River Valley Bancorp 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2009
	OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 0-21765

RIVER VALLEY BANCORP

(Exact name of 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  x          No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ¨          No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer¨	Accelerated Filer ¨
Non-Accelerated Filer ¨ (Do not check if a smaller reporting company)	Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨          No  x

The number of shares of the Registrant’s common stock, without par value, outstanding as of August 12, 2009 was 1,504,472.

RIVER VALLEY BANCORP

FORM 10-Q

INDEX

		Page No.
PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Operations	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	20
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	29
Item 4T.	Controls and Procedures	30
PART II. OTHER INFORMATION		31
Item 1.	Legal Proceedings	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Submission of Matters to a Vote of Security Holders	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
SIGNATURES		32
EXHIBIT INDEX		33

2

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RIVER VALLEY BANCORP

Consolidated Condensed Balance Sheets

	June 30, 2009 (Unaudited)			December 31, 2008
	(In Thousands, Except Share Amounts)
Assets
Cash and due from banks	$	4,530		$	3,645
Interest-bearing demand deposits		14,704			6,388
Cash and cash equivalents		19,234			10,033
Investment securities available for sale		68,699			52,284
Loans held for sale		366			130
Loans		278,953			287,668
Allowance for loan losses		(4,677	)		(2,364	)
Net loans		274,276			285,304
Premises and equipment, net		7,503			7,704
Real estate, held for sale		175			259
Federal Home Loan Bank stock		4,850			4,850
Interest receivable		1,962			2,187
Cash value of life insurance		8,028			7,871
Other assets		2,540			1,722
Total assets	$	387,633		$	372,344
Liabilities
Deposits
Non-interest-bearing	$	22,116		$	21,393
Interest-bearing		246,916			226,384
Total deposits		269,032			247,777
Borrowings		91,217			97,217
Interest payable		744			704
Other liabilities		2,533			2,106
Total liabilities		363,526			347,804
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, no par value
Authorized and unissued - 2,000,000 shares
Common stock, no par value
Authorized - 5,000,000 shares
Issued and outstanding – 1,504,472 and 1,500,322 shares		7,419			7,409
Retained earnings		16,934			17,384
Accumulated other comprehensive loss		(246	)		(253	)
Total stockholders’ equity		24,107			24,540
Total liabilities and stockholders’ equity	$	387,633		$	372,344

See Notes to Unaudited Consolidated Condensed Financial Statements.

3

RIVER VALLEY BANCORP

Consolidated Condensed Statements of Operations

(Unaudited)

	Six Months Ended June 30,						Three Months Ended June 30,
	2009			2008			2009			2008
	(In Thousands, Except Share Amounts)
Interest Income
Loans receivable	$	8,139		$	8,667		$	4,000		$	4,278
Investment securities		1,333			1,235			682			596
Interest-earning deposits and other		82			227			30			94
Total interest income		9,554			10,129			4,712			4,968
Interest Expense
Deposits		2,532			3,155			1,259			1,457
Borrowings		2,188			2,430			1,078			1,202
Total interest expense		4,720			5,585			2,337			2,659
Net Interest Income		4,834			4,544			2,375			2,309
Provision for loan losses		2,438			400			2,053			200
Net Interest Income After Provision for Loan Losses		2,396			4,144			322			2,109
Other Income
Service fees and charges		1,084			1,006			584			529
Net realized gains on sale of available-for-sale securities		97			48			72			17
Net gains on loan sales		771			172			398			71
Interchange fee income		148			137			79			73
Increase in cash value of life insurance		156			158			78			80
Trust operations income		50			96			25			41
Gain/(loss) on sale of premises, equipment and real estate held for sale		(46	)		(37	)		0			(31	)
Other income		34			73			19			27
Total other income		2,294			1,653			1,255			807
Other Expenses
Salaries and employee benefits		2,387			2,293			1,187			1,187
Net occupancy and equipment expenses		616			648			298			318
Data processing fees		193			191			97			95
Advertising		191			170			107			93
Legal and professional fees		191			181			88			75
Amortization of mortgage servicing rights		73			98			39			45
Federal Deposit Insurance Corporation assessment		425			31			185			19
Other expenses		742			576			373			311
Total other expenses		4,818			4,188			2,374			2,143
Income (Loss) Before Income Tax		(128	)		1,609			(797	)		773
Income tax expense (benefit)		(309	)		405			(435	)		184
Net Income (Loss)	$	181		$	1,204		$	(362	)	$	589
Basic earnings per share	$	.12		$	.74		$	(.24	)	$	.36
Diluted earnings per share		.12			.73			(.24	)		.36
Dividends per share		.42			.42			.21			.21

See Notes to Unaudited Consolidated Condensed Financial Statements.

4

RIVER VALLEY BANCORP

Consolidated Condensed Statements of Comprehensive Income (Loss)

(Unaudited)

	Six Months Ended June 30,					Three Months Ended June 30,
	2009		2008			2009			2008
	(In Thousands)
Net income (loss)	$	181	$	1,204		$	(362	)	$	589
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 $(27), $357, $105, and $555.		70		(653	)		(182	)		(1,021	)
Less: Reclassification adjustment for gains included in net income, net of tax expense of $(33), $(18), $(24) and $(6)		64		30			47			11
		6		(683	)		(229	)		(1,032	)
Comprehensive income (loss)	$	187	$	521		$	(591	)	$	(443	)

See Notes to Unaudited Consolidated Condensed Financial Statements.

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RIVER VALLEY BANCORP

Consolidated Condensed Statements of Cash Flows

(Unaudited)

		Six Months Ended June 30,
		2009			2008
		(In Thousands)
Operating Activities
Net income		$	181			$	1,204
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses			2,438				400
Depreciation and amortization			235				188
Investment securities (gains) losses			(97	)			(48	)
Loans originated for sale in the secondary market			(34,200	)			(8,000	)
Proceeds from sale of loans in the secondary market			34,392				8,215
Gain on sale of loans			(771	)			(172	)
Amortization of net loan origination cost			74				66
Net change in:	Interest receivable		225				483
	Interest payable		40				117
Other adjustments			(74	)			983
Net cash provided by operating activities			2,443				3,436
Investing Activities
Purchases of securities available for sale			(32,294	)			(17,162	)
Proceeds from maturities of securities available for sale			14,314				13,667
Proceeds from sale of securities available for sale			1,620				7,971
Purchase of Federal Home Loan Bank stock			0				(50	)
Net change in loans			8,261				(8,018	)
Purchases of premises and equipment			(34	)			(602	)
Proceeds from sale of premises and equipment			0				95
Proceeds from the sale of foreclosed real estate			261				48
Net cash  used in investing activities			(7,872	)			(4,051	)
Financing Activities
Net change in
Non-interest bearing, interest-bearing demand and savings deposits			(682	)			(29,564	)
Certificates of deposit			21,937				31,051
Short term borrowings			0				163
Proceeds from borrowings			6,000				21,000
Repayment of borrowings			(12,000	)			(21,000	)
Cash dividends			(630	)			(688	)
Other financing activities			5				45
Net cash provided by financing activities			14,630				1,007
Net Change in Cash and Cash Equivalents			9,201				392
Cash and Cash Equivalents, Beginning of Period			10,033				8,137
Cash and Cash Equivalents, End of Period		$	19,234			$	8,529
Additional Cash Flows and Supplementary Information
Interest paid		$	4,680			$	5,468
Income tax paid			221				409

See Notes to Unaudited 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 and Carroll County, Kentucky 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, 2008. 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-month and six-month periods ended June 30, 2009, 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, 2008 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 1st 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 condensed financial statements.

7

NOTE 3: EARNINGS PER SHARE

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

	Six Months Ended June 30, 2009					Six Months Ended June 30, 2008
	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	$	181	1,501,804	$	.12	$	1,204	1,635,868	$	.74
Effect of dilutive RRP awards and stock options			8,992					17,069
Diluted earnings per share
Income available to common shareholders and assumed conversions	$	181	1,510,796	$	.12	$	1,204	1,652,937	$	.73

	Three Months Ended June 30, 2009							Three Months Ended June 30, 2008
	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	$	(362	)	1,503,286	$	(.24	)	$	589	1,636,747	$	.36
Effect of dilutive RRP awards and stock options				0						15,411
Diluted earnings per share
Income available to common shareholders and assumed conversions	$	(362	)	1,503,286	$	(.24	)	$	589	1,652,158	$	.36

Options to purchase 5,000 shares of common stock at an exercise price of $22.25 per share were outstanding for the three and six month periods ending June 30, 2009 and June 30, 2008.  Options to purchase 19,000 shares of common stock at $14.56 per share were outstanding for the three and six month periods ending June 30, 2009.  Neither group of options was included in the computation of diluted earnings per share because the option price was greater than the average market price of the common shares.  In addition, options to purchase 23,400 shares of common stock at exercise prices ranging from $5.38 to $13.25 were outstanding at June 30, 2009 but were not included in the diluted shares outstanding for the three-month period ended June 30, 2009 due to the net loss for the period.

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NOTE 4: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, the Corporation adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157).  FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  FAS 157 has been applied prospectively as of the beginning of the period.

FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  The Corporation does not currently hold any Level 1 securities.  If quoted market prices are not available, then fair values are estimated by using pricing models which utilize certain market information or quoted prices of securities with similar characteristics (Level 2). For securities where quoted prices, market prices of similar securities or pricing models which utilize observable inputs are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).  Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality.  Rating agency industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into calculations.  Level 2 securities include mortgage and other asset backed securities, federal agency securities and certain municipal securities.  Securities classified within Level 3 of the hierarchy include pooled trust preferred securities which are less liquid securities.

9

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the FAS 157 fair value hierarchy in which the fair value measurements fall at June 30, 2009 and December 31, 2008, respectively (in thousands).

			June 30, 2009
			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Available-for-sale securities:
Federal agencies	$	24,255	$	0	$	24,255	$	0
Mortgage and other asset backed securities		23,531		0		23,531		0
State and municipals		17,733		0		17,733		0
Corporate		3,180		0		2,155		1,065
Total	$	68,699	$	0	$	67,634	$	1,065

			December 31, 2008
			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Available-for-sale securities:
Federal agencies	$	13,362	$	0	$	13,362	$	0
Mortgage and other asset backed securities		18,949		0		18,949		0
State and municipals		16,332		0		16,332		0
Corporate		3,641		0		2,558		1,083
Total	$	52,284	$	0	$	51,201	$	1,083

10

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	Available-For-Sale Securities
	(In Thousands)
	Six Months Ended June 30, 2009			Six Months Ended June 30, 2008
Beginning balance	$	1,083		$	888
Total realized and unrealized gains and losses
Amortization included in net income		0			0
Unrealized gain (losses) included in other comprehensive income		(12	)		(283	)
Purchases, issuances and settlements including paydowns		(6	)		1,885
Transfers in and/or out of Level 3		0			0
Ending balance	$	1,065		$	2,490

	Available-For-Sale Securities
	(In Thousands)
	Three Months Ended June 30, 2009			Three Months Ended June 30, 2008
Beginning balance	$	820		$	1,729
Total realized and unrealized gains and losses
Amortization included in net income		0			0
Unrealized gain (losses) included in other comprehensive income		248			(222	)
Purchases, issuances and settlements including paydowns		(3	)		983
Transfers in and/or out of Level 3		0			0
Ending balance	$	1,065		$	2,490

There are no realized and or unrealized gains and losses included in net income for the three and six month periods ended June 30, 2009 and 2008.

11

Following is a description of the valuation methodologies used for instruments measured at fair values on a non-recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying balance sheet measured at fair value on a non-recurring basis and the level within the FAS 157 fair value hierarchy in which the fair value measurements fall at June 30, 2009 and December 31, 2008, respectively (in thousands).

				June 30, 2009
				Fair Value Measurements Using
	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
		(In Thousands)
Impaired loans		$	4,267		$	0		$	0		$	4,267
Real estate held for sale			175			0			0			175
Mortgage Servicing Rights			343			0			0			343

				December 31, 2008
				Fair Value Measurements Using
	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
				(In Thousands)
Impaired loans		$	2,512		$	0		$	0		$	2,512
Mortgage servicing rights			119			0			0			119

Impaired Loans

Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or the fair value of collateral if the loan is collateral dependent.  Loans are evaluated for impairment quarterly. During the year ended December 31, 2008 and the six months ended June 30, 2009, certain of these impaired loans were impaired for the first time, partially charged-off or re-evaluated, resulting in a remaining balance for these loans, net of specific allowance, of $2,512,000 and $4,267,000 for the respective periods.  These valuations would be considered Level 3.  Level 3 inputs for impaired loans included current and prior appraisals, discounting factors, the borrowers’ financial results and other considerations including expected cash flows.

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Real Estate Held For Sale

Real estate held for sale is carried at the fair value less cost to sell and is periodically evaluated for impairment as described in SFAS No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140.  Real estate held for sale recorded during the current accounting period is recorded at fair value, less cost to sell, and is disclosed as a nonrecurring measurement.

During the six months ended June 30, 2009, transfers to real estate held for sale were made, and remained outstanding at period end, with a fair value totaling $175,000.  Due to the nature of the valuation inputs, recorded initial real estate held for sale is classified within Level 3 of the hierarchy.

Mortgage Servicing Rights

Mortgage servicing rights are initially recorded at fair value and are subsequently reported at amortized cost and periodically evaluated for impairment as described in SFAS No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140. New mortgage servicing rights recorded during the current accounting period are recorded at fair value and are disclosed as a nonrecurring measurement.

Mortgage servicing rights recorded as an asset and into income during the six months ended June 30, 2009 and the year ended December 31, 2008 totaled $343,000 and $119,000, respectively. Mortgage servicing rights do not trade in an active, open market with readily observable prices.  Accordingly, fair values of new mortgage servicing rights are estimated using discounted cash flow models.  Due to the nature of the valuation inputs, recording initial mortgage servicing rights are classified within Level 3 of the hierarchy.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and Cash Equivalents - The fair value of cash and cash equivalents approximates carrying value.

Loans Held for Sale - Fair values are based on quoted market prices.

Loans - The fair value for loans is estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Interest Receivable/Payable - The fair values of interest receivable/payable approximate carrying values.

FHLB Stock - Fair value of FHLB stock is based on the price at which it may be resold to the FHLB.

Deposits - The fair values of noninterest-bearing, interest-bearing demand and savings accounts are equal to the amount payable on demand at the balance sheet date. The carrying amounts for variable rate, fixed-term certificates of deposit approximate their fair values at the balance sheet date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on such time deposits.

Federal Home Loan Bank Advances - The fair value of these borrowings are estimated using a discounted cash flow calculation, based on current rates for similar debt.

Other Borrowings - The fair value of these borrowings are estimated using a discounted cash flow calculation, based on current rates for similar debt.

Advance Payment by Borrowers for Taxes and Insurance - The fair value approximates carrying value.

Off-Balance Sheet Commitments - Commitments include commitments to originate mortgage and consumer loans and standby letters of credit and are generally of a short-term nature. The fair value of such commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The carrying amounts of these commitments, which are immaterial, are reasonable estimates of the fair value of these financial instruments.

13

The estimated fair values of the Corporation’s financial instruments are as follows:

	June 30, 2009
	Carrying Amount		Fair Value
Assets	(In Thousands)
Cash and cash equivalents	$	19,234	$	19,234
Investment securities available for sale		68,699		68,699
Loans including loans held for sale, net		274,642		280,820
Interest receivable		1,962		1,962
Stock in FHLB		4,850		4,850
Liabilities
Deposits		269,032		272,667
FHLB advances		84,000		88,718
Other borrowings		7,217		7,220
Interest payable		744		744
Advance payments by borrowers for taxes and insurance		115		115
Off-Balance Sheet Assets (Liabilities)
Commitments to extend credit		0		0
Standby letters of credit		0		0

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NOTE 5:  INVESTMENT SECURITES

The amortized cost and approximate fair values of securities are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In Thousands)
Available-for-sale Securities:
June 30, 2009:
Federal agencies	$	24,158	$	288	$	191	$	24,255
Mortgage and other asset backed securities		22,831		710		10		23,531
State and municipals		18,218		75		560		17,733
Corporate		3,876		24		720		3,180
Totals	$	69,083	$	1,097	$	1,481	$	68,699

The amortized cost and fair value of available-for-sale securities and held-to-maturity securities at June 30, 2009, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-sale
	Amortized Cost		Fair Value
	(In Thousands)
Within one year	$	1,469	$	1,494
One to five years		14,960		15,052
Five to ten years		10,200		10,076
After ten years		19,623		18,546
		46,252		45,168
Mortgage and other asset backed securities		22,831		23,531
Totals	$	69,083	$	68,699

The carrying value of securities pledged as collateral, to secure public deposits, borrowings and for other purposes, was $21,765,000 at June 30, 2009.

Gross gains of $97,000 resulting from sales of available-for-sale securities were realized for 2009.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost.  Total fair value of these investments at June 30, 2009 was $30,455,000, which is approximately 44.3% of the Corporation’s available-for-sale investment portfolio.

As discussed below, management believes the declines in fair value for these securities are temporary.

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Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

The following table shows the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2009:

June 30, 2009
	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Federal agencies	$	14,036	$	191	$	0	$	0	$	14,036	$	191
Mortgage and other asset backed securities		2,545		10		0		0		2,545		10
State and Municipal		10,786		306		2,023		254		12,809		560
Corporate		0		0		1,065		720		1,065		720
Total temporarily impaired securities	$	27,367	$	507	$	3,088	$	974	$	30,455	$	1,481

Federal Agencies

The unrealized losses on the Corporation’s investments in direct obligations of U.S. government agencies were primarily caused by interest rate changes.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments.  Because the Corporation does not intend to sell the investments and it is not likely that the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Corporation does not consider those investments to be other-than-temporarily impaired at June 30, 2009.

Mortgage and Other Asset Backed Securities

The unrealized losses on the Corporation’s investment in mortgage-backed securities were primarily caused by interest rate changes.  The Corporation expects to recover the amortized cost basis over the term of the securities.  Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Corporation does not intend to sell the investments and it is not likely that the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Corporation does not consider those investments to be other-than-temporarily impaired at June 30, 2009.

State and Municipal

The unrealized losses on the Corporation’s investments in securities of state and political subdivisions were primarily caused by interest rate changes.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments.  Because the Corporation does not intend to sell the investments and it is not likely that the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Corporation does not consider those investments to be other-than-temporarily impaired at June 30, 2009.

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Corporate Securities

The unrealized losses on the Corporation’s investment in corporate securities were due primarily to losses on two pooled trust preferred issues held by the Corporation.  The two, ALESCO 9A and PRETSL XXVII Ltd, had unrealized losses at June 30, 2009 of $684,000 and $36,000, respectively.  These two securities are rated Ba1 and A3, respectively, by Moodys indicating these securities are considered of moderate investment quality and credit risk.  Both issues are of either the highest or second highest tranche of the total issue, and have good collateral coverage at those tranche levels, thus providing protection for the Corporation. The Corporation has reviewed the pricing reports for these investments and has determined that the decline in the market price is temporary and indicates thin trading activity rather than a true decline in the value of the investment.  Factors considered in reaching this determination included the class or “tranche” held by the Corporation, the collateral position of the tranches, projected cash flows and the credit ratings.  The Corporation has the ability and intent to hold these securities to recovery, which may be maturity and expects to receive all contractual cash flows related to these investments.  Based upon these factors, the Corporation has determined these securities are not other than temporarily impaired.

NOTE 6: RECENT ACCOUNTING PRONOUNCEMENTS

FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, was issued on April 9, 2009.  This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased.  This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly.   Even if there has been a significant decrease in the volume and level of activity regardless of valuation technique, the objective of a fair value measurement remains the same.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  This FSP was effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 only if FSP FAS 115-2 and FAS 124-2 and FSP FAS 107-1 and APB 28-1 are adopted concurrently.  This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption.  The adoption of this FSP did not have a material effect on the Corporation’s financial position or results of operations.

FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairment, was issued on April 9, 2009. This FSP amends the other-than-temporary guidance in U.S. generally accepted accounting principles for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements.  This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities and does not require disclosures for earlier periods presented for comparative purposes at initial adoption.  This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 only if FSP FAS 157-4 and FSP FAS 107-1 and APB 28-1 are adopted concurrently.  The adoption of this FSP did not have a material effect on the Corporation’s financial position or results of operations.

FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, was issued on April 9, 2009.  This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments,and APB Opinion No. 28, Interim Financial Reporting, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 only if FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 are adopted concurrently.  This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption.  The adoption of this FSP did not have a material effect on the Corporation’s financial position or results of operations.

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In May 2009, the FASB issued SFAS No. 165, Subsequent Events.  This Statement established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  This Statement was effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009.  Management has determined the adoption of SFAS No. 165 did not have a material effect on the Corporation’s financial position or results of operations.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140.  The Board’s objective in issuing this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets.  This Statement is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited.   This Statement must be applied to transfers occurring on or after the effective date.  Management has not yet determined whether the adoption of SFAS No. 166 will have a material effect on the Corporation’s financial position or results of operations.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R).  This Statement addresses (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, as a result of the elimination of the qualifying special-purpose entity concept in FASB Statement No. 166, Accounting for Transfers of Financial Assets, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This Statement is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter.  Earlier application is prohibited.  Management has not yet determined whether the adoption of SFAS No. 167 will have a material effect on the Corporation’s financial position or results of operations.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.  The FASB Accounting Standards Codification (Codification) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative.   This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  Management has determined the adoption of SFAS No. 168 will not have a material effect on the Corporation’s financial position or results of operations.

NOTE 7:   RECLASSIFICATIONS

Certain reclassifications have been made to the 2008 consolidated condensed financial statements to conform to the June 30, 2009 presentation.

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NOTE 8:  ECONOMIC RECOVERY PROGRAMS

In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into law. Pursuant to the EESA, the U.S. Department of Treasury (the “Treasury”) has the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 14, 2008, the Treasury also announced it would offer to qualifying U.S. banking organizations the opportunity to sell preferred stock, along with warrants to purchase common stock, to the Treasury on what may be considered attractive terms under the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (the “CPP”). The CPP allows financial institutions to issue non-voting preferred stock to the Treasury in an amount ranging between 1% and 3% of its total risk-weighted assets.  The Corporation has determined that it will not participate in the TARP’s CPP.

The American Recovery and Reinvestment Act of 2009 (“ARRA”), signed into law on February 17, 2009, amended the EESA as it applies to institutions that received financial assistance under TARP. ARRA, more commonly known as the economic stimulus or economic recovery package, includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients until the institution has repaid the Treasury.

Before and after EESA and ARRA, there have been numerous actions by the Federal Reserve Board, Congress, the Treasury, the FDIC, the IRS, the SEC and others to further the economic and banking industry stabilization efforts. It remains unclear at this time what further legislative and regulatory measures will be implemented affecting the Corporation. To date, the Corporation or the Bank has elected to participate only in the FDIC’s Debt Guarantee Program, which provides for the guarantee of eligible newly issued senior unsecured debt of participating entities, and the FDIC’s Transaction Account Guarantee Program, which provides, without charge to depositors, a full guarantee on all non-interest bearing transaction accounts held by any depositor, regardless of dollar amount, through December 31, 2009 (and potentially beyond, if current FDIC proposals are approved). Both of these programs are part of the FDIC’s Temporary Liquidity Guarantee Program.

In February 2009, the Board of Directors of the FDIC voted to amend the restoration plan for the Deposit Insurance Fund (“DIF”). The amended restoration plan extended the period of time to raise the DIF reserve ratio to 1.15 percent from five to seven years. The amended restoration plan also includes a final rule that sets assessment rates. Under this final rule, beginning on April 1, 2009 the Corporation expects the FDIC premium assessed to the Corporation to increase.

The Board of the FDIC also adopted an interim rule imposing a 5 basis point special assessment on insured institutions as of June 30, 2009 which will be payable on September 30, 2009. The interim rule would also allow the assessment of additional special assessments of up to 5 basis points each quarter of this year after June 30, 2009 as deemed necessary. We have estimated the special assessment due in September at approximately $190,000, based on current deposit levels.  This estimate was accrued at June 30, 2009.

NOTE 9:  SUBSEQUENT EVENTS

Subsequent events have been evaluated through August 13, 2009, which is the date the financial statements were issued.  The Corporation did not have any subsequent events to report.

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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; regulatory changes; or turmoil and governmental intervention in the financial services industry.

EFFECT OF CURRENT EVENTS

The global and U.S. economies are experiencing significantly reduced business activity as a result of, among other factors, disruptions in the financial system during the past year. Dramatic declines in the housing market during the past year, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail.

Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions. The availability of credit, confidence in the financial sector, and level of volatility in the financial markets have been significantly adversely affected as a result. The volatility and disruption in the capital and credit markets has reached unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers’ underlying financial strength.

In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the government has responded with a number of new and amended regulatory provisions. Many of these provisions directly or indirectly impact the Corporation, including the EESA, TARP and the related CPP program, and changes to the federal deposit insurance program.

It is not clear at this time what impact the EESA, the TARP CPP, the Temporary Liquidity Guarantee Program, ARRA and other liquidity and funding initiatives, whether previously announced or that may be initiated in the future, will have on the financial markets and the other difficulties described above, including the extreme levels of volatility and limited credit availability currently being experienced, or on the U.S. banking and financial industries and the broader U.S. and global economies. Further adverse effects could have an adverse effect on the Corporation and its business.

The level of turmoil in the financial services industry will present unusual risks and challenges for the Corporation, as described below:

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The Current Economic Environment Poses Challenges For Us and Could Adversely Affect Our Financial Condition and Results of Operations. We are operating in a challenging and uncertain economic environment, including generally uncertain national conditions and local conditions in our markets. The capital and credit markets have been experiencing volatility and disruption for more than 12 months. The volatility and disruption has reached unprecedented levels. The risks associated with our business become more acute in periods of a slowing economy or slow growth. Financial institutions continue to be affected by sharp declines in the real estate market and constrained financial markets. While we are taking steps to decrease and limit our exposure to problem loans, we nonetheless retain direct exposure to the residential and commercial real estate markets, and we are affected by these events.

Our loan portfolio includes commercial real estate loans, residential mortgage loans, and construction and land development loans. Continued declines in real estate values, home sales volumes and financial stress on borrowers as a result of the uncertain economic environment, including job losses, could have an adverse effect on our borrowers or their customers, which could adversely affect our financial condition and results of operations. In addition, a possible national economic recession or further deterioration in local economic conditions in our markets could drive losses beyond that which is provided for in our allowance for loan losses and result in the following other consequences: increases in loan delinquencies, problem assets and foreclosures may increase; demand for our products and services may decline; deposits may decrease, which would adversely impact our liquidity position; and collateral for our loans, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with our existing loans.

Impact of Recent and Future Legislation. Congress and the Treasury Department have adopted legislation and taken actions to address the disruptions in the financial system and declines in the housing market. See Note 8, Economic Recovery Programs, to the Corporation’s Unaudited Consolidated Condensed Financial Statements, included in this Form 10-Q and incorporated herein.  It is not clear at this time what impact EESA, TARP, ARRA and other liquidity and funding initiatives of the Treasury and other bank regulatory agencies that have been previously announced, and any additional programs that may be initiated in the future, will have on the financial markets and the financial services industry. The extreme levels of volatility and limited credit availability currently being experienced could continue to affect the U.S. banking industry and the broader U.S. and global economies, which will have an effect on all financial institutions, including the Corporation. The actual impact that EESA, ARRA and related measures undertaken to alleviate the credit crisis will have on the financial markets is unknown. The failure of such measures to help stabilize the financial markets, and a continuation or worsening of current financial market conditions, could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock. Finally, there can be no assurance regarding the specific impact that such measures may have on us and no assurance whether or to what extent we will be able to benefit from such programs.

In addition to the legislation mentioned above, federal and state governments could pass additional legislation responsive to current credit conditions. As an example, the Bank could experience higher credit losses because of federal or state legislation or regulatory action that reduces the amount the Bank’s borrowers are otherwise contractually required to pay under existing loan contracts. Also, the Bank could experience higher credit losses because of federal or state legislation or regulatory action that limits its ability to foreclose on property or other collateral or makes foreclosure less economically feasible.

On June 17, 2009, the Obama Administration published a comprehensive regulatory reform plan that is intended to modernize and protect the integrity of the United States financial system. The President’s plan contains several elements that would have a direct effect on the Corporation and the Bank. Under the reform plan, the federal thrift charter and the Office of Thrift Supervision would be eliminated and all companies that control an insured depository institution must register as a bank holding company. Draft legislation would require the Bank to become a national bank or adopt a state charter. Registration of the Corporation as a bank holding company would represent a significant change, as there currently exist significant differences between savings and loan holding company and bank holding company supervision and regulation. For example, the Federal Reserve imposes leverage and risk-based capital requirements on bank holding companies whereas the Office of Thrift Supervision does not impose any capital requirements on savings and loan holding companies. If implemented, the foregoing regulatory reforms may have a material impact on our operations. However, at this time, we cannot determine the likelihood that the proposed regulatory reform will be adopted in the form proposed by the Obama Administration or the specific impact that any adopted legislation will have on the Corporation or the Bank.

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Additional Increases in Insurance Premiums. The FDIC insures the Bank’s deposits up to certain limits. The FDIC charges us premiums to maintain the Deposit Insurance Fund. The Bank elected to participate in the FDIC’s Temporary Liquidity Guarantee Program, which will increase its insurance premiums by 85 basis points per annum with respect to the Bank’s deposits. Current economic conditions have increased expectations for bank failures. The FDIC takes control of failed banks and ensures payment of deposits up to insured limits using the resources of the Deposit Insurance Fund. The FDIC has designated the Deposit Insurance Fund long-term target reserve ratio at 1.25 percent of insured deposits. Due to recent bank failures, the FDIC insurance fund reserve ratio has fallen below 1.15 percent, the statutory minimum. The FDIC has developed a restoration plan that will uniformly increase insurance assessments by 7 basis points (annualized) effective January 1, 2009. Effective April 1, 2009, the plan also has made changes to the deposit insurance assessment system resulting in increases in the assessment range for insured institutions. Further increases in premium assessments would increase the Corporation’s expenses. Also, the FDIC has announced a 5 basis point special assessment payable in September 2009, as well as the possibility of additional special assessments of up to 5 basis points each quarter of this year after June 2009, as necessary.

Increased assessment rates and special assessments have had a material impact on the Corporation’s results of operations.

The Soundness of Other Financial Institutions Could Adversely Affect Us. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default by our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.

Future Reduction in Liquidity in the Banking System. The Federal Reserve Bank has been providing vast amounts of liquidity in to the banking system to compensate for weaknesses in short-term borrowing markets and other capital markets. A reduction in the Federal Reserve’s activities or capacity could reduce liquidity in the markets, thereby increasing funding costs to the Bank or reducing the availability of funds to the Bank to finance its existing operations.

Difficult Market Conditions Have Adversely Affected Our Industry. We are particularly exposed to downturns in the U.S. housing market. Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and securities and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities, major commercial and investment banks, and regional financial institutions. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets could adversely affect our business, financial condition and results of operations. We do not expect that the difficult conditions in the financial markets are likely to improve in the near future. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on the financial institutions industry. In particular, we may face the following risks in connection with these events:

·   We expect to face increased regulation of our industry. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

·   Our ability to assess the creditworthiness of our customers may be impaired if the models and approach we use to select, manage and underwrite our customers become less predictive of future behaviors.

·   The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans, which may no longer be capable of accurate estimation which may, in turn, impact the reliability of the process.

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·   Our ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by further disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations.

·   Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions.

·   We may be required to pay significantly higher deposit insurance premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits.

Concentrations of Real Estate Loans Could Subject the Corporation to Increased Risks in the Event of a Real Estate Recession or Natural Disaster. A significant portion of the Corporation’s loan portfolio is secured by real estate. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. A weakening of the real estate market in our primary market area could result in an increase in the number of borrowers who default on their loans and a reduction in the value of the collateral securing their loans, which in turn could have an adverse effect on our profitability and asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected. Historically, Indiana and Kentucky have experienced, on occasion, significant natural disasters, including tornadoes and floods. The availability of insurance for losses for such catastrophes is limited. Our operations could also be interrupted by such natural disasters. Acts of nature, including tornadoes and floods, which may cause uninsured damage and other loss of value to real estate that secures our loans or interruption in our business operations, may also negatively impact our operating results or financial condition.

CRITICAL ACCOUNTING POLICIES

Note 1 to the consolidated financial statements presented on pages 65 through 68 of the Annual Report to Shareholders for the year ended December 31, 2008 contains a summary of the Corporation’s significant accounting policies. Certain of these policies are important to the portrayal of the Corporation’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan losses and the valuation of mortgage servicing rights.

ALLOWANCE FOR LOAN LOSSES

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

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

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

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

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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 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, 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.  The portion of the allowance that is related to certain qualitative factors not specifically related to any one loan type is considered the unallocated portion of the reserve.

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 adjacent to that market. When evaluating the adequacy of allowance, consideration is given to this regional geographic concentration and the closely associated effect changing economic conditions have on the Corporation’s customers.

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

VALUATION OF MORTGAGE SERVICING RIGHTS

The Corporation 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 consolidated income statement. As of June 30, 2009, and December 31, 2008, mortgage servicing rights had carrying values of $510,000 and $240,000 respectively.

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FINANCIAL CONDITION

At June 30, 2009, the Corporation’s consolidated assets totaled $387.6 million, an increase of $15.3 million, or 4.1% from December 31, 2008.  New deposits during the period totaled $21.3 million, the majority of which came from local taxing authorities and a single depositor in the public sector.  While a portion of these deposits were invested in short term callable bonds, the more significant portion remained liquid in deposits held by the Bank at the Federal Home Loan Bank of Indianapolis. As a result, as of June 30, 2009 the Corporation’s investment portfolio increased $16.4 million, or 31.4% over the total at December 31, 2008 and cash and cash equivalents increased $9.2 million, or 91.7%, over the December 31, 2008 level.

The Corporation experienced a slight decrease in the loan portfolio of $8.7 million year-to-date, due primarily to the refinancing of conventional Bank owned 1-4 family mortgages which were then sold into the secondary market.  Sales to the Federal Home Loan Mortgage Corporation (Freddie Mac) during the first six months were approximately $34 million, more than four times the sales generated during the comparable period in 2008.  Profit from these sales contributed significantly to the overall profit of the Corporation. Other lending remained stable or dropped slightly during the period.

Other changes for the period included a 47.5% increase in non-earning “other assets,” primarily due to a $730,000 tax asset booked in connection with the June 30, 2009 net loss and a $237,000 increase in mortgage servicing rights, a direct result of sales of loans to Freddie Mac.

The Corporation’s consolidated allowance for loan losses totaled $4.7 million at June 30, 2009 as compared to the total at December 31, 2008 of $2.4 million as the Corporation increased specific reserve levels for potential losses on delinquent loans.  These levels represented 1.68%, and .82% of total loans, respectively.  As the national and local economy worsened, the Corporation aggressively managed delinquencies, with overall delinquencies 30 or more days past due as of June 30, 2009 at 4.66%, compared to 1.36% at the same date in 2008 and 1.07% at December 31, 2008. Non-performing loans (defined as loans delinquent greater than 90 days and loans on non-accrual status) as of June 30, 2009 were $9.9 million, compared to $2.0 million at the same date in 2008 and $1.0 million at December 31, 2008.  Non-performing loans as a percent of total loans were 3.56%, .75% and .36%, respectively for those periods. While the Corporation experienced increased delinquencies in commercial and mortgage lending during the first half of 2009, the increases in non-performing loans were primarily due to the addition of two troubled relationships of approximately $4.9 million and $1.6 million.   The larger relationship was previously discussed in the Corporation’s 2008 Annual Report on Form 10-K.  Management is working with the borrower and legal representatives to attempt a workout of this situation, but based on an estimate of potential losses, the Corporation placed a $2.1 million specific reserve on the relationship as of June 30, 2009.  For the period ended June 30, 2009 the allowance for loan losses was funded at a level in line with current and estimated losses.  Appropriate and documented specific loss reserves have been established as necessary.  In connection with the decline in the local economy during the first half of 2009 and the increase in non-performing loans, the Corporation established higher levels of provision expense.  The provision for loan losses increased to $2.4 million for the six months ended June 30, 2009, as compared to $400,000 for the same period in 2008.  Net charge offs for the six month period ended June 30, 2009 were $100,000 as compared to $441,000 for the same period in 2008.

Although management believes that its allowance for loan losses at June 30, 2009, 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.  Management is diligent in the monitoring of delinquent loans and in the analysis of the factors affecting the allowance.

Deposits totaled $269.0 million at June 30, 2009, an increase of $21.2 million, or 8.6%, compared to total deposits at December 31, 2008. During the six-month period, transactional deposit accounts increased by 3.4%, or $724,000, while interest bearing accounts increased 9.1%, or $20.5 million.  Deposit increases for the period came primarily from the deposits of a single, public sector depositor and deposits by local taxing authorities.

Borrowings totaled $91.2 million at June 30, 2009 versus $97.2 million at December 31, 2008, a drop of $6.0 million, or 6.2% period to period.  Of total borrowings, $84.0 million and $90.0 million, respectively, represented Federal Home Loan Bank (FHLB) advances with average rates of 4.58% and 4.61% at the respective dates. The Corporation has experienced a slower drop in the overall cost of funds as a result of these longer term borrowing rates, which average nearly 1.0% over the highest paying certificate of deposit rate for the Corporation.

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Stockholders’ equity totaled $24.1 million at June 30, 2009, a decrease of $433,000, or 1.8% from the $24.5 million at December 31, 2008.  The decrease was primarily due to dividends of $630,000 offset in part by net income of $181,000.

The Bank is required to maintain minimum regulatory capital pursuant to federal regulations. At June 30, 2009, the Bank’s regulatory capital exceeded all applicable regulatory capital requirements.

COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008

GENERAL

The Corporation’s net income for the six months ended June 30, 2009, totaled $181,000, a decrease of $1.0 million or 84.9% from the $1.2 million reported for the period ended June 30, 2008.  The decrease in income in the 2009 period was primarily attributable to increased expense to the provision for loan losses and write-down of interest income on non-accruing loans. Offsetting those losses were improvements in both the interest rate spread, 2.71% at June 30, 2009 compared to 2.59% at June 30, 2008, and in non-interest income, most specifically income from the gain on loan sales to the secondary market, which were up by 348.3% over 2008 levels.   Gain on loan sales to the secondary market for the six month period ended June 30, 2009 were $771,000 as compared to $172,000 for the same period in 2008.

NET INTEREST INCOME

Total interest income for the six months ended June 30, 2009 decreased by $575,000, or 5.7%, to $9.5 million from the $10.1 million recorded for the same period in 2008.  Despite prior year growth in the underlying assets, the effect of the Prime rate changes by the Federal Reserve during 2008 were felt through reduced income on the loan portfolio and on interest earning deposits held at the Federal Home Loan Bank (FHLB). The average yield on loans at June 30, 2009 was 6.00%, a decrease from the rate of 6.44% at June 30, 2008. Rates paid on deposits at the FHLB fell from 1.90% at June 30, 2008 to .01% as of June 30, 2009.  Uncollected interest on non-performing loans written off during the first half of 2009 was $335,000.  Comparatively the Corporation recouped $93,000 in uncollected interest during the same period in 2008.

Total interest expense for the same period exhibited significant declines with a decrease of $865,000, or 15.5%, from the $5.6 million reported at June 30, 2008 to $4.7 million at June 30, 2009.  For the six months ended June 30, 2009 interest expense from deposits totaled $2.5 million while interest expense from borrowings totaled $2.2 million, as compared to $3.2 million and $2.4 million for the same period in 2008.  Of the overall decrease in interest expense, $623,000 was attributable to interest expense on deposits as the effect of the Fed rate cuts continued to affect depositors and widen the spread on interest bearing balances.  Over the same period, the Corporation experienced a decrease of $242,000 on interest expense for borrowings as the average balance of funds borrowed from the FHLB, and the average rate paid on those funds dropped as advances were repaid.

Net interest income increased to $4.8 million for the six months ended June 30, 2009 from $4.5 million for the same period in 2008, an increase of $290,000, or 6.4%.  This increase reflects the impact of the strong loan activity in the last two quarters of 2008 and the effects of the interest rate environment on the spread between interest earning assets and interest bearing liabilities.

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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 Corporation, the status of past due principal and interest payment, general economic conditions, particularly as such conditions relate to the Corporation’s market area, and other factors related to the collectibility of the Corporation’s loan portfolio. As a result of such analysis, management recorded a $2.4 million provision for losses on loans for the six months ended June 30, 2009, as compared to $400,000 for the same period in 2008.  Reserves established specifically for potential losses, including two large relationships of $4.9 and $1.6 million each, increased from $900,000 at June 30, 2008 to $3.0 million at June 30, 2009.  Non-performing loans, defined as loans past due 90 or more days as of June 30, 2009 were $9.9 million, an increase of $7.9 million, or 393.1%, from the $2.0 million at the same point in 2008, primarily due to the addition of the two aforementioned large relationships.  The increase in the provision year-to-year has been predicated primarily on estimated losses with some impact for the current economic environment.  While management believes that the allowance for losses on loans is adequate at June 30, 2009, based upon the available facts and circumstances, there can be no assurance that the loan loss allowance will be adequate to cover losses on non-performing assets in the future.

OTHER INCOME

Other income increased by $641,000, during the six months ended June 30, 2009 to $2.3 million, as compared to the $1.7 million reported for the same period in 2008.  This increase was fueled primarily by sales of 1-4 family residential loans to the secondary market, with gains on the sale of securities and slight increases in income from overdraft fees and debit card interchange fees.  The increases noted were partially offset by losses on sales of foreclosed property and decreased income from the Corporation’s trust operation.  Unlike interest income, “Other Income” is not always readily predictable and is subject to variations depending on outside influences.

OTHER EXPENSE

Total other expense increased by $630,000 or 15.0%, to $4.8 million during the six months ended June 30, 2009, as compared to the $4.2 million reported for the same period in 2008.  Increased FDIC assessment expense ($425,000 in 2009 as compared to $31,000 in 2008), increased donations expense (including the $32,000 donation of a piece of repossessed real estate to Habitat for Humanity), and increased expense relating to the sale of loans into the secondary market ($127,000 in 2009 as compared to $17,000 in 2009) contributed largely to the increase. Increases in personnel, occupancy, advertising and office supply costs relative to the May 2008 opening of the Floyds Knobs, Indiana branch also contributed to the increase in total other expense.

INCOME TAXES

A tax benefit of $309,000 was recorded for the six-month period ended June 30, 2009 as compared to tax expense of $405,000 for the comparable period in 2008.  For the 2009 period, the Corporation had a pre-tax loss of $128,000 as compared to pre-tax income of $1.6 million for the 2008 period.  The change in tax from period to period was due to the levels of taxable income and loss for the periods.  The tax calculations for both periods include the benefit of tax-exempt income from municipal investments and cash surrender life insurance partially offset by the effect of nondeductible expenses.

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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008

GENERAL

The Corporation’s net loss for the three months ended June 30, 2009, totaled $362,000, a decrease of $951,000 or 161.5% from the net income of $589,000 reported for the period ended June 30, 2008.  The decrease in income in the 2009 period was primarily attributable to increased expense to the provision for loan losses and write-down of interest income on non-accruing loans. Offsetting those items were increases in non-interest income, most specifically income from the gain on loan sales to the secondary market, which were up by 460.6% over 2008 levels.   Gain on loan sales to the secondary market for the three month period ended June 30, 2009 were $398,000 as compared to $71,000 for the same period in 2008.  Meanwhile, the interest rate spread reflected multiple interest rate reductions by the Federal Reserve Bank during 2008, with the spread at 2.71% as of June 30, 2009 as compared to 2.59% at June 30, 2008.

NET INTEREST INCOME

Total interest income for the three months ended June 30, 2009 decreased by $256,000, or 5.2%, to $4.7 million from the $5.0 million recorded for the same period in 2008.  The effect of the Prime rate changes by the Federal Reserve during 2008 were felt through reduced income on the loan portfolio and on interest earning deposits held at the Federal Home Loan Bank (FHLB).  Rates paid on deposits at the FHLB fell from 1.90% at June 30, 2008 to .01% as of June 30, 2009. Yields on the investment portfolio improved, with income from investment securities at $682,000 as of June 30, 2009, a 14.5% increase over the $596,000 for the same period in 2008.

Total interest expense for the same period decreased by $322,000, or 12.1%, from the $2.7 million reported at June 30, 2008 to $2.3 million at June 30, 2009.  For the three months ended June 30, 2009 interest expense from deposits totaled $1.3 million while interest expense from borrowings totaled $1.1million, as compared to $1.5 million and $1.2 million for the same period in 2008.  Of the overall decrease in interest expense, $198,000 was attributable to interest expense on deposits as the effect of the Fed rate cuts in 2008 continued to affect depositors and widen the spread on interest bearing balances.  Over the same period, the Corporation experienced a decrease of $124,000 on interest expense for borrowings as the average balance of funds borrowed from the FHLB dropped as advances were repaid, and the average rate paid on those borrowings dropped from 4.63% at June 30, 2008 to 4.58% at June 30, 2009.

Net interest income increased to $2.4 million for the three months ended June 30, 2009 from $2.3 million for the same period in 2008, an increase of $66,000, or 2.9%.  This increase reflects the impact of the strong loan activity in the last two quarters of 2008 and the effects of the interest rate environment on the spread between interest earning assets and interest bearing liabilities.

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 Corporation, the status of past due principal and interest payment, general economic conditions, particularly as such conditions relate to the Corporation’s market area, and other factors related to the collectibility of the Corporation’s loan portfolio. As a result of such analysis, management recorded a $2.1million provision for losses on loans for the three months ended June 30, 2009, as compared to $200,000 for the same period in 2008. Non-performing loans as of June 30, 2009 were $9.9 million, an increase of $7.9 million, or 395%, from the $2.0 million at the same point in 2008, primarily reflecting the addition of two large relationships representing $4.9 million and $1.6 million of loans past due more than 90 days at June 30, 2009.  The increase in the provision year-to-year has been predicated primarily on estimated losses with some impact for the current economic environment.  While management believes that the allowance for losses on loans is adequate at June 30, 2009, based upon the available facts and circumstances, there can be no assurance that the loan loss allowance will be adequate to cover losses on non-performing assets in the future.

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OTHER INCOME

Other income increased by $448,000, during the three months ended June 30, 2009 to $1.3 million, as compared to the $807,000 reported for the same period in 2008.  This increase was fueled primarily by sales of 1-4 family residential loans to the secondary market, with slight increases in income from overdraft fees, gains on the sale of securities, and debit card interchange fee income.  These increases were offset by losses on sales of foreclosed property and decreased income from the Corporation’s trust operation. Unlike interest income, “Other Income” is not always readily predictable and is subject to variations depending on outside influences.

OTHER EXPENSE

Total other expense increased by $231,000 or 10.8%, to $2.4 million during the three months ended June 30, 2009, as compared to the $2.1 million reported for the same period in 2008.  Increased FDIC assessment expense ($185,000 in 2009 as compared to $19,000 in 2008) and increased expense relating to the sale of loans into the secondary market ($68,500 in 2009 as compared to $2,600 in 2008) contributed largely to the increase. Increases in personnel, occupancy, advertising, communications, and office supply costs relative to the May 2008 opening of the Floyds Knobs, Indiana branch also contributed to the increase in total other expense.

INCOME TAXES

A tax benefit of $435,000 was recorded for the three-month period ended June 30, 2009 as compared to tax expense of $184,000 for the comparable period in 2008.  For the 2009 period, the Corporation had a pre-tax loss of $797,000 as compared to pre-tax income of $773,000 for the 2008 period.  The change in tax from period to period was due to the levels of taxable income and loss for the periods.  The tax calculations for both periods include the benefit of tax-exempt income from municipal investments and cash surrender life insurance partially offset by the effect of nondeductible expenses.

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.

LIQUIDITY RESOURCES

Historically, the Corporation has maintained its liquid assets at a level believed adequate to meet requirements of normal daily activities, repayment of maturing debt and potential deposit outflows.  Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.  Cash for these purposes is generated through loan sales and repayments, increases in deposits, and through the sale or maturity of investment securities.  Loan payments are a relatively stable source of funds, while deposit flows are influenced significantly by the level of interest rates and general money market conditions.  Borrowings may be used to compensate for reductions in other sources of funds such as deposits.  As a member of the Federal Home Loan Bank (FHLB) system, the Bank may borrow from the FHLB of Indianapolis.  At June 30, 2009, the Bank had $84.0million in such borrowings, with an additional $18.0 million available, previously approved by the Bank’s board of directors.  Based on collateral, an additional $23.4 million could be available, if the board of directors determines the need. In addition, at June 30, 2009 the Bank had commitments to fund loan originations of $4.6 million, unused home equity lines of credit of $15.5 million and unused commercial lines of credit of $11.5 million.  Commitments to sell loans as of that date were $2.6 million.  Generally, a significant portion of amounts available in lines of credit will not be drawn.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for Smaller Reporting Companies.

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ITEM 4T. 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.

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PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Neither the Corporation nor the Bank is a party to any pending legal proceedings, other than routine litigation incidental to the business.

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

On April 15, 2009, the Corporation held the Annual Meeting of Shareholders pursuant to due notice.  Two Directors were elected to the following terms, by the following votes:

Director	Expiration of Term	Votes For	Withhold Vote
Robert W. Anger	2012	1,207,994	15,520
Matthew P. Forrester	2012	1,208,794	14,720

In addition, by the following vote, the Shareholders did not approve a shareholder proposal regarding amending the Corporation’s articles of incorporation to provide for majority voting for the election of directors:

For	Against	Abstain	Broker Non-vote
407,622	564,212	8,748	444,370

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS

3(2)	Amended Code of By-Laws of River Valley Bancorp, As Amended July 21, 2009, is incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on July 23, 2009
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 registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RIVER VALLEY BANCORP
Date: August 13, 2009	By:	/s/ Matthew P. Forrester
		Matthew P. Forrester
		President and Chief Executive Officer
Date: August 13, 2009	By:	/s/ Vickie L. Grimes
		Vickie L. Grimes
		Vice President of Finance

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EXHIBIT INDEX

No.	Description	Location
3(2)	Amended Code of By-Laws of River Valley Bancorp, As Amended July 21, 2009	Incorporated by reference to Exhibit 3.1 to Form 8-K filed July 23, 2009
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