FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-------------------------------------
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 2-47541
RIVER VALLEY BANCORP
(Exact name of registrant as specified in its charter)
Indiana 35-1984567
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 Clifty Drive
Madison, Indiana 47250
- ------------------------------------ --------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (812) 273-4949
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
As of November 7, 1997, the latest practicable date 1,190,250 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 18 pages
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River Valley Bancorp
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, December 31,
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks $ 3,150 $ 4,209
Federal funds sold 300 -
Interest bearing deposits in other financial institutions 954 4,476
---------- ---------
Cash and cash equivalents 4,404 8,685
Certificates of deposit in other financial institutions 896 100
Investment securities designated as available for sale - at market 767 3,448
Investment securities - at amortized cost, approximate market value of
$3,467 and $5,434 as of September 30, 1997 and December 31, 1996 3,500 5,500
Mortgage-backed securities designated as available for sale - at market 4,385 5,041
Mortgage-backed and related securities - at cost, approximate market
value of $6,087 and $7,794 as of September 30, 1997 and December 31, 1996 6,096 7,805
Loans receivable - net 112,525 107,918
Loans held for sale - at lower of cost or market - 1,076
Office premises and equipment - at depreciated cost 1,812 2,057
Real estate acquired through foreclosure 82 -
Federal Home Loan Bank stock - at cost 943 943
Federal Reserve Bank stock - at cost 144 80
Accrued interest receivable on loans 978 819
Accrued interest receivable on mortgage-backed securities 62 78
Accrued interest receivable on investments and interest-earning deposits 56 171
Goodwill, net of accumulated amortization 252 272
Cash surrender value of life insurance 773 747
Prepaid expenses and other assets 94 169
Prepaid federal income taxes 39 4
Deferred tax asset 653 628
---------- ----------
Total assets $138,461 $145,541
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $115,676 $125,656
Advances from the Federal Home Loan Bank 3,000 1,100
Advances by borrowers for taxes and insurance 74 70
Accrued interest payable 238 279
Other liabilities 1,634 1,422
Dividends payable 48 -
Minority interest in consolidated subsidiary 180 209
---------- ----------
Total liabilities 120,850 128,736
Stockholders' equity
Preferred stock - 2,000,000 shares without par value
authorized; no shares issued - -
Common stock - 5,000,000 shares without par value authorized;
1,190,250 shares issued and outstanding - -
Additional paid in capital 11,173 11,173
Retained earnings - substantially restricted 7,520 6,635
Shares acquired by stock benefit plans (1,033) (952)
Unrealized losses on securities designated as available for sale,
net of related tax effects (49) (51)
----------- -----------
Total stockholders' equity 17,611 16,805
-------- --------
Total liabilities and stockholders' equity $138,461 $145,541
======= =======
</TABLE>
3
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River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Nine months ended Three months ended
September 30, September 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Interest income
Loans $6,834 $3,364 $2,347 $1,113
Mortgage-backed and related securities 564 424 180 133
Investment securities 220 426 64 135
Interest-earning deposits and other 261 136 65 27
------ ------ ------- -------
Total interest income 7,879 4,350 2,656 1,408
Interest expense
Deposits 3,654 2,492 1,203 801
Borrowings 93 47 59 3
------- ------- ------- --------
Total interest expense 3,747 2,539 1,262 804
----- ----- ----- ------
Net interest income 4,132 1,811 1,394 604
Provision for losses on loans 238 18 68 6
------ ------- ------- --------
Net interest income after provision for losses on loans 3,894 1,793 1,326 598
Other income
Insurance commissions 10 156 3 52
Loss on sale of investment and mortgage-backed securities (4) - (7) -
Gain on sale of loans 73 - 59 -
Gain (loss) on sale of office premises and equipment 202 - (1) -
Service fees, charges and other operating 589 172 192 75
------ ------ ------ -------
Total other income 870 328 246 127
General, administrative and other expense
Employee compensation and benefits 1,663 890 581 298
Occupancy and equipment 376 142 128 44
Federal deposit insurance premiums 27 637 12 549
Amortization of goodwill 20 5 6 1
Data processing 189 206 56 65
Other operating 849 274 281 90
------ ------ ------ -------
Total general, administrative and other expense 3,124 2,154 1,064 1,047
----- ----- ----- -----
Earnings (loss) before income taxes (credits) 1,640 (33) 508 (322)
Income taxes (credits)
Current 685 58 197 (90)
Deferred (25) (68) (4) (28)
------- ------- -------- -------
Total income taxes (credits) 660 (10) 193 (118)
------ ------- ------ ------
NET EARNINGS (LOSS) $ 980 $ (23) $ 315 $ (204)
====== ======= ====== ======
EARNINGS PER SHARE $.90 N/A $.29 N/A
=== === === ===
</TABLE>
4
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(In thousands)
<S> <C> <C>
1997 1996
Cash flows from operating activities:
Net earnings (loss) for the period $ 980 $ (23)
Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:
Amortization of premiums and discounts on investments and
mortgage-backed securities - net (5) (2)
Loss on sale of investment and mortgage-backed securities designated
as available for sale 4 -
Loans originated for sale in the secondary market (5,415) -
Proceeds from sale of loans in the secondary market 6,521 -
Gain on sale of loans (30) -
Amortization of deferred loan origination costs 5 11
Provision for losses on loans 238 18
Depreciation and amortization 147 41
Amortization of goodwill 20 5
Gain on sale of office premises and equipment (202) -
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (159) 35
Accrued interest receivable on mortgage-backed securities 16 8
Accrued interest receivable on investments and interest-bearing deposits 115 145
Prepaid expenses and other assets 77 (331)
Accrued interest payable (41) 9
Other liabilities 231 581
Income taxes
Current (35) (40)
Deferred (25) (68)
--------- ---------
Net cash provided by operating activities 2,442 389
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 2,000 3,500
Proceeds from sale of investment securities designated as available for sale 2,698 -
Proceeds from sale of mortgage-backed securities designated as available for sale 1,473 -
Purchase of mortgage-backed securities (1,010) -
Principal repayments on mortgage-backed securities 1,886 1,686
Loan principal repayments 24,034 13,301
Loan disbursements (28,966) (14,110)
Purchase of Federal Reserve Bank stock (64) -
Purchase of office equipment (107) -
Proceeds from sale of office premises and equipment 407 -
(Increase) decrease in certificates of deposit in other financial institutions - net (796) 200
Purchase of single premium life insurance - (188)
Increase in cash surrender value of life insurance (26) (18)
--------- ---------
Net cash provided by investing activities 1,529 4,371
------- -------
Net cash provided by operating and investing
activities (subtotal carried forward) 3,971 4,760
------- -------
</TABLE>
5
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<TABLE>
River Valley Bancorp
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(In thousands)
<S> <C> <C>
1997 1996
Net cash provided by operating and investing
activities (subtotal brought forward) $3,971 $4,760
Cash flows provided by (used in) financing activities:
Increase (decrease) in deposit accounts (9,980) 1,595
Proceeds from Federal Home Loan Bank advances 5,000 -
Repayment of Federal Home Loan Bank advances (3,100) (4,471)
Advances by borrowers for taxes and insurance 4 20
Dividends on common stock (95) -
Purchase of shares for stock benefit plans (81) -
------- ----
Net cash used in financing activities (8,252) (2,856)
----- -----
Net increase (decrease) in cash and cash equivalents (4,281) 1,904
Cash and cash equivalents at beginning of period 8,685 2,389
----- -----
Cash and cash equivalents at end of period $4,404 $4,293
===== =====
Supplemental disclosure of cash flow information: Cash paid during the year for:
Federal income taxes $ 438 $ 84
====== =======
Interest on deposits and borrowings $3,788 $2,530
===== =====
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ 82 $ -
======= ====
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 2 $ 62
======== ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 122 $ 43 $ -
======= ====
</TABLE>
6
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 5, 1996, the Board of Directors of Madison First Federal Savings and
Loan Association ("First Federal") adopted an overall plan of conversion and
reorganization (the "Plan") whereby First Federal would convert to the stock
form of ownership, followed by the issuance of all of First Federal's
outstanding stock to a newly formed holding company, River Valley Bancorp
("River Valley" or the "Corporation"). Pursuant to the Plan, the Corporation
offered for sale up to 1,190,250 common shares to certain depositors of First
Federal and members of the community. The conversion was completed on December
20, 1996, and resulted in the issuance of 1,190,250 common shares of the
Corporation which, after consideration of offering and acquisition expenses
totaling approximately $730,000, and shares purchased by the ESOP totaling
$952,000, resulted in net capital proceeds of $10.2 million. The financial
statements included herein for periods prior to December 20, 1996, are those of
First Federal prior to the conversion to stock form.
In connection with the Conversion, River Valley acquired 95.6% of the
outstanding stock of Citizens National Bank of Madison (the "Bank" or
"Citizens") for $3.1 million. This acquisition was accounted for using the
purchase method of accounting and as such, the September 30, 1996, financial
statements presented herein have not been restated for this acquisition.
The Corporation is a financial institution holding company whose activities are
primarily limited to holding the stock of First Federal and the Bank
(collectively, "the Institutions"). The Institutions conduct 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. The Institutions' 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 First Federal and the Bank can be significantly influenced
by a number of competitive factors, such as governmental monetary policy, that
are outside of management's control.
1. Basis of Presentation
The accompanying unaudited 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, 1996. 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, 1997 and
1996 are not necessarily indicative of the results which may be expected for an
entire year.
7
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries, the Bank and First Federal and its subsidiary, Madison
First Service Corporation ("First Service"). All significant intercompany
balances and transactions have been eliminated in the accompanying consolidated
financial statements.
3. Effect of Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and reporting
standards for stock-based compensation plans. SFAS No. 123 encourages all
entities to adopt a new method of accounting to measure compensation cost of all
stock compensation plans based on the estimated fair value of the award at the
financial statement date. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense recognition
for most plans. Companies that elect to remain with the existing accounting are
required to disclose in a footnote to the financial statements pro forma net
earnings and, if presented, earnings per share, as if SFAS No. 123 had been
adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into during fiscal years that begin after December 15,
1995, although companies are required to disclose information for awards granted
in their first fiscal year beginning after December 15, 1994. Management has
determined that the Corporation will continue to account for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25, and
therefore the disclosure provisions of SFAS No. 123 have no effect on
consolidated financial position or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights, and Extinguishment of Liabilities", that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, referred to
as the financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse.
8
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effect of Recent Accounting Pronouncements (continued)
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on River Valley's consolidated financial position or results of
operations.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which is
effective for financial statements for periods ending after December 15, 1997,
including interim periods. SFAS No. 128 simplifies the calculation of earnings
per share by replacing primary EPS with basic EPS. It also requires dual
presentation of basic EPS and diluted EPS for entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in earnings, such as stock options, warrants or
other common stock equivalents. All prior period EPS data will be restated to
conform with the new presentation. SFAS No. 128 is not expected to have a
material impact on the Corporation's financial statements.
In February 1997, the FASB issued SFAS No. 129, "Disclosures of Information
about Capital Structure." SFAS No. 129 consolidated existing accounting guidance
relating to disclosure about a company's capital structure. SFAS No. 129 is
effective for financial statements for periods ending after December 15, 1997.
SFAS No. 129 is not expected to have a material impact on the Corporation's
financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
9
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River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effect of Recent Accounting Pronouncements (continued)
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on the Corporation's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 is not expected to have a material impact on the
Corporation's financial statements.
4. Earnings Per Share
Earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares deemed outstanding,
which gives effect to 95,220 unallocated ESOP shares, totaled 1,095,050 for each
of the three and nine month periods ended September 30, 1997. The provisions of
Accounting Principles Board Opinion No. 15, "Earnings Per Share", is not
applicable for the three and nine months ended September 30, 1997, as the
Corporation completed its conversion to stock form in December 1996.
5. Reclassifications
Certain reclassifications have been made to the 1996 consolidated financial
statements to conform to the September 30, 1997 presentation.
6. Proposed Legislation
Congress is considering legislation to eliminate the federal savings and loan
charter and separate federal regulation of savings and loan associations.
Pursuant to such legislation, Congress may develop a common charter for all
financial institutions, eliminate the OTS and regulate First Federal as a bank
or require it to change its charter to that of a national bank. Management does
not believe the pending legislation would have a material effect on the
financial statements of the Corporation.
10
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 1997 and 1996
Forward-Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Corporation's operations and the Corporation's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, legislative changes with respect to the federal thrift
charter and the effect of certain accounting pronouncements.
Discussion of Financial Condition Changes from December 31, 1996 to
September 30, 1997
At September 30, 1997, River Valley's consolidated assets totaled $138.5
million, a decrease of $7.1 million, or 4.9%, from the December 31, 1996 total
of $145.5 million. The decrease in assets resulted primarily from a decrease in
the deposit portfolio of $10.0 million, which was partially offset by an
increase in advances from the Federal Home Loan Bank of $1.9 million and
undistributed net earnings of $885,000.
Liquid assets (i.e., cash, federal funds sold, interest-earning deposits and
certificates of deposit) decreased by $3.5 million from December 31, 1996 levels
to a total of $5.3 million at September 30, 1997. Investment securities totaled
$4.3 million at September 30, 1997, a decrease of $4.7 million, or 52.3%, from
December 31, 1996 levels. During the nine month period ended September 30, 1997,
maturities of investment securities totaled $2.0 million, while sales of
investment securities designated as available for sale totaled $2.7 million.
Mortgage-backed securities decreased by $2.4 million, or 18.4%, to a total of
$10.5 million at September 30, 1997, primarily due to principal repayments of
$1.9 million and sales of mortgage-backed securities designated as available for
sale of $1.5 million.
The decrease in liquid assets, investments and mortgage-backed securities
resulted from the utilization of these assets to fund loan originations and the
sale of deposits related to the disposition of the Hanover, Indiana branch which
was consummated in February 1997.
Loans receivable, including loans held for sale, totaled $112.5 million at
September 30, 1997, an increase of $3.5 million, or 3.2%, over the $109.0
million total at December 31, 1996. The increase resulted primarily from loan
originations during the period of $34.4 million, which were partially offset by
principal repayments of $24.0 million and sales of $6.5 million.
The Corporation's consolidated allowance for loan losses totaled $1.2 million
and $1.1 million at September 30, 1997 and December 31, 1996, respectively,
which represented 1.1% and 1.0% of total loans at those dates. Nonperforming
loans (defined as loans delinquent greater than 90 days and loans on nonaccrual
status) totaled $897,000 and $819,000 at September 30, 1997 and December 31,
1996, respectively.
11
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Discussion of Financial Condition Changes from December 31, 1996 to September
30, 1997 (continued)
Although management believes that its allowance for loan losses at September 30,
1997 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 decreased by $10.0 million, or 7.9%, to a total of $115.7 million,
compared to the $125.7 million total at December 31, 1996. The decline can be
attributed primarily to $6.8 million of deposits sold in conjunction with the
aforementioned sale of First Federal's Hanover branch.
Advances from the Federal Home Loan Bank totaled $3.0 million at September 30,
1997, an increase of $1.9 million, or 172.7%, over the $1.1 million total at
December 31, 1996. The increase was due to current period borrowings of $5.0
million, offset by repayments of $3.1 million. The borrowings were deployed
primarily into loan originations.
Stockholders' equity totaled $17.6 million at September 30, 1997, an increase of
$806,000, or 4.8%, over the $16.8 million total at December 31, 1996. The
increase resulted primarily from current period earnings of $980,000 and a
$2,000 decrease in the unrealized losses on securities designated as available
for sale, partially offset by the declaration and payment of dividends totaling
$95,000 and the funding of certain stock benefit plans totaling $81,000. The
Institutions are each required to maintain minimum regulatory capital pursuant
to federal regulations. At September 30, 1997, each of the Institutions'
regulatory capital exceeded all applicable regulatory capital requirements.
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996
Increases in the level of income and expenses during the nine month period ended
September 30, 1997, as compared to the comparable period in 1996, are mainly due
to the inclusion of the accounts of Citizens National Bank of Madison, which was
acquired by River Valley on December 20, 1996, in a transaction accounted for
using the purchase method of accounting. Accordingly, the statement of earnings
and the statement of cash flows for the nine month period ended September 30,
1996, were not restated for the acquisition.
General
River Valley's net earnings for the nine months ended September 30, 1997,
totaled $980,000, an increase of $1.0 million, over the $23,000 net loss
reported in the comparable 1996 period. The increase in earnings in the 1997
period is primarily attributable to an increase in net interest income of $2.3
million and an increase of $542,000 in other income, which were partially offset
by an increase in the provision for losses on loans of $220,000, an increase in
general, administrative and other expense of $970,000 and an increase in the
provision for federal income taxes of $670,000.
12
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River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996 (continued)
Net Interest Income
Total interest income for the nine months ended September 30, 1997, amounted to
$7.9 million, an increase of $3.5 million, or 81.1%, over the comparable period
in 1996, reflecting the effects of growth in average interest-earning assets
outstanding, coupled with an increase in yield year-to-year. Interest income on
loans and mortgage-backed securities totaled $7.4 million for the nine months
ended September 30, 1997, an increase of $3.6 million, or 95.3%, over the
comparable 1996 period. The increase resulted primarily from the $55.4 million,
or 82.8%, increase in the average balance of loans and mortgage-backed
securities outstanding year-to-year, coupled with a 46 basis point increase in
yield, to 8.07% in 1997. Interest income on investments and interest-earning
deposits decreased by $81,000, or 14.4%, due to a decrease in the average
balance outstanding of $1.1 million and an approximate 34 basis point decrease
in yield from the comparable 1996 period.
Interest expense on deposits increased by $1.2 million, or 46.6%, to a total of
$3.7 million for the nine months ended September 30, 1997, due primarily to a
$43.2 million increase in the average balance of deposits outstanding, which was
partially offset by a decline in the weighted-average cost of deposits of 15
basis points, to 4.09% in 1997. Interest expense on borrowings totaled $93,000
for the nine months ended September 30, 1997, an increase of $46,000, or 97.9%,
over the comparable period in 1996. The increase resulted primarily from an
increase in average borrowings outstanding year-to-year, coupled with an
increase in average cost.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $2.3 million, or 128.2%, for the nine months
ended September 30, 1997, compared to the comparable period in 1996. The
interest rate spread increased by approximately 73 basis points for the nine
months ended September 30, 1997, to 3.81% from 3.08% in the 1996 period, while
the net interest margin amounted to approximately 3.12% in 1997 and 2.31% in
1996.
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
Institutions, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Institutions'
market area, and other factors related to the collectibility of the Institutions
loan portfolio. As a result of such analysis, management recorded a $238,000
provision for losses on loans for the nine months ended September 30, 1997. The
current period provision generally reflects the provision associated with
Citizens loan portfolio, as compared to the primarily residential loan portfolio
of First Federal prior to the acquisition. During the 1997 period, Citizens net
charge-offs amounted to approximately $111,000, primarily related to the
consumer loan portfolio. While management believes that the allowance for losses
on loans is adequate at September 30, 1997, based upon the available facts and
circumstances, there can be no assurance that the loan loss allowance will be
adequate to cover losses on nonperforming assets in the future.
13
<PAGE>
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Comparison of Results of Operations for the Nine Months Ended September 30,
1997 and 1996 (continued)
Other Income
Other income increased by $542,000, or 165.2%, for the nine months ended
September 30, 1997, as compared to the same period in 1996, due primarily to a
$202,000 gain on sale of office premises and equipment, coupled with a $417,000
increase in service fees, charges and other operating income and a $73,000 gain
on sale of loans, which were partially offset by a decline of $146,000, or
93.6%, in insurance commissions year-to-year. The gain on sale of office
premises resulted from First Federal's sale of a branch office facility, located
in Hanover, Indiana, which was consummated on February 28, 1997, as required in
accordance with the terms of regulatory approval of the acquisition of the Bank.
The decline in insurance commissions resulted from First Federal's sale of its
insurance agency subsidiary during the last quarter of 1996. The increase in the
service fees, charges and other operating income primarily reflects inclusion of
the effect of the Bank's operations during the period.
General, Administrative and Other Expense
General, administrative and other expense increased by $970,000, or 45.0%,
during the nine months ended September 30, 1997, compared to the same period in
1996. This increase resulted primarily from a $773,000, or 86.9%, increase in
employee compensation and benefits, a $234,000, or 164.8%, increase in occupancy
and equipment expense and a $575,000, or 209.9%, increase in other operating
expense, which were partially offset by a $610,000, or 95.8%, decrease in
federal deposit insurance premiums. As previously discussed, the 1997
consolidated statements of operations include the accounts of Citizens, while
the 1996 statements have not been restated to include the effects of the
acquisition of Citizens. The increase in general, administrative and other
expense is primarily attributable to the addition of the Bank partially offset
by the absence of the SAIF recapitalization assessment for the nine month period
ended September 30, 1997, and the resulting lower insurance premiums.
Income Taxes
The provision for income taxes increased by $670,000 for the nine months ended
September 30, 1997, as compared to the same period in 1996. This increase
resulted primarily from an increase in net earnings before tax of $1.7 million.
The effective tax rates were 40.2% and 30.3% for the nine months ended September
30, 1997 and 1996, respectively.
14
<PAGE>
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended September 30,
1997 and 1996
Increases in the level of income and expense during the three month period ended
September 30, 1997, as compared to the comparable quarter in 1996, is mainly due
to the inclusion of the accounts of Citizens National Bank of Madison, which was
acquired by River Valley on December 20, 1996, in a transaction accounted for
using the purchase method of accounting. Accordingly, the statement of earnings
for the quarter ended September 30, 1996 has not been restated for the
acquisition.
General
River Valley's net earnings for the three months ended September 30, 1997,
totaled $315,000, an increase of $519,000, over the $204,000 net loss in the
comparable 1996 period. The increase in earnings in the 1997 period is primarily
attributable to an increase in net interest income of $790,000 and an increase
of $119,000 in other income, which were partially offset by an increase in the
provision for losses on loans of $62,000, an increase in general, administrative
and other expense of $17,000, and an increase in the provision for federal
income taxes of $311,000.
Net Interest Income
Total interest income for the three months ended September 30, 1997 amounted to
$2.7 million, an increase of $1.2 million, or 88.6%, over the comparable quarter
in 1996, reflecting the effects of growth in average interest-earning assets
outstanding, coupled with an increase in average yield year-to-year. Interest
income on loans and mortgage-backed securities totaled $2.5 million for the
three months ended September 30, 1997, an increase of $1.3 million, or 102.8%,
over the comparable 1996 quarter. The increase resulted primarily from the $56.6
million, or 85.0%, increase in the average balance outstanding year-to-year.
Interest income on investments and interest-earning deposits decreased by
$33,000, or 20.4%, due to a decrease in the average balance outstanding of $2.0
million and an approximate 7 basis point decrease in yield over the comparable
1996 period.
Interest expense on deposits increased by $402,000, or 50.2%, to a total of $1.2
million for the quarter ended September 30, 1997, due primarily to a $40.1
million increase in the average balance of deposits outstanding. Interest
expense on borrowings totaled $59,000 for the three months ended September 30,
1997, an increase of $56,000 over the comparable quarter in 1996. The increase
resulted primarily from a $4.0 million increase in average borrowings
outstanding year-to-year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $790,000, or 130.8%, for the three months ended
September 30, 1997, as compared to the comparable quarter in 1996. The interest
rate spread amounted to approximately 3.87% for the 1997 quarter, compared to
3.07% in 1996, while the net interest margin totaled approximately 4.24% in the
1997 quarter, compared to 3.14% in 1996.
15
<PAGE>
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and nine month periods ended September 30, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended September 30,
1997 and 1996 (continued)
Provision for Losses on Loans
The provision for losses on loans increased by $62,000 over the comparable 1996
quarter to a total of $68,000. The current period provision generally reflects
the growth in the non-residential real estate and commercial loans portfolios,
integrated with a stable level of nonperforming loans in the period.
Other Income
Other income increased by $119,000, or 93.7%, for the three months ended
September 30, 1997, as compared to the same period in 1996, due primarily to a
$59,000 gain on sale of loans coupled with a $117,000 increase in service fees,
charges, and other operating income, which were partially offset by decline of
$49,000, in insurance commissions year-to-year. The decline in insurance
commissions resulted from First Federal's sale of its insurance subsidiary
during the last quarter of 1996.
General, Administrative and Other Expense
General, administrative and other expense increased by $17,000, or 1.6%, during
the three months ended September 30, 1997, compared to the same period in 1996.
This increase resulted primarily from a $283,000, or 95.0%, increase in employee
compensation and benefits, an $84,000 increase in occupancy and equipment and a
$191,000 increase in other operating expense, which were partially offset by a
$537,000, or 97.8%, decrease in federal deposit insurance premiums. As
previously discussed, the 1997 consolidated statements of operations include the
accounts of Citizens while the 1996 statements have not been restated to include
the effects of the acquisition of Citizens. The increase in general,
administrative and other expense is primarily attributable to the addition of
the Bank partially offset by the absence of the SAIF recapitalization assessment
for the three month period ended September 30, 1997, and the resulting lower
insurance premiums.
Income Taxes
The provision for income taxes increased by $311,000 for the three months ended
September 30, 1997, as compared to the same period in 1996. This increase
resulted primarily from an increase in net earnings before tax of $830,000. The
effective tax rates amounted to 38.0% and 36.6% for the three months ended
September 30, 1997 and 1996, respectively.
16
<PAGE>
River Valley Bancorp
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
On September 26, 1997, River Valley Bancorp, Citizens National
Bank of Madison (the "Bank") and Madison First Federal Savings
and Loan Association executed an Agreement and Plan of
Reorganization (the "Merger Agreement") which provides for the
merger of the Bank into First Federal. The Merger Agreement
also changes the corporate title of the post-merger
institution to River Valley Financial Bank. Upon consummation
of the merger, the Bank's status as a national bank will
terminate and all of its assets and liabilities will be
assumed by First Federal. In addition, River Valley's status
as a bank holding company subject to regulation by the Federal
Reserve Board will terminate and River Valley will become a
savings and loan holding company subject to regulation by the
Office of Thrift Supervision ("OTS"). The parties submitted a
merger application to the OTS on September 26, 1997 and are
awaiting regulatory approval of the merger. Management
anticipates that the OTS will approve the merger application
and that the merger will be consummated by November 22, 1997.
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None
Exhibit 10.1: Recognition and Retention Plan
and Trust
Exhibit 10.2: Stock Option Plan
Exhibit 27: Financial Data Schedule for the nine
month period ended September 30, 1997
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 10, 1997 By: /s/James E. Fritz
------------------------ -----------------
James E. Fritz
CEO/President
Date: November 10, 1997 By: /s/J. Wayne Deveary
----------------------- -------------------
J. Wayne Deveary
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,150
<INT-BEARING-DEPOSITS> 954
<FED-FUNDS-SOLD> 300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,152
<INVESTMENTS-CARRYING> 9,596
<INVESTMENTS-MARKET> 9,554
<LOANS> 112,525
<ALLOWANCE> 1,199
<TOTAL-ASSETS> 138,461
<DEPOSITS> 115,676
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 2,174
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 17,611
<TOTAL-LIABILITIES-AND-EQUITY> 138,461
<INTEREST-LOAN> 6,834
<INTEREST-INVEST> 784
<INTEREST-OTHER> 261
<INTEREST-TOTAL> 7,879
<INTEREST-DEPOSIT> 3,654
<INTEREST-EXPENSE> 3,747
<INTEREST-INCOME-NET> 4,132
<LOAN-LOSSES> 238
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 3,124
<INCOME-PRETAX> 1,640
<INCOME-PRE-EXTRAORDINARY> 1,640
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 980
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
<YIELD-ACTUAL> 4.13
<LOANS-NON> 0
<LOANS-PAST> 897
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,074
<CHARGE-OFFS> 172
<RECOVERIES> 59
<ALLOWANCE-CLOSE> 1,199
<ALLOWANCE-DOMESTIC> 24
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,175
</TABLE>
RIVER VALLEY BANCORP
RECOGNITION AND RETENTION PLAN AND TRUST
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 River Valley Bancorp hereby establishes the Recognition and Retention
Plan (the "Plan") and Trust (the "Trust") upon the terms and conditions
hereinafter stated in this Recognition and Retention Plan and Trust Agreement
(the "Agreement").
1.02 The Trustee, which initially shall be First Bankers Trust Company,
hereby accepts this Trust and agrees to hold the Trust assets existing on the
date of this Agreement and all additions and accretions thereto upon the terms
and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain directors and executive officers
in key positions by providing such persons with a proprietary interest in the
Holding Company (as hereinafter defined) as compensation for their contributions
to the Holding Company and to the Affiliates (as hereinafter defined) and as an
incentive to make such contributions and to promote the Holding Company's and
the Affiliates' growth and profitability in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" means the Thrift and Bank and such other subsidiaries or
affiliates of the Holding Company which, with the consent of the Board, agree to
participate in this Plan.
3.02 "Bank" shall mean Citizens National Bank of Madison.
3.03 "Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or, if none, his estate.
3.04 "Board" means the Board of Directors of the Holding Company or of an
Affiliate.
3.05 "Committee" means the Stock Compensation Committee of the Board of
Directors of the Holding Company. At all times during its administration of this
Plan, the Committee shall consist of two or more directors of the Holding
Company, each of whom shall be a "Non-Employee Director" within the meaning of
the definition of that term contained in Regulation 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act").
3.06 "Common Stock" means shares of the common stock, without par value, of
the Holding Company.
3.07 "Conversion" shall mean the conversion of the Thrift from the mutual
to stock form of organization and the simultaneous acquisition of the Thrift by
the Holding Company.
3.08 "Director" means a member of the Board of Directors of an Affiliate or
the Holding Company.
3.09 "Director Emeritus" shall mean an honorary non-voting member of the
Board of Directors of an Affiliate or the Holding Company.
3.10 "Disability" means any physical or mental impairment which qualifies
an Employee for disability benefits under the applicable long-term disability
plan maintained by an Affiliate.
3.11 "Employee" means any person, including officers, who is currently
employed by the the Holding Company or an Affiliate and shall also include the
Secretary of the Thrift.
3.12 "Holding Company" shall mean River Valley Bancorp.
3.13 "Outside Director" means a member of the Board of Directors of the
Holding Company, who is not also an Employee.
3.14 "Plan Shares" means shares of Common Stock held in the Trust and
issued or issuable to a Recipient pursuant to the Plan.
3.15 "Plan Share Award" or "Award" means a right granted under this Plan to
earn Plan Shares.
3.16 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.17 "Recipient" means an Employee or Director who receives a Plan Share
Award under the Plan.
3.18 "Retirement" as to an Employee, means a termination of employment
which constitutes a "retirement" under any applicable qualified pension benefit
plan maintained by the Affiliate which employs the Recipient, or, if such plan
is not applicable, which would constitute "retirement" under such plan were the
Recipient covered by such plan and, as to a Director, means a retirement from
service on the Board after attaining age 70.
3.19 "Subsidiary Director" shall mean a non-employee director of an
Affiliate who is not an Outside Director.
3.20 "Thrift" shall mean Madison First Federal Savings and Loan
Association.
3.21 "Trustee" means that person(s) or entity nominated by the Committee
and approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title
to the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
by the Committee, which shall have all of the powers allocated to it in this and
other Sections of the Plan. The interpretation and construction by the Committee
of any provisions of the Plan or of any Plan Share Award granted hereunder shall
be final and binding. The Committee shall act by vote or written consent of a
majority of its members. Subject to the express provisions and limitations of
the Plan, the Committee may adopt such rules, regulations and procedures as it
deems appropriate for the conduct of its affairs. If permitted by applicable
law, the Committee, with the consent of Recipients may change the vesting
schedule for Awards after the date of grant thereof. The Committee shall
recommend to the Board one or more persons or entities to act as Trustee in
accordance with the provisions of this Plan and Trust and the terms of Article
VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee shall
be appointed or approved by, and will serve at the pleasure of, the Board of
Directors of the Holding Company. The Board of Directors of the Holding Company
may in its discretion from time to time remove members from, or add members to,
the Committee, and may remove, replace or add Trustees.
4.03 Limitation on Liability. Neither a Director nor the Committee nor the
Trustee shall be liable for any determination made in good faith with respect to
the Plan or any Plan Shares or Plan Share Awards granted under it. If a Director
or the Committee or any Trustee is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of anything done or
not done by him in such capacity under or with respect to the Plan, the Holding
Company shall indemnify such person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in the best interests
of the Holding Company and its Affiliates and, with respect to any criminal
action or proceeding, if he had no reasonable cause to believe his conduct was
unlawful. The indemnification of officers and directors of the Thrift pursuant
to this Section 4.03 shall be subject to 12 C.F.R ss. 545.121.
ARTICLE V
CONTRIBUTION; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Affiliates shall be permitted
to contribute to the Trust an amount sufficient to purchase up to 4% of the
shares of Common Stock issued by the Holding Company in connection with the
Conversion. Such amounts shall be paid to the Trustee no later than the date
required to purchase shares of Common Stock for Awards made under this Plan. No
contributions by Employees or Directors shall be permitted.
5.02 Initial Investment. Any amounts held by the Trust until such amounts
are invested in accordance with Section 5.03, shall be invested by the Trustee
in such interest-bearing account or accounts at the Affiliates as the Trustee
shall determine to be appropriate.
5.03 Investment of Trust Assets; Creation of Plan Share Reserve. As soon as
practicable following the first shareholder meeting of the Holding Company
following the Conversion, which shall be held no earlier than six (6) months
following the Conversion ("First Shareholder Meeting Date"), the Trustee shall
invest all of the Trust's assets exclusively in the number of shares of Common
Stock designated by the Holding Company and the Affilitates as subject to Awards
made under this Plan, which may be purchased directly from the Holding Company,
on the open market, or from any other source; provided, however, that the Trust
shall not invest in an amount of Common Stock greater than 4.0% of the shares of
the Common Stock sold in the Conversion, which shall constitute the "Plan Share
Reserve" and provided, further that if the Trustee is required to purchase such
shares on the open market or from the Holding Company for an amount per share
greater than the price per share at which shares were trading on the date the
contributions therefor were made to the Trust, the Holding Company shall have
the discretion to reduce the number of shares to be awarded and purchased. The
Trust may hold cash in interest-bearing accounts pending investment in Common
Stock for periods of not more than one year after deposit. The Trustee, in
accordance with applicable rules and regulations and Section 5.01 hereof, shall
purchase shares of Common Stock in the open market and/or shall purchase
authorized but unissued shares of the Common Stock from the Holding Company
sufficient to acquire the requisite percentage of shares. Any earnings received
or distributions paid with respect to Common Stock held in the Plan Share
Reserve shall be held in an interest-bearing account. Any earnings received or
distributions paid with respect to Common Stock subject to a Plan Share Award
shall be held in an interest-bearing account on behalf of the individual
Recipient.
5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Sections 6.02 and 6.03
after acquisition by the Trustee of such shares, or the decision of the
Committee to return Plan Shares to the Holding Company, the Plan Share Reserve
shall be reduced by the number of Plan Shares so allocated or returned. Any
shares subject to an Award which may not be earned because of a forfeiture by
the Recipient pursuant to Section 7.01 shall be returned (added) to the Plan
Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees and Subsidiary Directors are eligible to
receive Plan Share Awards provided in Section 6.02. Outside Directors are
eligible to receive Plan Share Awards provided for in Section 6.03.
6.02 Allocations. The Committee may determine which of the Employees and
Subsidiary Directors referenced in Section 6.01 above will be granted Plan Share
Awards and the number of Plan Shares covered by each Award, including grants
effective upon the First Shareholder Meeting Date, provided, however, that the
number of Plan Shares covered by such Awards may not exceed the number of Plan
Shares in the Plan Share Reserve immediately prior to the grant of such Awards,
and provided further, that in no event shall any Awards be made which will
violate the Articles of Incorporation, Articles of Association, Charter, Bylaws
or Plan of Conversion of the Holding Company or the Affiliates or any applicable
federal or state law or regulation and provided further that Awards may not be
granted at any time in which the Affiliates fail to meet their applicable
minimum capital requirements. In the event Plan Shares are forfeited for any
reason and unless the Committee decides to return the Plan Shares to the Holding
Company, the Committee may, from time to time, determine which of the Employees
or Subsidiary Directors referenced in Section 6.01 above will be granted
additional Plan Share Awards to be awarded from forfeited Plan Shares. In
selecting those Employees or Subsidiary Directors to whom Plan Share Awards will
be granted and the number of Plan Shares covered by such Awards, the Committee
shall consider the position and responsibilities of the eligible Employees and
Subsidiary Directors, the length and value of their services to the Affiliates,
the compensation paid to such Employees and Subsidiary Directors, and any other
factors the Committee may deem relevant.
6.03 Allocations - Outside Directors. The following Outside Directors shall
be awarded a Plan Share Award on the First Shareholder Meeting Date, assuming he
or she is still serving as an Outside Director on such date, equal to the number
of whole shares rounded down to the nearest whole number constituting the
following percentage of the number of shares of Common Stock issued in the
Conversion (the "Fixed Award"); provided, however, that the Affiliates shall
have the discretion to reduce such percentages if the Trustee is required to
purchase shares on the open market or from the Holding Company for an amount per
share greater than the price per share at which shares are sold in the
Conversion:
Percentage of Shares
Outside Director Issued in Conversion
--------------------------------------------------------------
Fred W. Koehler .20%
Michael J. Hensley .20%
Cecil L. Dorten .20%
Earl W. Johann .20%
Jonnie L. Davis .15%
6.04 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Section 6.02 or 6.03 that a Plan Share Award is to be made,
the Committee shall notify the Recipient in writing of the grant of the Award,
the number of Plan Shares covered by the Award, and the terms upon which the
Plan Shares subject to the Award may be earned. The stock certificates for Plan
Share Awards shall be registered in the name of the Recipient until forfeited or
transferred by the Recipient after such Award has been earned. The Committee
shall maintain records as to all grants of Plan Share Awards under the Plan.
6.05 Allocations Not Required. Notwithstanding anything to the contrary in
Sections 6.01 and 6.02, no Employee or Subsidiary Director shall have any right
or entitlement to receive a Plan Share Award hereunder, such Awards being at the
total discretion of the Committee, nor shall the Employees or Subsidiary
Directors as a group have such a right. No Outside Director shall have any right
or entitlement to reserve a Plan Share Award hereunder, except as provided for
in Section 6.03 hereof. The Committee may, with the approval of the Board (or,
if so directed by the Board, shall) return all Common Stock in the Plan Share
Reserve not yet allocated to the Holding Company at any time, and cease issuing
Plan Share Awards.
6.06. Distribution Election Before Plan Shares Are Earned. Notwithstanding
anything contained in the Plan to the contrary, an Employee or a Director who
has received an allocation of Plan Shares in accordance with Article VI may
request in writing that the Committee authorize the distribution to him or her
of all or a portion of the Plan Shares awarded before the date on which the Plan
Shares become earned in accordance with Article VII. The decision as to whether
to distribute to any Employee or Director who requests distribution shall be
made by the Committee, in its sole discretion. In addition, the distribution
shall be subject to the following parameters:
(a) The Committee shall be required to make a separate
determination for each request received by an Employee or Director for
distribution.
(b) Any Plan Shares awarded shall be required to have a legend
on the Plan Shares confirming that the Plan Shares are subject to
restriction and transfer in accordance with the terms set forth in the
Plan. This legend may not be removed until the date that the Plan
Shares become earned in accordance with Article VII.
(c) The Plan Shares distributed shall be voted by the Trustee in
accordance with Section 7.04 until the date that the Plan Shares are
earned.
(d) Any cash dividends or other cash distributions paid with
respect to the Plan Shares before the date that the Plan Shares are
earned shall be paid to the Trustee to be held for the Employee or
Director, whichever is applicable, until the date that the Plan Shares
are earned.
(e) At the date on which the Plan Shares are earned, the
Trustee may withhold from any cash dividends or other cash
distributions held on behalf of such Employee or Director the amount
needed to cover any applicable withholding and employment taxes arising
at the time that the Plan Shares are earned. If the amount of such cash
dividends or distributions is insufficient, the Trustee may require the
Employee or Director to pay to the Trustee the amount required to be
withheld as a condition of removing the legend on the Plan Shares.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Plan Shares subject to an Award shall be earned by
a Recipient at the rate of twenty percent (20%) of the aggregate
number of Shares covered by the Award at the end of each full
twelve months of consecutive service with the Holding Company or
the Affiliate after the date of grant of the Award. If the term
of service of a Recipient terminates as an Employee, as a
Director, and as a Director Emeritus prior to the fifth
anniversary (or such later date as the Committee shall determine)
of the date of grant of an Award for any reason (except as
specifically provided in Subsection (b) below or in Section 4.01
hereof), the Recipient shall forfeit the right to earn any Shares
subject to the Award which have not theretofore been earned.
In determining the number of Plan Shares which are earned,
fractional shares shall be rounded down to the nearest whole
number, provided that such fractional shares shall be aggregated
and earned, on the fifth anniversary of the date of grant.
(b) Exception for Terminations due to Death and Disability.
Notwithstanding the general rule contained in Section 7.01(a)
above, all Plan Shares subject to a Plan Share Award held by a
Recipient whose term of service as an Employee and as a Director
or Director Emeritus with the Holding Company and the Affiliates
terminates due to death or Disability shall be deemed earned as
of the Recipient's last day of service with the Holding Company
and the Affiliates as a result of such death or Disability. If
the recipient's service as an Employee and as a Director or
Director Emeritus terminates due to Disability within one year of
the effective date of the Conversion, the Shares earned by the
Receipent may not be disposed of by the Recipient during the
one-year period following the Conversion, and stock certificate
legends to that effect may be placed on the stock certificates
for any such shares.
(c) Revocation for Misconduct. Notwithstanding anything hereinafter
to the contrary, the Board may by resolution immediately revoke,
rescind and terminate any Plan Share Award, or portion thereof,
previously awarded under this Plan, to the extent Plan Shares
have not been delivered thereunder to the Recipient, whether or
not yet earned, in the case of an Employee who is discharged from
the employ of the Holding Company or an Affiliate for cause (as
hereinafter defined), or who is discovered after termination of
employment to have engaged in conduct that would have justified
termination for cause or, in the case of an Outside Director,
Director Emeritus, or Subsidiary Director, who is removed from
the Board of Directors of the Holding Company or an Affiliate for
cause (as hereinafter defined), or who is discovered after
termination of service as an Outside Director, Director Emeritus,
or Subsidiary Director to have engaged in conduct which would
have justified removal for cause. "Cause" is defined as personal
dishonesty, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule, regulation
(other than traffic violations or similar offenses) or order
which results in a loss to the Holding Company or any Affiliate
or in a final cease and desist order.
7.02 Accrual of Dividends. Whenever Plan Shares are paid to a Recipient or
Beneficiary under Section 7.03, such Recipient or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends or cash distributions and a number of shares of Common Stock
equal to any stock dividends, and any other asset distributions declared and
paid with respect to a share of Common Stock between the date the Plan Shares
are being distributed and the date the Plan Shares were granted. There shall
also be distributed an appropriate amount of net earnings, if any, of the Trust
with respect to any cash dividends or cash distributions so paid out. Until the
Plan Shares are vested and distributed to any such Recipient or Beneficiary,
such dividends, distributions and net earnings thereon, if any, shall be
retained by the Trust.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
Subsection (b) below, Plan Shares shall be distributed to the
Recipient or his Beneficiary, as the case may be, as soon as
practicable after they have been earned.
(b) Timing: Exception for 10% Stockholders. Notwithstanding
Subsection (a) above, no Plan Shares may be distributed prior to
the date which is five (5) years from the effective date of the
Conversion to the extent the Recipient or Beneficiary, as the
case may be, would after receipt of such shares own in excess of
ten (10) percent of the issued and outstanding shares of Common
Stock. Any Plan Shares remaining unpaid solely by reason of the
operation of this Subsection (b) shall be paid to the Recipient
or his Beneficiary on the date which is five (5) years from the
effective date of the Conversion.
(c) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of
Common Stock. One share of Common Stock shall be given for each
Plan Share earned and payable. Payments representing accumulated
cash dividends and cash or other distributions (and earnings
thereon) shall be made in cash or in the form of such non-cash
distributions.
(d) Withholding. The Trustee may withhold from any payment or
distribution made under this Plan sufficient amounts of cash or
shares of Common Stock to cover any applicable withholding and
employment taxes, and if the amount of such payment is
insufficient, the Trustee may require the Recipient or Beneficiary
to pay to the Trustee the amount required to be withheld as a
condition of delivering the Plan Shares. Alternatively, a
Recipient may pay to the Trustee that amount of cash necessary to
be withheld in taxes in lieu of any withholding of payments or
distribution under the Plan. The Trustee shall pay over to the
Holding Company, or the Affiliate which employs or employed such
Recipient any such amount withheld from or paid by the Recipient
or Beneficiary.
(e) Cessation of Payment. The Trustee shall cease payment of benefits
to Recipients or, if applicable, their Beneficiaries in the event
of the Bank's or Thrift's insolvency. The Bank or Thrift shall be
considered insolvent for purposes of this RRP if the Bank or
Thrift is unable to pay its debts as they become due or if a
receiver is appointed for the Bank or Thrift under applicable law.
If payments cease by reason of this subsection, payments will be
resumed, with appropriate make-up payments, once the Bank or
Thrift ceases to be insolvent but only to the extent the payments
were not made directly by the Bank, the Thrift or their
Affiliates.
7.04 Voting of Plan Shares. All shares of Common Stock held by the Trust
shall be voted by the Trustee, taking into account the best interests of the
Plan Share Award recipients.
ARTICLE VIII
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust that,
subject to the provisions of this Plan, the Trustee shall have complete
authority and discretion with respect to the management, control and investment
of the Trust, and that the Trustee shall invest all assets of the Trust, except
those attributable to cash dividends paid with respect to Plan Shares, in Common
Stock to the fullest extent practicable, and except to the extent that the
Trustee determines that the holding of monies in cash or cash equivalents is
necessary to meet the obligation of the Trust. Neither the Holding Company nor
any Affiliate shall exercise any direct or indirect control or influence over
the time when, or the prices at which, the Trustee may purchase such shares, the
number of shares to be purchased, the manner in which the shares are to be
purchased, or the broker (if any) through whom the purchases may be executed. In
performing its duties, the Trustee shall have the power to do all things and
execute such instruments as may be deemed necessary or proper, including the
following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
Common Stock without regard to any law now or hereafter in force
limiting investments for Trustees or other fiduciaries. The
investment authorized herein and in paragraph (b) constitutes the
only investment of the Trust, and in making such investment, the
Trustee is authorized to purchase Common Stock from the Holding
Company or an Affiliate or from any other source, and such Common
Stock so purchased may be outstanding, newly issued, or treasury
shares.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of
deposit (including those issued by an Affiliate), securities of
any open-end or closed-end management investment company or
investment trust registered under the Investment Company Act of
1940, whether or not the Trustee or any affiliate of the Trustee
is being compensated for providing services to the investment
company or trust as investment advisor or otherwise, obligations
of the United States government or its agencies or such other
investments as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that
such security is an asset of the Trust (but accurate records shall
be maintained showing that such security is an asset of the
Trust).
(e) To hold cash without interest in such amounts as may be in the
opinion of the Trustee reasonable for the proper operation of the
Plan and Trust and to hold cash pending investment.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights, duties
and obligations hereunder, and such other legal services or representation as
they may deem desirable.
(h) To hold funds and securities representing the amounts to be distributed
to a Recipient or his or her Beneficiary as a consequence of a dispute as to the
disposition thereof, whether in a segregated account or held in common with
other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and detailed
records and accounts of all transactions of the Trust, which shall be available
at all reasonable times for inspection by any legally entitled person or entity
to the extent required by applicable law, or any other person determined by the
Committee.
8.04 Earnings. All earnings, gains and losses with respect to Trust assets
shall be allocated, in accordance with a reasonable procedure adopted by the
Committee, to bookkeeping accounts for Recipients or to the general account of
the Trust, depending on the nature and allocation of the assets generating such
earnings, gains and losses. In particular, any earnings on cash dividends or
distributions received with respect to shares of Common Stock shall be allocated
to accounts for Recipients, if such shares are the subject of outstanding Plan
Share Awards, or otherwise to the Plan Share Reserve. Recipients (or their
Beneficiaries) shall not be entitled to any such allocations until the Plan
Share Awards to which they relate are vested and distributed to those Recipients
(or their Beneficiaries).
8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan, including those incurred by the Trustee, shall be
borne by the Affiliates or the Holding Company.
8.06 Indemnification. The Holding Company shall indemnify, defend and hold
the Trustee harmless against all claims, expenses and liabilities arising out of
or related to the exercise of the Trustee's powers and the discharge of its
duties hereunder, unless the same shall be due to its negligence or willful
misconduct.
ARTICLE IX
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
available for issuance pursuant to the Plan Share Awards (which, as of the
effective date of this Plan, shall not exceed, 4% of the shares of the Holding
Company's Common Stock issued in the Conversion), and the number of shares to
which any Plan Share Award relates shall be proportionately adjusted for any
increase or decrease in the total number of outstanding shares of Common Stock
issued subsequent to the effective date of the Plan resulting from any stock
dividend or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar capital
adjustment, or other increase or decrease in such shares effected without
receipt or payment of consideration, by the Committee.
9.02 Amendment and Termination of Plan. The Board may, by resolution, at
any time amend or terminate the Plan. The power to amend or terminate shall
include the power to direct the Trustee to return to the Holding Company all or
any part of the assets of the Trust, including shares of Common Stock held in
the Plan Share Reserve, as well as shares of Common Stock and other assets
subject to Plan Share Awards but not yet earned by the Employees or Outside
Directors or Subsidiary Directors to whom they are allocated. However, the
termination of the Trust shall not affect a Recipient's right to the
distribution of Common Stock relating to Plan Share Awards already earned,
including earnings thereon, in accordance with the terms of this Plan and the
grant by the Committee.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall not
be transferable by a Recipient other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, and during the lifetime
of the Recipient, Plan Shares may only be earned by and paid to the Recipient
who was notified in writing of the Award by the Committee pursuant to Section
6.04. The assets of the RRP, prior to the distribution of Plan Shares to a
Recipient or his or her Beneficiary, shall be subject to the claims of creditors
of the Bank and/or the Thrift. Unless Plan Shares are distributed in accordance
with Section 6.06 or 7.03 to a Recipient or his or her Beneficiary, such
Recipient or, if applicable, Beneficiary shall not have any right in or claim to
any specific assets of the RRP or Trust and shall only be an unsecured creditor
of the Bank and/or the Thrift, nor shall any Affiliate be subject to any claim
for benefits hereunder.
9.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right on the
part of any Employee to continue in the employ of, or of any Director to
continue in the service of, the Holding Company or any Affiliate thereof.
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04 above, prior to the time said Plan Shares are actually distributed to him.
9.06 Governing Laws. The Plan and Trust shall be governed by the laws of
the State of Indiana, except to the extent governed by federal law, including
regulations of the Office of Thrift Supervision. In particular, grants of Plan
Share Awards under the Plan shall comply with the requirements of 12 C.F.R.
ss.563b.3(g)(4)(vi) as long as those requirements are in effect. That regulation
currently requires that no individual shall receive more than 25% of the Plan
Share Awards available for grant under the Plan and Outside Directors shall not
receive Plan Share Awards for more than 5% individually, or 30% in the
aggregate, of the Plan Share Awards available for grant under the Plan.
9.07 Effective Date. This Plan shall be effective as of the date of its
approval by the shareholders of the Holding Company.
9.08 Term of Plan. This Plan shall remain in effect until the earlier of
(1) 21 years from its effective date, (2) termination by the Board, or (3) the
distribution of all assets of the Trust. Termination of the Plan shall not
affect any Plan Share Awards previously granted, and such Awards shall remain
valid and in effect until they have been earned and paid, or by their terms
expire or are forfeited.
9.09 Tax Status of Trust. It is intended that the trust established hereby
be treated as a grantor trust of the Holding Company and the Affiliates under
the provisions of Section 671, et seq., of the Internal Revenue Code of 1986, as
amended.
9.10. Compensation. The Trustee shall be entitled to receive fair and
reasonable compensation for its services hereunder, as agreed to by the Trustee
and the Holding Company, and shall also be entitled to be reimbursed for all
reasonable out-of-pocket expenses, including, but not by way of limitation,
legal, actuarial and accounting expenses and all costs and expenses incurred in
prosecuting or defending any action concerning the Plan or the Trust or the
rights or responsibilities of any person hereunder, brought by or against the
Trustee. Such reasonable compensation and expenses shall be paid by the Holding
Company or the Affiliates.
9.11. Resignation of Trustee. The Trustee may resign at any time by giving
sixty (60) calendar days' prior written notice to the Holding Company, and the
Trustee may be removed, with or without cause, by the Holding Company on sixty
(60) calendar days' prior written notice to the Trustee. Such prior written
notice may be waived by the party entitled to receive it. Upon any such
resignation or removal becoming effective, the Trustee shall render to the
Holding Company a written account of its administration of the Plan and the
Trust for the period since the last written accounting and shall do all
necessary acts to transfer the assets of the Trust to the successor Trustee or
Trustees.
IN WITNESS WHEREOF, the Holding Company and the Bank and the Thrift have
caused this Plan and Trust Agreement to be executed by their duly authorized
officers as of the ___ day of ____________, 1996.
River Valley Bancorp
By
James E. Fritz, President
and Chief Executive Officer
Madison First Federal Savings
and Loan Association
By
James E. Fritz, President
and Chief Executive Officer
Citizens National Bank of Madison
By
Robert D. Hoban, President
IN WITNESS WHEREOF, I, Carmen Walch, Trust Officer, execute this agreement
for and on behalf of the Trustee, accepting and binding the Trustee to undertake
and perform the obligations and duties of the Trustee hereunder and consenting
to the foregoing Plan and Trust Agreement.
First Bankers Trust Company
By
Carmen Walch
Trust Officer
RIVER VALLEY BANCORP
STOCK OPTION PLAN
1. Purpose. The purpose of the River Valley Bancorp Stock Option Plan
(the "Plan") is to provide to directors, officers and other key employees of
River Valley Bancorp (the "Holding Company") and its majority-owned and
wholly-owned subsidiaries (individually a "Subsidiary" and collectively the
"Subsidiaries"), including, but not limited to, Madison First Federal Savings
and Loan Association ("Madison First Federal") and Citizens National Bank of
Madison ("Citizens"), who are materially responsible for the management or
operation of the business of the Holding Company or a Subsidiary and have
provided valuable services to the Holding Company or a Subsidiary, a favorable
opportunity to acquire Common Stock, without par value ("Common Stock"), of the
Holding Company, thereby providing them with an increased incentive to work for
the success of the Holding Company and its Subsidiaries and better enabling each
such entity to attract and retain capable directors and executive personnel.
2. Administration of the Plan. The Plan shall be administered,
construed and interpreted by a committee (the "Committee") consisting of at
least two members of the Board of Directors of the Holding Company, each of whom
is a "Non-Employee Director" within the meaning of the definition of that term
contained in Reg. ss. 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act"). The members of the Committee shall be
designated from time to time by the Board of Directors of the Holding Company.
The decision of a majority of the members of the Committee shall constitute the
decision of the Committee, and the Committee may act either at a meeting at
which a majority of the members of the Committee is present or by a written
consent signed by all members of the Committee. The Committee shall have the
sole, final and conclusive authority to determine, consistent with and subject
to the provisions of the Plan:
(a) the individuals (the "Optionees") to whom options or
successive options shall be granted under the Plan;
(b) the time when options shall be granted hereunder;
(c) the number of shares of Common Stock to be covered
under each option;
(d) the option price to be paid upon the exercise of each
option;
(e) the period within which each such option may be
exercised;
(f) the extent to which an option is an incentive stock
option or a non-qualified stock option; and
(g) the terms and conditions of the respective agreements
by which options granted shall be evidenced.
The Committee shall also have authority to prescribe, amend, waive, and rescind
rules and regulations relating to the Plan, to accelerate the vesting of any
stock options granted hereunder (subject to Office of Thrift Supervision
regulations), to make amendments or modifications in the terms and conditions
(including exercisability) of the options relating to the effect of termination
of employment of the optionee (subject to the last sentence of Section 9
hereof), to waive any restrictions or conditions applicable to any option or the
exercise thereof, and to make all other determinations necessary or advisable in
the administration of the Plan.
3. Eligibility. The Committee may, consistent with the purposes of the
Plan, grant options to officers and other key employees of the Holding Company
or of a Subsidiary and to directors of a Subsidiary (other than non-employee
directors of the Holding Company) who in the opinion of the Committee are from
time to time materially responsible for the management or operation of the
business of the Holding Company or of a Subsidiary and have provided valuable
services to the Holding Company or a Subsidiary; provided, however, that in no
event may any employee who owns (after application of the ownership rules in ss.
425(d) of the Internal Revenue Code of 1986, as amended (the "Code")) shares of
stock possessing more than 10 percent of the total combined voting power of all
classes of stock of the Holding Company or any of its Subsidiaries be granted an
incentive stock option hereunder unless at the time such option is granted the
option price is at least 110% of the fair market value of the stock subject to
the option and such option by its terms is not exercisable after the expiration
of five (5) years from the date such option is granted. Directors of the Holding
Company who are not employees of the Holding Company ("Outside Directors"), who
are serving as such on the date Madison First Federal converts (the
"Conversion") from mutual to stock form (the "Conversion Date") shall each be
granted on the date of the Holding Company's first Shareholder Meeting following
the Conversion which shall be held no earlier than six (6) months following the
Conversion (the "First Shareholder Meeting Date"), assuming he or she is serving
as an Outside Director on such date, a non-qualified option to purchase the
number of whole shares of Common Stock of the Holding Company determined by
multiplying the total number of shares issued by the Holding Company on the
Conversion Date by the following percentages, and rounding down to the next
whole share:
Percentage of Shares
Outside Director Issued In Conversion
Fred W. Koehler .50%
Michael J. Hensley .45%
Cecil L. Dorten .45%
Earl W. Johann .45%
Jonnie L. Davis .30%
Such options shall have an exercise price per share equal to the fair
market value of a share of such Common Stock, as determined by the Committee,
consistent with Treas. Req. ss. 20.2031-2, on the First Shareholder Meeting
Date. Outside Directors are not entitled to receive any other awards under this
Plan. Subject to the foregoing and the provisions of Section 7 hereof, an
individual who has been granted an option under the Plan (an "Optionee"), if he
is otherwise eligible, may be granted an additional option or options if the
Committee shall so determine.
4. Stock Subject to the Plan. There shall be reserved for issuance upon
the exercise of options granted under the Plan, shares of Common Stock of the
Holding Company equal to 10% of the total number of shares of Common Stock
issued by the Holding Company upon the conversion of Madison First Federal from
mutual to stock form, which may be authorized but unissued shares or treasury
shares of the Holding Company. Subject to Section 7 hereof, the shares for which
options may be granted under the Plan shall not exceed that number. If any
option shall expire or terminate or be surrendered for any reason without having
been exercised in full, the unpurchased shares subject thereto shall (unless the
Plan shall have terminated) become available for other options under the Plan.
5. Terms of Options. Each option granted under the Plan shall be
subject to the following terms and conditions and to such other terms and
conditions not inconsistent therewith as the Committee may deem appropriate in
each case:
(a) Option Price. The price to be paid for shares of stock
upon the exercise of each option shall be determined by the Committee
at the time such option is granted, but such price in no event shall be
less than the fair market value, as determined by the Committee
consistent with Treas. Reg. ss. 20.2031-2 and any requirements of ss.
422A of the Code, of such stock on the date on which such option is
granted.
(b) Period for Exercise of Option. An option shall not be
exercisable after the expiration of such period as shall be fixed by
the Committee at the time of the grant thereof, but such period in no
event shall exceed ten (10) years and one day from the date on which
such option is granted; provided, that incentive stock options granted
hereunder shall have terms not in excess of ten (10) years and options
issued to Outside Directors shall be for a period of ten (10) years and
one day from the date of grant thereof. Options shall be subject to
earlier termination as hereinafter provided.
(c) Exercise of Options. The option price of each share of
stock purchased upon exercise of an option shall be paid in full at the
time of such exercise. Payment may be in (i) cash, (ii) if the Optionee
may do so in conformity with Regulation T (12 C.F.R. ss. 220.3(e)(4))
without violating ss. 16(b) or ss. 16(c)of the 1934 Act, pursuant to a
broker's cashless exercise procedure, by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Holding Company the total option price in cash
and, if desired, the amount of any taxes to be withheld from the
Optionee's compensation as a result of any withholding tax obligation
of the Holding Company or any of its Subsidiaries, as specified in such
notice, or (iii) beginning on a date which is three years following
Madison First Federal's conversion from mutual to stock form and with
the approval of the Committee, by tendering whole shares of the Holding
Company's Common Stock owned by the Optionee and cash having a fair
market value equal to the cash exercise price of the shares with
respect to which the option is being exercised. For this purpose, any
shares so tendered by an Optionee shall be deemed to have a fair market
value equal to the mean between the highest and lowest quoted selling
prices for the shares on the date of exercise of the option (or if
there were no sales on such date the weighted average of the means
between the highest and lowest quoted selling prices for the shares on
the nearest date before and the nearest date after the date of exercise
of the option as prescribed by Treas. Reg. ss. 20.2031-2), as reported
in The Wall Street Journal or a similar publication selected by the
Committee. The Committee shall have the authority to grant options
exercisable in full at any time during their term, or exercisable in
such installments at such times during their term as the Committee may
determine; provided, however, that options shall not be exercisable
during the first six (6) months of their term, and provided further
that, subject to the foregoing restriction, options shall become
exercisable at the rate of 20% per year beginning on the anniversary of
the date of grant of such options. Installments not purchased in
earlier periods shall be cumulated and be available for purchase in
later periods. Subject to the other provisions of this Plan, an option
may be exercised at any time or from time to time during the term of
the option as to any or all whole shares which have become subject to
purchase pursuant to the terms of the option or the Plan, but not at
any time as to fewer than one hundred (100) shares unless the remaining
shares which have become subject to purchase are fewer than one hundred
(100) shares. An option may be exercised only by written notice to the
Holding Company, mailed to the attention of its Secretary, signed by
the Optionee (or such other person or persons as shall demonstrate to
the Holding Company his or their right to exercise the option),
specifying the number of shares in respect of which it is being
exercised, and accompanied by payment in full in either cash or by
check in the amount of the aggregate purchase price therefor, by
delivery of the irrevocable broker instructions referred to above, or,
if the Committee has approved the use of the stock swap feature
provided for above, followed as soon as practicable by the delivery of
the option price for such shares.
(d) Certificates. The certificate or certificates for the
shares issuable upon an exercise of an option shall be issued as
promptly as practicable after such exercise. An Optionee shall not have
any rights of a shareholder in respect to the shares of stock subject
to an option until the date of issuance of a stock certificate to him
for such shares. In no case may a fraction of a share be purchased or
issued under the Plan, but if, upon the exercise of an option, a
fractional share would otherwise be issuable, the Holding Company shall
pay cash in lieu thereof.
(e) Termination of Option. If an Optionee (other than an
Outside Director or a non-employee director of a Subsidiary
("Subsidiary Director")) ceases to be an employee of the Holding
Company and the Subsidiaries for any reason other than retirement,
permanent and total disability (within the meaning of ss. 22(e)(3) of
the Code), or death, any option granted to him shall forthwith
terminate. Leave of absence approved by the Committee shall not
constitute cessation of employment. If an Optionee (other than an
Outside Director or a Subsidiary Director) ceases to be an employee of
the Holding Company and the Subsidiaries by reason of retirement, any
option granted to him may be exercised by him in whole or in part
within three (3) years after the date of his retirement, to the extent
the option was otherwise exercisable at the date of his retirement;
provided, however, that if such employee remains a director or director
emeritus of the Holding Company, the option granted to him may be
exercised by him in whole or in part until the later of (a) three (3)
years after the date of his retirement, or (b) six (6) months after his
service as a director or director emeritus of the Holding Company
terminates. (The term "retirement" as used herein means such
termination of employment as shall entitle such individual to early or
normal retirement benefits under any then existing pension plan of the
Holding Company or a Subsidiary.) If an Optionee (other than an Outside
Director or Subsidiary Director) ceases to be an employee of the
Holding Company and the Subsidiaries by reason of permanent and total
disability (within the meaning of ss. 22(e)(3) of the Code), any option
granted to him may be exercised by him in whole or in part within one
(1) year after the date of his termination of employment by reason of
such disability whether or not the option was otherwise exercisable at
the date of such termination. Options granted to Outside Directors or
to Subsidiary Directors shall cease to be exercisable six (6) months
after the date such Outside Director or Subsidiary Director is no
longer a director of the Holding Company and the Subsidiaries for any
reason other than death or disability. If an Optionee who is an Outside
Director or Subsidiary Director ceases to be a director or director
emeritus of the Holding Company and the Subsidiaries by reason of
disability, any option granted to him may be exercised in whole or in
part within one (1) year after the date the Optionee ceases to be a
director or director emeritus by reason of such disability, whether or
not the option was otherwise exercisable at such date. In the event of
the death of an Optionee while in the employ or service as a director
or director emeritus of the Holding Company or a Subsidiary, or, if the
Optionee is not an Outside Director or Subsidiary Director, within
three (3) years after the date of his retirement (or, if later, six
months following his termination of service as a director or director
emeritus of the Holding Company) or within one (1) year after the
termination of his employment by reason of permanent and total
disability (within the meaning of ss. 22(e)(3) of the Code), or, if the
Optionee is an Outside Director or Subsidiary Director, within six (6)
months after he is no longer a director or director emeritus of the
Holding Company or the Subsidiaries for reasons other than disability
or, within one (1) year after the termination of his service as such a
director by reason of disability, any option granted to him may be
exercised in whole or in part at any time within one (1) year after the
date of such death by the executor or administrator of his estate or by
the person or persons entitled to the option by will or by applicable
laws of descent and distribution until the expiration of the option
term as fixed by the Committee, whether or not the option was otherwise
exercisable at the date of his death. Notwithstanding the foregoing
provisions of this subsection (e), no option shall in any event be
exercisable after the expiration of the period fixed by the Committee
in accordance with subsection (b) above.
(f) Nontransferability of Option. No option may be transferred
by the Optionee otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and during the lifetime of the
Optionee options shall be exercisable only by the Optionee or his
guardian or legal representative.
(g) No Right to Continued Service. Nothing in this Plan or in
any agreement entered into pursuant hereto shall confer on any person
any right to continue in the employ or service of the Holding Company
or its Subsidiaries or affect any rights the Holding Company, a
Subsidiary, or the shareholders of the Holding Company may have to
terminate his service at any time.
(h) Maximum Incentive Stock Options. The aggregate fair market
value of stock with respect to which incentive stock options (within
the meaning of ss. 422A of the Code) are exercisable for the first time
by an Optionee during any calendar year under the Plan or any other
plan of the Holding Company or its Subsidiaries shall not exceed
$100,000. For this purpose, the fair market value of such shares shall
be determined as of the date the option is granted and shall be
computed in such manner as shall be determined by the Committee,
consistent with the requirements of ss. 422A of the Code.
(i) Agreement. Each option shall be evidenced by an agreement
between the Optionee and the Holding Company which shall provide, among
other things, that, with respect to incentive stock options, the
Optionee will advise the Holding Company immediately upon any sale or
transfer of the shares of Common Stock received upon exercise of the
option to the extent such sale or transfer takes place prior to the
later of (a) two (2) years from the date of grant or (b) one (1) year
from the date of exercise.
(j) Investment Representations. Unless the shares subject to
an option are registered under applicable federal and state securities
laws, each Optionee by accepting an option shall be deemed to agree for
himself and his legal representatives that any option granted to him
and any and all shares of Common Stock purchased upon the exercise of
the option shall be acquired for investment and not with a view to, or
for the sale in connection with, any distribution thereof, and each
notice of the exercise of any portion of an option shall be accompanied
by a representation in writing, signed by the Optionee or his legal
representatives, as the case may be, that the shares of Common Stock
are being acquired in good faith for investment and not with a view to,
or for sale in connection with, any distribution thereof (except in
case of the Optionee's legal representatives for distribution, but not
for sale, to his legal heirs, legatees and other testamentary
beneficiaries). Any shares issued pursuant to an exercise of an option
may bear a legend evidencing such representations and restrictions.
6. Incentive Stock Options and Non-Qualified Stock Options. Options
granted under the Plan may be incentive stock options under ss. 422A of the Code
or non-qualified stock options, provided, however, that Outside Directors shall
be granted only non-qualified stock options. All options granted hereunder will
be clearly identified as either incentive stock options or non-qualified stock
options. In no event will the exercise of an incentive stock option affect the
right to exercise any non-qualified stock option, nor shall the exercise of any
non-qualified stock option affect the right to exercise any incentive stock
option. Nothing in this Plan shall be construed to prohibit the grant of
incentive stock options and non-qualified stock options to the same person,
provided, further, that incentive stock options and non-qualified stock options
shall not be granted in a manner whereby the exercise of one non-qualified stock
option or incentive stock option affects the exercisability of the other.
7. Adjustment of Shares. In the event of any change after the effective
date of the Plan in the outstanding stock of the Holding Company by reason of
any reorganization, recapitalization, stock split, stock dividend, combination
of shares, exchange of shares, merger or consolidation, liquidation, or any
other change after the effective date of the Plan in the nature of the shares of
stock of the Holding Company, the Committee shall determine what changes, if
any, are appropriate in the number and kind of shares reserved under the Plan,
and the Committee shall determine what changes, if any, are appropriate in the
option price under and the number and kind of shares covered by outstanding
options granted under the Plan. Any determination of the Committee hereunder
shall be conclusive.
8. Tax Withholding. Whenever the Holding Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Holding
Company shall have the right to require the Optionee or his or her legal
representative to remit to the Holding Company an amount sufficient to satisfy
any federal, state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares, and whenever under
the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements. If permitted by the Committee and pursuant to procedures
established by the Committee, an Optionee who is not an Outside Director may
make a written election to have shares of Common Stock having an aggregate fair
market value, as determined by the Committee, consistent with the requirements
of Treas. Reg. ss. 20.2031-2, sufficient to satisfy the applicable withholding
taxes, withheld from the shares otherwise to be received upon the exercise of a
non-qualified option.
9. Amendment. Subject to ss. 13 hereof, the Board of Directors of the
Holding Company may amend the Plan from time to time and, with the consent of
the Optionee, the terms and provisions of his option, except that without the
approval of the holders of at least a majority of the shares of the Holding
Company voting in person or by proxy at a duly constituted meeting or
adjournment thereof:
(a) the number of shares of stock which may be reserved for
issuance under the Plan may not be increased except as provided in
Section 7 hereof;
(b) the period during which an option may be exercised may not
be extended beyond ten (10) years and one day from the date on which
such option was granted; and
(c) the class of persons to whom options may be granted under
the Plan shall not be modified materially.
No amendment of the Plan, however, may, without the consent of the
Optionees, make any changes in any outstanding options theretofore granted under
the Plan which would adversely affect the rights of such Optionees.
10. Termination. The Board of Directors of the Holding Company may
terminate the Plan at any time and no option shall be granted thereafter. Such
termination, however, shall not affect the validity of any option theretofore
granted under the Plan. In any event, no incentive stock option may be granted
under the Plan after the date which is ten (10) years from the effective date of
the Plan.
11. Successors. This Plan shall be binding upon the successors and
assigns of the Holding Company.
12. Governing Law. The terms of any options granted hereunder and the
rights and obligations hereunder of the Holding Company, the Optionees and their
successors in interest shall, except to the extent governed by federal law, be
governed by Indiana law.
13. Government and Other Regulations. The obligations of the Holding
Company to issue or transfer and deliver shares under options granted under the
Plan shall be subject to compliance with all applicable laws, governmental rules
and regulations (including Office of Thrift Supervision regulations), and
administrative action. In particular, grants of stock options under the Plan
shall comply with the requirements of 12 C.F.R. ss.563b.3(g)(4)(vi) as long as
those requirements are in effect. That regulation currently requires that no
individual shall receive stock options for more than 25% of the shares reserved
for issuance under the Plan and Outside Directors shall not receive stock
options for more than 5% individually, or 30% in the aggregate, of the shares
reserved for issuance under the Plan.
14. Effective Date. The Plan shall become effective on the date it is
approved by the holders of at least a majority of the shares of the Holding
Company entitled to vote at a duly constituted meeting or adjournment thereof.
The options granted pursuant to the Plan may not be exercised until the Board of
Directors of the Holding Company has been advised by counsel that such approval
has been obtained and all other applicable legal requirements have been met.
