MADISON, Ind., April 6, 2015 (GLOBE NEWSWIRE) -- Shareholder Tom Davee, the largest retail investor in River Valley Bancorp, sent a letter on March 30, 2015 to Chairman Fred W. Koehler reporting that annual director compensation for River Valley Financial Bank exceeding $100,000 per director is excessive and destructive of shareholder value. The letter that Tom Davee sent Chairman Koehler follows.
"River Valley Bancorp recently sent out proxy statements to each shareholder. Contained in this material, which most people do not read, was the compensation of directors for River Valley Bancorp. Each director received direct compensation in 2014 ranging between $138,525 and $191,229. I believe these payments to be excessive and not in the best interest of shareholders. By comparison, Old National Bancorp, which is the largest bank holding company in the state with a market capitalization approximately 35 times that of River Valley Bancorp, paid its directors an average of $84,000 in 2014 according to Old National Bancorp's 2015 proxy statement. The details of River Valley Bancorp's director compensation disclosed in the 2015 proxy statement are even more shocking than the dollar amounts.
"In what is the longest period of low interest rates experienced in the last 50 years, directors have designed a windfall stealth retirement benefit for themselves. Interest accrues on the director compensation that directors choose to defer at the lower of 10% annually or the 8.11% five-year average of River Valley Bancorp's return on equity. This sweet heart deal resulted in nonqualified deferred compensation expense of $85,000 reported in Note 17 of the 2014 audited financial statements that is not disclosed in the 2015 proxy statement. The proxy statement proudly claims that River Valley Financial Bank has invested $12.5 million in BOLI (bank owned life insurance) to finance the expense associated with the director deferred compensation agreements with no expense for the $12.5 million BOLI investment. What the annual report to shareholders and the proxy statement do not disclose is why River Valley Financial Bank would choose to invest so much in life insurance instead of growing the bank's loan book with safe and sound loans yielding higher rates and greater profitability. Diversion of a portion of the bank's investment portfolio to BOLI investment to provide way-above-peer director compensation rather than maximize shareholder value through prudent organic loan growth is emblematic of the board's incorrect focus on directors' fiduciary duties.
"When River Valley Bancorp issued additional stock in 2014, the board diluted existing shareholders' interest in the company by about 60%. River Valley Bancorp's additional equity issuance in 2014 had a negative impact on the company's earnings per share and book value. Although all banks must be mindful of capital levels, current River Valley Bancorp stockholders did not vote on 2014's significant dilution of shareholders' interests that left shareholders with a 25% reduction in the value of their shares measured from when the dilutive equity issuance occurred through December 31, 2014.
"For these reasons, I intend to vote against Item #3 on the Proxy Statement which gives advisory approval on executive compensation of the named executive officers included in the proxy statement. If sufficient numbers of shareholders vote against Item #3, it will force the board to seek shareholder approval before future actions destructive of shareholder value occur again."