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 JUNE 30,1997
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 (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
-------------------------------------------------------------
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
June 30, 1997 and December 31, 1996 3
Condensed consolidated statement of operations,
three and six months ended June 30, 1997 and 1996 4
Condensed consolidated statement of cash flows,
six months ended June 30, 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 9
Part II. Other Information 11
Signatures 12
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<CAPTION>
PART I - ITEM 1
CONSOLIDATED BALANCE SHEETS
COMMUNITY BANK SHARES OF INDIANA, INC.
June 30, 1997 December 31,
(unaudited) 1996
(In thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $ 3,685 $ 3,657
Interest bearing deposits with banks 16,231 7,321
Securities available for sale, at market:
Mortgage-backed securities 964 1,029
Other debt securities 1,502
Securities held to maturity:
Mortgage-backed securities 23,194 24,724
Other debt securities 54,539 55,346
Mortgage loans held for sale
Loans receivable, net 142,413 136,825
Federal Home Loan Bank stock, at cost 1,350 1,250
Foreclosed real estate 34 101
Premises and equipment, net 3,484 3,544
Accrued interest receivable:
Loans 843 792
Mortgage-backed securities 121 137
Other debt securities 934 933
Other assets 327 349
--------------------- --------------------
Total Assets $ 248,119 $ 237,510
===================== ====================
LIABILITIES
Deposits $ 188,295 $ 176,624
Advances from Federal Home Loan Bank 23,500 23,000
Borrowings - repurchase agreements 8,321 10,702
Advance payments by borrowers for
taxes and insurance 297 210
Accrued interest payable on deposits 88 67
Other liabilities 415 738
--------------------- --------------------
Total Liabilities 220,916 211,341
--------------------- --------------------
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 15,294 14,261
Net unrealized gain/(loss) on assets
available for sale, net of tax (1)
Unearned ESOP shares (75) (75)
--------------------- --------------------
Total Stockholders' Equity 27,203 26,169
--------------------- --------------------
Total Liabilities and Stockholders' Equity $ 248,119 $ 237,510
===================== ====================
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands)
INTEREST INCOME:
Loans receivable
<S> <C> <C> <C> <C>
Mortgage loans $ 2,250 $ 2,055 $ 4,497 $ 4,120
Commercial consumer and other loans 622 442 1,168 801
Securities:
Mortgage-backed securities 391 522 786 1,078
Other debt securities 951 883 1,888 1,523
Federal Home Loan Bank stock 25 23 50 48
Interest bearing deposits with banks 165 62 264 273
------------- ------------ ------------ -------------
TOTAL INTEREST INCOME 4,404 3,987 8,653 7,843
------------- ------------ ------------ -------------
INTEREST EXPENSE:
Deposits 2,118 2,040 4,040 4,058
Advances from Federal Home Loan Bank
and other borrowings 457 282 991 555
------------- ------------ ------------ -------------
TOTAL INTEREST EXPENSE 2,575 2,322 5,031 4,613
------------- ------------ ------------ -------------
NET INTEREST INCOME 1,829 1,665 3,622 3,230
Provision for loan losses 39 2 87 12
------------- ------------ ------------ -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,790 1,663 3,535 3,218
------------- ------------ ------------ -------------
NON-INTEREST INCOME:
Loan fees and service charges 164 139 300 295
Net gain on sale of loans 58 8 95 22
Deposit account service charges 91 96 180 184
Commission income 66 85 142 205
Other income 13 13 30 30
------------- ------------ ------------ -------------
TOTAL NON-INTEREST INCOME 392 341 747 736
------------- ------------ ------------ -------------
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS, (CONTINUED)
COMMUNITY BANK SHARES OF INDIANA, INC.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands)
NON-INTEREST EXPENSE
<S> <C> <C> <C> <C>
Compensation and benefits $737 $667 $1,458 $1,307
Occupancy and equipment 128 123 262 232
Deposit insurance premiums 26 96 53 189
Data processing service 104 100 216 191
Other 193 188 352 400
-------------- ------------ ------------- ------------
TOTAL NON-INTEREST EXPENSE 1,188 1,174 2,341 2,319
-------------- ------------ ------------- ------------
Income before income taxes 994 830 1,941 1,635
-------------- ------------ ------------- ------------
Income tax expense 369 334 739 661
-------------- ------------ ------------- ------------
NET INCOME $625 $496 $1,202 $974
============== ============ ============= ============
Net income per share $0.32 $0.25 $0.61 $0.49
============== ============ ============= ============
(see note 5)
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
COMMUNITY BANK SHARES OF INDIANA, INC.
(Unaudited)
1997 1996
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITES:
<S> <C> <C>
Net income $ 1,202 $ 974
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums and accretion of discounts
on investment and mortgage-backed securities, net (48) 9
Net realized securities gain
Provision (credit) for losses on loans 87 12
Proceeds from mortgage loan sales 6,191 3,517
Mortgage loans originated for resale (6,191) (3,555)
Net gain on sales of mortgage loans (95) (22)
Loss on foreclosed real estate
Depreciation expense 76 106
Deferred income taxes 1 60
(Increase) decrease in accrued interest receivable (6) (363)
Increase (decrease) in accrued interest payable 21 3
Increase (decrease) in income taxes payable 172 (11)
Increase (decrease) in other assets & other liabilities (388) 265
------------- ------------
Net cash flows provided by operating activities $ 1,022 $ 995
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CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits (8,909) 3,846
Proceeds from the sale of securities available for sale
Proceeds from maturities of securities available for sale 2,500
Purchases of securities available for sale (2,000)
Proceeds from maturities of securities held to maturity 7,500 12,100
Purchases of securities held to maturity (7,913) (25,588)
Principal collected on securities available for sale 71 1,638
Principal collected on securities held to maturity 1,525 1,491
Loan originations and principal payments on loans, net (4,927) (7,981)
Proceeds from sale of foreclosed real estate 101
Net increase in premises and equipment 60 (428)
------------- ------------
Net cash flows used by investing activities $ (9,992) $ (16,922)
------------- ------------
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
COMMUNITY BANK SHARES OF INDIANA, INC.
(Unaudited)
1997 1996
(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C>
Net increase (decrease) in demand accounts and savings accounts $ (1,342) $ 762
Net increase (decrease) in certificates of deposits 12,597 9,049
Repayment of advances from Federal Home Loan bank (1,500) (3,000)
Advances from Federal Home Loan bank 2,000
Net increase (decrease) in repurchase borrowings (2,380) 399
Sale of stock
Cash received on merger of mutual holding company with Bank 6
Dividends paid (377) (316)
------------- ------------
Net cash flows provided by financing activities 8,998 6,900
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Net increase ( decrease) in cash and due from banks 28 996
Cash and due from banks at beginning of period 3,657 2,943
------------- ------------
Cash and due from banks at end of period $ 3,685 $ 3,939
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payment for:
Interest $ 5,014 $ 4,066
Income taxes $ 567 $ 617
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING ACTIVITIES
Proceeds from sales of foreclosed real estate
financed through loans $ 101 $ -
Transfers from loans to real estate acquired through foreclosure $ 34 $ -
</TABLE>
<PAGE>
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 - 6/30/1997 181 1,983,722 359,053,682
Weighted average shares outstanding for the three month period ended
June 30, 1997 are 1,983,722 (359,053,682 shares divided by 181 days). Pro forma
earnings per share for the six month period ended June 30, 1997 is 61 cents per
share.
5. REGULATORY CAPITAL REQUIREMENTS
The Company's subsidiary banks are required by federal regulations to
maintain minimum amounts of capital. At June 30, 1997, each of the Company's
subsidiary banks had capital which substantially exceeded each of the regulatory
capital requirements.
<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 $248.1 million increased $10.6 million or 4.47% over
the December 31, 1996 ending balance of $237.5 million. The Company increased
short term liquidity in response to actual and potential funding needs over the
six month period ending June 30, 1997. Accordingly, interest bearing deposits
with banks increased by $8.9 million to $16.2 million at June 30, 1997.
Community Bank Shares continued to restructure it's balance sheet, with total
loans up $5.6 million or 4.1%, from $136.8 million to $142.4 million. At the
same time, total investment securities decreased $3.9 million to $78.7 million.
This strategy has contributed to an increase in net interest margin of 10 basis
points from 3.02% to 3.12% over the six month periods ending June 30, 1996 and
June 30, 1997, respectively. The interest income to average earning assets ratio
over the same period rose 10 basis points to 7.45%, while the interest expense
to average interest bearing liabilities ratio fell 3 basis points to 4.72%.
Total liabilities increased $9.6 million, from $211.3 million to
$220.9, which was driven mainly by strong growth in Certificates of Deposit.
Total deposits increased $11.7 million to $188.3 million, with CD's growing by
$12.6 million. Securities sold under agreements to repurchase fell by $2.4
million.
CAPITAL
Consolidated total equity was $27.2 million as of June 30, 1997,
increasing $1.0 million from $26.2 million as of December 31, 1996. This
increase was due primarily to periodic 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 June 30, 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 15% while Heritage Bank maintained liquidity of over
29%.
RESULTS OF OPERATIONS
Net Income for the three month period ending June 30, 1997 was
$625,000, compared to $496,000 for the quarter ended June 30, 1996. Net interest
income increased by $164,000, or 9.8%, for the quarter ended June 30, 1997 when
measured against the same quarter in 1996. This expansion reflected growth in
total interest income of $417,000, or 10.5%. This growth came primarily from
four areas: (1) commercial and consumer loan interest increased $180,000, or
40.7%, due primarily to a $24.8 million increase in average balances of
commercial loans for the quarter ended June 30, 1997 compared to the same
quarter last year, (2) interest on mortgage loans grew $195,000, or 9.5%, (3)
interest income from interest bearing deposits with banks increased $103,000, or
166.1%, on the basis of a $7.4 million increase in average balances from the
three months ended June 30, 1996 to the same period in 1997, and (4) interest on
other debt securities grew $68,000, or 7.7%, due to an increase in average
balances of $3.6 million from the second quarter of 1996 to the second quarter
of 1997. Interest on mortgage-backed securities decreased $131,000 as the
average balances of these securities fell $8.2 million from the second quarter
of 1996 to the second quarter of 1997.
<PAGE>
PART I - ITEM 2
MANAGEMENT DISCUSSION AND
ANALYSIS OF CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION AND OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC
(CONTINUED)
Interest expense, the other component of net interest income, reflected
a smaller increase than interest income, rising $253,000, or 10.8% from second
quarter 1996 to second quarter 1997. Interest on deposits, which comprised 82.3%
of total interest expense, rose $78,000, or 3.8%. The increase in interest
expense on deposits is primarily due to an average growth in deposits of $5.1
million from the second quarter of 1996 to the same period in 1997. In addition,
interest expense on Federal Home Loan Bank advances and other borrowings
increased $175,000 from one quarter to the next. During the three month period
ended June 30, 1997 an addition of $39,000 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. At June 30, 1997, each
subsidiary Bank's general loan loss reserve met or exceeded the minimum loan
loss reserve standard established by the internal asset review committee for
each Bank.
Net non interest expense decreased $37,000, from $833,000 in the
second quarter of 1996 to $796,000 in the same period in 1997. Non interest
income increased $51,000, or 15.0%, for the three month period ended June 30,
1997. Two areas of non-interest income were responsible for the growth. Net
gains on loan sales rose $50,000 from the second quarter 1996 to the second
quarter 1997. Loan fees and service charges increased $25,000, or 18%.
Commission income dropped $19,000 from $85,000 in the second quarter of 1996 to
$66,000 during the second quarter of the current year; although this is a
significant decline, a drop in sales was anticipated and fees generated are
substantially in line with budgeted expectations.
Non interest expense grew $14,000, or 1.2%, for the three month period
ended June 30, 1997 as compared to the three month period ended June 30, 1996.
Compensation and benefit expense, the primary area of increase, grew $70,000, or
10.5%. Compensation increases were due to increased staffing in the commercial
loan, marketing, and operations areas. Deposit insurance premiums declined by
$70,000 between the two periods as the Federal Deposit Insurance Corporation
reduced the rate assessed on each $100 of deposits from $.23 to $.064. Income
before income taxes in the second quarter of 1997 showed an increase of $164,000
to $994,000, as compared to $830,000 in the same period in 1996. After federal
and state income taxes of $369,000 were applied, the Bank netted a second
quarter 1997 after tax profit of $625,000. The Holding Company's effective tax
rate fell to 37.1% for the quarter ended June 30, 1997, from 40.2% for the same
quarter in 1996.
Net income for the six month period ended June 30, 1997 grew by 23.4%
to $1,202,000 from net income of $974,000 for the six month period ended June
30, 1996.
Net interest income after the provision for loan losses for the first
two quarters of 1997, as compared to the first two quarters of 1996, increased
$317,000 or 9.9%. Total interest income for the six month period ended June 30,
1997 increased $810,000, or 10.3%, while interest expense increased $418,000, or
9.1%, when compared to the same period in 1996. These increases are reflective
of the increases in interest income on commercial loan, other debt securities,
and interest bearing deposits with banks due to rising average balances, and
deposit expense increases due to overall rising balances discussed in the second
quarter comparisons as well as an increase in other borrowings (including
Federal Home Loan Bank advances).
Non-interest income increased $11,000, or 1.5%, largely due to the same
influences describing the second quarter variances above. The increase in non
interest expense of $22,000, or 0.9%, is also reflective of the same category
increases as described in the second quarter comparisons.
<PAGE>
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 second
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
Community Bank Shares of Indiana, Inc. has filed three form 8-K
reports during the three months ended June 30, 1997.
A form 8-K report was filed on April 22, 1997 announcing the retirement
of the Vice Chairman from the Board of Directors of Community Bank Shares of
Indiana, Inc.
A form 8-K report was filed June 27, 1997 to report the appointment of
four new directors to the Board of Directors of Community Bank Shares of
Indiana, Inc.
<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 August 15, 1997 BY: /s/ Robert E. Yates
------------------------ ------------------------
Robert E. Yates
President and CEO
Dated August 15, 1997 BY: /s/ James M.Stutsman
------------------------ -------------------------
James M.Stutsman
Chief Financial Officer
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