**SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 **FORM
        10-K**
  
 (Mark
        One)
 
 x
              
              Annual
                  Report Pursuant To Section 13 Or 15(D) Of The Securities Exchange
                  Actof
                  1934 for the fiscal year ended December 31, 2005ORo
              
              Transition
                  Report Pursuant To Section 13 Or 15(D) Of The
                  SecuritiesExchange
                  Act Of 1934 for the Transition Period from _______ to
                  ______
  000-21765Commission
                  File Number**RIVER
                  VALLEY BANCORP**(Exact
                  name of registrant as specified in its charter)INDIANA
              
              35-1984567(State
                  or other jurisdiction of incorporation or organization )
              
              (IRS
                  Employer Identification No.)430
                  Clifty Drive, P.O. Box 1590, Madison, Indiana
              47250-0590(Address
                  of principal executive offices)
              (Zip
                  Code)(812)
                  273-4949(Registrant’s
                  telephone number, including area
                  code)
 
 Securities
        registered pursuant to Section 12(b) of the Act: None
 ----
 Securities
        registered pursuant to Section 12(g) of the Act:
  Common
        Stock, without par value
 (Title
        of
        Class)
   Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act. Yes o No x
  Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act. Yes o No x
  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 o
  Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        the
        Regulation S-K is not contained herein, and will not be contained, to the
        best
        of registrant’s knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K. o
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of ‘accelerated
        filer and large accelerated filer’ in Rule 12b-2 of the Exchange Act. (Check
        one): Large accelerated filer o Accelerated filer o Non-accelerated filer x
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Act). Yes o No x
  As
        of
        June 30, 2005, the last day of the Registrant’s most recently completed second
        fiscal quarter, the aggregate market value of the Registrant’s Common Stock held
        by non-affiliates of the Registrant was $24,141,000 based on the closing
        sale
        price as reported on the National Association of Securities Dealers Automated
        Quotation System Capital Market (formerly named the SmallCap Market).
  As
        of
        March 15, 2006, there were issued and outstanding 1,592,877 shares of the
        issuer’s Common Stock.
  **DOCUMENTS
        INCORPORATED BY REFERENCE**
  Portions
        of the Annual Report to Shareholders for the year ended December 31, 2005,
        are incorporated into Part II. Portions of the Proxy Statement for the 2006
        Annual Meeting of Shareholders to be held on April 19, 2006 are incorporated
        in
        Part I and Part III.
 
 Exhibit
        Index on Page E-1
 
  
  **RIVER
        VALLEY BANCORP**
  **FORM
        10-K**
  **INDEX**
  
 FORWARD-LOOKING
                  STATEMENTS
              1Item
                  1.
              Business.
              1Item
                  1A.
              Risk
                  Factors.
              25Item
                  1B.
              Unresolved
                  Staff Comments.
              26Item
                  2.
              Properties.
              26Item
                  3.
              Legal
                  Proceedings.
              27Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders.
              27Item
                  4.5.
              Executive
                  Officers of the Registrant.
              27PART
                  II
              28Item
                  5.
              Market
                  for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities.
              28Item
                  6.
              Selected
                  Consolidated Financial Data.
              29Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations.
              29Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market Risk.
              29Item
                  8.
              Financial
                  Statements.
              29Item
                  9.
              Changes
                  In and Disagreements With Accountants on Accounting and Financial
                  Disclosure.
              29Item
                  9A.
              Controls
                  and Procedures.
              29Item
                  9B.
              Other
                  Information.
              30PART
                  III
              30Item
                  10.
              Directors
                  and Executive Officers of the Registrant.
              30Item
                  11.
              Executive
                  Compensation.
              30Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Shareholder Matters.
              30Item
                  13.
              Certain
                  Relationships and Related Transactions.
              30Item
                  14.
              Principal
                  Accountant Fees and Services.
              31PART
                  IV
              31Item
                  15.
              Exhibits
                  and Financial Statement Schedules.
              31
 
 
 
  
   **FOR** **WARD-LOOKING
        STATEMENTS**
  This
        Annual Report on Form 10-K (“ **Form
        10-K** ”)
        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-K and include statements
        regarding the intent, belief, outlook, estimates or expectations of the Holding
        Company (as defined below), its directors, or its officers primarily with
        respect to future events and the future financial performance of the Holding
        Company. Readers of this Form 10-K 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-K identifies important factors that
        could
        cause such differences, including those set forth under “Risk Factors.” These
        factors include but are not limited to changes in interest rates; loss of
        deposits and loan demand to other savings and financial institutions;
        substantial changes in financial markets; changes in real estate values and
        the
        real estate market; regulatory changes; or unanticipated results in pending
        legal proceedings.
  **ITE****M
                  1****.**
              **Business.**
  ***GENERAL***
  River
        Valley Bancorp (the “ **Holding
        Company** ”
and
        together with the “ **Bank** ,”
the
        “ **Company** ”),
        an
        Indiana corporation, was formed in 1996 for the primary purpose of purchasing
        all of the issued and outstanding common stock of River Valley Financial
        Bank
        (formerly Madison First Federal Savings and Loan Association; hereinafter
        “ **River
        Valley Financial** ”
or
        the
“ **Bank** ”)
        in its
        conversion from mutual to stock form. The conversion offering was completed
        on
        December 20, 1996. On December 23, 1996, the Corporation utilized approximately
        $3.0 million of the net conversion proceeds to purchase 95.6% of the outstanding
        common shares of Citizens National Bank of Madison (“ **Citizens** ”),
        and
        River Valley Financial and Citizens merged on November 20, 1997.
  The
        activities of the Holding Company have been limited primarily to holding
        the
        stock of River Valley Financial, which was organized in 1875 under the laws
        of
        the United States of America. River Valley Financial, which provides banking
        services in a single significant business segment, conducts operations from
        its
        seven full-service office locations in Jefferson and Clark Counties, Indiana,
        and Carroll County, Kentucky, and offers a variety of deposit and lending
        services to consumer and commercial customers. The Company is subject to
        regulation, supervision and examination by the Office of Thrift Supervision
        of
        the U.S. Department of Treasury (the “ **OTS** ”).
        River
        Valley Financial is subject to regulation, supervision and examination by
        the
        OTS and the Federal Deposit Insurance Corporation (the “ **FDIC** ”).
        Deposits in River Valley Financial are insured up to applicable limits by
        the
        Savings Association Insurance Fund (“ **SAIF** ”)
        of the
        FDIC.
  The
        Bank
        historically has concentrated its lending activities on the origination of
        loans
        secured by first mortgage liens for the purchase, construction, or refinancing
        of one- to four- family residential real property. One- to four-family
        residential mortgage loans continue to be the major focus of the Bank’s loan
        origination activities, representing 42.5% of the Bank’s total loan portfolio at
        December 31, 2005. The Bank did not identify any loans as held for sale at
        December 31, 2005. The Bank also offers multi-family mortgage loans,
        non-residential real estate loans, land loans, construction loans, non-mortgage
        commercial loans and consumer loans. Its principal market area is Jefferson
        County, Indiana and adjoining counties. The Company’s internet address is
        www.rvfbank.com, and the Company makes available all filings with the Securities
        and Exchange Commission via its internet website.
  *Loan
        Portfolio Data.* The
        following table sets forth the composition of the Bank’s loan portfolio,
        including loans held for sale, as of December 31, 2005, 2004, 2003, 2002
        and 2001 by loan type as of the dates indicated, including a reconciliation
        of
        gross loans receivable after consideration of the allowance for loan losses,
        deferred loan origination costs and loans in process.
  1
 **At
                  December 31,****2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001****Amount**
              
              **Percent****of
                  Total**
              
              **Amount**
              
              **Percent****of
                  Total**
              
              **Amount**
              
              **Percent****of
                  Total**
              
              **Amount**
              
              **Percent****of
                  Total**
              
              **Amount**
              
              **Percent****of
                  Total****(Dollars
                  in thousands)****TYPE
                  OF LOAN**Residential
                  real estate:One-to-four-family
              
              $
              97,605
              
              
              41.2
              %
              $
              104,466
              
              
              43.2
              %
              $
              90,492
              
              
              45.9
              %
              $
              73,197
              
              
              43.4
              %
              $
              73,431
              
              
              45.1
              %Multi-family
              
              
              8,412
              
              
              3.5
              
              
              8,100
              
              
              3.4
              
              
              5,009
              
              
              2.5
              
              
              4,396
              
              
              2.6
              
              
              3,932
              
              
              2.4Construction
              
              
              13,549
              
              
              5.7
              
              
              20,046
              
              
              8.3
              
              
              8,689
              
              
              4.4
              
              
              4,866
              
              
              2.9
              
              
              6,874
              
              
              4.2Nonresidential
                  real estate
              
              
              65,310
              
              
              27.6
              
              
              59,702
              
              
              24.7
              
              
              50,995
              
              
              25.8
              
              
              42,672
              
              
              25.3
              
              
              36,898
              
              
              22.7Land
                  loans
              
              
              16,744
              
              
              7.1
              
              
              7,933
              
              
              3.3
              
              
              5,393
              
              
              2.7
              
              
              3,364
              
              
              2.0
              
              
              4,994
              
              
              3.1Consumer
                  loans:Automobile
                  loans
              
              
              3,444
              
              
              1.5
              
              
              4,675
              
              
              1.9
              
              
              6,347
              
              
              3.2
              
              
              9,494
              
              
              5.6
              
              
              12,320
              
              
              7.6Loans
                  secured by deposits
              
              
              510
              
              
              .2
              
              
              553
              
              
              .2
              
              
              427
              
              
              .2
              
              
              401
              
              
              .2
              
              
              537
              
              
              .3Home
                  improvement loans
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Other
              
              
              2,986
              
              
              1.3
              
              
              3,659
              
              
              1.5
              
              
              3,513
              
              
              1.8
              
              
              4,171
              
              
              2.5
              
              
              4,549
              
              
              2.8Commercial
                  loans
              
              
              28,148
              
              
              11.9
              
              
              32,582
              
              
              13.5
              
              
              26,764
              
              
              13.5
              
              
              26,203
              
              
              15.5
              
              
              19,216
              
              
              11.8Gross
                  loans receivable
              
              
              236,708
              
              
              100.00
              
              
              241,716
              
              
              100.00
              
              
              197,629
              
              
              100.00
              
              
              168,764
              
              
              100.00
              
              
              162,751
              
              
              100.00Add/(Deduct):Deferred
                  loan origination costs
              
              
              488
              
              
              .2
              
              
              496
              
              
              .2
              
              
              461
              
              
              
              
              
              379
              
              
              
              
              
              356Undisbursed
                  portions of loans in process
              
              
              (5,152
              )
              
              (2.2
              )
              
              (8,812
              )
              
              (3.7
              )
              
              (3,868
              )
              
              (2.0
              )
              
              (2,147
              )
              
              (1.3
              )
              
              (3,163
              )
              
              (2.0
              )Allowance
                  for loan losses
              
              
              (2,320
              )
              
              (1.0
              )
              
              (2,364
              )
              
              (1.0
              )
              
              (2,056
              )
              
              (1.1
              )
              
              (2,101
              )
              
              (1.3
              )
              
              (1,972
              )
              
              (1.3
              )Net
                  loans receivable
              
              $
              229,724
              
              
              97.0
              
              $
              231,036
              
              
              95.5
              %
              $
              192,166
              
              
              97.1
              %
              $
              164,895
              
              
              97.6
              %
              $
              157,972
              
              
              96.9
              %
  The
        following table sets forth certain information at December 31, 2005,
        regarding the dollar amount of loans maturing in the Bank’s loan portfolio based
        on the contractual terms to maturity. Demand loans, loans having no stated
        schedule of repayments and no stated maturity and overdrafts are reported
        as due
        in one year or less. This schedule does not reflect the effects of possible
        prepayments or enforcement of due-on-sale clauses. Management expects
        prepayments will cause actual maturities to be shorter.
  **Due
                  During Years Ended December 31,****Balance
                  Outstanding at December 31,**
                **2005**
              
              **2006**
              
              **2007**
              
              **2008**
              
              **2009
                  to 2010**
              
              **2011
                  to 2015**
              
              **2016
                  to 2020**
              
              **2021
                  and following****(In
                  thousands)**Residential
                  real estate loans:One-to-four-family
              
              $
              97,605
              
              $
              1,466
              
              $
              101
              
              $
              230
              
              $
              851
              
              $
              5,138
              
              $
              12,946
              
              $
              76,873Multi-family
              
              
              8,412
              
              
              -
              
              
              -
              
              
              -
              
              
              271
              
              
              100
              
              
              808
              
              
              7,233Construction
              
              
              13,549
              
              
              12,408
              
              
              1,141
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Nonresidential
                  real estate loans
              
              
              65,310
              
              
              2,862
              
              
              5
              
              
              90
              
              
              204
              
              
              4,520
              
              
              8,546
              
              
              49,083Land
                  loans
              
              
              16,744
              
              
              5,355
              
              
              2,562
              
              
              1,230
              
              
              300
              
              
              2,360
              
              
              674
              
              
              4,263Consumer
                  loans:Loans
                  secured by deposits
              
              
              510
              
              
              343
              
              
              125
              
              
              27
              
              
              15
              
              
              -
              
              
              -
              
              
              -Other
                  loans
              
              
              6,430
              
              
              1,848
              
              
              948
              
              
              1,192
              
              
              2,068
              
              
              300
              
              
              74
              
              
              -Commercial
                  loans
              
              
              28,148
              
              
              14,202
              
              
              1,567
              
              
              1,560
              
              
              3,915
              
              
              2,956
              
              
              3,948
              
              
              -Total
              
              $
              236,708
              
              $
              38,484
              
              $
              6,449
              
              $
              4,329
              
              $
              7,624
              
              $
              15,374
              
              $
              26,996
              
              $
              137,452
  The
        following table sets forth, as of December 31, 2005, the dollar amount of
        all loans due after one year that have fixed interest rates and floating
        or
        adjustable interest rates.
  
  2
   
 **Due
                  After December 31, 2006****Fixed
                  Rates**
              
              **Variable
                  Rates**
              
              **Total****(In
                  thousands)**Residential
                  real estate loans:One-to-four-family
              
              $
              8,699
              
              $
              87,440
              
              $
              96,139Multi-family
              
              
              522
              
              
              7,890
              
              
              8,412Construction
              
              
              -
              
              
              1,141
              
              
              1,141Non-residential
                  real estate loans
              
              
              5,946
              
              
              56,502
              
              
              62,448Land
                  loans
              
              
              225
              
              
              11,164
              
              
              11,389Consumer
                  loans:Loans
                  secured by deposits
              
              
              167
              
              
              -
              
              
              167Other
                  loans
              
              
              4,489
              
              
              93
              
              
              4,582Commercial
                  loans
              
              
              9,590
              
              
              4,356
              
              
              13,946Total
              
              $
              29,638
              
              $
              168,586
              
              $
              198,224
  *Residential
        Loans* .
        Residential loans consist primarily of one- to four-family loans. Approximately
        $97.6 million, or 42.5% of the Bank’s portfolio of loans, at December 31,
        2005, consisted of one- to four-family residential loans, of which approximately
        89.7% had adjustable rates.
  The
        Bank
        currently offers adjustable rate one- to four-family residential mortgage
        loans
        (“ **ARMs** ”)
        which
        adjust annually and are indexed to the one-year U.S. Treasury securities
        yields
        adjusted to a constant maturity, although until late 1995, the Bank’s ARMs were
        indexed to the 11th District Cost of Funds. Some of the Bank’s residential ARMs
        are originated at a discount or “teaser” rate which is generally 150 to 175
        basis points below the “fully indexed” rate. These ARMs then adjust annually to
        maintain a margin above the applicable index, subject to maximum rate
        adjustments discussed below. The Bank’s ARMs have a current margin above such
        index of 2.5% for owner-occupied properties and 3.0% for non-owner-occupied
        properties. A substantial portion of the ARMs in the Bank’s portfolio at
        December 31, 2005 provide for maximum rate adjustments per year and over
        the life of the loan of 1% and 4%, respectively, although the Bank also
        originates residential ARMs which provide for maximum rate adjustments per
        year
        and over the life of the loan of 1.5% and 6%, respectively. The Bank’s ARMs
        generally provide for interest rate minimums of 1% below the origination
        rate.
        The Bank’s residential ARMs are amortized for terms up to 30 years.
  Adjustable
        rate loans decrease the risk associated with changes in interest rates but
        involve other risks, primarily because as interest rates rise, the payments
        by
        the borrowers may rise to the extent permitted by the terms of the loan,
        thereby
        increasing the potential for default. Also, adjustable rate loans have features
        which restrict changes in interest rates on a short-term basis and over the
        life
        of the loan. At the same time, the market value of the underlying property
        may
        be adversely affected by higher interest rates.
  The
        Bank
        currently offers fixed rate one- to four-family residential mortgage loans
        which
        provide for the payment of principal and interest over periods of 10 to 30
        years. At December 31, 2005, approximately 10.4% of the Bank’s one- to
        four-family residential mortgage loans had fixed rates. The Bank currently
        underwrites its fixed-rate residential mortgage loans for potential sale
        to the
        Federal Home Loan Mortgage Corporation (the “ **FHLMC** ”).
        The
        Bank retains all servicing rights on the residential mortgage loans sold
        to the
        FHLMC. At December 31, 2005, the Bank had approximately $88.7 million of
        fixed rate residential mortgage loans which were sold to the FHLMC and for
        which
        the Bank provides servicing.
  The
        Bank
        generally does not originate one- to four-family residential mortgage loans
        if
        the ratio of the loan amount to the lesser of the current cost or appraised
        value of the property (the “ **Loan-to-Value
        Ratio** ”)
        exceeds 95% and generally does not originate one- to four-family residential
        ARMs if the Loan-to-Value Ratio exceeds 80%. The Bank generally requires
        private
        mortgage insurance on all conventional one- to four-family residential real
        estate mortgage loans with Loan-to-Value Ratios in excess of 80%. The cost
        of
        such insurance is factored into the annual percentage yield on such loans,
        and
        is not automatically eliminated when the principal balance is reduced over
        the
        term of the loan.
  Substantially
        all of the one- to four-family residential mortgage loans that the Bank
        originates include “due-on-sale” clauses, which give the Bank the right to
        declare a loan immediately due and payable in the event that, among other
        things, the borrower sells or otherwise disposes of the real property subject
        to
        the mortgage and the loan is not repaid.
  3
   At
        December 31, 2005, the Bank had outstanding approximately $10.6 million of
        home equity loans, with unused lines of credit totaling approximately $13.8
        million. Two home equity loans were included in non-performing assets on
        that
        date in the amount of $56,000. The Bank’s home equity lines of credit are
        adjustable rate lines of credit tied to the prime rate and are amortized
        based
        on a 10- to 20-year maturity. The Bank generally allows a maximum 90%
        Loan-to-Value Ratio for its home equity loans (taking into account any other
        mortgages on the property). Payments on such home equity loans equal 1.5%
        of the
        outstanding principal balance per month.
  The
        Bank
        also offers indemnification mortgage loans (“ **ID
        Mortgage Loans** ”),
        which
        are typically written as fixed rate second mortgage loans. The Bank’s ID
        Mortgage Loans are written for terms of five years and generally have maximum
        Loan-to-Value Ratios of 80%.
  The
        Bank
        also offers standard second mortgage loans, which are adjustable rate loans
        tied
        to the U.S. Treasury securities yields adjusted to a constant maturity with
        a
        current margin above such index of 3%. The Bank’s second mortgage loans have
        maximum rate adjustments per year and over the terms of the loans equal to
        1%
        and 4%, respectively. The Bank’s second mortgage loans have terms of 10 to 30
        years.
  At
        December 31, 2005, $678,000 of one- to four-family residential mortgage
        loans, or .3% of total loans, were included in the Bank’s non-performing assets.
  *Construction
        Loans* .
        The
        Bank offers construction loans with respect to residential and nonresidential
        real estate and, in certain cases, to builders or developers constructing
        such
        properties on a speculative basis ( *i.e* .,
        before
        the builder/developer obtains a commitment from a buyer).
  Generally,
        construction loans are written as 12-month fixed rate loans with interest
        calculated on the amount disbursed under the loan and payable on a semi-annual
        or monthly basis. The Bank generally requires an 80% Loan-to-Value Ratio
        for its
        construction loans, although the Bank may permit an 85% Loan-to-Value Ratio
        for
        one- to four-family residential construction loans. Inspections are generally
        made prior to any disbursement under a construction loan, and the Bank does
        not
        charge commitment fees for its construction loans.
  At
        December 31, 2005, $13.5 million, or 5.9% of the Bank’s total loan
        portfolio, consisted of construction loans. The largest construction loan
        at
        December 31, 2005 totaled $1.2 million. Construction loans in the amount of
        $215,000, or .1% of total loans, were included in non-performing assets on
        that
        date.
  While
        providing the Bank with a comparable, and in some cases higher, yield than
        a
        conventional mortgage loan, construction loans involve a higher level of
        risk.
        For example, if a project is not completed and the borrower defaults, the
        Bank
        may have to hire another contractor to complete the project at a higher cost.
        Also, a project may be completed, but may not be saleable, resulting in the
        borrower defaulting and the Bank taking title to the project.
  *Nonresidential
        Real Estate Loans* .
        At
        December 31, 2005, $65.3 million, or 28.4% of the Bank’s portfolio,
        consisted of nonresidential real estate loans. Nonresidential real estate
        loans
        are primarily secured by real estate such as churches, farms and small business
        properties. The Bank generally originates nonresidential real estate loans
        as
        one-year adjustable rate loans indexed to the one-year U.S. Treasury securities
        yields adjusted to a constant maturity, written for maximum terms of 30 years.
        The Bank’s adjustable rate nonresidential real estate loans have maximum
        adjustments per year and over the life of the loan of 1% and 4%, respectively,
        and interest rate minimums of 1% below the origination rate. The Bank generally
        requires a Loan-to-Value Ratio of up to 80%, depending on the nature of the
        real
        estate collateral.
  The
        Bank
        underwrites its nonresidential real estate loans on a case-by-case basis
        and, in
        addition to its normal underwriting criteria, evaluates the borrower’s ability
        to service the debt from the net operating income of the property. As of
        December 31, 2005, the Bank’s largest nonresidential real estate loan was
        $4.0 million. Nonresidential real estate loans in the amount of $110,000
        or .05%
        were included in non-performing assets at December 31, 2005.
  Loans
        secured by nonresidential real estate generally are larger than one- to
        four-family residential loans and involve a greater degree of risk.
        Nonresidential real estate loans often involve large loan balances to single
        borrowers or groups of related borrowers. Payments on these loans depend
        to a
        large degree on results of operations and management of the properties and
        may
        be affected to a greater extent by adverse conditions in the real estate
        market
        or the economy in
  4
   general.
        Accordingly, the nature of the loans makes them more difficult for management
        to
        monitor and evaluate.
  *Multi-family
        Loans* .
        At
        December 31, 2005, approximately $8.4 million, or 3.7% of the Bank’s total loan
        portfolio, consisted of mortgage loans secured by multi-family dwellings
        (those
        consisting of more than four units). The Bank writes multi-family loans on
        terms
        and conditions similar to its nonresidential real estate loans. The largest
        multi-family loan in the Bank’s portfolio as of December 31, 2005 was $1.3
        million and was secured by a 46-unit apartment complex in Hanover, Indiana
        .
        Multi-family loans in the amount of $207,000 or .09% were included in
        non-performing assets on that date.
  Multi-family
        loans, like nonresidential real estate loans, involve a greater risk than
        residential loans. See “Nonresidential Real Estate Loans” above. Also, the
        loan-to-one borrower limitations restrict the ability of the Bank to make
        loans
        to developers of apartment complexes and other multi-family units.
  *Land
        Loans* .
        At
        December 31, 2005, approximately $16.7 million, or 7.3% of the Bank’s total loan
        portfolio, consisted of mortgage loans secured by undeveloped real estate.
        The
        Bank’s land loans are generally written on terms and conditions similar to its
        nonresidential real estate loans. Some of the Bank’s land loans are land
        development loans; *i.e.* ,
        the
        proceeds of the loans are used for improvements to the real estate such as
        streets and sewers. At December 31, 2005, the Bank’s largest land loan totaled
        $3.4 million.
  Land
        loans for $28,000 were included in non-performing assets as of December 31,
        2005. Such loans are more risky than conventional loans since land development
        borrowers who are over budget may divert the loan funds to cover cost-overruns
        rather than direct them toward the purpose for which such loans were made.
        In
        addition, those loans are more difficult to monitor than conventional mortgage
        loans. As such, a defaulting borrower could cause the Bank to take title
        to
        partially improved land that is unmarketable without further capital
        investment.
  *Commercial
        Loans* .
        At
        December 31, 2005, $28.1 million, or 12.3% of the Bank’s total loan portfolio,
        consisted of non-mortgage commercial loans. The Bank’s commercial loans are
        written on either a fixed rate or an adjustable rate basis with terms that
        vary
        depending on the type of security, if any. At December 31, 2005, approximately
        $24.0 million, or .4%, of the Bank’s commercial loans were secured by
        collateral, such as equipment, inventory and crops. The Bank’s adjustable rate
        commercial loans are generally indexed to the prime rate with varying margins
        and terms depending on the type of collateral securing the loans and the
        credit
        quality of the borrowers. At December 31, 2005, the largest commercial loan
        was
        $3.2 million. As of the same date, commercial loans totaling $444,000 were
        included in non-performing assets.
  Commercial
        loans tend to bear somewhat greater risk than residential mortgage loans,
        depending on the ability of the underlying enterprise to repay the loan.
        Further, they are frequently larger in amount than the Bank’s average
        residential mortgage loans.
  *Consumer
        Loans* .
        The
        Bank’s consumer loans, consisting primarily of auto loans, home improvement
        loans, unsecured installment loans, loans secured by deposits and mobile
        home
        loans, aggregated approximately $6.9 million at December 31, 2005, or 3.0%
        of
        the Bank’s total loan portfolio. The Bank consistently originates consumer loans
        to meet the needs of its customers and to assist in meeting its asset/liability
        management goals. In general the Bank’s consumer loans, except loans
        secured by deposits, are fixed rate loans with terms that vary from 30
        days to 60 months. At December 31, 2005, 81.2% of the Bank’s consumer loans
        were secured by collateral.
  The
        Bank’s loans secured by deposits are made in amounts up to 90% of the current
        account balance and accrue at a rate of 2% over the underlying passbook or
        certificate of deposit rate.
  The
        Bank
        offers both direct and indirect automobile loans. Under the Bank’s indirect
        automobile program, participating automobile dealers receive loan applications
        from prospective purchasers of automobiles at the point of sale and deliver
        them
        to the Bank for processing. The dealer receives a portion of the interest
        payable on approved loans.
  Consumer
        loans may entail greater risk than residential mortgage loans, particularly
        in
        the case of consumer loans which are unsecured or are secured by rapidly
        depreciable assets, such as automobiles. Further, any repossessed collateral
        for
        a defaulted consumer loan may not provide an adequate source of repayment
        of the
        outstanding loan balance. In addition, consumer loan collections depend upon
        the
        borrower’s continuing financial stability, and thus are more likely to
        be
  5
   affected
        by adverse personal circumstances. Furthermore, the application of various
        federal and state laws, including bankruptcy and insolvency laws, may limit
        the
        amount which can be recovered on such loans. At December 31, 2005, consumer
        loans amounting to $9,000 were included in non-performing assets.
  *Origination,
        Purchase and Sale of Loans* .
        The
        Bank historically originated its ARMs pursuant to its own underwriting standards
        which did not conform with the standard criteria of the FHLMC or Federal
        National Mortgage Association (“ **FNMA** ”).
        The
        Bank’s ARMs varied from secondary market criteria because, among other things,
        the Bank did not require current property surveys in most cases and did not
        permit the conversion of those loans to fixed rate loans in the first three
        years of its term. If the Bank desired to sell its non-conforming ARMs, it
        may
        have experienced difficulty in selling such loans quickly in the secondary
        market.
  In
        1996,
        the Bank began underwriting fixed rate residential mortgage loans for potential
        sale to the FHLMC on a servicing-retained basis. Loans originated for sale
        to
        the FHLMC in the secondary market are originated in accordance with the
        guidelines established by the FHLMC and are sold promptly after they are
        originated. The Bank receives a servicing fee of one-fourth of 1% of the
        principal balance of all loans serviced. At December 31, 2005, the Bank serviced
        $88.7 million in loans sold to the FHLMC.
  The
        Bank
        confines its loan origination activities primarily to Jefferson County and
        surrounding counties. At December 31, 2005, the Bank held loans totaling
        approximately $38.7 million that were secured by property located outside
        of
        Indiana. The Bank’s loan originations are generated from referrals from existing
        customers, real estate brokers and newspaper and periodical advertising.
        Loan
        applications are taken at any of the Bank’s five full-service offices.
  The
        Bank’s loan approval processes are intended to assess the borrower’s ability to
        repay the loan, the viability of the loan and the adequacy of the value of
        the
        property that will secure the loan. To assess the borrower’s ability to repay,
        the Bank evaluates the employment and credit history and information on the
        historical and projected income and expenses of its borrowers.
  Under
        the
        Bank’s lending policy, a loan officer may approve mortgage loans up to $150,000,
        a Senior Loan Officer may approve mortgage loans up to $300,000 and the
        President may approve mortgage loans up to $400,000. All other mortgage loans
        must be approved by at least four members of the Bank’s Board of Directors. The
        lending policy further provides that loans secured by readily marketable
        collateral, such as stock, bonds and certificates of deposit may be approved
        by
        a Loan Officer for up to $150,000, by a Senior Loan Officer for up to $300,000
        and by the President up to $400,000. Loans secured by other non-real estate
        collateral may be approved by a Loan Officer for up to $50,000, by a Senior
        Loan
        Officer up to $100,000 and by the President up to $200,000. Finally, the
        lending
        policy provides that unsecured loans may be approved by a Loan Officer up
        to
        $15,000 or up to $25,000 by a Senior Loan Officer or up to $50,000 by the
        President. All other unsecured loans or loans secured by non-real estate
        collateral must be approved by at least four members of the Bank’s Board of
        Directors.
  The
        Bank
        generally requires appraisals on all real property securing its loans and
        requires an attorney’s opinion or title insurance and a valid lien on the
        mortgaged real estate. Appraisals for all real property securing mortgage
        loans
        are performed by independent appraisers who are state-licensed. The Bank
        requires fire and extended coverage insurance in amounts at least equal to
        the
        principal amount of the loan and also requires flood insurance to protect
        the
        property securing the loan if the property is in a flood plain. The Bank
        also
        generally requires private mortgage insurance for all residential mortgage
        loans
        with Loan-to-Value Ratios of greater than 80%. The Bank does not require
        escrow
        accounts for insurance premiums or taxes.
  The
        Bank’s underwriting standards for consumer and commercial loans are intended to
        protect against some of the risks inherent in making such loans. Borrower
        character, paying habits and financial strengths are important
        considerations.
  The
        Bank
        occasionally purchases and sells participations in commercial loans,
        non-residential real estate and multi-family loans to or from other financial
        institutions. At December 31, 2005, the Bank held in its loan portfolio
        participations in these types of loans aggregating approximately $8.4 million
        that it had purchased or sold.
  The
        following table shows loan disbursement and repayment activity for the Bank
        during the periods indicated:
  6
 
 **Year
                  Ended December 31****2005**
              
              **2004**
              
              **2003****(In
                  thousands)**Loans
                  Disbursed:Residential
                  real estate loans (1)
              
              $
              45,163
              
              $
              57,876
              
              $
              108,782Multi-family
                  loans
              
              
              923
              
              
              3,778
              
              
              811Construction
                  loans
              
              
              18,958
              
              
              28,526
              
              
              17,183Non-residential
                  real estate loans
              
              
              12,549
              
              
              20,795
              
              
              9,066Land
                  loans
              
              
              9,728
              
              
              5,062
              
              
              3,805Consumer
                  and other loans
              
              
              4,244
              
              
              5,174
              
              
              4,924Commercial
                  loans
              
              
              26,400
              
              
              27,358
              
              
              38,214Total
                  loans disbursed
              
              
              117,965
              
              
              148,569
              
              
              182,785Reductions:Sales
              
              
              13,902
              
              
              18,288
              
              
              69,498Principal
                  loan repayments and other (2)
              
              
              105,375
              
              
              91,411
              
              
              86,016Total
                  reductions
              
              
              119,277
              
              
              109,699
              
              
              155,514Net
                  Increase (decrease)
              
              $
              (1,312
              )
              $
              38,870
              
              $
              27,271
 
 (1)
              Includes
                  loans originated for sale in the secondary market.(2)
              Other
                  items consist of amortization of deferred loan origination costs,
                  the
                  provisionfor
                  losses on loans and net charges to the allowance for loan
                  losses.
  *Origination
        and Other Fees* .
        The
        Bank realizes income from loan origination fees, loan servicing fees, late
        charges, checking account service charges and fees for other miscellaneous
        services. Late charges are generally assessed if payment is not received
        within
        a specified number of days after it is due. The grace period depends on the
        individual loan documents.
  ***NON-PERFORMING
        AND PROBLEM ASSETS***
  Mortgage
        loans are reviewed by the Bank on a regular basis and are placed on a
        non-accrual status when management determines that the collectibility of
        the
        interest is less than probable or collection of any amount of principal is
        in
        doubt. Generally, when loans are placed on non-accrual status, unpaid accrued
        interest is written off, and further income is recognized only to the extent
        received. The Bank delivers delinquency notices with respect to all mortgage
        loans contractually past due 5 to 10 days. When loans are 30 days in default,
        personal contact is made with the borrower to establish an acceptable repayment
        schedule. Management is authorized to commence foreclosure proceedings for
        any
        loan upon making a determination that it is prudent to do so.
  Commercial
        and consumer loans are treated similarly. Interest income on consumer,
        commercial and other non-mortgage loans is accrued over the term of the loan
        except when serious doubt exists as to the collectibility of a loan, in which
        case accrual of interest is discontinued and the loan is written-off, or
        written
        down to the fair value of the collateral securing the loan. It is the Bank’s
        policy to recognize losses on these loans as soon as they become
        apparent.
  *Non-performing
        Assets* .
        At
        December 31, 2005, $1.7 million, or .53% of consolidated total assets, were
        non-performing loans compared to $2.2 million, or .76% of consolidated total
        assets, at December 31, 2004. The Bank had REO of $271,000 at December 31,
        2005.
  The
        table
        below sets forth the amounts and categories of the Bank’s non-performing assets
        (non-performing loans, foreclosed real estate and troubled debt restructurings)
        for the last three years. It is the policy of the Bank that all earned but
        uncollected interest on all loans be reviewed monthly to determine if any
        portion thereof should be classified as uncollectible for any loan past due
        in
        excess of 90 days.
  7
  **At
                  December 31****2005**
              
              **2004**
              
              **2003****(In
                  thousands)**Non-performing
                  assets:Non-performing
                  loans
              
              $
              1,747
              
              $
              2,201
              
              $
              514Troubled
                  debt restructurings
              
              
              1,352
              
              
              1,684
              
              
              1,003Total
                  non-performing loans and troubled debt restructurings
              
              
              3,099
              
              
              3,885
              
              
              1,517Total
                  non-performing assets
              
              $
              3,099
              
              $
              3,885
              
              $
              1,517Total
                  non-performing loans and troubled debt restructurings to total
                  loans
              
              
              1.35
              %
              
              1.61
              %
              
              .77
              %Total
                  non-performing assets to total assets
              
              
              .53
              %
              
              1.34
              %
              
              .59
              %
  At
        December 31, 2005, the Bank held loans delinquent from 30 to 89 days totaling
        $1,627,000. Other than in connection with these loans and other delinquent
        loans
        disclosed in this section, management was not aware of any other borrowers
        who
        were experiencing financial difficulties. In addition, there were no other
        assets that would need to be disclosed as non-performing assets.
  *Delinquent
        Loans.* The
        following table sets forth certain information at December 31, 2005, 2004,
        and
        2003 relating to delinquencies in the Bank’s portfolio. Delinquent loans that
        are 90 days or more past due are considered non-performing assets.
  **At
                  December 31, 2005**
              
              **At
                  December 31, 2004**
              
              **At
                  December 31, 2003****30-89
                  Days**
              
              **90
                  Days or More**
              
              **30-89
                  Days**
              
              **90
                  Days or More**
              
              **30-89
                  Days**
              
              **90
                  Days or More****Number
                  of Loans**
              
              **Principal
                  Balance of Loans**
              
              **Number
                  of Loans**
              
              **Principal
                  Balance of Loans**
              
              **Number
                  of Loans**
              
              **Principal
                  Balance of Loans**
              
              **Number
                  of Loans**
              
              **Principal
                  Balance of Loans**
              
              **Number
                  of Loans**
              
              **Principal
                  Balance of Loans**
              
              **Number
                  of Loans**
              
              **Principal
                  Balance of Loans****(Dollars
                  in Thousands)**Residential
                  real estate
              
              
              9
              
              $
              1,306
              
              
              11
              
              $
              941
              
              
              60
              
              $
              1,267
              
              
              16
              
              $
              893
              
              
              16
              
              $
              512
              
              
              6
              
              $
              248Construction
                  loans
              
              
              1
              
              
              20
              
              
              2
              
              
              215
              
              
              1
              
              
              104
              
              
              1
              
              
              158
              
              
              -
              
              
              -
              
              
              1
              
              
              33Land
                  loans
              
              
              0
              
              
              -
              
              
              1
              
              
              28
              
              
              1
              
              
              15
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Non-residential
                  real estate loans
              
              
              1
              
              
              207
              
              
              1
              
              
              110
              
              
              3
              
              
              134
              
              
              3
              
              
              255
              
              
              -
              
              
              -
              
              
              -
              
              
              -Consumer
                  loans
              
              
              10
              
              
              81
              
              
              2
              
              
              9
              
              
              34
              
              
              115
              
              
              16
              
              
              74
              
              
              33
              
              
              204
              
              
              8
              
              
              51Commercial
                  loans
              
              
              1
              
              
              13
              
              
              4
              
              
              444
              
              
              13
              
              
              751
              
              
              10
              
              
              821
              
              
              3
              
              
              31
              
              
              2
              
              
              182Total
              
              
              22
              
              $
              1,627
              
              
              21
              
              $
              1,747
              
              
              112
              
              $
              2,386
              
              
              46
              
              $
              2,201
              
              
              52
              
              $
              747
              
              
              17
              
              $
              514Delinquent
                  loans to total loans
              
              
              
              
              
              
              
              
              
              
              
              1.43
              %
              
              
              
              
              
              
              
              
              
              
              1.90
              %
              
              
              
              
              
              
              
              
              
              
              0.64
              %
  *Classified
        Assets* .
        Federal
        regulations and the Bank’s Asset Classification Policy provide for the
        classification of loans and other assets such as debt and equity securities
        to
        be of lesser quality as “substandard,” “doubtful,” or “loss” assets. An asset is
        considered “substandard” if it is inadequately protected by the current net
        worth and paying capacity of the obligor or of the collateral pledged, if
        any.
“Substandard” assets include those characterized by the “distinct possibility”
that the Bank will sustain “some loss” if the deficiencies are not corrected.
        Assets classified as “doubtful” have all of the weaknesses inherent in those
        classified “substandard,” with the added characteristic that the weaknesses
        present make “collection or liquidation in full,” on the basis of currently
        existing facts, conditions, and values, “highly questionable and improbable.”
Assets classified as “loss” are those considered “uncollectible” and of such
        little value that their continuance as assets without the establishment of
        a
        specific loss reserve is not warranted.
  An
        insured institution is required to establish general allowances for loan
        losses
        in an amount deemed prudent by management for loans classified substandard
        or
        doubtful, as well as for other problem loans. General allowances represent
        loss
        allowances which have been established to recognize the inherent risk associated
        with lending activities, but which, unlike specific allowances, have not
        been
        allocated to particular problem assets. When an insured institution classifies
        problem assets as “loss,” it is required either to establish a specific
        allowance for losses equal to 100% of the amount of the asset so classified
        or
        to charge off such amount. An institution’s determination as to the
        classification of its assets and the amount of its valuation allowances is
        subject to review by the OTS, which can order the establishment of additional
        general or specific loss allowances.
  8
  At
        December 31, 2005, the aggregate amount of the Bank’s classified assets are as
        follows:
  **At
                  December 31, 2005****(In
                  thousands)**Substandard
                  assets
              
              $
              8,438Doubtful
                  assets
              
              
              402Loss
                  assets
              
              
              -Total
                  classified assets
              
              $
              8,840
  The
        Bank
        regularly reviews its loan portfolio to determine whether any loans require
        classification in accordance with applicable regulations. Not all of the
        Bank’s
        classified assets constitute non-performing assets.
  ***ALLOWANCE
        FOR LOAN LOSSES***
  The
        allowance for loan losses is maintained through the provision for loan losses,
        which is charged to earnings. The provision for loan losses is determined
        in
        conjunction with management’s review and evaluation of current economic
        conditions (including those of the Bank’s lending area), changes in the
        character and size of the loan portfolio, loan delinquencies (current status
        as
        well as past and anticipated trends) and adequacy of collateral securing
        loan
        delinquencies, historical and estimated net charge-offs and other pertinent
        information derived from a review of the loan portfolio. In management’s
        opinion, the Bank’s allowance for loan losses is adequate to absorb probable
        losses from loans at December 31, 2005. However, there can be no assurance
        that
        regulators, when reviewing the Bank’s loan portfolio in the future, will not
        require increases in its allowances for loan losses or that changes in economic
        conditions will not adversely affect the Bank’s loan portfolio.
  *Summary
        of Loan Loss Experience.* The
        following table analyzes changes in the allowance during the five years ended
        December 31, 2005.
  **Year
                  Ended December 31,****2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001****(Dollars
                  in Thousands)**Balance
                  at beginning of period
              
              $
              2,364
              
              $
              2,056
              
              $
              2,101
              
              $
              1,972
              
              $
              1,702Charge-offs:Single-family
                  residential
              
              
              (190
              )
              
              (24
              )
              
              (401
              )
              
              (132
              )
              
              (31
              )Consumer
              
              
              (217
              )
              
              (150
              )
              
              (242
              )
              
              (258
              )
              
              (107
              )Commercial
                  loans
              
              
              -
              
              
              -
              
              
              (100
              )
              
              (111
              )
              
              (73
              )Total
                  charge-offs
              
              
              (407
              )
              
              (174
              )
              
              (743
              )
              
              (501
              )
              
              (211
              )Recoveries
              
              
              75
              
              
              144
              
              
              190
              
              
              60
              
              
              31Net
                  charge-offs
              
              
              (332
              )
              
              (30
              )
              
              553
              
              
              (441
              )
              
              (180
              )Provision
                  for losses on loans
              
              
              288
              
              
              338
              
              
              508
              
              
              570
              
              
              450Balance
                  end of period
              
              $
              2,320
              
              $
              2,364
              
              $
              2,056
              
              $
              2,101
              
              $
              1,972Allowance
                  for loan losses as a percent of total loans outstanding
              
              
              1.00
              %
              
              .98
              %
              
              1.04
              %
              
              1.25
              %
              
              1.21
              %Ratio
                  of net charge-offs to average loans outstanding before net
                  items
              
              
              .14
              %
              
              .01
              %
              
              .30
              %
              
              .27
              %
              
              .12
              %
  *Allocation
        of Allowance for Loan Losses.* The
        following table presents an analysis of the allocation of the Bank’s allowance
        for loan losses at the dates indicated.
   9
  **At
                  December 31,****2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001****Amount**
              
              **Percent
                  of loans in each category to total loans**
              
              **Amount**
              
              **Percent
                  of loans in each category to total loans**
              
              **Amount**
              
              **Percent
                  of loans in each category to total loans**
              
              **Amount**
              
              **Percent
                  of loans in each category to total loans**
              
              **Amount**
              
              **Percent
                  of loans in each category to total loans****(Dollars
                  in Thousands)**Balance
                  at end of period applicable to:Residential
                  real estate
              
              $
              1,102
              
              
              50.5
              %
              $
              930
              
              
              54.9
              %
              $
              1,007
              
              
              52.8
              %
              $
              827
              
              
              48.9
              %
              $
              610
              
              
              51.7
              %Nonresidential
                  real estate
              
              
              64
              
              
              34.7
              
              
              162
              
              
              28.0
              
              
              171
              
              
              28.5
              
              
              131
              
              
              27.3
              
              
              156
              
              
              25.8Consumer
                  loans
              
              
              156
              
              
              2.9
              
              
              226
              
              
              3.6
              
              
              246
              
              
              5.2
              
              
              452
              
              
              8.3
              
              
              626
              
              
              10.7Commercial
                  loans
              
              
              724
              
              
              11.9
              
              
              807
              
              
              13.5
              
              
              512
              
              
              13.5
              
              
              458
              
              
              15.5
              
              
              365
              
              
              11.8Unallocated
              
              
              274
              
              
              -
              
              
              239
              
              
              -
              
              
              120
              
              
              -
              
              
              233
              
              
              -
              
              
              215
              
              
              -Total
              
              $
              2,320
              
              
              100.0
              %
              $
              2,364
              
              
              100.0
              %
              $
              2,056
              
              
              100.00
              %
              $
              2,101
              
              
              100.00
              %
              $
              1,972
              
              
              100.00
              %
  ***INVESTMENTS
        AND MORTGAGE-BACKED SECURITIES***
  *Investments* .
        The
        Bank’s investment portfolio (excluding mortgage-backed securities) consists of
        U.S. government and agency obligations, corporate bonds, municipal securities
        and Federal Home Loan Bank (“ **FHLB** ”)
        stock.
        At December 31, 2005, the investments in the portfolio had a carrying value
        of
        approximately $59.6 million, or 18.1%, of the consolidated total
        assets.
  The
        following table sets forth the amortized cost and the market value of the
        Bank’s
        investment portfolio at the dates indicated.
  **At
                  December 31,****2005**
              
              **2004**
              
              **2003****Amortized
                  Cost**
              
              **Market
                  Value**
              
              **Amortized
                  Cost**
              
              **Market
                  Value**
              
              **Amortized
                  Cost**
              
              **Market
                  Value****(In
                  thousands)**Available
                  for sale:U.S.
                  Government and agency obligations
              
              $
              57,737
              
              $
              56,986
              
              $
              25,478
              
              $
              25,413
              
              $
              33,483
              
              $
              33,897Corporate
                  bonds
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Municipal
                  securities
              
              
              2,562
              
              
              2,540
              
              
              1,430
              
              
              1,438
              
              
              475
              
              
              485Total
                  available for
                  sale
              
              
              60,299
              
              
              59,526
              
              
              26,908
              
              
              26,851
              
              
              33,958
              
              
              34,382FHLB
                  stock
              
              
              4,050
              
              
              4,050
              
              
              3,281
              
              
              3,281
              
              
              2,176
              
              
              2,176Total
                  investments
              
              $
              64,349
              
              $
              63,576
              
              $
              30,189
              
              $
              30,132
              
              $
              36,134
              
              $
              36,558
  The
        following table sets forth the amount of investment securities (excluding
        FHLB
        stock) which mature during each of the periods indicated and the weighted
        average yields for each range of maturities at December 31, 2005.
  **Amount
                  at December 31, 2005 which matures in****Less
                  Than One Year**
              
              **One
                  Year to Five Years**
              
              **Five
                  to Ten Years**
              
              **After
                  Ten Years****Amortized
                  Cost**
              
              **Average
                  Yield**
              
              **Amortized
                  Cost**
              
              **Average
                  Yield**
              
              **Amortized
                  Cost**
              
              **Average
                  Yield**
              
              **Amortized
                  Cost**
              
              **Average
                   Yield****(Dollars
                  in thousands)**U.S.
                  Government and agency obligations
              
              
              11,997
              
              
              2.92
              %
              
              45,740
              
              
              3.70
              %
              
              -
              
              
              -
              
              
              -
              
              
              -Municipal
                  securities
              
              
              -
              
              
              -
              
              
              1,085
              
              
              2.89
              %
              
              1,008
              
              
              3.60
              %
              
              469
              
              
              4.0
              %
  *Mortgage-Backed
        Securities* .
        The
        Bank maintains a portfolio of mortgage-backed pass-through securities in
        the
        form of FHLMC, FNMA and Government National Mortgage Association (“ **GNMA** ”)
        participation certificates. Mortgage-backed pass-through securities generally
        entitle the Bank to receive a portion of the cash flows from an identified
        pool
        of mortgages and gives the Bank an interest in that pool of mortgages. FHLMC,
        FNMA and GNMA securities are each guaranteed by its respective agencies as
        to
        principal and interest. Except for a $1,000 investment in interest-only
  10
   certificates,
        the Bank does not invest in any derivative products.
  Although
        mortgage-backed securities generally yield less than individual loans originated
        by the Bank, they present less credit risk. Because mortgage-backed securities
        have a lower yield relative to current market rates, retention of such
        investments could adversely affect the Bank’s earnings, particularly in a rising
        interest rate environment. The mortgage-backed securities portfolio is generally
        considered to have very low credit risk because they are guaranteed as to
        principal repayment by the issuing agency.
  In
        addition, the Bank has purchased adjustable rate mortgage-backed securities
        as
        part of its effort to reduce its interest rate risk. In a period of declining
        interest rates, the Bank is subject to prepayment risk on such adjustable
        rate
        mortgage-backed securities. The Bank attempts to mitigate this prepayment
        risk
        by purchasing mortgage-backed securities at or near par. If interest rates
        rise
        in general, the interest rates on the loans backing the mortgage-backed
        securities will also adjust upward, subject to the interest rate caps in
        the
        underlying mortgage loans. However, the Bank is still subject to interest
        rate
        risk on such securities if interest rates rise faster than 1% to 2% maximum
        annual interest rate adjustments on the underlying loans.
  At
        December 31, 2005, the Bank had mortgage-backed securities with a carrying
        value
        of approximately $83,000, all of which were classified as available for sale.
        These mortgage-backed securities may be used as collateral for borrowings
        and,
        through repayments, as a source of liquidity.
  The
        following table sets forth the amortized cost and market value of the Bank’s
        mortgage-backed securities at the dates indicated.
  **At
                  December 31,****2005**
              
              **2004**
              
              **2003****Amortized
                  Cost**
              
              **Market
                  Value**
              
              **Amortized
                  Cost**
              
              **Market
                  Value**
              
              **Amortized
                  Cost**
              
              **Market
                  Value****(In
                  thousands)**Available
                  for sale:Government
                  Agency securities
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0Collateralized
                  mortgage obligations
              
              
              83
              
              
              83
              
              
              113
              
              
              113
              
              
              177
              
              
              175Total
                  mortgage-backed securities
              
              $
              83
              
              $
              83
              
              $
              113
              
              $
              113
              
              $
              177
              
              $
              175
  The
        following table sets forth the amount of mortgage-backed securities which
        mature
        during each of the periods indicated and the weighted average yields for
        each
        range of maturities at December 31, 2005.
  **Amount
                  at December 31, 2005 which matures in****Less
                  Than One Year**
              
              **One
                  Year to Five Years**
              
              **Five
                  to Ten Years**
              
              **After
                  Ten Years****Amortized
                  Cost**
              
              **Average
                  Yield**
              
              **Amortized
                  Cost**
              
              **Average
                  Yield**
              
              **Amortized
                  Cost**
              
              **Average
                  Yield**
              
              **Amortized
                  Cost**
              
              **Average
                   Yield****(Dollars
                  in thousands)**Mortgage-backed
                  securities available for sale
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              83
              
              
              4.31
              %
              
              -
              
              
              -
  The
        following table sets forth the changes in the Bank’s mortgage-backed securities
        portfolio for the years ended December 31, 2005, 2004, and
        2003.
  11
  **For
                  the Year Ended December 31,****2005**
              
              **2004**
              
              **2003****(Dollars
                  in thousands)**Beginning
                  balance
              
              $
              113
              
              $
              175
              
              $
              583Purchases
              
              
              -
              
              
              -
              
              
              -Sales
                  proceeds
              
              
              -
              
              
              -
              
              
              (98
              )Repayments
              
              
              (30
              )
              
              (62
              )
              
              (287
              )Losses
                  on sales
              
              
              
              
              
              -
              
              
              (4
              )Premium
                  and discount amortization, net
              
              
              -
              
              
              (2
              )
              
              (5
              )Unrealized
                  gains (losses) on securities available for sale
              
              
              -
              
              
              2
              
              
              (14
              )Ending
                  balance
              
              $
              83
              
              $
              113
              
              $
              175
  ***SOURCES
        OF FUNDS***
  *General* .
        Deposits have traditionally been the Bank’s primary source of funds for use in
        lending and investment activities. In addition to deposits, the Bank derives
        funds from scheduled loan payments, investment maturities, loan
        prepayments, income on earning assets and borrowings. While scheduled loan
        payments and income on earning assets are relatively stable sources of funds,
        deposit inflows and outflows can vary widely and are influenced by prevailing
        interest rates, market conditions and levels of competition. Borrowings from
        the
        FHLB of Indianapolis may be used in the short-term to compensate for reductions
        in deposits or deposit inflows at less than projected levels.
  *Deposits* .
        Deposits are attracted, principally from within Jefferson County, through
        the
        offering of a broad selection of deposit instruments including fixed rate
        certificates of deposit, NOW, MMDAs and other transaction accounts, individual
        retirement accounts and savings accounts. The Bank actively solicits and
        advertises for deposits outside of Jefferson County. Since the opening of
        our
        branches in Sellersburg, Indiana (Clark County), Charlestown, Indiana (Clark
        County), and Carrollton, Kentucky (Carroll County), the Bank’s market area
        has expanded. Deposit account terms vary, with the principal differences
        being the minimum balance required, the amount of time the funds remain on
        deposit and the interest rate. The Bank does not pay a fee for any deposits
        it
        receives.
  Interest
        rates paid, maturity terms, service fees and withdrawal penalties are
        established by the Bank on a periodic basis. Determination of rates and terms
        are predicated on funds acquisition and liquidity requirements, rates paid
        by
        competitors, growth goals and applicable regulations. The Bank relies, in
        part,
        on customer service and long-standing relationships with customers to attract
        and retain its deposits, but also closely prices its deposits in relation
        to
        rates offered by its competitors.
  The
        flow
        of deposits is influenced significantly by general economic conditions, changes
        in money market and prevailing interest rates and competition. The variety
        of
        deposit accounts offered by the Bank has allowed it to be competitive in
        obtaining funds and to respond with flexibility to changes in consumer demand.
        The Bank has become more susceptible to short-term fluctuations in deposit
        flows
        as customers have become more interest rate conscious. The Bank manages the
        pricing of its deposits in keeping with its asset/liability management and
        profitability objectives. Based on its experience, the Bank believes that
        its
        NOW and MMDAs are relatively stable sources of deposits. However, the ability
        of
        the Bank to attract and maintain certificates of deposit, and the rates paid
        on
        these deposits, have been and will continue to be significantly affected
        by
        market conditions.
  An
        analysis of the Company’s deposit accounts by type, maturity and rate at
        December 31, 2005 is as follows:
  12
   
 **Type
                  of Account**
              
              **Minimum
                  Opening Balance**
              
              **Balance
                  at December 31, 2005**
              
              **%
                  of Deposits**
              
              **Weighted
                  Average Rate****(Dollars
                  in thousands)**Withdrawable:Non-interest
                  bearing accounts
              
              $
              100
              
              $
              19,269
              
              
              9.32
              %
              
              0.00
              %Savings
                  accounts
              
              
              50
              
              
              28,438
              
              
              13.76
              
              
              1.25MMDA
              
              
              100
              
              
              14,834
              
              
              7.18
              
              
              2.31NOW
                  accounts
              
              
              100
              
              
              41,751
              
              
              20.20
              
              
              .93Total
                  withdrawable
              
              
              
              
              
              104,292
              
              
              50.45
              
              
              1.07Certificates
                  (original terms):I.R.A.
              
              
              250
              
              
              7,366
              
              
              3.56
              
              
              3.51Brokerage
                  CD
              
              
              99,000
              
              
              -
              
              
              -
              
              
              -3
                  months
              
              
              2,500
              
              
              -
              
              
              -
              
              
              -6
                  months
              
              
              2,500
              
              
              3,755
              
              
              1.82
              
              
              3.279
                  months
              
              
              2,500
              
              
              1,136
              
              
              .55
              
              
              3.2212
                  months
              
              
              500
              
              
              10,358
              
              
              5.01
              
              
              3.2815
                  months
              
              
              500
              
              
              11,854
              
              
              5.73
              
              
              1.5918
                  months
              
              
              500
              
              
              2,491
              
              
              1.20
              
              
              3.0724
                  months
              
              
              500
              
              
              3,322
              
              
              1.61
              
              
              3.2530
                  months
              
              
              500
              
              
              3,088
              
              
              1.49
              
              
              2.8636
                  months
              
              
              500
              
              
              2,653
              
              
              1.28
              
              
              3.4248
                  months
              
              
              500
              
              
              1,905
              
              
              .92
              
              
              3.7060
                  months
              
              
              500
              
              
              8,756
              
              
              4.24
              
              
              4.51Jumbo
                  certificates
              
              
              100,000
              
              
              45,757
              
              
              22.13
              
              
              3.10Total
                  certificates
              
              
              
              
              
              102,441
              
              
              49.55
              
              
              3.12Total
                  deposits
              
              
              
              
              $
              206,733
              
              
              100.00
              %
              
              2.08
  The
        following table sets forth by various interest rate categories the composition
        of time deposits of the Bank at the dates indicated:
  **At
                  December 31,****2005**
              
              **2004**
              
              **2003****(In
                  thousands)**0.00
                  to 3.00%
              
              $
              35,227
              
              $
              64,354
              
              $
              67,7263.01
                  to 5.00%
              
              
              63,455
              
              
              21,714
              
              
              19,2595.01
                  to 6.00%
              
              
              3,759
              
              
              4,474
              
              
              5,4896.01
                  to 7.00%
              
              
              0
              
              
              16
              
              
              287.01
                  to 8.00%
              
              
              0
              
              
              100
              
              
              100Total
              
              $
              102,441
              
              $
              90,658
              
              $
              94,602
  The
        following table represents, by various interest rate categories, the amounts
        of
        time deposits maturing during each of the three years following December
        31,
        2005. Matured certificates, which have not been renewed as of December 31,
        2005,
        have been allocated based upon certain rollover assumptions.
  **Amounts
                  at December 31, 2005 Maturing In****One
                  Year or Less**
              
              **Two
                  Years**
              
              **Three
                  Years**
              
              **Greater
                  Than****Three
                  Years****(In
                  thousands)**0.00
                  to 3.00%
              
              $
              31,491
              
              $
              3,094
              
              $
              267
              
              $
              3863.01
                  to 5.00%
              
              
              35,881
              
              
              15,686
              
              
              6,875
              
              
              5,0035.01
                  to 6.00%
              
              
              562
              
              
              3,196
              
              
              -
              
              
              -6.01
                  to 7.00%
              
              
              -
              
              
              -
              
              
              -
              
              
              -7.01
                  to 8.00%
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              67,934
              
              $
              21,976
              
              $
              7,142
              
              $
              5,389
  The
        following table indicates the amount of the Bank’s jumbo and other certificates
        of deposit of $100,000 or more by time remaining until maturity as of December
        31, 2005.
  13
  **Maturity
                Period**
              
              **At
                  December 31, 2005****(In
                  thousands)**Three
                  months or less
              
              $
              11,851Greater
                  than three months through six months
              
              
              1,875Greater
                  than six months through twelve months
              
              
              21,696Over
                  twelve months
              
              
              10,335Total
              
              $
              45,757
  The
        following table sets forth the dollar amount of savings deposits in the various
        types of deposits offered by the Bank at the dates indicated, and the amount
        of
        increase or decrease in such deposits as compared to the previous
        period.
  **DEPOSIT
                  ACTIVITY****Balance
                  at December 31, 2005**
              
              **%
                  of Deposits**
              
              **Increase
                  (Decrease) from 2004**
              
              **Balance
                  at December 31, 2004**
              
              **%
                  of Deposits**
              
              **Increase
                  (Decrease) from 2003**
              
              **Balance
                  at December 31, 2003**
              
              **%
                  of Deposits****(Dollars
                  in thousands)**Withdrawable:Noninterest-bearing
                  accounts
              
              $
              19,269
              
              
              9.32
              %
              $
              4,203
              
              $
              15,066
              
              
              8.83
              %
              $
              3,238
              
              $
              11,828
              
              
              6.6
              %Savings
                  accounts
              
              
              28,438
              
              
              13.76
              
              
              (387
              )
              
              28,825
              
              
              16.90
              
              
              2,347
              
              
              26,478
              
              
              14.7MMDA
              
              
              14,834
              
              
              7.18
              
              
              2,525
              
              
              12,309
              
              
              7.22
              
              
              (14,048
              )
              
              26,357
              
              
              14.6NOW
                  accounts
              
              
              41,751
              
              
              20.20
              
              
              18,071
              
              
              23,680
              
              
              13.89
              
              
              2,991
              
              
              20,689
              
              
              11.5Total
                  withdrawable
              
              
              104,292
              
              
              50.45
              
              
              24,412
              
              
              79,880
              
              
              46.84
              
              
              (5,472
              )
              
              85,352
              
              
              47.4Certificates
                  (original terms):I.R.A.
              
              
              7,366
              
              
              3.56
              
              
              366
              
              
              7,000
              
              
              4.10
              
              
              (93
              )
              
              7,093
              
              
              3.9Brokerage
                  CD
              
              
              -
              
              
              -
              
              
              (2,229
              )
              
              2,229
              
              
              1.31
              
              
              2,229
              
              
              -
              
              
              -3
                  months
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              0.00
              
              
              (28
              )
              
              28
              
              
              -6
                  months
              
              
              3,755
              
              
              1.82
              
              
              2,615
              
              
              1,140
              
              
              0.67
              
              
              (1,051
              )
              
              2,191
              
              
              1.29
                  months
              
              
              1,136
              
              
              .55
              
              
              842
              
              
              294
              
              
              0.17
              
              
              77
              
              
              217
              
              
              .112
                  months
              
              
              10,358
              
              
              5.01
              
              
              (9,450
              )
              
              19,808
              
              
              11.62
              
              
              1,585
              
              
              18,223
              
              
              10.115
                  months
              
              
              11,854
              
              
              5.73
              
              
              7,254
              
              
              4,600
              
              
              2.70
              
              
              (4,780
              )
              
              9,380
              
              
              5.218
                  months
              
              
              2,491
              
              
              1.20
              
              
              1,109
              
              
              1,382
              
              
              0.81
              
              
              (664
              )
              
              2,046
              
              
              1.124
                  months
              
              
              3,322
              
              
              1.61
              
              
              808
              
              
              2,514
              
              
              1.47
              
              
              (2,080
              )
              
              4,594
              
              
              2.630
                  months
              
              
              3,088
              
              
              1.49
              
              
              (178
              )
              
              3,266
              
              
              1.92
              
              
              1,666
              
              
              1,600
              
              
              .936
                  months
              
              
              2,653
              
              
              1.28
              
              
              (8
              )
              
              2,661
              
              
              1.56
              
              
              744
              
              
              1,917
              
              
              1.148
                  months
              
              
              1,905
              
              
              .92
              
              
              271
              
              
              1,634
              
              
              0.96
              
              
              459
              
              
              1,175
              
              
              .760
                  months
              
              
              8,756
              
              
              4.24
              
              
              (221
              )
              
              8,977
              
              
              5.26
              
              
              1,448
              
              
              7,529
              
              
              4.2Jumbo
                  certificates
              
              
              45,757
              
              
              22.13
              
              
              10,604
              
              
              35,153
              
              
              20.61
              
              
              (3,456
              )
              
              38,609
              
              
              21.5Total
                  certificates
              
              
              102,441
              
              
              49.55
              
              
              11,783
              
              
              90,658
              
              
              53.16
              
              
              (3,944
              )
              
              94,602
              
              
              52.6Total
                  deposits
              
              $
              206,733
              
              
              100.00
              %
              $
              36,195
              
              $
              170,538
              
              
              100.00
              %
              $
              (9,416
              )
              $
              179,954
              
              
              100.00
              %
  *Borrowings* .
        The
        Bank focuses on generating high quality loans and then seeks the best source
        of
        funding from deposits, investments, or borrowings. At December 31, 2005,
        the
        Bank had $75.0 million in FHLB advances. The Bank does not anticipate any
        difficulty in obtaining advances appropriate to meet its requirements in
        the
        future.
  The
        following table presents certain information relating to the Holding Company’s
        and the Bank’s borrowings at or for the years ended December 31, 2005, 2004, and
        2003.
  **At
                  or for the Year Ended December 31,****2005**
              
              **2004**
              
              **2003****(Dollars
                  in thousands)**FHLB
                  Advances and Other Borrowed Money:Outstanding
                  at end of period
              
              $
              96,782
              
              $
              94,600
              
              $
              50,000Average
                  balance outstanding for period
              
              
              102,501
              
              
              65,468
              
              
              45,636Maximum
                  amount outstanding at any month-end during the period
              
              
              111,555
              
              
              94,600
              
              
              50,000Weighted
                  average interest rate during the period
              
              
              4.35
              %
              
              4.15
              %
              
              4.58
              %Weighted
                  average interest rate at end of period
              
              
              4.63
              %
              
              4.00
              %
              
              4.40
              %
  
  14
  ***SERVICE
        CORPORATION SUBSIDIARIES***
  Office
        of
        Thrift Supervision regulations permit federal savings associations to invest
        in
        the capital stock, obligations or other specified types of securities of
        subsidiaries (referred to as “service corporations”) and to make loans to such
        subsidiaries and joint ventures in which such subsidiaries are participants
        in
        an aggregate amount not exceeding 2% of the association’s assets, plus an
        additional 1% of assets if the amount over 2% is used for specified community
        or
        inner-city development purposes. In addition, federal regulations permit
        associations to make specified types of loans to such subsidiaries (other
        than
        special purpose finance subsidiaries) in which the association owns more
        than
        10% of the stock, in an aggregate amount not exceeding 50% of the association’s
        regulatory capital if the association’s regulatory capital is in compliance with
        applicable regulations.
  A
        savings
        association that acquires a non-savings association subsidiary, or that elects
        to conduct a new activity within a subsidiary, must give the Federal Deposit
        Insurance Corporation, the Office of Thrift Supervision and the Department
        of
        Financial Institutions at least 30 days advance written notice. The Federal
        Deposit Insurance Corporation may, after consultation with the Office of
        Thrift
        Supervision, prohibit specified activities if it determines such activities
        pose
        a serious threat to the Savings Association Insurance Fund. Moreover, a savings
        association must deduct from capital, for purposes of meeting the core capital,
        tangible capital and risk-based capital requirements, its entire investment
        in
        and loans to a subsidiary engaged in activities not permissible for a national
        bank (other than exclusively agency activities for its customers or mortgage
        banking subsidiaries).
  The
        Bank’s wholly owned subsidiary, Madison First Service Corporation, which was
        incorporated under the laws of the State of Indiana on July 3, 1973,
        currently holds land but does not otherwise engage in significant business
        activities. During 2005, the Bank established in Nevada three new subsidiaries
        --RVFB Investments, Inc., RVFB Holdings, Inc. and RVFB Portfolio, LLC--to
        hold
        and manage a significant portion of the Bank’s investment portfolio.
  **FINANCING
        SUBSIDIARY**
  On
        March 13, 2003, the Company formed the “RIVR Statutory Trust I,” a
        statutory trust formed under Connecticut law, and filed a Certificate of
        Trust
        with the Secretary of the State of Connecticut. The sole purpose of the Trust
        is
        to issue and sell certain securities representing undivided beneficial interests
        in the assets of the Trust and to invest the proceeds thereof in certain
        debentures of the Company.
  **EMPLOYEES**
  As
        of
        December 31, 2005, the Bank employed 72 persons on a full-time basis and
        12
        persons on a part-time basis. None of the employees is represented by a
        collective bargaining group. Management considers its employee relations
        to be
        good.
  **COMPETITION**
  The
        Bank
        originates most of its loans to and accepts most of its deposits from residents
        of Jefferson and Clark Counties, Indiana, and Carroll County, Kentucky. The
        Bank
        is subject to competition from various financial institutions, including
        state
        and national banks, state and federal savings associations, credit unions
        and
        certain non-banking consumer lenders that provide similar services in Jefferson
        County and Clark Counties in Indiana and Carroll County in Kentucky and which
        have significantly larger resources available to them than does the Bank.
        In
        total, there are 22 financial institutions located in the three-county market
        area, including the Bank. The Bank also competes with money market funds
        with
        respect to deposit accounts and with insurance companies with respect to
        individual retirement accounts.
  The
        primary factors influencing competition for deposits are interest rates,
        service
        and convenience of office locations. The Bank competes for loan originations
        primarily through the efficiency and quality of services it provides borrowers
        and through interest rates and loan fees charged. Competition is affected
        by,
        among other things, the general availability of lendable funds, general and
        local economic conditions, current interest rate levels and other factors
        that
        are not readily predictable.
  15
   **REGULATION**
  **GENERAL**
  As
        a
        federally-chartered, SAIF-insured savings association, the Bank is subject
        to
        extensive regulation by the OTS and the FDIC. For example, the Bank must
        obtain
        OTS approval before it may engage in certain activities and must file reports
        with the OTS regarding its activities and financial condition. The OTS
        periodically examines the Bank’s books and records and, in conjunction with the
        FDIC in certain situations, has examination and enforcement powers. This
        supervision and regulation are intended primarily for the protection of
        depositors and the federal deposit insurance funds. A savings association
        must
        pay a semi-annual assessment to the OTS based upon a marginal assessment
        rate
        that decreases as the asset size of the savings association increases, and
        which
        includes a fixed-cost component that is assessed on all savings associations.
        The assessment rate that applies to a savings association depends upon the
        institution’s size, condition and the complexity of its operations. The Bank’s
        semi-annual assessment is approximately $38,000.
  The
        Bank
        is also subject to federal and state regulation as to such matters as loans
        to
        officers, directors, or principal shareholders, required reserves, limitations
        as to the nature and amount of its loans and investments, regulatory approval
        of
        any merger or consolidation, issuances or retirements of its securities,
        and
        limitations upon other aspects of banking operations. In addition, the Bank’s
        activities and operations are subject to a number of additional detailed,
        complex and sometimes overlapping federal and state laws and regulations.
        These
        include state usury and consumer credit laws, state laws relating to
        fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the Federal
        Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
        Act,
        the Community Reinvestment Act, anti-redlining legislation, antitrust laws
        and
        regulations protecting the confidentiality of consumer financial
        information.
  **SAVINGS
        AND LOAN HOLDING COMPANY REGULATION**
  As
        the
        holding company for the Bank, the Holding Company is regulated as a
“non-diversified savings and loan holding company” within the meaning of the
        Home Owners’ Loan Act, as amended (“ **HOLA** ”),
        and
        is subject to regulatory oversight by the Director of the OTS. As such, the
        Holding Company is registered with the OTS and is thereby subject to OTS
        regulations, examinations, supervision and reporting requirements. As a
        subsidiary of a savings and loan holding company, the Bank is subject to
        certain
        restrictions in its dealings with the Holding Company and with other companies
        affiliated with the Holding Company.
  In
        general, the HOLA prohibits a savings and loan holding company, without
        obtaining the prior approval of the Director of the OTS, from acquiring control
        of another savings association or savings and loan holding company or retaining
        more than 5% of the voting shares of a savings association or of another
        holding
        company which is not a subsidiary. The HOLA also restricts the ability of
        a
        director or officer of the Holding Company, or any person who owns more than
        25%
        of the Holding Company’s stock, from acquiring control of another savings
        association or savings and loan holding company without obtaining the prior
        approval of the Director of the OTS.
  The
        Holding Company currently operates as a unitary savings and loan holding
        company. Prior to the enactment of the Gramm-Leach-Bliley Act (the “ **GLB
        Act** ”)
        in
        1999, there were no restrictions on the permissible business activities of
        a
        unitary savings and loan holding company. The GLB Act included a provision
        that
        prohibits any new unitary savings and loan holding company, defined as a
        company
        that acquires a thrift after May 4, 1999, from engaging in commercial
        activities. This provision also includes a grandfather clause, however, that
        permits a company that was a savings and loan holding company as of May 4,
        1999, or had an application to become a savings and loan holding company
        on file
        with the OTS as of that date, to acquire and continue to control a thrift
        and to
        continue to engage in commercial activities. Because the Holding Company
        qualifies under this grandfather provision, the GLB Act did not affect the
        Holding Company’s authority to engage in diversified business
        activities.
  If
        the
        Holding Company were to acquire control of another savings association other
        than through a merger or other business combination with the Bank, the Holding
        Company would thereupon become a multiple savings and loan holding company.
        Except where such acquisition is pursuant to the authority to approve emergency
        thrift acquisitions and where each subsidiary savings association meets the
        QTL
        test, the activities of the Holding Company and any of its subsidiaries (other
        than the Bank or other subsidiary savings associations) would thereafter
        be
        subject to further restrictions. The
  16
   HOLA
        provides that, among other things, a multiple savings and loan holding company
        may not, either directly or acting through a subsidiary that is not a savings
        association, conduct, any business activity other than (i) furnishing or
        performing management services for a subsidiary savings association,
        (ii) conducting an insurance agency or escrow business, (iii) holding,
        managing, or liquidating assets owned by or acquired from a subsidiary savings
        association, (iv) holding or managing properties used or occupied by a
        subsidiary savings association, (v) acting as trustee under deeds of trust,
        (vi) those activities in which multiple savings and loan holding companies
        were authorized (by regulation) to directly engage on March 5, 1987, or
        (vii) those activities authorized by the FRB as permissible for bank
        holding companies, unless the Director of the OTS by regulation prohibits
        or
        limits such activities for savings and loan holding companies. Those activities
        described in (viii) above must also be approved by the Director of the OTS
        before a multiple savings and loan holding company may engage in such
        activities.
  The
        Director of the OTS may also approve acquisitions resulting in the formation
        of
        a multiple savings and loan holding company which controls savings associations
        in more than one state, if the multiple savings and loan holding company
        involved controls a savings association which operated a home or branch office
        in the state of the association to be acquired as of March 5, 1987, or if
        the laws of the state in which the association to be acquired is located
        specifically permit associations to be acquired by state-chartered associations
        or savings and loan holding companies located in the state where the acquiring
        entity is located (or by a holding company that controls such state-chartered
        savings associations). Also, the Director of the OTS may approve an acquisition
        resulting in a multiple savings and loan holding company controlling savings
        associations in more than one state in the case of certain emergency thrift
        acquisitions.
  Notwithstanding
        the above rules as to permissible business activities of savings and loan
        holding companies, if the savings association subsidiary of such a holding
        company fails to meet the Qualified Thrift Lender (“ **QTL** ”)
        test,
        then such holding company would be deemed to be a bank holding company subject
        to all of the provisions of the Bank Holding Company Act of 1956 and other
        statutes applicable to bank holding companies, to the same extent as if the
        Holding Company were a bank holding company and the Bank were a bank. See
        “-Qualified Thrift Lender.” At December 31, 2005, the Bank’s asset composition
        was in excess of that required to qualify as a Qualified Thrift
        Lender.
  Indiana
        law permits federal and state savings association holding companies with
        their
        home offices located outside of Indiana to acquire savings associations whose
        home offices are located in Indiana and savings association holding companies
        with their principal place of business in Indiana (“ **Indiana
        Savings Association Holding Companies** ”)
        upon
        receipt of approval by the Indiana Department of Financial Institutions.
        Moreover, Indiana Savings Association Holding Companies may acquire savings
        associations with their home offices located outside of Indiana and savings
        association holding companies with their principal place of business located
        outside of Indiana upon receipt of approval by the Indiana Department of
        Financial Institutions.
  No
        subsidiary savings association of a savings and loan holding company may
        declare
        or pay a dividend or make a capital distribution on its permanent or
        non-withdrawable stock unless it first gives the Director of the OTS 30 days
        advance notice of such declaration and payment. Any dividend declared during
        such period or without giving notice shall be invalid.
  **FEDERAL
        HOME LOAN BANK SYSTEM**
  The
        Bank
        is a member of the FHLB system, which consists of 12 regional banks. The
        Federal
        Housing Finance Board (“ **FHFB** ”),
        an
        independent agency, controls the FHLB System including the FHLB of Indianapolis.
        The FHLB System provides a central credit facility primarily for member
        financial institutions. At December 31, 2005, the Bank’s investment in stock of
        the FHLB of Indianapolis was $4.05 million. For the fiscal year ended December
        31, 2005, the FHLB of Indianapolis paid approximately $169,554 in cash dividends
        to the Bank, for an annual rate of 4.3%.
  All
        12
        FHLBs are required to provide funds to establish affordable housing programs
        through direct loans or interest subsidies on advances to members to be used
        for
        lending at subsidized interest rates for low-and moderate-income, owner-occupied
        housing projects, affordable rental housing, and certain other community
        projects. These contributions and obligations could adversely affect the
        value
        of FHLB stock in the future. A reduction in the value of such stock may result
        in a corresponding reduction in the Bank’s capital.
  17
   The
        FHLB
        of Indianapolis serves as a reserve or central bank for its member institutions.
        It is funded primarily from proceeds derived from the sale of consolidated
        obligations of the FHLB System. It makes advances to members in accordance
        with
        policies and procedures established by the FHLB and the Board of Directors
        of
        the FHLB of Indianapolis.
  All
        FHLB
        advances must be fully secured by sufficient collateral as determined by
        the
        FHLB. Eligible collateral includes first mortgage loans not more than 90
        days
        delinquent or securities evidencing interests therein, securities (including
        mortgage-backed securities) issued, insured or guaranteed by the federal
        government or any agency thereof, cash or FHLB deposits, certain small business
        and agricultural loans of smaller institutions and real estate with readily
        ascertainable value in which a perfected security interest may be obtained.
        Other forms of collateral may be accepted as additional security or, under
        certain circumstances, to renew outstanding advances. All long-term advances
        are
        required to provide funds for residential home financing and the FHLB has
        established standards of community service that members must meet to maintain
        access to long-term advances.
  Interest
        rates charged for advances vary depending upon maturity, the cost of funds
        to
        the FHLB of Indianapolis and the purpose of the borrowing.
  **INSURANCE
        OF DEPOSITS**
  On
        February 8, 2006, President Bush signed into law the Federal Deposit Insurance
        Reform Act of 2005. This statute reforms the deposit insurance system
        by:
  ·
            merging
                the Bank Insurance Fund (“**BIF**”)
                and the SAIF into a new Deposit Insurance Fund (“**DIF**”)
                no later than July 1, 2006;  ·
            keeping
                the insurance coverage limit for individual accounts and municipal
                accounts at $100,000 but providing an inflation adjustment process,
                which
                permits an adjustment effective January 1, 2011 and every five years
                thereafter based on the Personal Consumption Expenditures Index (with
                2005
                as the base year of comparison), unless the FDIC concludes such adjustment
                would be inappropriate for reasons relating to risks to the
                DIF;  ·
            increasing
                insurance coverage limits for retirement accounts to $250,000, subject
                to
                the same inflation adjustment process described
                above;  ·
            prohibiting
                undercapitalized members from accepting employee benefit plan
                deposits;  ·
            provides
                for the payment of credits based on a member’s share of the assessment
                base as of December 31, 1996 and equal to an aggregate of $4.7 billion
                for
                all members, which credits can offset FDIC assessments subject to
                certain
                limits;  ·
            providing
                for the declaration of dividends to members (based on a member’s share of
                the assessment base on December 31, 1996, and premiums paid after
                that
                date) equal to 50% of the amount in the DIF in excess of a reserve
                ratio
                of 1.35% and 100% of such amount in excess of a reserve ratio of
                1.5%,
                subject to the FDIC’s right to suspend or limit dividends based on risks
                to the DIF; and  ·
            eliminating
                the mandatory assessment (up to 23 basis points) that applied if
                the DIF
                fell below 1.25% of insured deposits and in its place establishing
                a new
                assessment system based on risk, needs of the DIF, and the effect
                on the
                members’ capital and earnings. The FDIC will set a reserve ratio of
                between 1.15% and 1.5% and will have five years to restore the DIF
                if the
                ratio falls below 1.15%.  The
        discussion below describes the deposit insurance system in effect prior to
        the
        new legislation.
  *Deposit
        Insurance* .
        The
        FDIC is an independent federal agency that insures the deposits, up to
        prescribed statutory limits, of banks and thrifts and safeguards the safety
        and
        soundness of the banking and thrift industries. The FDIC administers two
        separate insurance funds, the BIF for commercial banks and state savings
        banks
        and the SAIF for savings associations such as the Bank, and for banks that
        have
        acquired deposits from savings associations. The FDIC is required to maintain
        designated levels of reserves in each fund.
  18
   *Assessments* .
        The
        FDIC is authorized to establish separate annual assessment rates for deposit
        insurance for members of the BIF and members of the SAIF. The FDIC may increase
        assessment rates for either fund if necessary to restore the fund’s ratio of
        reserves to insured deposits to the target level within a reasonable time
        and
        may decrease these rates if the target level has been met. The FDIC has
        established a risk-based assessment system for both SAIF and BIF members.
        Under
        this system, assessments vary depending on the risk the institution poses
        to its
        deposit insurance fund. An institution’s risk level is determined based on its
        capital level and the FDIC’s level of supervisory concern about the
        institution.
  In
        addition to the assessment for deposit insurance, savings institutions are
        required to pay on bonds issued in the late 1980s by the Financing Corporation
        (“ **FICO** ”),
        which
        is a federally-chartered corporation that was organized to provide some of
        the
        financing to resolve the thrift crisis in the 1980s. By law, payments on
        FICO
        obligations have been shared equally between BIF members and SAIF members
        since
        January 1, 2000. During 2005, quarterly FICO payments for SAIF and BIF
        members averaged 1.385 basis points.
  **SAVINGS
        ASSOCIATION REGULATORY CAPITAL**
  Currently,
        savings associations are subject to three separate minimum capital-to-assets
        requirements: (i) a leverage limit, (ii) a tangible capital
        requirement, and (iii) a risk-based capital requirement. The leverage limit
        requires that savings associations maintain “core capital” of at least 3% of
        total assets. Core capital is generally defined as common shareholders’ equity
        (including retained earnings), non-cumulative perpetual preferred stock and
        related surplus, certain minority equity interests in subsidiaries, qualifying
        supervisory goodwill, purchased mortgage servicing rights and purchased credit
        card relationships (subject to certain limits) less non-qualifying intangibles.
        The OTS requires a core capital level of 3% of total adjusted assets for
        savings
        associations that receive the highest supervisory rating for safety and
        soundness, and no less than 4% for all other savings associations. Under
        the
        tangible capital requirement, a savings association must maintain tangible
        capital (core capital less all intangible assets except purchased mortgage
        servicing rights which may be included after making the above-noted adjustment
        in an amount up to 100% of tangible capital) of at least 1.5% of total assets.
        Under the risk-based capital requirements, a minimum amount of capital must
        be
        maintained by a savings association to account for the relative risks inherent
        in the type and amount of assets held by the savings association. The risk-based
        capital requirement requires a savings association to maintain capital (defined
        generally for these purposes as core capital plus general valuation allowances
        and permanent or maturing capital instruments such as preferred stock and
        subordinated debt less assets required to be deducted) equal to 8.0% of
        risk-weighted assets. Assets are ranked as to risk in one of four categories
        (0-100%). A credit risk-free asset, such as cash, requires no risk-based
        capital, while an asset with a significant credit risk, such as a non-accrual
        loan, requires a risk factor of 100%. Moreover, a savings association must
        deduct from capital, for purposes of meeting the core capital, tangible capital
        and risk-based capital requirements, its entire investment in and loans to
        a
        subsidiary engaged in activities not permissible for a national bank (other
        than
        exclusively agency activities for its customers or mortgage banking
        subsidiaries). At December 31, 2005, the Bank was in compliance with all
        capital
        requirements imposed by law.
  If
        an
        association is not in compliance with the capital requirements, the OTS is
        required to prohibit asset growth and to impose a capital directive that
        may
        restrict, among other things, the payment of dividends and officers’
compensation. In addition, the OTS and the FDIC generally are authorized
        to take
        enforcement actions against a savings association that fails to meet its
        capital
        requirements. These actions may include restricting the operations activities
        of
        the association, imposing a capital directive, cease and desist order, or
        civil
        money penalties, or imposing harsher measures such as appointing a receiver
        or
        conservator or forcing the association to merge into another
        institution.
  **PROMPT
        CORRECTIVE REGULATORY ACTION**
  The
        Federal Deposit Insurance Corporation Improvement Act of 1991 (“ **FedICIA** ”)
        requires, among other things, that federal bank regulatory authorities take
        “prompt corrective action” with respect to institutions that do not meet minimum
        capital requirements. For these purposes, FedICIA establishes five capital
        tiers: well capitalized, adequately capitalized, undercapitalized, significantly
        undercapitalized and critically undercapitalized. At December 31, 2005, the
        Bank
        was categorized as “well capitalized,” meaning that its total risk-based capital
        ratio exceeded 10%, its Tier I risk-based capital ratio exceeded 6%, its
        leverage ratio exceeded 5%, and it was not subject to a regulatory order,
        agreement or directive to
  19
   meet
        and
        maintain a specific capital level for any capital measure.
  The
        FDIC
        may order savings associations which have insufficient capital to take
        corrective actions. For example, a savings association which is categorized
        as
“undercapitalized” would be subject to growth limitations and would be required
        to submit a capital restoration plan, and a holding company that controls
        such a
        savings association would be required to guarantee that the savings association
        complies with the restoration plan. “Significantly undercapitalized” savings
        associations would be subject to additional restrictions. Savings associations
        deemed by the FDIC to be “critically undercapitalized” would be subject to the
        appointment of a receiver or conservator.
  **DIVIDEND
        LIMITATIONS**
  The
        OTS
        also restricts the amount of “capital distributions” that may be made by savings
        associations. The applicable regulation defines a capital distribution as
        a
        distribution of cash or other property to a savings association’s owners, made
        on account of their ownership. This definition includes a savings association’s
        payment of cash dividends to shareholders, or any payment by a savings
        association to repurchase, redeem, retire, or otherwise acquire any of its
        shares or debt instruments that are included in total capital, and any extension
        of credit to finance an affiliate’s acquisition of those shares or interests.
        The amended regulation does not apply to dividends consisting only of a savings
        association’s shares or rights to purchase such shares.
  The
        regulation exempts certain savings associations from filing either a notice
        or
        an application with the OTS before making any capital distribution, and requires
        a savings association to file an application for approval of a proposed capital
        distribution with the OTS if the association is not eligible for expedited
        treatment under OTS’s application processing rules, or the total amount of all
        capital distributions, including the proposed capital distribution, for the
        applicable calendar year would exceed an amount equal to the savings
        association’s net income for that year to date plus the savings association’s
        retained net income for the preceding two years (the “retained net income
        standard”). A savings association must also file an application for approval of
        a proposed capital distribution if, following the proposed distribution,
        the
        association would not be at least adequately capitalized under the OTS prompt
        corrective action regulations, or if the proposed distribution would violate
        a
        prohibition contained in any applicable statute, regulation, or agreement
        between the association and the OTS or the FDIC.
  The
        regulation requires a savings association to file a notice of a proposed
        capital
        distribution in lieu of an application if the association or the proposed
        capital distribution do not meet the conditions described above, and: (1)
        the
        savings association will not be at least well capitalized (as defined under
        the
        OTS prompt corrective action regulations) following the capital distribution;
        (2) the capital distribution would reduce the amount of, or retire any part
        of
        the savings association’s common or preferred stock, or retire any part of debt
        instruments such as notes or debentures included in the association’s capital
        under the OTS capital regulation; or (3) the savings association is a subsidiary
        of a savings and loan holding company. Because the Bank is a subsidiary of
        a
        savings and loan holding company, this latter provision requires, at a minimum,
        that the Bank file a notice with the OTS 30 days before making any capital
        distributions to the Holding Company.
  In
        addition to these regulatory restrictions, the Bank’s Plan of Conversion imposes
        additional limitations on the amount of capital distributions it may make
        to the
        Holding Company. The Plan of Conversion requires the Bank to establish and
        maintain a liquidation account for the benefit of Eligible Account Holders
        and
        Supplemental Eligible Account Holders and prohibits the Bank from making
        capital
        distributions to the Holding Company if its net worth would be reduced below
        the
        amount required for the liquidation account.
  **LIMITATIONS
        ON RATES PAID FOR DEPOSITS**
  Regulations
        promulgated by the FDIC pursuant to FedICIA place limitations on the ability
        of
        insured depository institutions to accept, renew or roll over deposits by
        offering rates of interest which are significantly higher than the prevailing
        rates of interest on deposits offered by other insured depository institutions
        having the same type of charter in the institution’s normal market area. Under
        these regulations, “well-capitalized” depository institutions may accept, renew,
        or roll such deposits over without restriction, “adequately capitalized”
depository institutions may accept, renew or roll such deposits over with
        a
        waiver from the FDIC (subject to certain restrictions on payments of rates)
        and
  20
   “undercapitalized”
        depository institutions may not accept, renew or roll such deposits over.
        The
        regulations contemplate that the definitions of “well capitalized,” “adequately
        capitalized” and “undercapitalized” will be the same as the definition adopted
        by the agencies to implement the corrective action provisions of FedICIA.
        Management does not believe that these regulations will have a materially
        adverse effect on the Bank’s current operations.
  **LIQUIDITY**
  The
        Financial Regulatory Relief and Economic Efficiency Act of 2000 repealed
        the
        former statutory requirement that all savings associations maintain an average
        daily balance of liquid assets in a minimum amount of not less than 4% or
        more
        than 10% of their withdrawable accounts plus short-term borrowings. The OTS
        adopted a rule that implemented this revised statutory requirement, although
        savings associations remain subject to the OTS regulation that requires them
        to
        maintain sufficient liquidity to ensure their safe and sound
        operation.
  **SAFETY
        AND SOUNDNESS STANDARDS**
  The
        federal banking agencies have adopted final safety and soundness standards
        for
        all insured depository institutions. The standards, which were issued in
        the
        form of guidelines rather than regulations, relate to internal controls,
        information systems, internal audit systems, loan underwriting and
        documentation, compensation, interest rate exposure, asset quality and earnings
        standards. In general, the standards are designed to assist the federal banking
        agencies in identifying and addressing problems at insured depository
        institutions before capital becomes impaired. If an institution fails to
        meet
        these standards, the appropriate federal banking agency may require the
        institution to submit a compliance plan. Failure to submit a compliance plan
        may
        result in enforcement proceedings.
  **REAL
        ESTATE LENDING STANDARDS**
  OTS
        regulations require savings associations to establish and maintain written
        internal real estate lending policies. Each association’s lending policies must
        be consistent with safe and sound banking practices and be appropriate to
        the
        size of the association and the nature and scope of its operations. The policies
        must establish loan portfolio diversification standards; establish prudent
        underwriting standards, including loan-to-value limits, that are clear and
        measurable; establish loan administration procedures for the association’s real
        estate portfolio; and establish documentation, approval and reporting
        requirements to monitor compliance with the association’s real estate lending
        policies. The association’s written real estate lending policies must be
        reviewed and approved by the association’s Board of Directors at least annually.
        Further, each association is expected to monitor conditions in its real estate
        market to ensure that its lending policies continue to be appropriate for
        current market conditions.
  **LOANS
        TO ONE BORROWER**
  Under
        OTS
        regulations, the Bank may not make a loan or extend credit to a single or
        related group of borrowers in excess of 15% of its unimpaired capital and
        surplus. Additional amounts may be lent, not in excess of 10% of unimpaired
        capital and surplus, if such loans or extensions of credit are fully secured
        by
        readily marketable collateral, including certain debt and equity securities
        but
        not including real estate. In some cases, a savings association may lend
        up to
        30 percent of unimpaired capital and surplus to one borrower for purposes
        of
        developing domestic residential housing, provided that the association meets
        its
        regulatory capital requirements and the OTS authorizes the association to
        use
        this expanded lending authority. At December 31, 2005, the Bank did not have
        any
        loans or extensions of credit to a single or related group of borrowers in
        excess of its lending limits. Management does not believe that the
        loans-to-one-borrower limits will have a significant impact on the Bank’s
        business operations or earnings.
  **QUALIFIED
        THRIFT LENDER**
  Savings
        associations must meet a QTL test that requires the association to maintain
        an
        appropriate level of qualified thrift investments (“ **QTIs** ”)
        (primarily residential mortgages and related investments, including certain
        mortgage-related securities) and otherwise to qualify as a QTL. The required
        percentage of QTIs is 65% of portfolio assets (defined as all assets minus
        intangible assets, property used by the association in conducting its business
        and liquid assets equal to 10%
  21
   of
        total
        assets). Certain assets are subject to a percentage limitation of 20% of
        portfolio assets. In addition, savings associations may include shares of
        stock
        of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
        determined on a monthly basis in nine out of every twelve months. As of December
        31, 2005, the Bank was in compliance with its QTL requirement, with
        approximately 71.7% of its portfolio assets invested in QTIs.
  A
        savings
        association which fails to meet the QTL test must either convert to a bank
        (but
        its deposit insurance assessments and payments will be those of and paid
        to the
        SAIF) or be subject to the following penalties: (i) it may not enter into
        any new activity except for those permissible for a national bank and for
        a
        savings association; (ii) its branching activities shall be limited to
        those of a national bank; and (iii) it shall be bound by regulations
        applicable to national banks respecting payment of dividends. Three years
        after
        failing the QTL test the association must dispose of any investment or activity
        not permissible for a national bank and a savings association. If such a
        savings
        association is controlled by a savings and loan holding company, then such
        holding company must, within a prescribed time period, become registered
        as a
        bank holding company and become subject to all rules and regulations applicable
        to bank holding companies (including restrictions as to the scope of permissible
        business activities).
  **ACQUISITIONS
        OR DISPOSITIONS AND BRANCHING**
  The
        Bank
        Holding Company Act specifically authorizes a bank holding company, upon
        receipt
        of appropriate regulatory approvals, to acquire control of any savings
        association or holding company thereof wherever located. Similarly, a savings
        and loan holding company may acquire control of a bank. Moreover, federal
        savings associations may acquire or be acquired by any insured depository
        institution. Regulations promulgated by the FRB restrict the branching authority
        of savings associations acquired by bank holding companies. Savings associations
        acquired by bank holding companies may be converted to banks if they continue
        to
        pay SAIF premiums, but as such they become subject to branching and activity
        restrictions applicable to banks.
  Subject
        to certain exceptions, commonly-controlled banks and savings associations
        must
        reimburse the FDIC for any losses suffered in connection with a failed bank
        or
        savings association affiliate. Institutions are commonly controlled if one
        is
        owned by another or if both are owned by the same holding company. Such claims
        by the FDIC under this provision are subordinate to claims of depositors,
        secured creditors, and holders of subordinated debt, other than
        affiliates.
  The
        OTS
        has adopted regulations which permit nationwide branching to the extent
        permitted by federal statute. Federal statutes permit federal savings
        associations to branch outside of their home state if the association meets
        the
        domestic building and loan test in §7701(a)(19) of the Code or the asset
        composition test of §7701(c) of the Code. Branching that would result in the
        formation of a multiple savings and loan holding company controlling savings
        associations in more than one state is permitted if the law of the state
        in
        which the savings association to be acquired is located specifically authorizes
        acquisitions of its state-chartered associations by state-chartered associations
        or their holding companies in the state where the acquiring association or
        holding company is located. Moreover, Indiana banks and savings associations
        are
        permitted to acquire other Indiana banks and savings associations and to
        establish branches throughout Indiana.
  Finally,
        The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
        “ **Riegle-Neal
        Act** ”)
        permits bank holding companies to acquire banks in other states and, with
        state
        consent and subject to certain limitations, allows banks to acquire out-of-state
        branches either through merger or de novo expansion. The State of Indiana
        enacted legislation establishing interstate branching provisions for Indiana
        state-chartered banks consistent with those established by the Riegle-Neal
        Act
        (the “ **Indiana
        Branching Law** ”).
        The
        Indiana Branching Law, which became effective in 1996, authorizes Indiana
        banks
        to branch interstate by merger or de novo expansion, provided that such
        transactions are not permitted to out-of-state banks unless the laws of their
        home states permit Indiana banks to merge or establish de novo banks on a
        reciprocal basis.
  **TRANSACTIONS
        WITH AFFILIATES**
  The
        Bank
        is subject to Sections 22(h), 23A and 23B of the Federal Reserve Act, which
        limits credit transactions between a bank or savings association and its
        executive officers and its affiliates. These provisions also prescribe terms
        and
        conditions deemed to be consistent with safe and sound banking practices
        for
        transactions between a financial institution and its affiliates, and restrict
        the types of collateral security permitted in connection with a financial
        institution’s extension
  22
   of
        credit
        to an affiliate.
  **FEDERAL
        SECURITIES LAW**
  The
        shares of Common Stock of the Holding Company have been registered with the
        SEC
        under the Securities Exchange Act (the “ **1934
        Act** ”).
        The
        Holding Company is subject to the information, proxy solicitation, insider
        trading restrictions and other requirements of the 1934 Act and the rules
        of the
        SEC thereunder. After three years following the Bank’s conversion to stock form,
        if the Holding Company has fewer than 300 shareholders, it may deregister
        its
        shares under the 1934 Act and cease to be subject to the foregoing
        requirements.
  Shares
        of
        Common Stock held by persons who are affiliates of the Holding Company may
        not
        be resold without registration unless sold in accordance with the resale
        restrictions of Rule 144 under the Securities Act of 1933. If the Holding
        Company meets the current public information requirements under Rule 144,
        each
        affiliate of the Holding Company who complies with the other conditions of
        Rule
        144 (including those that require the affiliate’s sale to be aggregated with
        those of certain other persons) would be able to sell in the public market,
        without registration, a number of shares not to exceed, in any three-month
        period, the greater of (i) 1% of the outstanding shares of the Holding
        Company or (ii) the average weekly volume of trading in such shares during
        the preceding four calendar weeks.
  **SARBANES-OXLEY
        ACT OF 2002**
  The
        Holding Company is subject to the Sarbanes-Oxley Act of 2002 (the “ **Sarbanes-Oxley
        Act** ”).
        The
        Sarbanes-Oxley Act’s stated goals include enhancing corporate responsibility,
        increasing penalties for accounting and auditing improprieties at publicly
        traded companies and protecting investors by improving the accuracy and
        reliability of corporate disclosures pursuant to the securities laws. The
        Sarbanes-Oxley Act generally applies to all companies that file or are required
        to file periodic reports with the Securities and Exchange Commission under
        the
        1934 Act.
  Among
        other things, the Sarbanes-Oxley Act creates the Public Company Accounting
        Oversight Board as an independent body subject to SEC supervision with
        responsibility for setting auditing, quality control and ethical standards
        for
        auditors of public companies. The Sarbanes-Oxley Act also requires public
        companies to make faster and more-extensive financial disclosures, requires
        the
        chief executive officer and chief financial officer of public companies to
        provide signed certifications as to the accuracy and completeness of financial
        information filed with the SEC, and provides enhanced criminal and civil
        penalties for violations of the federal securities laws.
  The
        Sarbanes-Oxley Act also addresses functions and responsibilities of audit
        committees of public companies. The statute makes the audit committee directly
        responsible for the appointment, compensation and oversight of the work of
        the
        company’s outside auditor, and requires the auditor to report directly to the
        audit committee. The Sarbanes-Oxley Act authorizes each audit committee to
        engage independent counsel and other advisors, and requires a public company
        to
        provide the appropriate funding, as determined by its audit committee, to
        pay
        the company’s auditors and any advisors that its audit committee retains. The
        Sarbanes-Oxley Act also requires public companies to include an internal
        control
        report and assessment by management, along with an attestation to this report
        prepared by the company’s registered public accounting firm, in their annual
        reports to stockholders.
  The
        Holding Company continues to incur additional expense in complying with the
        provisions of the Sarbanes-Oxley Act and the resulting regulations, but
        management does not expect that such compliance will have a material impact
        on
        the Holding Company’s results of operations or financial condition.
  **COMMUNITY
        REINVESTMENT ACT MATTERS**
  Federal
        law requires that ratings of depository institutions under the Community
        Reinvestment Act of 1977 (“ **CRA** ”)
        be
        disclosed. The disclosure includes both a four-unit descriptive rating -
        outstanding, satisfactory, needs to improve, and substantial noncompliance
        - and
        a written evaluation of an institution’s performance. Each FHLB is required to
        establish standards of community investment or service that its members must
        maintain for continued access to long-term advances from the FHLBs. The
        standards take into account a member’s performance under the CRA and its record
        of lending to first-time home buyers. The OTS has designated the Bank’s record
        of meeting community credit needs as satisfactory.
  23
   **PREDATORY
        LENDING**
  The
        Federal Reserve Board issued a regulation that became effective on
        October 1, 2002 that is aimed at curbing “predatory lending.” The term
“predatory lending” encompasses a variety of practices, but the term generally
        is used to refer to abusive lending practices involving fraud, deception
        or
        unfairness. Predatory lending typically involves one or more of the following:
        (i) making unaffordable loans based on the assets of the borrower rather
        than on the borrower’s ability to repay an obligation (“asset-based lending”);
        (ii) inducing a borrower to refinance a loan repeatedly in order to charge
        high points and fees each time the loan is refinanced (“loan flipping”); or
        (iii) engaging in fraud or deception to conceal the true nature of the loan
        obligation from an unsuspecting or unsophisticated borrower. The Federal
        Reserve
        Board amended Regulation Z to broaden the scope of loans subject to the
        protections of the Home Ownership and Equity Protection Act of 1994
        (“ **HOEPA** ”).
        Among
        other things, the regulation brings within the scope of HOEPA first-lien
        mortgage loans with interest rates that are at least 8 percentage points
        above
        Treasury securities having a comparable maturity. In addition, the regulation
        requires that the cost of optional insurance and similar debt protection
        products paid by a borrower at closing be included in calculating the finance
        charge paid by the borrower. HOEPA coverage is triggered if such finance
        charges
        exceed 8 percent of the total loan. Finally, the regulation restricts creditors
        from engaging in repeated refinancings of their own HOEPA loans over a short
        time period when the transactions are not in the borrower’s interest. Lenders
        that violate the rules face cancellation of loans and penalties equal to
        the
        finance charges paid. The Bank does not anticipate that these provisions,
        or any
        similar state predatory lending regulations, will materially affect its
        financial condition or results of operations.
  **USA
        PATRIOT ACT OF 2001**
  The
        USA
        PATRIOT Act of 2001 (the “ **PATRIOT
        Act** ”)
        is
        intended to strengthen the ability of U.S. Law Enforcement to combat terrorism
        on a variety of fronts. The PATRIOT Act contains sweeping anti-money laundering
        and financial transparency laws and requires financial institutions to implement
        additional policies and procedures with respect to, or additional measures
        designed to address, any or all the following matters, among others: money
        laundering, suspicious activities and currency transaction reporting, and
        currency crimes. Many of the provisions in the PATRIOT Act were to have expired
        December 31, 2005, but the U.S. Congress authorized renewals that extended
        the
        provisions until March 10, 2006. In early March 2006, the U.S. Congress approved
        the USA PATRIOT Improvement and Reauthorization Act of 2005 (the “ **Reauthorization
        Act** ”)
        and
        the USA PATRIOT Act Additional Reauthorizing Amendments Act of 2006 (the
        “ **PATRIOT
        Act Amendments** ”),
        and
        they were signed into law by President Bush on March 9, 2006. The
        Reauthorization Act makes permanent all but two of the provisions that had
        been
        set to expire and provides that the remaining two provisions, which relate
        to
        surveillance and the production of business records under the Foreign
        Intelligence Surveillance Act, will expire in four years. The PATRIOT Act
        Amendments include provisions allowing recipients of certain subpoenas to
        obtain
        judicial review of nondisclosure orders and clarifying the use of certain
        subpoenas to obtain information from libraries. The Company does not anticipate
        that these changes will materially affect its operations.
  **TAXATION**
  **FEDERAL
        TAXATION**
  Historically,
        savings associations, such as the Bank, have been permitted to compute bad
        debt
        deductions using either the bank experience method or the percentage of taxable
        income method. However, for years beginning after December 31, 1995, the
        Bank can no longer use the percentage of taxable income method of computing
        its
        allowable tax bad debt deduction and instead must compute its allowable
        deduction using the experience method. In addition, the pre-1988 reserve,
        for
        which no deferred taxes have been recorded, will not have to be recaptured
        into
        income unless (i) the Bank no longer qualifies as a bank under the Code or
        (ii) excess dividends or distributions are paid out by the Bank or the Bank
        redeems its own stock.
  Depending
        on the composition of its items of income and expense, a savings association
        may
        be subject to the alternative minimum tax. A savings association must pay
        an
        alternative minimum tax equal to the amount (if any) by which 20% of alternative
        minimum taxable income (“ **AMTI** ”),
        as
        reduced by an exemption varying with AMTI, exceeds the regular tax
  24
   due.
        AMTI
        equals regular taxable income increased or decreased by certain tax preferences
        and adjustments, including depreciation deductions in excess of that allowable
        for alternative minimum tax purposes, tax-exempt interest on most private
        activity bonds issued after August 7, 1986 (reduced by any related interest
        expense disallowed for regular tax purposes), the amount of the bad debt
        reserve
        deduction claimed in excess of the deduction based on the experience method
        and
        75% of the excess of adjusted current earnings over AMTI (before this adjustment
        and before any alternative tax net operating loss). AMTI may be reduced only
        up
        to 90% by net operating loss carryovers, but alternative minimum tax paid
        can be
        credited against regular tax due in later years.
  For
        federal income tax purposes, the Company has been reporting its income and
        expenses on the accrual method of accounting. The Company’s federal income tax
        returns have not been audited in recent years.
  **STATE
        TAXATION**
  The
        Company is subject to Indiana’s Financial Bank Tax (“ **IFBT** ”),
        which
        is imposed at a flat rate of 8.5% on apportioned “adjusted gross income.”
“Adjusted gross income,” for purposes of IFBT, begins with taxable income as
        defined by Section 63 of the Code and, thus, incorporates federal tax law
        to the
        extent that it affects the computation of taxable income. Federal taxable
        income
        is then adjusted by several Indiana modifications. Other applicable state
        taxes
        include generally applicable sales and use taxes plus real and personal property
        taxes. The Company’s state income tax returns have not been audited in recent
        years.
  The
        Company is subject to Kentucky’s Bank Franchise Tax (“ **KBFT** ”),
        which
        is imposed at a flat rate of 1.1% on apportioned “net capital.” For purposes of
        the KBFT, “net capital” is determined by (1) adding together the Company’s
        paid-in capital stock, surplus, undivided profits, capital reserves, net
        unrealized gains or losses on certain securities, and cumulative foreign
        currency translation adjustments and (2) deducting from the total an amount
        equal to the same percentage of the total as the book value of U.S. obligations
        and Kentucky obligations bears to the book value of the total assets of the
        Company. “Kentucky obligations” are all obligations of the state, counties,
        municipalities, taxing districts, and school districts that are exempt from
        taxation under Kentucky law. Other applicable state taxes include generally
        applicable sales and use taxes as well as Kentucky bank deposit and local
        deposit taxes which are generally imposed on the Company with respect to
        the
        deposits of Kentucky resident individuals at rates of .001% and .025%,
        respectively.
  **ITEM
                  1A.**
              **RISK
                  FACTORS.**
  Investors
        should consider carefully the risks and uncertainties described below, which
        are
        some of the factors that could adversely affect our operating results and
        financial condition.
  **Changes
        in market interest rates could adversely affect our financial condition and
        results of operations.**
  Our
        financial condition and result of operations are significantly affected by
        changes in market interest rates. Our results of operations depend substantially
        on our net interest income, which is the difference between the interest
        income
        that we earn on our interest-earning assets and the interest expense that
        we pay
        on our interest-bearing liabilities. Our interest-bearing liabilities generally
        reprice or mature more quickly than our interest-earning assets. If rates
        increase rapidly as a result of an improving economy, we may have to increase
        the rates paid on our deposits and borrowed funds more quickly than loans
        and
        investments reprice, resulting in a negative impact on interest spreads and
        net
        interest income. The impact of rising rates could be compounded if deposit
        customers move funds from savings accounts to higher rate certificate of
        deposit
        accounts. Conversely, should market interest rates fall below current levels,
        our net interest margin could also be negatively affected, as competitive
        pressures could keep us from further reducing rates on our deposits, and
        prepayments and curtailments on assets may continue. Such movements may cause
        a
        decrease in our interest rate spread and net interest margin.
  We
        also
        are subject to reinvestment risk associated with changes in interest rates.
        Changes in interest rates may affect the average life of loans and
        mortgage-related securities. Increases in interest rates may decrease loan
        demand and/or may make it more difficult for borrowers to repay adjustable
        rate
        loans. Decreases in interest rates often result in increased prepayments
        of
        loans and mortgage-related securities, as borrowers refinance their loans
        to
        reduce borrowings costs. Under these circumstances, we are subject to
        reinvestment risk to the extent that we are unable to reinvest the cash
  25
   received
        from such prepayments in loans or other investments that have interest rates
        that are comparable to the interest rates on existing loans and securities.
  **Our** **nonresidential
        real estate and commercial loans expose us to increased credit risks.**
  At
        December 31, 2005, our portfolio of nonresidential real estate and land loans
        totaled $82.1 million, or 35.7% of totals loans, and our commercial loans
        totaled $28.1 million, or 12.3% of total loans. These types of loans generally
        have greater credit risk than residential mortgage loans.
  **An
        economic slowdown in** **our
        market area could affect our business.**
  Our
        primary market area for deposits and loans consists of Jefferson and Clark
        Counties in Southeastern Indiana and adjacent Carroll County in Kentucky.
        An
        economic slowdown in these areas could hurt our business. Possible consequences
        of such a downturn could include the following:
  **·**
            increases
                in loan delinquencies and foreclosures;  **·**
            declines
                in the value of real estate and other collateral for loans;
                and  **·**
            a
                decline in the demand for our products and
                services.  **We
        are subject to extensive regulation and legislative or regulatory changes
        could
        adversely affect our business.**
  Our
        operations are subject to extensive regulation by federal, state and local
        governmental authorities and are subject to various laws and judicial and
        administrative decisions imposing requirements and restrictions on them.
        Policies adopted or required by these governmental authorities can affect
        our
        business operations and the availability, growth and distribution of the
        Bank’s
        investments, borrowings and deposits. In addition, the Office of Thrift
        Supervision periodically conducts examinations of the Holding Company and
        the
        Bank and may impose various requirements or sanctions.
  Proposals
        to change the laws governing financial institutions are frequently raised
        in
        Congress and before bank regulatory authorities. Changes in applicable laws
        or
        policies could materially affect our business, and the likelihood of any
        major
        changes in the future and their effects are impossible to determine. Moreover,
        it is impossible to predict the ultimate form any proposed legislation might
        take or how it might affect us.
  **ITEM
                  1B.**
              **UNRESOLVED
                  STAFF COMMENTS.**
  Not
        applicable.
  **ITE****M
                  2****.**
              **PROPERTIES.**
  The
        following table provides certain information with respect to the Bank’s offices
        as of December 31, 2005.
 **Description
                  and Address**
              
              **Owned
                  or Leased**
              
              **Year
                  Opened**
              
              **Total
                  Deposits**
              
              **Net
                  Book Value of Property, Furniture & Fixtures**
              
              **Approximate
                  Square Footage****Locations
                  in Madison, Indiana:***Downtown
                  Office*:233
                  East Main Street
              
              Owned
              
              1952
              
              41,737
              
              $
                  426
              
              9,110*Drive-Through
                  Branch*:401
                  East Main Street
              
              Owned
              
              1984
              
              --
              
              242
              
              375*Hilltop
                  Location:*430
                  Clifty Drive
              
              Owned
              
              1983
              
              133,118
              
              3,154
              
              32,000*Wal-mart
                  Banking Center:*567
                  Ivy Tech Drive
              
              Leased
              
              1995
              
              8,201
              
              32
              
              517Location
                  in Hanover, Indiana:10
                  Medical Plaza Drive
              
              Owned
              
              1995
              
              16,221
              
              477
              
              656Location
                  in Charlestown, Indiana:1025
                  Highway 62
              
              Leased
              
              2002
              
              2,326
              
              595
              
              1,500Location
                  in Sellersburg, Indiana:Highway
                  311
              
              Owned
              
              2005
              
              1,626
              
              2,933
              
              13,000Location
                  in Carrollton, Kentucky:1501
                  Highland Avenue
              
              Leased
              
              2003
              
              3,504
              
              330
              
              2,000
  
  26
   The
        Bank
        owns computer and data processing equipment which is used for transaction
        processing, loan origination, and accounting. The net book value of electronic
        data processing equipment owned by the Bank was approximately $209,000 at
        December 31, 2005.
  The
        Bank
        operates 11 automated teller machines (“ **ATMs** ”),
        one
        at each office location (the main office has two), one at Hanover College,
        in
        Hanover, Indiana, one at Great Escape Theatres in New Albany, Indiana, one
        at
        Sellersburg, Indiana and one at Butler Mall in Carrolton, Kentucky. The Bank’s
        ATMs participate in the Shazam® network.
  The
        Bank
        performs its own data processing and reporting services.
  **ITE****M
                  3****.**
              **LEGAL
                  PROCEEDINGS.******
  Neither
        the Holding Company nor the Bank is a party to any pending legal proceedings,
        other than routine litigation incidental to the Holding Company’s or the Bank’s
        business.
  **ITE****M
                  4****.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS.**
  No
        matter
        was submitted to a vote of the Holding Company’s shareholders during the quarter
        ended December 31, 2005.
  **ITE****M
                  4.5****.**
              **EXECUTIVE
                  OFFICERS OF THE
                  REGISTRANT.**
  The
        executive officers of the Holding Company are identified below. The executive
        officers of the Bank are elected annually by the Holding Company’s Board of
        Directors.
  **Name**
              **Position
                  with the Holding Company**
              **Position
                  with the Bank**Matthew
                  P. Forrester
              President
                  and Chief Executive Officer
              President
                  and Chief Executive OfficerLonnie
                  D. Collins
              Secretary
              SecretaryLarry
                  C. Fouse
              Vice
                  President of Finance
              Vice
                  President of FinanceDeanna
                  Liter
              Vice
                  President of Data Services
              Vice
                  President of Data ServicesBarbara
                  Eades
              Vice
                  President of Retail Banking
              Vice
                  President of Retail BankingLoy
                  Skirvin
              Vice
                  President of Human Resources
              Vice
                  President of Human ResourcesMark
                  A. Goley
              Vice
                  President of Lending
              Vice
                  President of LendingAnthony
                  D. Brandon
              Executive
                  Vice President
              Vice
                  President of Loan AdministrationJohn
                  Muessel
              Vice
                  President - Trust Officer
              Vice
                  President - Trust Officer
  *Matthew
        P. Forrester* (age 49)
        has served as the Bank and Holding Company President and Chief Executive
        Officer
        since October 1999. Prior to that, Mr. Forrester served as the Chief
        Financial Officer for Home Loan Bank in Fort Wayne, Indiana and Senior Vice
        President and Treasurer for its holding company, Home Bancorp. Prior to joining
        Home Loan Bank, Mr. Forrester was an examiner for the Indiana Department of
        Financial Institutions.
  *Lonnie
        D. Collins* (age 57)
        has served as Secretary of the Bank since September 1994 and as Secretary
        of the
        Holding Company since 1996. Mr. Collins has also practiced law since
        October 1975 and has served as the Bank’s outside counsel since
        1980.
  *Larry
        C. Fouse* (age 60)
        has served as the Holding Company’s Controller since 1997. From 1993 to 1997, he
        served as the Chief Financial Officer and Controller of Citizens and from
        1989
        to 1993 served as Citizens’ Vice President and Operations Officer.
  *Deanna
        Liter* (age 42)
        has served as Vice President of Data Services since 1999. From 1986 to 1997,
        she
        was manager of the Citizens’ Data Processing Department.
  *Barbara
        Eades* (age 56)
        has served as Vice President of Retail Banking since 2000. From 1997 to 1999,
        she was Branch Manager of the downtown branch. She served as Assistant Vice
        President for Madison First Federal from 1990 to 1996.
  27
   *Loy
        Skirvin* (age
        57)
        has served as Vice President of Human Resources since 1998. From 1991 to
        1997,
        she was Human Resources Manager for a manufacturing firm.
  *Mark
        A. Goley* (age
        50)
        has served as Vice President of Loan Services since 1997. From 1989 to 1997,
        he
        served as Senior Loan Officer for Citizens.
  *Anthony
        D. Brandon* (age 34)
        has served as Executive Vice President since July 29, 2005, and as Vice
        President of Loan Administration of the Bank since September of 2001. Prior
        to
        his appointment as Executive Vice President, he had served as Vice
        President of Loan Administration. Prior to joining the Bank, he served as
        President of Republic Bank of Indiana.
  *John
        Muessel* (age
        53)
        has served as Vice President - Trust Officer since April of 2002. Prior to
        joining the Bank, he served as Trust Officer of National City Bank of
        Indiana.
  **PART
        II**
  **ITEM****5.**
              **MARKET
                  FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                  PURCHASES OF EQUITY
                  SECURITIES.**
  The
        Holding Company’s common stock, without par value (“ **Common
        Stock** ”),
        is
        quoted on the National Association of Securities Dealers Automated Quotation
        System (“ **NASDAQ** ”)
        Capital Market (formerly the “SmallCap Market”), under the symbol “RIVR.” Since
        the Holding Company has no independent operation or other subsidiaries to
        generate income, its ability to accumulate earnings for the payment of cash
        dividends to its shareholders directly depends upon the ability of the Bank
        to
        pay dividends to the Holding Company and upon the earnings on its investment
        securities.
  Any
        dividend distributions by the Bank to the Holding Company in excess of current
        or accumulated earnings and profits will be treated for federal income tax
        purposes as a distribution from the Bank’s accumulated bad debt reserves, which
        could result in increased federal income tax liability for the Bank. Moreover,
        the Bank may not pay dividends to the Holding Company if such dividends would
        result in the impairment of the liquidation account established in connection
        with the Conversion.
  Generally,
        there is no OTS regulatory restriction on the payment of dividends by the
        Holding Company unless there is a determination by the Director of the OTS
        that
        there is reasonable cause to believe that the payment of dividends constitutes
        a
        serious risk to the financial safety, soundness or stability of the Bank.
        The
        FDIC also has authority under current law to prohibit a bank from paying
        dividends if, in its opinion, the payment of dividends would constitute an
        unsafe or unsound practice in light of the Bank’s financial condition. Indiana
        law, however, would prohibit the Holding Company from paying a dividend,
        if,
        after giving effect to the payment of that dividend, the Holding Company
        would
        not be able to pay its debts as they become due in the usual course of business
        or the Holding Company’s total assets would be less than the sum of its total
        liabilities plus preferential rights of holders of preferred stock, if any.
  Other
        information required by this item is incorporated by reference to the material
        under the heading “Market Price of the Corporation’s Common Shares and Related
        Shareholder Matters” on page 2 of the Holding Company’s 2005 Shareholder Annual
        Report (the “ **Shareholder
        Annual Report** ”).
  Purchases
        of common stock made by or on behalf of the Company during the three months
        ended December 31, 2005, are set forth below:
  28
  **Period**
                **Total
                    Number of Shares (or Units) Purchased (1)**
                **Average
                    Price Paid Per Share (or Unit)**
                **Total
                    Number of Shares (or Units) Purchased as Part of Publicly Announced
                    Plans
                    or Programs**
                **Maximum
                    Number (or Approximate Dollar Value) of Shares (or Units) that
                    May Yet be
                    Purchased Under the Plans or Programs**October
                    1 - October 31, 2005
                7,000
                $
                    20.90
                7,000
                (1)November
                    1 - November 30, 2005
                --
                --
                --
                --December
                    1 - December 31, 2005
                2,814
                $
                    19.50
                2,814
                (1)Total
                9,814
                
                9.814
 
 (1)
                  Up to 10 % of total shares outstanding may be repurchased at a
                  given time
                  by the Company.
   **ITEM****6.**
              **SELECTED
                  CONSOLIDATED FINANCIAL
                  DATA.**
  The
        information required by this item is incorporated by reference to the material
        under the heading “Selected Consolidated Financial Information and Other Data”
on pages 3 and 4 of the Shareholder Annual Report.
  **ITEM********7.**
              **MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS.**
  The
        information required by this item is incorporated by reference to pages 5
        through 15 of the Shareholder Annual Report.
  **ITEM
                  7A.**
              **QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.******
  The
        information required by this item is incorporated by referenced to pages
        12 and
        13 of the Shareholder Annual Report.
  **ITE****M****8.**
              **FINANCIAL
                  STATEMENTS.**
  The
        Holding Company’s Consolidated Financial Statements and Notes thereto contained
        on pages 16 through 43 in the Shareholder Annual Report are incorporated
        herein
        by reference.
  **I****TEM****9.**
              **CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE.**
  There
        are
        no such changes and disagreements to report during the applicable
        period.
  **ITE****M****9A.**
              **CONTROLS
                  AND PROCEDURES.**
 (a)
            *Evaluation
                of disclosure controls and procedures*.
                The Company’s Chief Executive Officer and Chief Financial Officer, after
                evaluating the effectiveness of the Company’s disclosure controls and
                procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the
                Securities Exchange Act of 1934, as amended (the “**Exchange
                Act**”)),
                as of the end of the most recent fiscal quarter covered by this annual
                report (the “**Evaluation
                Date**”),
                have concluded that as of the Evaluation Date, the Company’s disclosure
                controls and procedures effective in ensuring that information required
                to
                be disclosed by the Company in reports that it files or submits under
                the
                Exchange Act is recorded, processed, summarized and reported within
                the
                time period 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 disclosure.  (b)
            *Changes
                in internal controls over financial reporting*.
                There were no changes in the Company’s internal control over financial
                reporting identified in connection with the Company’s evaluation of
                controls that occurred during the Company’s last fiscal quarter that have
                materially affected, or are reasonably likely to   29
  materially
        affect, the Company’s internal control over financial reporting.
   **ITEM****9B.**
              **OTHER
                  INFORMATION.**
  There
        is
        no information that was required to be disclosed on a Form 8-K during the
        fourth
        quarter but was not reported.
   **PART
        III**
  **ITEM****10.**
              **DIRECTORS
                  AND EXECUTIVE OFFICERS OF THE
                  REGISTRANT.**
  The
        information required by this item with respect to directors is incorporated
        by
        reference to the sections of the Holding Company’s Proxy Statement for its
        Annual Shareholder Meeting to be held on April 19, 2006 (the “ **2006
        Proxy Statement** ”)
        with
        the caption “Proposal I - Election of Directors.” Information concerning the
        Registrant’s executive officers is included in Item 4.5 in Part I of this
        report. Information regarding compliance with Section 16(a) of the Exchange
        Act
        is incorporated by reference to the section of the 2006 Proxy Statement
        captioned “Section 16(a) Beneficial Ownership Reporting
        Compliance.”
  The
        Company has adopted a code of ethics that applies, among other persons, to
        its
        principal executive officer, principal financial officer, principal accounting
        officer or controller, or persons performing similar functions. A copy of
        that
        Code of Ethics was filed as an exhibit to the Company’s Form 10-KSB filed for
        the year ended December 31, 2003.
  **ITE****M
                  1****1.**
              **EXECUTIVE
                  COMPENSATION.**
  The
        information required by this item with respect to executive compensation
        is
        incorporated by reference to the section of the 2006 Proxy Statement with
        the
        caption “Proposal I - Election of Directors - Management Remuneration and
        Related Transactions.”
  **ITEM****1****2.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  SHAREHOLDER MATTERS.**
  The
        information required by this item is incorporated by reference to the sections
        of the 2006 Proxy Statement with the captions “Voting Securities and Principal
        Holders Thereof” and “Proposal I - Election of Directors.”
  The
        following table sets forth certain information pertaining to the Bank’s equity
        compensation plans:
  ***EQUITY
        COMPENSATION PLAN INFORMATION***
 **Plan
                  Category**
              **Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights**
                **(a)**
              **Weighted-average
                  exercise price of outstanding options, warrants and
                  rights**
                **(b)**
              **Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in
                  column(a))**
                **(c)**Equity
                  compensation plans approved by security holders
              104,560(1)
              $
                  8.29(1)
              54,092Equity
                  compensation plans not approved by security holders
              
              (2)Total
              104,560
              $
                  8.29(2)
              54,092
 
 (1)
              Includes
                  98,200 shares under the River Valley Bancorp Stock Option Plan
                  and 6,360
                  shares under the River
                  Valley Bancorp Recognition and Retention Plan and Trust (“**RRP**”).
                  The 6,360 shares under the RRP were granted to management but have
                  not yet vested. In addition, 75,276 shares granted to management
                  have
                  fully vested, and shares have been issued to management in connection
                  therewith.
 (2)
              The
                  total in Column (b) includes only the weighted-average price of
                  stock
                  options, as the restricted shares awarded under the RRP plan have
                  no
                  exercise price.
   **ITE****M
                  1****3.**
              **CERTAIN
                  RELATIONSHIPS AND RELATED
                  TRANSACTIONS.**
  The
        information required by this item is incorporated by reference to the section
        of
        the 2006 Proxy Statement with the caption “Proposal I - Election of Directors -
        Transactions with Certain Related Persons.”
   30
   **Item
                  14.**
              **PRINCIPAL
                  ACCOUNTANT FEES AND
                  SERVICES.**
  The
        information required by this item with respect to principal accountant fees
        and
        services is incorporated by reference to the section of the 2006 Proxy Statement
        with the caption “Accountants.”
  **PART
        IV**
  **ITE****M
                  1****5.**
              **EXHIBITS
                  AND FINANCIAL STATEMENT
                  SCHEDULES.**
  The
        following documents are filed as part of this report:
 **1.**
              **Financial
                  Statements**:Report
                  of Independent Registered Public Accounting Firm
              
              See
                  Shareholder Annual Report Page 18Consolidated
                  Balance Sheets at December 31, 2005 and 2004
              
              See
                  Shareholder Annual Report Page 19Consolidated
                  Statements of Income for the Years Ended December 31, 2005, 2004
                  and
                  2003
              
              See
                  Shareholder Annual Report Page 20Consolidated
                  Statements of Comprehensive Income for the Years Ended December
                  31, 2005,
                  2004 and 2003
              
              See
                  Shareholder Annual Report Page 21Consolidated
                  Statements of Shareholders’ Equity for the Years Ended December 31, 2005,
                  2004 and 2003
              
              See
                  Shareholder Annual Report Page 22Consolidated
                  Statements of Cash Flows for the Years Ended December 31, 2005,
                  2004 and
                  2003
              
              See
                  Shareholder Annual Report Page 23Notes
                  to Consolidated Financial Statements
              
              See
                  Shareholder Annual Report Pages 24-43**2.**
              **Financial
                  Statement Schedules:**All
                  schedules are omitted as the required information either is not
                  applicable
                  or is included in the consolidated Financial Statements or related
                  notes.**3.**
              **Exhibits:**The
                  exhibits listed in the Exhibit Index are filed with or incorporated
                  herein
                  by reference.
 
  31
   **S** **IGNATURES**
  In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  RIVER
                  VALLEY BANCORPDate:
                  March 30, 2006
              
              By:
              /s/
Matthew
                P. ForresterMatthew
                  P. Forrester, President and Chief Executive Officer
  In
        accordance with the Exchange Act, this report has been signed below by the
        following persons on behalf of the registrant and in the capacities and on
        the
        dates indicated.
 **Signatures**
              
              **Title**
              
              **Date**(1)
              Principal
                  Executive Officer:
              
              
              ))/s/
Matthew
                P. Forrester
              
              
              )
              March
                  30, 2006Matthew
                  P. Forrester
              
              President
                  and Chief Executive Officer
              ))(2)
              Principal
                  Financial and Accounting Officer:
              
              
              )
                ))/s/
Larry
                C. Fouse
              
              
              )
              March
                  30, 2006Larry
                  C. Fouse
              
              Treasurer
              ))(3)
              The
                  Board of Directors:
              
              
              )))
              March
                  ______, 2006Robert
                  W. Anger
              
              Director
              )))/s/
Matthew
                P. Forrester
              
              
              )
              March
                  30, 2006Matthew
                  P. Forrester
              
              Director
              )))/s/
Michael
                J. Hensley
              
              
              )
              March
                  30, 2006Michael
                  J. Hensley
              
              Director
              )))/s/
L.
                Sue Livers
              
              
              )
              March
                  30, 2006L.
                  Sue Livers
              
              Director
              )))/s/
Fred
                W. Koehler
              
              
              )
              March
                  30, 2006Fred
                  W. Koehler
              
              Director
              )))/s/
Charles
                J. McKay
              
              
              )
              March
                  30, 2006Charles
                  J. McKay
              
              Director
              )
  32
   **EXHIBIT
        INDEX**
  **Exhibit
                  No.**
              
              **Description**3
              (1)
              
              Registrant’s
                  Articles of Incorporation are incorporated by reference to Exhibit
                  3(1) to
                  the Registration Statement on Form S-1 (Registration No. 333-05121)
                  (the
                  “Registration Statement”)(2)
              
              Amended
                  Code of By-Laws is incorporated by reference to Exhibit 3(2) of
                  Registrant's 2004 Form 10-KSB filed on March 31, 2005 (the “2004 Form
                  10-KSB”)4
              (1)
              
              Form
                  of Fixed/Floating Rate Junior Subordinated Deferrable Interest
                  Debentures
                  Indenture, dated March 26, 2003, incorporated by reference to Exhibit
                  4.1
                  of Registrant’s Form 10-QSB filed May 15, 2003(2)
              
              Form
                  of Fixed/Floating Rate Junior Subordinated Deferrable Interest
                  Debentures
                  Trust Agreement, dated March 26, 2003, incorporated by reference
                  to
                  Exhibit 4.2 of Registrant’s Form 10-QSB filed May 15,
                  2003(3)
              
              Form
                  of Fixed/Floating Rate Junior Subordinated Deferrable Interest
                  Guarantee
                  Agreement, dated March 26, 2003, incorporated by reference to Exhibit
                  4.3
                  of Registrant’s Form 10-QSB filed May 15, 200310
              (1)*
              
              Employment
                  Agreement between River Valley Financial Bank and Matthew P. Forrester
                  is
                  incorporated by reference to Exhibit 10(1) to the 2004 Form
                  10-KSB(2)*
              
              Director
                  Deferred Compensation Master Agreement is incorporated by reference
                  to
                  Exhibit 10(8) to the Registration Statement(3)*
              
              Director
                  Deferred Compensation Joinder Agreement − Robert W. Anger is incorporated
                  by reference to Exhibit 10(10) to the Registration Statement(4)*
              
              Director
                  Deferred Compensation Joinder Agreement − Earl W. Johann is incorporated
                  by reference to Exhibit 10(12) to the Registration Statement(5)*
              
              Director
                  Deferred Compensation Joinder Agreement − Frederick W. Koehler is
                  incorporated by reference to Exhibit 10(13) to the Registration
                  Statement(6)*
              
              Director
                  Deferred Compensation Joinder Agreement − Michael Hensley is incorporated
                  by reference to Exhibit 10(15) to the Registration Statement(7)*
              
              Exempt
                  Loan and Share Purchase Agreement between Trust under River Valley
                  Bancorp
                  Employee Stock Ownership Plan and Trust Agreement and River Valley
                  Bancorp
                  is incorporated by reference to Exhibit 10(22) to the Registration
                  Statement(8)*
              
              River
                  Valley Bancorp Recognition and Retention Plan and Trust is incorporated
                  by
                  reference to Exhibit 10(8) to the 2004 Form 10-KSB(9)*
              
              River
                  Valley Bancorp Stock Option Plan is incorporated by reference to
                  Exhibit 10(9) to the 2004 Form 10-KSB(10)*
              
              Employment
                  Agreement between River Valley Financial Bank and Gregory T. Siegrist
                  is
                  incorporated by reference to Exhibit 10 of Registrant’s Form 10-QSB filed
                  November 15, 2004(11)*
              
              First
                  Amendment of the Director Deferred Compensation Master Agreement
                  is
                  incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed
                  March 21, 2005(12)*
              
              Form
                  of Employee Incentive Stock Option Agreement under the River Valley
                  Bancorp Stock Option Plan is incorporated by reference to Exhibit
                  10(12) to the 2004 Form 10-KSB(13)*
              
              Form
                  of Director Non-Qualified Stock Option Agreement is incorporated
                  by
                  reference to Exhibit 10(13) to the 2004 Form 10-KSB(14)*
              
              Form
                  of Award Notification under the River Valley Bancorp Recognition
                  and
                  Retention Plan and Trust is incorporated by reference to Exhibit
                  10(14)
                  to the 2004 Form 10-KSB
 
  33
  
 **Exhibit
                  No.**
              
              **Description**10
              (15)*
              
              First
                  Amendment of the Director Deferred Compensation Master Agreement
                  is
                  incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K
                  filed on March 21, 2005(16)*
              
              Employment
                  Agreement between River Valley Financial Bank and Anthony D. Brandon
                  is
                  incorporated by reference to Exhibit 10.1 to the Registrant’s 8-K filed on
                  August 4, 200513
              
              
              Shareholder
                  Annual Report14
              
              
              Code
                  of Ethics is incorporated by reference to Exhibit 14 of Registrant’s Form
                  10-KSB filed March 30, 200421
              
              
              Subsidiaries
                  of the Registrant23
              
              
              Consent
                  of BKD, LLP31
              (1)
              
              CEO
                  Certification(2)
              
              CFO
                  Certification32
              
              
              Section
                  906 Certification
 
 *
        Indicates exhibits that describe or evidence management contracts and plans
        required to be filed as exhibits.
   34