River Valley Bancorp 10-Q 2007 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 0-21765

RIVER VALLEY BANCORP

(Exact name of registrant as specified in its charter)

Indiana	35-1984567
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
430 Clifty Drive Madison, Indiana	47250
(Address of principal executive offices)	(Zip Code)

(812) 273-4949

(Registrant’s telephone number, including area code)

[None]

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ý          No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o          Accelerated filer  o          Non-accelerated filer  ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o          No  ý

The number of shares of the Registrant’s common stock, without par value, outstanding as of September 30, 2007 was 1,630,432.

RIVER VALLEY BANCORP

FORM 10-Q

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Income	4
	Consolidated Condensed Statements of Comprehensive Income	5
	Consolidated Condensed Statements of Cash Flows	6
	Notes to Unaudited Consolidated Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	14
Item 4.	Controls and Procedures	15
PART II. OTHER INFORMATION		15
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 5.	Other Information	16
Item 6.	Exhibits	16
SIGNATURES		17
EXHIBIT INDEX

2

PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RIVER VALLEY BANCORP

Consolidated Condensed Balance Sheet

	September 30, 2007 (Unaudited)			December 31, 2006
	(In Thousands, Except Share Amounts)
Assets
Cash and due from banks	$	5,101		$	6,838
Interest-bearing demand deposits		2,782			4,736
Fed funds sold		0			234
Cash and cash equivalents		7,883			11,808
Investment securities available for sale		63,520			65,150
Loans held for sale		228			0
Loans		254,791			244,063
Allowance for loan losses		(2,019	)		(2,176	)
Net loans		252,772			241,887
Premises and equipment		7,672			7,813
Federal Home Loan Bank stock		4,550			4,400
Interest receivable		2,573			2,334
Cash surrender value life insurance		7,443			7,222
Other assets		1,386			1,635
Total assets	$	348,027		$	342,249
Liabilities
Deposits
Non-interest-bearing	$	19,867		$	19,340
Interest-bearing		203,050			200,898
Total deposits		222,917			220,238
Borrowings		97,217			95,217
Interest payable		718			705
Other liabilities		2,265			1,942
Total liabilities		323,117			318,102
Commitments and Contingencies
Shareholders’ Equity
Preferred stock, without par value
Authorized and unissued - 2,000,000 shares
Common stock, without par value
Authorized - 5,000,000 shares
Issued and outstanding - 1,630,432 and 1,620,431 shares		9,099			9,129
Retained earnings		15,994			15,346
Accumulated other comprehensive loss		(183	)		(328	)
Total shareholders’ equity		24,910			24,147
Total liabilities and shareholders’ equity	$	348,027		$	342,249

See notes to consolidated condensed financial statements.

3

RIVER VALLEY BANCORP

Consolidated Condensed Statement of Income

(Unaudited)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2007			2006			2007		2006
	(In Thousands, Except Share Amounts)
Interest Income
Loans receivable	$	12,862			11,659			4,418		3,962
Investment securities		1,960			1,880			672		669
Interest-earning deposits and other		413			362			165		76
Total interest income		15,235			13,901			5,255		4,707
Interest Expense
Deposits		5,684			5,083			1,976		1,811
Borrowings		3,484			2,973			1,176		1,023
Total interest expense		9,168			8,056			3,152		2,834
Net Interest Income		6,067			5,845			2,103		1,873
Provision for loan losses		292			216			196		48
Net Interest Income After Provision for Loan Losses		5,775			5,629			1,907		1,825
Other Income
Net realized losses on sales of available-for-sale securities		(22	)		(47	)		0		(47	)
Service fees and charges		1,570			1,500			538		538
Net gains on loan sales		85			109			40		54
Increase in cash value of life insurance		221			148			77		50
Trust Income		163			93			35		30
ATM/Merchant Income		126			48			59		18
Other income		105			22			34		2
Total other income		2,248			1,873			783		645
Other Expenses
Salaries and employee benefits		3,192			2,982			1,099		995
Net occupancy and equipment expenses		877			869			293		286
Data processing fees		149			125			47		40
Advertising		244			201			89		71
Legal and professional fees		300			145			97		46
Amortization of mortgage servicing rights		234			291			73		92
Other expenses		818			916			275		277
Total other expenses		5,814			5,529			1,973		1,807
Income Before Income Tax		2,209			1,973			717		663
Income tax expense		586			594			185		190
Net Income	$	1,623			1,379			532		473
Basic earnings per share	$	1.00			.86			.33		.29
Diluted earnings per share		.98			.84			.32		.29
Dividends per share		.60			.585			.20		.195

See notes to consolidated condensed financial statements.

4

RIVER VALLEY BANCORP

Consolidated Condensed Statement of Comprehensive Income

(Unaudited)

	Nine Months Ended September 30,						Three Months Ended September 30,
	2007			2006			2007		2006
	(In Thousands)
Net income	$	1,623			1,379			532		473
Other comprehensive income, net of tax
Unrealized gains (losses) on securities available for sale
Unrealized holding gains (losses) arising during the period, net of tax expense (benefit) of ($74), $26, ($259), and ($183)		132			(46	)		462		325
Less: Reclassification adjustment for losses included in net income, net of tax benefit of $9, $18, $0, and $18.		(13	)		(28	)		0		(28	)
		145			(18	)		462		353
Comprehensive income	$	1,768			1,361			994		826

See notes to consolidated condensed financial statements.

5

RIVER VALLEY BANCORP

Consolidated Condensed Statement of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2007			2006
	(In Thousands)
Operating Activities
Net income	$	1,623			1,379
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		292			216
Depreciation and amortization		444			481
Investment securities gains		22			47
Loans originated for sale in the secondary market		(5,003	)		(3,643	)
Proceeds from sale of loans in the secondary market		4,813			3,628
Gain on sale of loans		(85	)		(109	)
Amortization of net loan origination cost		93			110
Employee Stock Ownership Plan compensation		136			0
Net change in:
Interest receivable		(239	)		(144	)
Interest payable		13			112
Other adjustments		281			(377	)
Net cash provided by operating activities		2,390			1,700
Investing Activities
Purchases of securities available for sale		(14,341	)		(17,018	)
Proceeds from sale of securities available for sale		8,917			6,012
Proceeds from maturities of securities available for sale		7,345			5,948
Purchase of Federal Home Loan Bank stock		(150	)		(100	)
Net change in loans		(11,435	)		(9,265	)
Purchases of premises and equipment		(306	)		(234	)
Proceeds from sale of foreclosed real estate		103			506
Other investing activities		(1	)		(44	)
Net cash used in investing activities		(9,868	)		(14,195	)
Financing Activities
Net change in
Non-interest bearing, interest-bearing demand and savings deposits		3,128			8,842
Certificates of deposit		(449	)		1,233
Short term borrowings		0			(14,565	)
Proceeds from borrowings		25,000			29,000
Repayment of borrowings		(23,000	)		(21,000	)
Cash dividends		(973	)		(934	)
Excess tax benefit on stock options exercised		8			49
Stock options exercised		90			229
Purchase of common stock		(183	)		0
Acquisition of stock for stock benefit plans		(107	)		0
Advances by borrowers for taxes and insurance		39			45
Net cash provided by financing activities		3,553			2,899
Net Change in Cash and Cash Equivalents		(3,925	)		(9,596	)
Cash and Cash Equivalents, Beginning of Period		11,808			17,730
Cash and Cash Equivalents, End of Period	$	7,883			8,134
Additional Cash Flows and Supplementary Information
Interest paid	$	9,155	��		7,944
Income tax paid		496			754

See notes to consolidated condensed financial statements.

6

RIVER VALLEY BANCORP

Notes to Unaudited Consolidated Condensed Financial Statements

River Valley Bancorp (the “Corporation” or the “Company”) is a unitary savings and loan holding company whose activities are primarily limited to holding the stock of River Valley Financial Bank (“River Valley” or the “Bank”). The Bank conducts a general banking business in southeastern Indiana which consists of attracting deposits from the general public and applying those funds to the origination of loans for consumer, residential and commercial purposes. River Valley’s profitability is significantly dependent on net interest income, which is the difference between interest income generated from interest-earning assets (i.e. loans and investments) and the interest expense paid on interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Bank can be significantly influenced by a number of competitive factors, such as governmental monetary policy, that are outside of management’s control.

NOTE 1:     BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements were prepared in accordance with instructions for Form 10-Q 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-K for the year ended December 31, 2006. 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 three- and nine-month periods ended September 30, 2007, are not necessarily indicative of the results which may be expected for the entire year. The consolidated condensed balance sheet of the Corporation as of December 31, 2006 has been derived from the audited consolidated balance sheet of the Corporation as of that date.

NOTE 2:     PRINCIPLES OF CONSOLIDATION

The consolidated condensed financial statements include the accounts of the Corporation and its subsidiary, the Bank. The Bank currently owns four subsidiaries. Madison First Service Corporation, which was incorporated under the laws of the State of Indiana on July 3, 1973, currently holds land and cash but does not otherwise engage in significant business activities. RVFB Investments, Inc., RVFB Holdings, Inc., and RVFB Portfolio, LLC were established in Nevada the latter part of 2005. They hold and manage a significant portion of the Bank’s investment portfolio. All significant inter-company balances and transactions have been eliminated in the accompanying consolidated financial statements.

NOTE 3:     EARNINGS PER SHARE

Earnings per share have been computed based upon the weighted average common shares outstanding.

	Nine Months Ended  September 30, 2007						Nine Months Ended September 30, 2006
	Income		Weighted Average Shares		Per Share Amount		Income		Weighted Average Shares		Per Share Amount
	(In Thousands, Except Share Amounts)
Basic earnings per share
Income available to common shareholders	$	1,623		1,621,862	$	1.00	$	1,379		1,603,263	$	.86
Effect of dilutive RRP awards and stock options				26,546						41,339
Diluted earnings per share
Income available to common shareholders and assumed conversions	$	1,623		1,648,408	$	.98	$	1,379		1,644,602	$	.84

7

	Three Months Ended September 30, 2007						Three Months Ended September 30, 2006
	Income		Weighted Average Shares		Per Share Amount		Income		Weighted Average Shares		Per Share Amount
	(In Thousands, Except Share Amounts)
Basic earnings per share
Income available to common shareholders	$	532		1,629,132	$	.33	$	473		1,612,660	$	.29
Effect of dilutive RRP awards and stock options				24,111						35,613
Diluted earnings per share
Income available to common shareholders and assumed conversions	$	532		1,653,243	$	.32	$	473		1,648,273	$	.29

Options to purchase 5,000 shares of common stock at $22.67 per share were outstanding at September 30, 2007, but were not included in the computation of diluted earnings per share because the option price was greater than the average market price of the common shares.

NOTE 4:     CHANGE IN ACCOUNTING PRINCIPLE

The Company or one of its subsidiaries files income tax returns in the U.S. federal and Indiana jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years before 2003.

The Company adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, on January 1, 2007.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  As a result of the implementation of FIN 48, the Company did not identify any uncertain tax positions that it believes should be recognized in the financial statements.

NOTE 5:     FUTURE ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements.  This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. The Company does not expect that the adoption of SFAS No. 157 will have a material impact on financial condition or results of operations.

In September 2006, the FASB Emerging Issues Task Force (EITF) finalized Issue No. 06−5, Accounting for Purchases of Life Insurance - Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85−4 (Accounting for Purchases of Life Insurance).  This issue requires that a policyholder consider contractual terms of a life insurance policy in determining the amount that could be realized under the insurance contract.  It also requires that if the contract provides for a greater surrender value if all individual policies in a group are surrendered at the same time, that the surrender value be determined based on the assumption that policies will be surrendered on an individual basis.  Lastly, the issue discusses whether the cash surrender value should be discounted when the policyholder is contractually limited in its ability to surrender a policy.  This issue is effective for fiscal years beginning after December 15, 2006.  Adoption of EITF No. 06-5 has not had a material impact on the financial condition of results of operations.

8

On February 15, 2007, the FASB issued its Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115.  FAS 159 permits entities to elect to report most financial assets and liabilities at their fair value with changes in fair value included in net income.  The fair value option may be applied on an instrument-by-instrument or instrument class-by-class basis.  The option is not available for deposits withdrawable on demand, pension plan assets and obligations, leases, instruments classified as stockholders’ equity, investments in consolidated subsidiaries and variable interest entities and certain insurance policies. The new standard is effective at the beginning of the Company’s fiscal year beginning January 1, 2008, and early application may be elected in certain circumstances.  The Company expects to first apply the new standard at the beginning of its 2008 fiscal year.  The Company does not expect that the adoption of SFAS No. 159 will have a material impact on financial condition or results of operations.

NOTE 6:     RECLASSIFICATIONS

Certain reclassifications have been made to the 2006 consolidated condensed financial statements to conform to the September 30, 2007 presentation.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains statements which constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief, outlook, estimate or expectations of the Corporation (as defined in the notes to the consolidated condensed financial statements), its directors or its officers primarily with respect to future events and the future financial performance of the Corporation. Readers of this Form 10-Q are cautioned that any such forward looking statements are not guarantees of future events or performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors. The accompanying information contained in this Form 10-Q identifies important factors that could cause such differences. These factors include changes in interest rates; loss of deposits and loan demand to other financial institutions; substantial changes in financial markets; changes in real estate values and the real estate market; or regulatory changes.

CRITICAL ACCOUNTING POLICIES

The notes to the consolidated financial statements contain a summary of the Company’s significant accounting policies presented on pages 55 through 58 of the Annual Report to Shareholders for the year ended December 31, 2006. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan losses and the valuation of mortgage servicing rights.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is a significant estimate that can and does change based on management’s assumptions about specific borrowers and current general economic and business conditions, among other factors. Management reviews the adequacy of the allowance for loan losses on at least a quarterly basis. The evaluation by management includes consideration of past loss experience, changes in the composition of the loan portfolio, the current condition and amount of loans outstanding, identified problem loans and the probability of collecting all amounts due.

The allowance for loan losses represents management’s estimate of probable losses inherent in the Corporation’s loan portfolios. In determining the appropriate amount of the allowance for loan losses, management makes numerous assumptions, estimates and assessments.

9

The Corporation’s strategy for credit risk management includes conservative, centralized credit policies, and uniform underwriting criteria for all loans as well as an overall credit limit for each customer significantly below legal lending limits. The strategy also emphasizes diversification on a geographic, industry and customer level, regular credit quality reviews and quarterly management reviews of large credit exposures and loans experiencing deterioration of credit quality.

The Corporation’s allowance consists of three components: probable losses estimated from individual reviews of specific loans, probable losses estimated from historical loss rates, and probable losses resulting from economic or other deterioration above and beyond what is reflected in the first two components of the allowance.

Larger commercial loans that exhibit probable or observed credit weaknesses are subject to individual review. Where appropriate, reserves are allocated to individual loans based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and legal options available to the Corporation. Included in the review of individual loans are those that are impaired as provided in SFAS No. 114, Accounting by Creditors for Impairment of a Loan. Any allowances for impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or fair value of the underlying collateral. The Corporation evaluates the collectibility of both principal and interest when assessing the need for a loss accrual. Historical loss rates are applied to other commercial loans not subject to specific reserve allocations.

Homogenous loans, such as consumer installment and residential mortgage loans are not individually risk graded. Rather, standard credit scoring systems are used to assess credit risks. Reserves are established for each pool of loans based on the expected net charge-offs for one year. Loss rates are based on the average net charge-off history by loan category.

Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. Factors which management considers in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs and non-accrual loans), changes in mix, credit score migration comparisons, asset quality trends, risk management and loan administration, changes in the internal lending policies and credit standards, collection practices and examination results from bank regulatory agencies and the Corporation’s internal loan review.

An unallocated reserve is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pools of loans. Allowances on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

The Corporation’s primary market area for lending is Clark, Floyd and Jefferson counties in southeastern Indiana and portions of northeastern Kentucky. When evaluating the adequacy of allowance, consideration is given to this regional geographic concentration and the closely associated effect changing economic conditions have on the Corporation’s customers.

The Corporation has not substantively changed any aspect to its overall approach in the determination of the allowance for loan losses. There have been no material changes in assumptions or estimation techniques as compared to prior periods that impacted the determination of the current period allowance.

10

VALUATION OF MORTGAGE SERVICING RIGHTS

The Company recognizes the rights to service mortgage loans as separate assets in the consolidated balance sheet. The total cost of loans when sold is allocated between loans and mortgage servicing rights based on the relative fair values of each. Mortgage servicing rights are subsequently carried at the lower of the initial carrying value, adjusted for amortization, or fair value. Mortgage servicing rights are evaluated for impairment based on the fair value of those rights. Factors included in the calculation of fair value of the mortgage servicing rights include, estimating the present value of future net cash flows, market loan prepayment speeds for similar loans, discount rates, servicing costs, and other economic factors. Servicing rights are amortized over the estimated period of net servicing revenue. It is likely that these economic factors will change over the life of the mortgage servicing rights, resulting in different valuations of the mortgage servicing rights. The differing valuations will affect the carrying value of the mortgage servicing rights on the consolidated balance sheet as well as the income recorded from loan servicing in the income statement. As of September 30, 2007 and December 31, 2006, mortgage servicing rights had carrying values of $338,000 and $525,000, respectively.

FINANCIAL CONDITION

At September 30, 2007, the Corporation’s consolidated assets totaled $348.0 million, an increase of $5.8 million, or 1.7% from December 31, 2006.  The net increase was a result of $11.0 million in new loans added to the portfolio, a $3.9 million reduction in cash and cash equivalents, and a $1.6 million reduction in investment securities.  This activity was funded by increases in deposits and borrowings.

The Corporation’s consolidated allowance for loan losses totaled $2.0 million and $2.2 million on September 30, 2007 and December 31, 2006, respectively, which represented .79% and .89% of total loans. Non-performing loans (defined as loans delinquent greater than 90 days and loans on non-accrual status) totaled $1,948,000 and $1,114,000 at September 30, 2007 and December 31, 2006 respectively. The increase in non-performing loans from December 31, 2006 to September 30, 2007 was primarily due to an increase in non-performing residential loans which are well collateralized.  Although management believes that its allowance for loan losses at September 30, 2007, was adequate based upon the available facts and circumstances, there can be no assurance that additions to such allowance will not be necessary in future periods, which could negatively affect the Corporation’s results of operations.

Deposits totaled $222.9 million at September 30, 2007, an increase of $2.7 million, or 1.2%, compared to total deposits at December 31, 2006. This change was due primarily to the late collection of tax revenues by local municipalities.

Borrowings used primarily to fund lending, increased slightly by $2.0 million from $95.2 million at December 31, 2006 to $97.2 million at September 30, 2007. Of total borrowings, $90.0 million represents FHLB Advances with an average rate of 4.69% at the end of both periods.

Shareholders’ equity totaled $24.9 million at September 30, 2007, an increase of $763,000, or 3.16% from the $24.1 million reported at December 31, 2006. The increase in shareholders’ equity was primarily due to net income of $1.6 million and a decrease in unrealized losses on securities available for sale of $145,000, offset by dividends of $975,000. The Bank is required to maintain minimum regulatory capital pursuant to federal regulations. At September 30, 2007, the Bank’s regulatory capital exceeded all applicable regulatory capital requirements.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

GENERAL

The Corporation’s net income for the nine months ended September 30, 2007, totaled $1,623,000, an increase of $244,000 or 17.7% from the $1,379,000 reported for the period ended September 30, 2006. The increase in income in the 2007 period was primarily attributable to increases in non-interest income and a modest increase in net interest income.

11

NET INTEREST INCOME

Total interest income for the nine months ended September 30, 2007 increased by $1.3 million, or 9.6%, to $15.2 million from the $13.9 million recorded for the same period in 2006.  The increase was a reflection of growth in the loan portfolio and modest increases in the yields on investments.

Total interest expense for the same period showed an increase of $1.1 million, or 13.8%, from $8.1 million at September 30, 2006 to $9.2 million at September 30, 2007.  Of this increase, $511,000 was attributable to increased costs for advances from the Federal Home Loan Bank and $601,000 in the cost of deposits.

Net interest income showed a modest gain of $222,000, or 3.8% for the nine months ended September 30, 2007 over the same period of 2006, $6.1 million and $5.8 million, respectively.  This gain reflects the effective management of the interest margin during somewhat difficult times.

PROVISION FOR LOSSES ON LOANS

A provision for losses on loans is charged to income to bring the total allowance for loan losses to a level considered appropriate by management based upon historical experience, the volume and type of lending conducted by the Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Bank’s market area, and other factors related to the collectibility of the Bank’s loan portfolio. As a result of such analysis, management recorded a $292,000 provision for losses on loans for the nine months ended September 30, 2007, as compared to $216,000 for the same period in 2006. The 2007 provision amount was predicated on the increase in the balance of the loan portfolio, coupled with an increase in the level of delinquent loans year-to-year fueled by a slowdown in the real estate market and the economy in general. While management believes that the allowance for losses on loans is adequate at September 30, 2007, based upon the available facts and circumstances, there can be no assurance that the loan loss allowance will be adequate to cover losses on non-performing assets in the future.

OTHER INCOME

Other income increased by $375,000, during the nine months ended September 30, 2007, as compared to the same period in 2006. This change was due primarily to increases in income from trust department estate fees collected of approximately $70,000, increases in service fees primarily for overdrafts of $70,000, increased income of $78,000 for merchant interchange fees under a newly implemented ATM/Debit processing system, and $37,000 in revenue from the Bank’s new wealth management division.  Increased revenue relative to increases in the cash surrender values of bank owned life insurance also contributed approximately $73,000 to the overall increase in other income.  Whereas the other increases may be typical in future periods, trust fees collected in relation to estate administration cannot be predicted.

OTHER EXPENSE

Other expenses increased from $5.5 million at September 30, 2006 to $5.8 million at September 30, 2007, an increase of approximately 5.5% period to period. Period to period increases in personnel costs and professional expenses were offset by decreases in other managed expenses and a reduction in the amortization expense for mortgage servicing rights.  Specifically, professional fees increased primarily due to the Bank’s implementation of Sarbanes-Oxley legislation, and the expense for office supplies decreased by $26,000.

INCOME TAXES

The provision for income taxes totaled $586,000 for the nine months ended September 30, 2007, comparable to the $594,000 for the same period in 2006.  The effective tax rate for the nine months ended September 30, 2007 was 26.5% as compared to 30.1% for the same period in 2006.  The decrease was primarily due to an increase in tax-exempt income from cash surrender value life insurance and municipal investments.

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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

GENERAL

The Corporation’s net income for the three months ended September 30, 2007, totaled $532,000, an increase of $59,000, or 12.6% from the $473,000 of net income reported in the comparable 2006 period.

NET INTEREST INCOME

Total interest income for the three months ended September 30, 2007 amounted to $5.3 million, an increase of $548,000, or 11.6%, from the comparable quarter in 2006, reflecting the effects of an increase in average interest-earning assets outstanding. Interest income on loans totaled $4.4 million for the three months ended September 30, 2007, an increase of $456,000, or 11.5%, from the comparable quarter in 2006.  The average yield on loans at September 30, 2007 was 7.05% compared to 6.91%, an increase of .14%, for the same date in 2006.

Interest expense on deposits experienced an increase of $165,000, or 9.1%, to a total of $2.0 million for the three months ended September 30, 2007 as compared to the same period in 2006.  Interest expense on borrowings totaled $1.2 million for the three months ended September 30, 2007, an increase of $153,000, or 14.9%, over the comparable quarter in 2006. The increase resulted from an increase in the average borrowings outstanding from period to period. The average cost of deposits and borrowed money at September 30, 2007 was 3.82% compared to 3.70% for the same date in 2006, a change of .12%, slightly less than the changes in loan yields over the same period.

As a result of the foregoing offsetting changes in interest income and interest expense, net interest income increased by 12.3% from $1.9 million for the three months ended September 30,2006 to $2.1 million for the same period in 2007, a $230,000 increase period to period.

PROVISION FOR LOSSES ON LOANS

A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based upon historical experience, the volume and type of lending conducted by the Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Bank’s market area, and other factors related to the collectibility of the Bank’s loan portfolio. As a result of such analysis, management recorded a $196,000 provision for losses on loans for the three months ended September 30, 2007 and $48,000 was recorded for the same period in 2006. This increase in provision expense reflects uncertainties in the real estate market and increases in non-performing loans period to period.  While management believes that the allowance for losses on loans is adequate at September 30, 2007, based upon the available facts and circumstances, there can be no assurance that the loan loss allowance will be adequate to cover losses on non-performing assets in the future.

OTHER INCOME

Other income increased by $138,000, or 21.4%, for the three months ended September 30, 2007, as compared to the same period in 2006, due primarily to increased value in the cash surrender value of bank owned life insurance, increased income for merchant interchange fees under a newly implemented ATM/Debit processing system, and income from the Bank’s wealth management division.

OTHER EXPENSE

Other expenses increased by $166,000, or 9.2%, during the three months ended September 30, 2007, compared to the same period in 2006. The increase was due to an increase in salaries/benefits due to the growth of the Bank, and professional fees incurred during the period for Sarbanes-Oxley implementation, offset by savings in data processing costs and office supplies.

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INCOME TAXES

The provision for income taxes totaled $185,000 for the three months ended September 30, 2007, as compared to $190,000 for the same period in 2006.  The effective tax rate for the quarter ended September 30, 2007 was 25.8% as compared to 28.7% for the same period in 2006.  The decrease was primarily due to an increase in tax-exempt income from cash surrender value life insurance and municipal investments.

OTHER

The Securities and Exchange Commission maintains a Web site that contains reports, proxy information statements, and other information regarding registrants that file electronically with the Commission, including the Corporation. The address   is http://www.sec.gov .

As disclosed in the June 30, 2007 10-Q, on June 20, 2007 the Company’s Board of Directors announced their intent to establish a branch at the corner of Paoli Pike and Scottsville Road in Floyd Knobs, Indiana, to be opened mid-year 2008.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

An important part of River Valley Financial Bank’s asset/liability management policy includes examining the interest rate sensitivity of the assets and liabilities and monitoring the expected effects of interest rate changes on its net portfolio value.

Presented below, as of June 30, 2007 and 2006, is an analysis performed by the OTS of River Valley’s interest rate risk as measured by changes in River Valley’s net portfolio value (“NPV”) for instantaneous and sustained parallel shifts in the yield curve, in 100 basis point increments, up 300 basis points and down 200 basis points.

June 30, 2007

Net Portfolio Value								NPV as % of PV of Assets
Changes In Rates		$ Amount		$ Change		% Change		NPV Ratio		Change
		(Dollars in thousands)
+300	bp		$      44,673	$      (1,348	)	-3	%	13.22	%	+4	bp
+200	bp		45,319	(703	)	-2	%	13.27	%	+8	bp
+100	bp		45,823	(199)		0	%	13.27	%	+8	bp
0	bp		46,022					13.18	%
-100	bp		44,674	(1,348	)	-3	%	12.72	%	-47	bp
-200	bp		42,547	(3,475	)	-8	%	12.05	%	-113	bp

June 30, 2006

Net Portfolio Value								NPV as % of PV of Assets
Changes In Rates		$ Amount		$ Change		% Change		NPV Ratio		Change
		(Dollars in thousands)
+300	bp		$      39,587	$      (1,849	)	-4	%	12.14	%	-18	bp
+200	bp		40,214	(1,222	)	-3	%	12.21	%	-11	bp
+100	bp		40,893	(544)		-1	%	12.28	%	-3	bp
0	bp		41,436					12.32	%
-100	bp		40,736	(700	)	-2	%	12.02	%	-29	bp
-200	bp		39,074	(2,362	)	-6	%	11.48	%	-84	bp

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Management believes at September 30, 2007 there have been no material changes in River Valley’s interest rate sensitive instruments which would cause a material change in the market risk exposures which affect the quantitative and qualitative risk disclosures as presented in Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s Annual Report on Form 10-K for the period ended December 31, 2006.

ITEM 4.     CONTROLS AND PROCEDURES

A. Evaluation of disclosure controls and procedures. The Corporation’s chief executive officer and chief financial officer, after evaluating the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of regulations promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the most recent fiscal quarter covered by this quarterly report (the “Evaluation Date”), have concluded that as of the Evaluation Date, the Corporation’s disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Corporation in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

B. Changes in internal control over financial reporting. There were no changes in the Corporation’s internal control over financial reporting identified in connection with the Corporation’s evaluation of controls that occurred during the Corporation’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS.

As previously reported in the Form 10-Q for the quarter ended June 30, 2007, on April 27, 2007, Cecilia Means filed a putative class action complaint in the Marion County Superior Court, Marion County, Indiana, on behalf of herself and others who paid funds into a pre-need trust (the “Pre-Need Trust”) for burial services and merchandise from Grandview Memorial Gardens, against the Bank, a former trustee of the Pre-Need Trust; three other banks that serve or have served as trustees of the Pre-Need Trust; and the current and former owners of Grandview Memorial Gardens.  The complaint alleges that the Bank and other trustees did not properly account for funds placed in the Pre-Need Trust and did not properly verify the legitimacy of disbursements from the Pre-Need Trust in violation of certain state statutes and in breach of the trustees’ alleged fiduciary duties.  The complaint is not specific as to the amount of damages sought but states that the plaintiff believes that the Pre-Need Trust has an estimated $4 million in unfunded liabilities. The Bank believes that it has meritorious defenses to the allegations, and the Bank continues to vigorously defend against the litigation.

ITEM 1A.     RISK FACTORS

There have been no material changes with respect to the risk factors disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.

None.

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ITEM 4.     SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.

None.

ITEM 5.     OTHER INFORMATION.

None.

ITEM 6.     EXHIBITS.

31(1)	CEO Certification required by 17 C.F.R. Section 240.13a-14(a)
31(2)	CFO Certification required by 17 C.F.R. Section 240.13a-14(a)
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RIVER VALLEY BANCORP
Date: November 14, 2007	By:	/s/ Matthew P. Forrester
		Matthew P. Forrester
		President and Chief Executive Officer
Date: November 14, 2007	By:	/s/ Vickie L. Grimes
		Vickie L. Grimes
		Vice President of Finance

17

EXHIBIT INDEX

No.	Description	Location
31(1)	CEO Certification required by 17 C.F.R. Section 240.13a-14(a)	Attached
31(2)	CFO Certification required by 17 C.F.R. Section 240.13a-14(a)	Attached
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Attached