UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------------------
FORM 10-Q
(Mark One)
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31,1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________ to _____________
Commission File No. 0-25766
Community Bank Shares of Indiana, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1938254
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
202 East Spring St., PO Box 939, New Albany, Indiana 47150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 1-812-944-2224
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Former name, former address and former fiscal year, if changed since last report
Indicate by check (X) 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[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS; Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date 1,983,722.
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COMMUNITY BANK SHARES OF INDIANA, INC.
INDEX
Part I Financial Information Page
Item 1. Financial Statements
Condensed consolidated statement of financial condition
March 31, 1997 and December 31, 1996 3
Condensed consolidated statement of operations,
three months ended March 31, 1997 and 1996 4
Condensed consolidated statement of cash flows,
three months ended March 31, 1997 and 1996 6
Notes to condensed consolidated financial statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Part II. Other Information 12
Signatures 13
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PART I - ITEM 1
CONSOLIDATED BALANCE SHEETS
COMMUNITY BANK SHARES OF INDIANA, INC.
March 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(unaudited)
(In thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $ 3,857 $ 3,655
Interest bearing deposits with banks 12,829 7,321
Securities available for sale, at market:
Mortgage-backed securities 1,010 1,029
Other debt 1,502
securities
Securities held to maturity:
Mortgage-backed securities 23,924 24,724
Other debt securities 56,045 55,346
Mortgage loans held for sale
Loans receivable, net 139,294 136,835
Federal Home Loan Bank stock, at cost 1,250 1,250
Foreclosed real estate 101
Premises and equipment, net 3,492 3,544
Accrued interest receivable:
Loans 760 792
Mortgage-backed securities 122 131
Other debt securities 758 948
Other assets 512 393
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Total Assets $ 243,853 $ 237,571
=============== ==============
LIABILITIES
Deposits $ 178,784 $ 176,624
Advances from Federal Home Loan Bank 23,000 23,000
Borrowings - repurchase agreements 13,913 10,702
Advance payments by borrowers for
taxes and insurance 557 207
Accrued interest payable on deposits 115 67
Other liabilities 1,081 898
---------------- ---------------
Total Liabilities $ 217,450 $ 211,498
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STOCKHOLDERS' EQUITY
Common stock of $.10 par value per share,
Authorized 10,000,000 shares; issued
1,983,722 shares 198 198
Additional paid in capital 11,786 11,786
Retained earnings -
substantially restricted 14,494 14,167
Net unrealized gain\(loss) on assets
available for sale, net of tax (1)
Unearned ESOP shares (75) (75)
---------------- -----------------
Total Stockholders' Equity 26,403 26,073
---------------- -----------------
Total Liabilities
and Stockholders' Equity $ 243,853 $ 237,571
================ =================
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CONSOLIDATED STATEMENTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC.
THREE MONTHS ENDED
MARCH 31
------------------
1997 1996
---- ----
(In Thousands)
INTEREST INCOME:
Loans receivable
<S> <C> <C>
Mortgage loans $ 2,245 $ 2,065
Commercial consumer and other loans 548 358
Securities:
Mortgage-backed securities 396 556
Other debt securities 937 641
Federal Home Loan Bank stock 24 25
Interest bearing deposits with banks 99 211
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TOTAL INTEREST INCOME 4,250 3,856
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INTEREST EXPENSE:
Deposits 1,923 2,018
Advances from Federal Home Loan Bank
and other borrowings 535 274
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TOTAL INTEREST EXPENSE 2,458 2,292
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NET INTEREST INCOME 1,792 1,564
Provision for loan losses 48 10
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NET INTEREST INCOME AFTER PROVISION
FOR LOSSES ON LOANS 1,744 1,554
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NON-INTEREST INCOME:
Loan fees and service charges 140 156
Net gain on sale of loans 36 14
Net gain on sale of securities
Deposit account service charges 89 89
Commission income 76 120
Other income 16 17
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TOTAL NON-INTEREST INCOME 357 396
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CONSOLIDATED STATEMENTS OF OPERATIONS, (CONTINUED)
COMMUNITY BANK SHARES OF INDIANA, INC.
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<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1997 1996
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(In Thousands)
NON-INTEREST EXPENSE
<S> <C> <C>
Compensation and benefits $ 721 $ 640
Occupancy and equipment 137 109
Deposit insurance premiums 27 92
Data processing service 112 92
Other 158 212
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TOTAL NON-INTEREST EXPENSE 1,155 1,145
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Income before income taxes 946 805
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Income tax expense 369 327
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Net Income $ 577 $ 478
============ ============
Net Income Per Share $ 0.29 $ 0.24
============ ============
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<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
COMMUNITY BANK SHARES OF INDIANA, INC.
(Unaudited)
1997 1996
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITES:
<S> <C> <C>
Net income $ 575 $ 478
Adjustments to reconcile net income to net cash
Amortization of premiums and accretion of discounts
on investment and mortgage-backed securities, net 3 24
Net realized securities gain
Provision (credit) for losses on loans 48 10
Proceeds from mortgage loan sales 2,586 942
Mortgage loans originated for resale (2,586) (636)
Net gain on sales of mortgage loans (36) (14)
Loss on foreclosed real estate
Depreciation expense 34 50
Deferred income taxes (40) 33
(Increase) decrease in accrued interest receivable 155 (85)
Increase (decrease) in accrued interest payable 48 9
Increase (decrease) in income taxes payable 409 190
Increase (decrease) in other assets & other liabilities 156 578
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Net cash flows provided by operating activities $ 1,352 $ 1,579
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CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits (5,508) 7,490
Proceeds from the sale of securities available for sale
Proceeds from maturities of securities available for sale 43
Purchases of securities available for sale
Proceeds from maturities of securities held to maturity 2,249 9,547
Purchases of securities held to maturity (4,695) (22,498)
Principal collected on securities available for sale 24 787
Principal collected on securities held to maturity 796 617
Loan originations and principal payments on loans, net 1,079 (3,191)
Proceeds from sale of foreclosed real estate 101
Net increase in premises and equipment 51 (278)
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Net cash flows used by investing activities $ (5,903) $ (7,483)
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<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
COMMUNITY BANK SHARES OF INDIANA, INC.
(Unaudited)
1996 1995
---- ----
(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C>
Net increase (decrease) in demand accounts and savings accounts $ (4,028) $ 762
Net increase (decrease) in certificates of deposits 5,775 9,049
Repayment of advances from Federal Home Loan bank (3,000)
Advances from Federal Home Loan bank
Net increase (decrease) in repurchase borrowings 3,212 399
Sale of stock
Cash received on merger of mutual holding company with Bank 6
Dividends paid (208) (316)
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Net cash flows provided by financing activities 4,751 6,900
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Net increase ( decrease) in cash and due from banks 200 996
Cash and due from banks at beginning of period 3,657 2,943
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Cash and due from banks at end of period $ 3,857 $ 3,939
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payment for:
Interest $ 1,993 $ 1,602
Income taxes $ 0 $ 54
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING ACTIVITIES
Proceeds from sales of foreclosed real estate
financed through loans
Transfers from loans to real estate acquired through foreclosure
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PART I - ITEM 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY BANK SHARES OF INDIANA, INC.
1. BASIS OF PRESENTATION
Community Bank Shares of Indiana, Inc. (the Holding Company) was
formally established on April 7, 1995. The data contained in the financial
statements reflect consolidated Holding Company information. Certain information
and footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principals have been omitted.
2. PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statement data presented for the current
year and at December 31, 1996 include the accounts of Community Bank Shares of
Indiana, Inc., its subsidiaries Community Bank of Southern Indiana and Heritage
Bank of Southern Indiana, and First Community Service Corp., a wholly owned
subsidiary of Community Bank of Southern Indiana. All material intercompany
balances and transactions have been eliminated.
3. FORMATION OF HERITAGE BANK OF SOUTHERN INDIANA
On January 3, 1996, the Company capitalized Heritage Bank of Southern
Indiana (Heritage) as a state chartered commercial bank with an initial
investment of $4,150,000. Heritage began operations as of January 8, 1996
providing full service banking through it's office located in Jeffersonville,
Indiana.
4. EARNINGS PER SHARE
The calculation for weighed average number of shares outstanding for
the three month period ended March 31, 1997 is as follows:
# of
DATES OUTSTANDING DAYS SHARES (DAYS x SHARES)
1/01/1997 - 3/31/1997 90 1,983,722 178,534,980
Weighted average shares outstanding for the three month period ended
March 31, 1997 are 1,983,722, (178,534,980 shares divided by 90 days). Pro forma
earnings per share for the three month period ended March 31, 1997 is 29 cents
per share.
5. REGULATORY CAPITAL REQUIREMENTS
The Company's subsidiary banks are required by federal regulations to
maintain minimum amounts of capital. At March 31, 1997, each of the Company's
subsidiary banks had capital which substantially exceeded each of the regulatory
capital requirements.
6. RECLASSIFICATIONS
Certain amounts have been reclassified in the previous year's financial
statements to conform with the current year's classifications.
<PAGE>
PART I - ITEM 2
MANAGEMENT DISCUSSION AND
ANALYSIS OF CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION AND OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC
FINANCIAL CONDITION
Total assets of $243.9 million increased $6.3 million or 2.7% over the
December 31, 1996 ending balance of $237.6 million. The Company increased short
term liquidity in response to actual and potential funding needs in April of
1997. Therefore, interest bearing deposits with banks was increased by $5.5
million to $12.8 million at quarter end. The total balances in held to maturity
and available for sale securities dropped $1.6 million as Community Bank Shares
continued to restructure it's balance sheet by bolstering loan outstandings to
$139.3 million, up $2.5 million over year end 1996. This strategy is definitely
working as the net interest spread is up 16 basis points to 3.00% over the
twelve month period from March of 1996 to March of 1997. The interest income to
average assets ratio during this same period is up 19 basis points from 7.03% to
7.22%.
Increases in the liabilities section of the balance sheet were divided
between deposits and securities sold under agreements to repurchase. Deposits
were up $2.2 million of assets while securities sold under agreements to
repurchase rose by $3.2 million reflecting the acquisition of commercial deposit
relationships.
CAPITAL
The Holding Company's total equity was $26.4 million as of March 31,
1997. The equity position increased $330,000 during the first quarter of 1997
due primarily to increases from net income less dividends paid to shareholders.
The banking affiliates are required to maintain acceptable levels of
capital in three categories: 1) total capital to risk weighted assets, 2) Tier I
capital to risk weighted assets, and 3) Tier I capital to average assets. To be
well capitalized, each financial institution must maintain a minimum of 10%
capital to risk weighted assets, 6% Tier I capital to risk weighted assets and
5% Tier I capital to average assets. Both Community Bank and Heritage Bank
exceeded these requirements at March 31, 1997.
LIQUIDITY
The Company's primary sources of funds are deposits; principal and
interest payments on loans and mortgage-backed securities; proceeds form
maturing debt securities; advances from the Federal Home Loan Bank of
Indianapolis and the sale of stock. Another source of funds lies in the mortgage
banking operations which generate loan servicing fees and proceeds from the sale
of loans. Regulations require that each of the Company's subsidiaries maintain
sufficient liquidity to fund ongoing operations. At the conclusion of the first
quarter of 1997, each of the Company's subsidiaries was in compliance with the
minimum liquidity required by law. Community Bank's short term liquidity was in
excess of 11% while Heritage Bank maintained liquidity of over 28%.
RESULTS OF OPERATIONS
The Holding Company recorded net income for the three month period
ending March 31, 1997 totaling $577,000 compared to net income of $478,000 for
the three months ended March 31, 1996. Earnings per share amounted to $.29 in
the first quarter of 1997 versus $.24 per share in the same quarter of 1996. The
$99,000 earnings differential yielded a 20.7% improvement in 1997 over 1996.
Net interest income increased by $228,000 or 14.6% for the quarter
ended March 31, 1997 when measured against the same quarter in 1996. This
expansion reflected a growth in total interest income of $394,000. The growth in
interest income came primarily from three areas: (1) commercial and consumer
loan interest increased $190,000 or over 53% due primarily to a $11.4 million
increase in balances of commercial and consumer loans for the quarter ended
March 31, 1997 compared to the same quarter last year; (2) interest securities
grew $136,000 even though total balances in securities dropped $1.6 million in
the first quarter of 1997, and (3) mortgage loan interest increased $180,000.
While interest income grew at a 10.2% pace, interest expense was up
only $166,000 or a 7.2% increase during the same period comparison. Interest on
deposits actually fell $95,000 as the Company actively pursued the acquisition
of funds via the sale of securities under repurchase agreements. The balances on
these instruments increased by $3.2 million and accounted for a $261,000
increase in the interest paid on advances from the Federal Home Loan Bank and
other borrowings.
During the three month period ended March 31, 1997 an
addition of $48,000 was made to the general loan loss reserve. In conjunction
with the findings of the internal asset review committee, the provision for loan
losses is based on the subsidiary Banks' past loan loss experience and other
factors which, in management's judgment, deserve current recognition in
estimating possible losses.
Net non interest expense increased $49,000 from ($749,000) in the
first quarter of 1996 to ($798,000) in the same period in 1997. Non interest
income decreased $39,000 or 9.8% for the three month period ended March 31,
1997. The primary area of decline in the non interest income category was
commission income generated from the sale of ancillary financial products.
Commission income dropped $44,000 from $120,000 in the first quarter of 1996 to
$76,000 during the first quarter of the current year. Although this is a
significant decline in fee income, a drop in sales was anticipated and fees
generated are substantially in line with budgeted expectations.
Non interest expense grew only $10,000 or less than 1% for the three
month period ended March 31, 1997 as compared to the prior year first quarter.
Deposit insurance premiums increased $1.1 million reflecting the previously
mentioned special SAIF assessment.. Compensation and benefit expense, grew
$81,000 or 12.7%. Compensation increases were due to increased staffing in the
commercial loan, marketing, operations and retail banking areas. Increases in
occupancy and equipment of $28,000 or 25.7% were due to inflated costs due to
the purchase of updated personal computers in the second quarter of 1996 and
approximately $8,000 of additional repair and maintenance costs on computers and
other machinery. Deposit insurance premiums declined by $65,000 between the two
periods as the Federal Deposit Insurance Corporation reduced the rate assessed
on each $100 of deposits from $.23 to $.064. Data processing expense increases
of $20,000 or 21.7% were related primarily to improvements the commercial loan
processing applications and a new loan origination system. Other operating
expenses dropped $54,000 during the same period comparison. This significant
reduction was due to several items. Charges for the production of retail checks
was down $14,000. Newspaper advertising expense was off $9,000. The Department
of Financial Institution assessment versus the Office of Thrift Supervision
assessment charge was $11,000 less than the prior year. These were the major
areas of reduction.
Net income before income taxes in the first quarter of 1997 was
$946,000. After federal and state taxes of $369,000 were applied, the Bank
showed a first quarter of 1997 after tax income of $577,000.
PART II
OTHER INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC.
Item 1. Legal proceedings
The Holding company is not engaged in any legal proceedings of a
material nature at the present time. From time to time, the Holding Company's
subsidiaries, Community Bank of Southern Indiana and Heritage Bank of Southern
Indiana, are a party to legal proceedings wherein they enforce their security
interest in mortgage loans made by them.
Item 2. Changes in Securities
No material changes in the types of securities purchased in the third
quarter were exhibited.
Item 3. Defaults upon Senior Securities
No defaults on senior securities occurred.
Item 4. Submission of Matters to a vote of Security Holders
No matters were brought to the Security Holders for a vote.
Item 5. Other Information
Additional items of substantive nature did not occur.
Item 6. Exhibits and Reports on Form 8-K
A form 8-K report was filed on February 12, 1997 describing the charter
conversion of Community Bank of Southern Indiana, FSB, a federally chartered
savings bank, to a state chartered commercial bank under the name of Community
Bank of Southern Indiana.
<PAGE>
PART II
OTHER INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized
COMMUNITY BANK SHARES
OF INDIANA, INC.
(Registrant)
Dated November 13, 1996 BY: /s/ Robert E. Yates
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Robert E. Yates
President and CEO
Dated November 13, 1996 BY: /s/ James M. Stutsman
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James M. Stutsman
Chief Financial Officer
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