UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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 SEPTEMBER 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
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(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
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(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.
<PAGE>
COMMUNITY BANK SHARES OF INDIANA, INC.
INDEX
Part I Financial
Information Page
Item 1. Financial Statements
Condensed consolidated statement of financial condition
September 30, 1997 and December 31, 1996 3
Condensed consolidated statement of operations,
three and nine months ended September 30, 1997 and 1996 4
Condensed consolidated statement of cash flows,
nine months ended September 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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<TABLE>
<CAPTION>
PART I - ITEM 1
CONSOLIDATED BALANCE SHEETS
COMMUNITY BANK SHARES OF INDIANA, INC.
In Thousands
September 30, December 31,
1997 1996
(unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 4,635 $ 3,657
Interest bearing deposits with banks 21,213 7,321
Securities available for sale, at market:
Mortgage-backed securities 922 1,029
Other debt securities 0 1,502
Securities held to maturity:
Mortgage-backed securities 22,099 24,724
Other debt securities 62,848 55,346
Mortgage loans held for sale
Loans receivable, net 143,902 136,825
Federal Home Loan Bank stock, at cost 1,575 1,250
Foreclosed real estate 116 101
Premises and equipment, net 3,363 3,544
Accrued interest receivable:
Loans 926 792
Mortgage-backed securities 114 137
Other debt securities 855 933
Other assets 277 349
Total Assets $ 262,845 $ 237,510
LIABILITIES
Deposits $ 193,397 $ 176,624
Advances from Federal Home Loan Bank 28,000 23,000
Borrowings - repurchase agreements 12,652 10,702
Other borrowings 84 0
Advance payments by borrowers for
taxes and insurance 624 210
Accrued interest payable on deposits 101 67
Other liabilities 704 738
Total Liabilities 235,562 211,341
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 restrict 15,372 14,261
Net unrealized gain/(loss) on assets
available for sale, net of tax 2 (1)
Unearned ESOP shares (75) (75)
Total Stockholders Equity 27,283 26,169
Total Liabilities and
Stockholders Equity $ 262,845 $ 237,510
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC.
In Thousands
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
INTEREST INCOME:
Loans receivable
<S> <C> <C> <C> <C>
Mortgage loans $ 1,610 $ 1,778 $ 4,876 $ 5,466
Commercial loans 1,166 680 3,093 1,563
Consumer and other loans 273 198 746 547
Securities:
Mortgage-backed securities 375 480 1,161 1,558
Other debt securities 1,046 919 2,933 2,406
Federal Home Loan Bank stock 31 24 81 72
Interest bearing deposits with banks 197 65 455 338
TOTAL INTEREST INCOME 4,698 4,144 13,345 11,950
INTEREST EXPENSE:
Deposits 2,273 2,160 6,313 6,217
Advances from Federal Home Loan Bank
and other borrowings 515 255 1,509 775
TOTAL INTEREST EXPENSE 2,788 2,415 7,822 6,992
NET INTEREST INCOME 1,910 1,729 5,523 4,958
Provision for loan losses 68 8 155 20
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,842 1,721 5,368 4,938
NON-INTEREST INCOME:
Loan fees and service charges 128 151 438 445
Net gain on sale of loans 55 21 149 43
Net gain on sale of securities 0 15 0 15
Deposit account service charges 107 90 287 274
Commission income 77 63 218 268
Other income 19 15 55 46
TOTAL NON-INTEREST INCOME 386 355 1,147 1,091
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC.
In Thousands
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
NON-INTEREST EXPENSE
<S> <C> <C> <C> <C>
Compensation and benefits $ 790 $ 662 $ 2,249 $ 1,970
Occupancy and equipment 97 120 297 353
Deposit insurance premiums 25 1,220 77 1,408
Data processing service 105 97 321 288
Other 195 180 614 579
TOTAL NON-INTEREST EXPENSE 1,212 2,279 3,558 4,598
Income before income taxes 1,016 (203) 2,957 1,431
Income tax expense 390 (79) 1,129 581
NET INCOME $ 626 $ (124) $ 1,828 $ 850
Net income per share $ 0.32 $ (0.06) $ 0.92 $ 0.43
(See note 4)
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
COMMUNITY BANK SHARES OF INDIANA, INC.
(Unaudited)
In Thousands
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,828 $ 850
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 (45) 27
Net realized securities gain 0 (15)
Provision (credit) for losses on loans 155 20
Proceeds from mortgage loan sales 9,159 4,562
Mortgage loans originated for resale (8,999) (4,182)
Net gain on sales of mortgage loans (149) (43)
Loss on foreclosed real estate 0 0
Depreciation expense 116 175
Deferred income taxes (84) 58
(Increase) decrease in accrued interest receivable (35) (257)
Increase (decrease) in accrued interest payable 34 (27)
Increase (decrease) in income taxes payable 208 (489)
Increase (decrease) in other assets & other liabilities 318 1,579
Net cash flows provided by operating activities $ 2,506 $ 2,258
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits $ (13,896) $ 11,225
Proceeds from the sale of securities available for sale 0 4,416
Proceeds from maturities of securities available for sale 1,500 0
Purchases of securities available for sale 0 (3,500)
Proceeds from maturities of securities held to maturity 17,200 13,100
Purchases of securities held to maturity (25,136) (30,080)
Principal collected on securities available for sale 237 2,064
Principal collected on securities held to maturity 2,545 2,100
Loan originations and principal payments on loans, net (6,848) (17,390)
Proceeds from sale of foreclosed real estate 101 0
Net increase in premises and equipment (180) (477)
Net cash flows used by investing activities $ (24,477) $(18,542)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
COMMUNITY BANK SHARES OF INDIANA, INC.
(Unaudited)
In Thousands
1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C>
Net increase (decrease) in demand accounts and savings accounts $ (954) $ 1,036
Net increase (decrease) in certificates of deposits 17,538 15,813
Repayment of advances from Federal Home Loan bank (8,000) (11,099)
Advances from Federal Home Loan bank 13,000 9,000
Net increase (decrease) in repurchase borrowings 1,951 2,420
Sale of stock 0 0
Cash received on merger of mutual holding company with Bank 0 6
Dividends paid (586) (775)
Net cash flows provided by financing activities $ 22,949 16,401
Net increase ( decrease) in cash and due from banks 978 117
Cash and due from banks at beginning of period 3,657 2,943
Cash and due from banks at end of period $ 4,63 $ 3,060
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payment for:
Interest $ 7,788 $ 6,244
Income taxes $ 1,054 $ 878
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 $ 116 $ 65
</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 calculations for weighed average number of shares
outstanding for the three and nine month periods ended September 30,
1997 are as follows:
# of
DATES OUTSTANDING DAYS SHARES (DAYS x SHARES)
7/01/1997 - 9/30/1997 92 1,983,722 182,502,424
1/01/1997 - 9/30/1997 273 1,983,722 541,556,106
Weighted average shares outstanding for the three month period
ended September 30, 1997 are 1,983,722 (182,502,424 shares divided by
92 days). Pro forma earnings per share for the three month period
ended September 30, 1997 is 32 cents per share.
Weighted average shares outstanding for the nine month period
ended September 30, 1997 are 1,983,722 (541,556,106 shares divided by
273 days). Pro forma earnings per share for the nine month period
ended September 30, 1997 is 92 cents per share.
5. REGULATORY CAPITAL REQUIREMENTS
The Company's subsidiary banks are required by federal
regulations to maintain minimum amounts of capital. At September 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 $262.8 million increased $25.3 million or
10.7% 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 nine month period ending September 30,
1997. Accordingly, interest bearing deposits with banks increased by
$13.9 million to $21.2 million at September 30, 1997. Community Bank
Shares continued to restructure its balance sheet, with total loans up
$7.1 million or 5.2%, from $136.8 million to $143.9 million. At the
same time, total investment securities increased $3.3 million to $85.9
million. This strategy has contributed to an increase in net interest
margin of 8 basis points from 3.04% to 3.12% over the nine month
periods ending September 30, 1996 and September 30, 1997,
respectively. The interest income to average earning assets ratio over
the same period rose 21 basis points to 7.53%, while the interest
expense to average interest bearing liabilities ratio increased 7 basis
points to 4.80%.
Total liabilities increased $24.3 million, from $211.3 million
to $235.6, which was driven mainly by strong growth in certificates of
deposit. Total deposits increased $16.8 million to $193.4 million from
December 31, 1996 to September 30, 1997, with CD's growing by $17.5
million over the same period. Advances from the Federal Home Loan Bank
decreased $5.0 million over the nine month period, while securities
sold under agreements to repurchase increased by $2.0 million.
CAPITAL
Consolidated total equity was $27.3 million as of September
30, 1997, increasing $1.1 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 as of September 30, 1997.
LIQUIDITY
The Company's primary sources of funds are deposits; principal
and interest payments on loans and mortgage-backed securities; proceeds
from maturing debt securities; advances from the Federal Home Loan Bank
of Indianapolis; and the sale of stock. The mortgage banking
operations also generate funds in the form of proceeds from the sale of
loans and loan servicing fees. Regulations require that each of the
Company's subsidiaries maintain sufficient liquidity to fund ongoing
operations. At September 30, 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 26%.
<PAGE>
RESULTS OF OPERATIONS
Net Income for the three month period ending September 30,
1997 was $626,000, compared to a loss of $124,000 for the quarter ended
September 30, 1996. Net interest income increased by $181,000, or
10.5%, for the quarter ended September 30, 1997 when measured against
the same quarter in 1996. This expansion reflected growth in total
interest income of $554,000, or 13.4%. This growth came primarily from
three areas: (1) commercial loan interest increased $486,000, or
71.5%, due primarily to a $21.3 million increase in average balances of
commercial loans for the quarter ended September 30, 1997 compared to
the same quarter last year, (2) interest income from interest bearing
deposits with banks increased $132,000, or 200.3%, on the basis of a
$8.9 million increase in average balances from the third quarter 1996
to the same period in 1997, and (3) interest on other debt securities
grew $127,000, or 13.8%, due to an increase in average balances of
$5.1 million from the third quarter of 1996 to the third quarter of
1997. Interest on mortgage loans in the third quarter 1997 fell
$168,000 from the same quarter in 1996 as the average balances
decreased $9.1 million. Interest on mortgage-backed securities
decreased $105,000 as the average balances of these securities fell
$6.3 million from the third quarter of 1996 to the third quarter of
1997.
Interest expense, the other component of net interest income,
reflected a smaller increase than interest income, rising $373,000, or
15.4%, from third quarter 1996 to third quarter 1997. Interest on
deposits, which comprised 81.5% of total interest expense, rose
$113,000, or 5.2%. The increase in interest expense on deposits is
primarily due to growth in average deposits of $9.9 million from the
third quarter of 1996 to the same quarter in 1997. In addition,
interest expense on Federal Home Loan Bank advances and other
borrowings increased $260,000 from one quarter to the next. During the
three month period ended September 30, 1997, an addition of $68,000 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 September 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 $1,098,000, from
$1,924,000 in the third quarter of 1996 to $826,000 in the same period
in 1997. Non interest income increased $31,000, or 8.7%, for the three
month period ended September 30, 1997 over the same period in 1996.
Three areas of non-interest income were primarily responsible for the
growth. Net gains on loan sales rose $34,000 from the third quarter
1996 to the third quarter 1997. Service charges on deposits increased
$17,000, or 18.8%. Commission income grew $14,000, from $63,000 in the
third quarter of 1996 to $77,000 during the third quarter of the
current year.
Non interest expense decreased $1,067,000, or 46.8%, for the
three month period ended September 30, 1997 as compared to the three
month period ended September 30, 1996. The primary reason for the
decrease in non interest expense was a one time special Savings
Association Insurance Fund (SAIF) assessment of $1.1 million in the
third quarter of 1996 as prescribed by the Omnibus Appropriations Bill
signed by President Clinton on September 30, 1996. Compensation and
benefit expense grew $128,000, or 19.3%. Compensation increases were
due to 1) increased staffing in the commercial loan, marketing, and
operations areas, 2) the accrual for profit sharing benefits
attributable to 1997 that will be paid in 1998, and 3) the accrual for
pension benefits to be paid under the discontinuance of the company's
defined benefit pension plan at December 31, 1997. Income before
income taxes in the third quarter of 1997 increased to $1,016,000 from
a loss before tax of $203,000 in the same period in 1996. Without the
special SAIF assessment, income before tax increased $96,000 from the
third quarter of 1996 to the third quarter of 1997, from $920,000 to
$1,016,000, an increase of 10.4%. After federal and state income
taxes of $390,000 were applied, the Bank netted a third quarter 1997
after tax profit of $626,000. The Holding Company's effective tax rate
was 38.3% for the quarter ended September 30, 1997, as compared to
38.9% for the same quarter in 1996.
Net income for the nine month period ended September 30, 1997
grew by 23.4% to $1,828,000 from net income of $850,000 for the nine
month period ended September 30, 1996.
Net interest income after the provision for loan losses for
the first three quarters of 1997, as compared to the first three
quarters of 1996, increased $430,000 or 8.7%. Total interest income
for the nine month period ended September 30, 1997 increased
$1,395,000, or 11.7%, while interest expense increased $830,000, or
11.9%, 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 third quarter comparisons as well as
an increase in other borrowings (including Federal Home Loan Bank
advances).
Non-interest income increased $51,000, or 5.1%, largely due to
the same influences describing the third quarter variances above. The
decrease in non interest expense of $1,040,000, or 22.6%, is also
reflective of the same category increases as described in the third
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 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
Community Bank Shares of Indiana, Inc. has filed no form 8-K
reports during the three months ended September 30, 1997.
<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
