The Bank hereby employs the Employee, and the Employee hereby accepts such employment under this Agreement, for the period commencing on the Effective Date and ending thirty six months thereafter (or such earlier date as is determined in accordance with Section 9). 6. Loyalty; Noncompetition. (a) During the period of his employment hereunder and except for illnesses, reasonable vacation periods, and reasonable leaves of absence, the Employee shall devote all his full business time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, from time to time, the Employee may serve on the Boards of Directors of, and hold any other offices or positions in, companies or organizations, which will not present any conflict of interest with the Bank or any of its subsidiaries or affiliates, or unfavorably affect the performance of Employee's duties pursuant to this Agreement, or will not violate any applicable statute or regulation. "Full business time" is hereby defined as that amount of time usually devoted to like companies by similarly situated officers. During the term of his employment under this Agreement, the Employee shall not engage in any business or activity contrary to the business affairs or interests of the Bank, or be gainfully employed in any other position or job other than as provided above. (b) Nothing contained in this Paragraph 6 shall be deemed to prevent or limit the Employee's right to invest in the capital stock or other securities of any business dissimilar from that of the Bank, or, solely as a passive or minority investor, in any business. Also, nothing noted in paragraph 6 would preclude the Employee from investing in or participating in real estate ventures that may or may not be financed by the Bank. 2 7. Standards. The Employee shall perform his duties under this Agreement in accordance with such reasonable standards as the Board may establish from time to time. The Bank will provide Employee with the working facilities and staff customary for similar executives and necessary for him to perform his duties. 8. Vacation, Sick Leave and Disability. The Employee shall be entitled to fifteen days vacation annually and shall be entitled to the same sick leave and disability leave as other employees of the Bank. The Employee shall not receive any additional compensation from the Bank on account of his failure to take a vacation or sick leave, and the Employee shall not accumulate unused vacation or sick leave from one fiscal year to the next, except in either case to the extent authorized by the Board. In addition to the aforesaid paid vacations, the Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment with the Bank for such additional periods of time and for such valid and legitimate reasons as the Board may in its discretion determine. Further, the Board may grant to the Employee a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as such Board in its discretion may determine. 9. Termination and Termination Pay. Subject to Section 11 hereof, the Employee's employment hereunder may be terminated under the following circumstances: (a) Death. The Employee's employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the calendar month in which his death occurred. (b) Disability. (i) The Bank may terminate the Employee's employment, should the Employee become disabled, in a manner consistent with the Bank's and the Employee's rights and obligations under the Americans With Disabilities Act or other applicable state and federal laws concerning disability. For the purpose of this Agreement, "Disability" means a physical or mental condition which substantially limits the employee's ability to perform the essential functions of his position, as established by this Agreement, and which results in the Employee becoming eligible for long-term disability benefits under the Bank's long-term disability plan. (ii) During any period that the Employee shall receive disability benefits and to the extent that the Employee shall be physically and mentally able to do so, he shall furnish such information, assistance and documents so as to assist in the continued ongoing business of the Bank and, if able, shall make himself available to the Bank to undertake reasonable assignments consistent with his prior position and his physical and mental health. The Bank shall pay all 3 reasonable expenses incident to the performance of any assignment given to the Employee during the disability period. (c) Just Cause. The Board may, by written notice to the Employee, immediately terminate his employment at any time, for Just Cause. The Employee shall have no right to receive compensation or other benefits for any period after termination for Just Cause. Termination for "Just Cause" shall mean termination because of, in the good faith determination of the Board, the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. Notwithstanding the foregoing, in the event of termination for Just Cause there shall be delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), such meeting and the opportunity to be heard to be held at least 30 days prior to such termination, finding that in the good faith opinion of the Board the Employee was guilty of conduct set forth above in the second sentence of this Subsection (c) and specifying the particulars thereof in detail. (d) Without Just Cause; Constructive Discharge. (i) The Board may, by written notice to the Employee, immediately terminate his employment at any time for a reason other than Just Cause, in which event the Employee shall be entitled to receive the following compensation and benefits (unless such termination occurs within the time period set forth in Section 11(b) hereof, in which event the benefits and compensation provided for in Section 11 shall apply): (i) the salary provided pursuant to Section 2 hereof, up to the date of termination of the term as provided in Section 5 hereof (including any renewal term) of this Agreement (the "Expiration Date"), and (ii) at the Employee's election, either (A) cash in an amount equal to the cost to the Employee of obtaining all health, life, disability and other benefits (excluding stock options) which the Employee would have been eligible to participate in through the Expiration Date, based upon the benefit levels substantially equal to those that the Bank provided for the Employee at the date of termination of employment, or (B) continued participation under such Bank benefit plans through the Expiration Date, but only to the extent the Employee continues to qualify for participation therein. All amounts payable to the Employee shall be paid, at the option of the Employee, either (I) in periodic payments through the Expiration Date, or (II) in one lump sum within ten (10) days of such termination. (ii) The Employee may voluntarily terminate his employment under this Agreement, and the Employee shall thereupon be entitled to receive the compensation and benefits payable under Section 9(d)(1) hereof, within ninety (90) days following the occurrence of any of the following events, which has not 4 been consented to in advance by the Employee in writing (unless such voluntary termination occurs within the time period set forth in Section 11(b) hereof, in which event the benefits and compensation provided for in Section 11 shall apply): (i) the requirement that the Employee move his personal residence, or perform his principal executive functions, more than thirty (30) miles from his primary office; (ii) a material reduction in the Employee's base compensation, unless part of an institution-wide reduction; (iii) the failure by the Bank to continue to provide the Employee with compensation and benefits provided for under this Agreement, as the same may be increased from time to time, or with benefits substantially similar to those provided to him under any of the employee benefit plans in which the Employee now or hereafter becomes a participant, or the taking of any action by the Bank which would directly or indirectly reduce any of such benefits or deprive the Employee of any material fringe benefit enjoyed by him, unless part of an institution-wide reduction; (iv) the assignment to the Employee of duties and responsibilities materially different from those normally associated with his position as referenced in Section 1; or (v) a material diminution or reduction in the Employee's responsibilities or authority (including reporting responsibilities) in connection with his employment with the Bank. (iii) Notwithstanding the foregoing, but only to the extent required under federal banking law, the amount payable under clause (d)(1)(i) hereof shall be reduced to the extent that on the date of the Employee's termination of employment, the present value of the benefits payable under clauses (d)(1)(i) and (ii) hereof exceeds the limitation on severance benefits that is set forth in Regulatory Bulletin 27a of the Office of Thrift Supervision, as in effect on the Effective Date. In the event that Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), becomes applicable to payments made under this Section 9(d), and the payments exceed the "Maximum Amount" as defined in Section 11(a)(1) hereof, the payments shall be reduced as provided by Section 11(a)(2) of this Agreement. (e) Termination or Suspension Under Federal Law. (i) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate, as of the effective date of the order, but vested rights of the parties shall not be affected. (ii) If the Bank is in default (as defined in Section 3(x)(1) of FDIA), all obligations under this Agreement shall terminate as of the date of default; however, this Paragraph shall not affect the vested rights of the parties. (iii) All obligations under this Agreement shall terminate, except to the extent determined that continuation of this Agreement is necessary for the 5 continued operation of the Bank; (i) by the Director of the Office of Thrift Supervision ("Director of OTS"), or his or her designee, at the time that the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her designee, at the time that the Director of the OTS, or his or her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition. Such action shall not affect any vested rights of the parties. (iv) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) or (g)(1) suspends and/or temporarily prohibits the Employee from participating in the conduct of the Bank's affairs, the Bank's obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. (f) Voluntary Termination by Employee. Subject to Section 11 hereof, the Employee may voluntarily terminate employment with the Bank during the term of this Agreement, upon at least ninety (90) days' prior written notice to the Board of Directors, in which case the Employee shall receive only his compensation, vested rights and employee benefits up to the date of his termination (unless such termination occurs pursuant to Section 9(d)(2) hereof, in which event the benefits and compensation provided for in section 9(d) shall apply). 10. No Mitigation. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Employee in any subsequent employment. 11. Change in Control. (a) Change in Control; Involuntary Termination. (i) Notwithstanding any provision herein to the contrary, if the Employee's employment under this Agreement is terminated by the Bank, without the Employee's prior written consent and for a reason other than Just Cause, in connection with or within twelve (12) months after any Change in Control of the Bank, the Employee shall, subject to paragraph (2) of this Section 11(a), be paid an amount equal to the difference between (i) the product of 2.99 times his "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder (the "Maximum Amount"), and (ii) the sum of any other parachute payments (as defined under Section 280G(b)(2) of the Code) that the Employee receives on account of the Change in Control. Said sum 6 shall be paid in one lump sum within ten (10) days of such termination. This paragraph would not apply to a termination of employment due to death, disability or voluntary termination by the Employee. (ii) In the event that the Employee and the Bank jointly determine and agree that the total parachute payments receivable under clauses (i) and (ii) of Section 11(a)(1) hereof exceed the Maximum Amount, notwithstanding the payment procedure set forth in Section 11(a)(1) hereof, the Employee shall determine which and how much, if any, of the parachute payments to which he is entitled shall be eliminated or reduced so that the total parachute payments to be received by the Employee do not exceed the Maximum Amount. If the Employee does not make his determination within ten business days after receiving a written request from the Bank, the Bank may make such determination, and shall notify the Employee promptly thereof. Within five business days of the earlier of the Bank's receipt of the Employee's determination pursuant to this paragraph or the Bank's determination in lieu of a determination by the Employee, the Bank shall pay to or distribute to or for the benefit of the Employee such amounts as are then due the Employee under this Agreement. (iii) As a result of uncertainty in application of Section 280G of the Code at the time of payment hereunder, it is possible that such payments will have been made by the Bank which should not have been made ("Overpayment") or that additional payments will not have been made by the Bank which should have been made ("Underpayment"), in each case, consistent with the calculations required to be made under Section 11(a)(1) hereof. In the event that the Employee, based upon the assertion by the Internal Revenue Service against the Employee of a deficiency which the Employee believes has a high probability of success, determines that an Overpayment has been made, any such Overpayment paid or distributed by the Bank to or for the benefit of Employee shall be treated for all purposes as a loan ab initio which the Employee shall repay to the Bank together with interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Employee to the Bank if and to the extent such deemed loan and payment would not either reduce the amount on which the Employee is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Employee and the Bank determine, based upon controlling precedent or other substantial authority, that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Bank to or for the benefit of the Employee together with interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code. (iv) A "Change in Control" shall be deemed to have occurred if: 1) as a result of, or in connection with, any public offering, tender offer or exchange offer, merger or other business combination, sale 7 of assets or contested election, any combination of the foregoing transactions, or any similar transaction, the persons who were non-employee directors of the Bank or a holding company controlling the Bank before such transaction (the "Continuing Directors") cease to constitute a majority of the Board of Directors of the Bank or such holding company or any successor thereof; 2) the Bank or a holding company controlling the Bank transfers substantially all of its assets to another corporation which is not a wholly owned subsidiary of the Bank or such holding company; 3) the Bank or a holding company controlling the Bank sells substantially all of the assets of a subsidiary or affiliate which, at the time of such sale, is the principal employer of the Employee; or 4) the Bank or a holding company controlling the Bank is merged or consolidated with another corporation and, as a result of the merger or consolidation, less than fifty one percent (51%) of the outstanding voting securities of the surviving or resulting corporation is owned in the aggregate by the former stockholders of the Bank or of such holding company controlling the Bank. Notwithstanding the foregoing, but only to the extent required under federal banking law, the amount payable under Subsection(a) of this Section 11 shall be reduced to the extent that on the date of the Employee's termination of employment, the amount payable under Subsection(a) of this Section 11 exceeds the limitation on severance benefits that is set forth in Regulatory Bulletin 27a of the Office of Thrift Supervision, as in effect on the Effective Date. (b) Change in Control; Voluntary Termination. Notwithstanding any other provision of this Agreement to the contrary, but subject to Section 11(a)(2) hereof, the Employee may voluntarily terminate his employment under this Agreement within twelve (12) months following a Change in Control of the Bank, as defined in paragraph (a)(4) of this Section 11, and the Employee shall thereupon be entitled to receive the payment described in Section 11(a)(1) of this Agreement, within ninety (90) days following the occurrence of any of the following events, which has not been consented to in advance by the Employee in writing; (i) the requirement that the Employee perform his principal executive functions more than thirty (30) miles from his primary office as of the date of the Change in Control; (ii) a material reduction in the Employee's base compensation as in effect on the date of the Change in Control or as the same may be changed by mutual agreement from time to time, unless part of an institution-wide reduction; (iii) the failure by the Bank to continue to provide the Employee with compensation and benefits provided for under this Agreement, as the same may be increased from time to time, or with benefits substantially similar to those provided to him under any employee benefit in which the Employee is a participant at the time of the Change in Control, or the taking of any action which would materially reduce any of such benefits or deprive the Employee of any material fringe benefit enjoyed by him at the time of the Change in Control, unless 8 part of an institution-wide reduction; (iv) the assignment to the Employee of duties and responsibilities materially different from those normally associated with his position as referenced at Section 1; or (v) a material diminution or reduction in the Employee's responsibilities or authority (including reporting responsibilities) in connection with his employment with the Bank. (c) Compliance with 12 U.S.C. Section 1828(k). Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder. (d) Trust. (i) Within five business days before or after a Change in Control as defined in Section 11(a) of this Agreement which was not approved in advance by a resolution of a majority of the Continuing Directors of the Bank, the Bank shall (i) deposit, or cause to be deposited, in a grantor trust (the "Trust"), designed to conform with Revenue Procedure 93-64 (or any successor) and having a trustee independent of the Bank, an amount equal to 2.99 times the Employee's "base amount" as defined in Section 280G(b)(3) of the Code, and (ii) provide the trustee of the Trust with a written direction to hold said amount and any investment return thereon in a segregated account for the benefit of the Employee, and to follow the procedures set forth in the next paragraph as to the payment of such amounts from the Trust. (ii) During the twelve (12) consecutive month period following the date on which the Bank makes the deposit referred to in the preceding paragraph, the Employee may provide the trustee of the Trust with a written notice requesting that the trustee pay to the Employee an amount designated in the notice as being payable pursuant to Section 11(a) or (b). Within three business days after receiving said notice, the trustee of the Trust shall send a copy of the notice to the Bank via overnight and registered mail, return receipt requested. On the tenth (10th) business day after mailing said notice to the association, the trustee of the Trust shall pay the Employee the amount designated therein in immediately available funds, unless prior thereto the Bank provides the trustee with a written notice directing the trustee to withhold such payment. In the latter event, the trustee shall submit the dispute to non-appealable binding arbitration for a determination of the amount payable to the Employee pursuant to Section 11(a) or (b) hereof, and the party responsible for the payment of the costs of such arbitration (which may include any reasonable legal fees and expenses incurred by the Employee) shall be determined by the arbitrator. The trustee shall choose the arbitrator to settle the dispute, and such arbitrator shall be bound by the rules of the American Arbitration Association in making his or her determination. The parties and the trustee shall be bound by the results of the arbitration and, within 3 days of the determination by the arbitrator, the trustee shall pay from the Trust the amounts required to be paid to the Employee and/or the Bank, and in no event 9 shall the trustee be liable to either party for making the payments as determined by the arbitrator. (iii) Upon the earlier of (i) any payment from the Trust to the Employee, or (ii) the date twelve (12) months after the date on which the Bank makes the deposit referred to in the first paragraph of this subsection (d)(1), the trustee of the Trust shall pay to the Bank the entire balance remaining in the segregated account maintained for the benefit of the Employee. The Employee shall thereafter have no further interest in the Trust pursuant to this Agreement. (e) In the event that any dispute arises between the Employee and the Bank as to the terms or interpretation of this Agreement, including this Section 11, whether instituted by formal legal proceedings or otherwise, including any action that the Employee takes to enforce the terms of this Section 11 or to defend against any action taken by the Bank, the Employee shall be reimbursed for all costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, provided that the Employee shall obtain a final judgment by a court of competent jurisdiction in favor of the Employee. Such reimbursement shall be paid within ten (10) days of Employee's furnishing to the Bank written evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by the Employee. Should the Employee fail to obtain a final judgment in favor of the Employee and a final judgment is entered in favor of the Bank, then the Bank shall be reimbursed for all costs and expenses, including reasonable Attorneys' fees arising from such dispute, proceedings or actions. Such reimbursement shall be paid within ten (10) days of the Bank furnishing to the Employee written evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by the Bank. 10 12. Stock Options. Employer will permit Employee or his personal representative(s) or heirs, during a period of three months following Employee's termination of employment by Employer for the reasons set forth in Subsections 9(d) or 11(a), if such termination follows a Change of Control, to require Employer, upon written request, to purchase all outstanding stock options previously granted to Employee under any stock option plan then in effect to the extent the options are vested at a cash purchase price equal to the amount by which the aggregate "fair market value" of the shares subject to such options exceeds the aggregate option price for such shares. For purposes of this Agreement, the term "fair market value" shall mean the higher of (1) the average of the highest asked prices for shares in the over-the-counter market as reported on the NASDAQ system or other exchange if the shares are traded on such system for the 30 business days preceding such termination, or (2) the average per share price actually paid for the most highly priced 1% of the shares acquired in connection with the Change of Control by any person or group acquiring such control. 13. Federal Income Tax Withholding. The Bank may withhold all federal and state income or other taxes from any benefit payable under this Agreement as shall be required pursuant to any law or government regulation or ruling. 14. Successors and Assigns. (a) Bank. This Agreement shall not be assignable by the Bank, provided that this Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank. (b) Employee. Since the Bank is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank; provided, however, that nothing in this paragraph shall preclude (i) the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death, or (ii) the executors, administrators, or other legal representatives of the Employee or his estate from assigning any rights hereunder to the person or persons entitled thereunto. (c) Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 11 15. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 16. Applicable Law. Except to the extent preempted by federal law, the laws of the State of Indiana shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 17. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 18. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto and supersedes any other agreement between the parties hereto relating to the employment of the Employee IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written. ATTEST: RIVER VALLEY FINANCIAL BANK By: /s/ Lonnie D. Collins By: /s/ Matthew P. Forrester ------------------------------- ----------------------------------- Lonnie D. Collins, Secretary Matthew P. Forrester, President /s/ Gregory T. Siegrist -------------------------------------- Gregory T. Siegrist The undersigned, River Valley Bancorp, sole shareholder of Bank, agrees that if it shall be determined for any reason that any obligation on the part of Bank to continue to make any payments due under this Agreement to Employee is unenforceable for any reason, River Valley Bancorp agrees to honor the terms of this Agreement and continue to make any such payments due hereunder to Employee or to satisfy any such obligation pursuant to the terms of this Agreement, as though it were the Bank hereunder. RIVER VALLEY BANCORP By: /s/ Matthew P. Forrester -------------------------------------- Matthew P. Forrester, President 12 EX-31 3 rvb_10qnov311.txt 31.1 - CEO 302 CERTIFICATION Exhibit 31(1) CERTIFICATION I, Matthew P. Forrester, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of River Valley Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. November 15, 2004 /s/ Matthew P. Forrester ------------------------------------------------ Matthew P. Forrester President and Chief Executive Officer EX-31 4 rvb_10qnov312.txt 31.2 - CFO 302 CERTIFICATION EXHIBIT 31(2) CERTIFICATION I, Larry C. Fouse, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of River Valley Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 15, 2004 /s/ Larry C. Fouse ------------------------------ Larry C. Fouse Vice President of Finance EX-32 5 rvb_10qnov32.txt 32 - SECTION 906 CERTIFICATION EXHIBIT 32 CERTIFICATION By signing below, each of the undersigned officers hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge, (i) this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of River Valley Bancorp. Signed this 15th day of November 2004. /s/ Matthew P. Forrester /s/ Larry C. Fouse - ------------------------------------- ------------------------------------- Matthew P. Forrester Larry C. Fouse President and Chief Executive Officer Vice President of Finance A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to City Savings Financial Corporation and will be retained by City Savings Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----