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 30,1998
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
-------------------------------------------------------------
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 2,724,698.
<PAGE>
COMMUNITY BANK SHARES OF INDIANA, INC.
INDEX
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Part I Financial Information Page
<S> <C>
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Item 1. Financial Statements
Condensed consolidated statement of financial condition,
June 30, 1998 and December 31, 1997 3
Condensed consolidated statement of operations,
three- and six- months ended June 30, 1998 and 1997 4-5
Condensed consolidated statement of cash flows,
six-months ended June 30, 1998 and 1997 6-7
Notes to condensed consolidated financial statements 8-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 11-13
Part II. Other Information 14-15
Signatures 16
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PART I - ITEM 1
CONSOLIDATED BALANCE SHEETS
COMMUNITY BANK SHARES OF INDIANA, INC.
In Thousands
June 30, 1998 December 31, 1997
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $7,596 $5,545
Interest bearing deposits with banks 15,902 11,919
Securities available for sale, at market:
Mortgage-backed securities 779 883
Securities held to maturity:
Mortgage-backed securities 29,122 23,498
Other debt securities 49,254 66,669
Mortgage loans held for sale
Loans receivable, net 183,405 171,874
Federal Home Loan Bank stock, at cost 2,574 2,033
Foreclosed real estate 542 269
Premises and equipment, net 6,138 4,269
Accrued interest receivable:
Loans 1,165 1,128
Mortgage-backed securities 179 130
Other debt securities 803 1,249
Other assets 596 684
========================== =======================
Total Assets $298,055 $290,150
========================== =======================
LIABILITIES
Deposits $203,658 $209,005
Advances from Federal Home Loan Bank 40,000 27,000
Borrowings - repurchase agreements 12,094 12,142
Other borrowings 81 83
Advance payments by borrowers for
taxes and insurance 301 186
Accrued interest payable on deposits 183 112
Other liabilities 1,351 1,731
-------------------------- -----------------------
Total Liabilities $257,668 $250,259
-------------------------- -----------------------
STOCKHOLDERS' EQUITY
Preferred stock without par value,
Authorized 5,000,000 shares, none issued -- --
Common stock of $.10 par value per share,
Authorized 10,000,000 shares; issued
2,724,698 shares 273 273
Additional paid in capital 19,412 19,386
Retained earnings - substantially restricted 21,126 20,863
Net unrealized gain/(loss) on assets
available for sale, net of tax -- 3
Unallocated shares held by Employee Stock
Ownership Plan (ESOP) Trust (424) (447)
Unearned shares held in stock compensation plan -- (187)
-------------------------- -----------------------
Total Stockholders' Equity $40,387 $39,891
-------------------------- -----------------------
Total Liabilities and Stockholders' Equity $298,054 $290,150
========================== =======================
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CONSOLIDATED STATEMENTS OF INCOME
COMMUNITY BANK SHARES OF INDIANA, INC.
Unaudited
In Thousands
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
INTEREST INCOME:
Loans receivable
<S> <C> <C> <C> <C>
Mortgage loans $ 2,055 $ 2,196 $ 4,160 $ 4,359
Commercial loans 1,424 1,018 2,658 1,927
Consumer and other loans 314 254 606 483
Securities:
Mortgage-backed securities 359 397 746 797
Other debt securities 804 951 1,824 1,888
Federal Home Loan Bank stock 43 33 84 65
Interest bearing deposits with banks 320 230 576 401
------------ ------------ ----------- ------------
TOTAL INTEREST INCOME 5,319 5,079 10,654 9,920
------------ ------------ ----------- ------------
INTEREST EXPENSE:
Deposits 2,322 2,374 4,702 4,551
Advances from Federal Home Loan Bank
and other borrowings 606 459 1,194 994
------------ ------------ ----------- ------------
TOTAL INTEREST EXPENSE 2,928 2,833 5,896 5,545
------------ ------------ ----------- ------------
NET INTEREST INCOME 2,390 2,246 4,758 4,375
Provision for loan losses 102 43 190 95
------------ ------------ ----------- ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,289 2,203 4,568 4,280
------------ ------------ ----------- ------------
NON-INTEREST INCOME:
Loan fees and service charges 206 171 372 314
Net gain on sale of loans 48 58 100 95
Deposit account service charges 103 92 197 184
Commission income 117 66 231 142
Other income 15 13 31 29
------------ ------------ ----------- ------------
TOTAL NON-INTEREST INCOME 489 400 931 764
------------ ------------ ----------- ------------
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
COMMUNITY BANK SHARES OF INDIANA, INC.
Unaudited
In Thousands
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30
-------- -------
1998 1997 1998 1997
----- ---- ---- ----
(In Thousands)
NON-INTEREST EXPENSE
<S> <C> <C> <C> <C>
Compensation and benefits 1,836 966 2,838 1,805
Occupancy and equipment 133 108 254 219
Deposit insurance premiums 29 31 59 61
Data processing service 129 114 252 235
Other 395 271 680 498
------------- ------------ ------------- ------------
TOTAL NON-INTEREST EXPENSE 2,522 1,490 4,083 2,818
------------- ------------ ------------- ------------
Income before income taxes 256 1,113 1,416 2,226
------------- ------------ ------------- ------------
Income tax expense 143 416 590 835
------------- ------------ ------------- ------------
NET INCOME $113 $697 $826 $1,391
============= ============ ============= ============
Basic earnings per share * $0.04 $0.26 $0.31 $0.52
============= ============ ============= ============
Dilutive earnings per share * $0.04 $0.26 $0.31 $0.52
============= ============ ============= ============
* See Note 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMMUNITY BANK SHARES OF INDIANA, INC.
(Unaudited)
In Thousands
FOR THE SIX
MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITES:
<S> <C> <C>
Net income $ 826 $ 1,390
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 (1) (48)
Provision (credit) for losses on loans 190 95
Proceeds from mortgage loan sales 6,776 6,191
Mortgage loans originated for resale (6,999) (6,191)
Net gain on sales of mortgage loans (100) (95)
Depreciation expense 113 76
Deferred income taxes (382) (41)
(Increase) decrease in accrued interest receivable 361 48
Increase (decrease) in accrued interest payable 71 21
Increase (decrease) in income taxes payable (194) 211
Increase (decrease) in other assets & other liabilities 454 (227)
------------ ------------
Net cash flows provided by operating activities $ 1,115 $ 1,430
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits $ (3,982) $(11,501)
Proceeds from maturities of securities available for sale -- 5,421
Proceeds from maturities of securities held to maturity 46,000 7,500
Purchases of securities held to maturity (40,441) (7,913)
Principal collected on securities available for sale 96 71
Principal collected on securities held to maturity 6,281 1,531
Purchase of Federal Home Loan Bank stock (542) (15)
Loan originations and principal payments on loans, net (11,531) (4,829)
Proceeds from sale of foreclosed real estate -- 101
Net increase in premises and equipment (1,982) (364)
------------ ------------
Net cash flows used by investing activities $ (6,101) $ (9,998)
------------ ------------
</TABLE>
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<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMMUNITY BANK SHARES OF INDIANA, INC.
(Unaudited)
In Thousands
FOR THE SIX
MONTHS ENDED
JUNE 30,
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES 1998 1997
------------ ------------
<S> <C> <C>
Net increase (decrease) in demand accounts and savings accounts $ 3,873 $ (1,736)
Net increase (decrease) in certificates of deposits (9,221) 12,597
Repayment of advances from Federal Home Loan bank (6,000) (1,500)
Advances from Federal Home Loan bank 19,000 2,000
Net increase (decrease) in repurchase borrowings (48) (2,380)
Net increase (decrease) in other borrowings (2) --
Dividends paid (565) (377)
------------ ------------
Net cash flows provided by financing activities $ 7,037 $ 8,604
------------ ------------
Net increase ( decrease) in cash and due from banks 2,051 36
Cash and due from banks at beginning of period 5,545 3,849
------------ ------------
Cash and due from banks at end of period $ 7,596 $ 3,885
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payment for:
Interest $ 5,825 $ 5,549
Income taxes 784 667
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 273 759
</TABLE>
<PAGE>
PART I - ITEM 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY BANK SHARES OF INDIANA, INC.
1. BASIS OF PRESENTATION OF INTERIM INFORMATION
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 disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principals have been omitted.
In the opinion of the management of the Company , the unaudited
consolidated financial statements include all normal adjustments considered
necessary to present fairly the financial position as of June 30, 1998, the
results of operations for the three- and six- months ended June 30, 1998 and
1997 and cash flows for the six months ended June 30, 1998 and June 30, 1997.
Interim results are not necessarily indicative of the results that will be
achieved for a full year.
2. PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statement data presented for the current
year and at December 31, 1997 include the accounts of Community Bank Shares of
Indiana, Inc., its subsidiaries Community Bank of Southern Indiana, Heritage
Bank of Southern Indiana, NCF Bank & Trust Co., 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. ACQUISITION OF NCF FINANCIAL CORPORATION
On May 6, 1998, Community Bank Shares acquired NCF Financial
Corporation in a tax-free exchange accounted for under the pooling-of-interests
method of accounting. Under the terms of the merger agreement, NCF Financial
Corporation shareholders received 0.935 shares of the Company's common stock for
each of the 792,609 shares of NCF common stock outstanding. Based upon the
market price of the Company's stock on May 6, 1998, the transaction had a value
of approximately $18.3 million. The results of operations for the three- and
six- month periods ended June 30, 1998 and 1997 include the operations of NCF
Bank & Trust Co., the wholly-owned bank subsidiary of NCF Financial Corporation,
as appropriate in a pooling-of-interests transaction. NCF Financial Corporation
was dissolved in the merger transaction. Accordingly, any operations of NCF
Financial Corporation are presented as a part of Community Bank Shares of
Indiana, Inc.
The Agreement and Plan of Reorganization, including a related Agreement
of Merger, dated December 17, 1997 between Community Bank Shares of Indiana,
Inc. and NCF Financial Corporation was previously filed as Appendix A to the
Registrant's Joint Proxy Statement/ Prospectus on Form S-4 originally dated
February 20, 1998 and amended on March 25, 1998.
<PAGE>
PART I - ITEM 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY BANK SHARES OF INDIANA, INC.
(Continued)
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4. EARNINGS PER SHARE
Three months ended Six months ended
June 30, June 30,
------------------------------ -----------------------------
In thousands, except for share and per share amounts 1998 1997 1998 1997
- ----------------------------------------------------
--------------- -------------- ------------- --------------
Basic:
<S> <C> <C> <C> <C>
Earnings:
Net income $ 113 $ 697 $ 826 $ 1,391
=============== ============== ============= ==============
Shares:
Weighted average
common shares outstanding 2,682,961 2,678,094 2,685,364 2,679,449
=============== ============== ============= ==============
Net income per share, basic $ 0.04 $ 0.26 $ 0.31 $ 0.52
=============== ============== ============= ==============
Diluted:
Earnings:
Net income $ 113 $ 697 $ 826 $ 1,391
=============== ============== ============= ==============
Shares:
Weighted average
common shares outstanding 2,682,961 2,678,094 2,685,364 2,679,449
Add: Dilutive effect of
outstanding options 6,671 309 21,323 309
--------------- -------------- ------------- --------------
Weighted average shares
outstanding, as adjusted 2,689,632 2,678,403 2,706,687 2,679,758
=============== ============== ============= ==============
Net income per share, diluted $ 0.04 $ 0.26 $ 0.31 $ 0.52
=============== ============== ============= ==============
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<PAGE>
PART I - ITEM 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY BANK SHARES OF INDIANA, INC.
(Continued)
5. COMPREHENSIVE INCOME
FASB Statement No. 130, "Reporting Comprehensive Income", effective for
fiscal years beginning on or after January 1, 1998, establishes standards for
reporting and displaying comprehensive income and its components. Comprehensive
income is defined as "the change in equity (net assets) of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners."
Comprehensive income for Community Bank Shares includes net income and
unrealized gains and losses on securities available for sale. The following
tables set forth the components of comprehensive income for the three and six
months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------
1998 1997
------------------------ ------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Net income $ 113 $ 697
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period
(3) 1
Less: Reclassification adjustment for gains (losses)
included in net income
- (3) - 1
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME 110 698
=========== ===========
Six Months Ended June 30,
-----------------------------------------------------
1998 1997
------------------------ ------------------------
(Amounts in thousands)
Net income $ 826 $ 1,391
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period
(3) 1
Less: Reclassification adjustment for gains (losses)
included in net income
- (3) - 1
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 823 $ 1,392
=========== ===========
</TABLE>
6. REGULATORY CAPITAL REQUIREMENTS
The Company's subsidiary banks are required by federal regulations to
maintain minimum amounts of capital. At June 30, 1998, each of the Company's
subsidiary banks had capital that 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 $298.1 million increased $7.9 million or 2.72% from the
December 31, 1997 ending balance of $290.2 million. The Company increased
short-term liquidity in response to actual and potential funding needs over the
six-month period ending June 30, 1998. Accordingly, cash and due from banks and
interest-bearing deposits with banks increased by $6.0 million to $23.5 million
at June 30, 1998. Community Bank Shares continued to restructure its balance
sheet, with total loans up $11.5 million, or 6.71%, from $171.9 million to
$183.4 million. At the same time, total investment securities decreased $11.9
million to $79.2 million. This strategy has contributed to an increase in net
interest margin of 11 basis points from 3.29% to 3.40% from the six months ended
June 30, 1997 to the six months ended June 30, 1998. The interest income to
average earning assets ratio rose 14 basis points to 7.61% when comparing the
same periods, while the interest expense to average interest bearing liabilities
ratio only increased 3 basis points to 4.78%.
Total liabilities increased $7.5 million, from $250.2 million to
$257.7, which was driven mainly by a net increase in Federal Home Loan Bank
advances of $13.0 million or 48.15%. Total deposits decreased $5.3 million to
$203.7 million from December 31, 1997 to June 30, 1998, with CD's decreasing by
$9.2 million and transaction accounts increasing by $3.9 million over the same
period. CD's decreased because the Company allowed higher cost public funds CD's
to mature, replacing them with lower cost Federal Home Loan Bank advances.
CAPITAL
Consolidated total equity was $40.4 million as of June 30, 1998,
increasing $496,000 from $39.9 million as of December 31, 1997. 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. Each of the Company's bank subsidiaries
exceeded these requirements as of June 30, 1998.
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 June 30, 1998, 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 14%, Heritage Bank
maintained liquidity of over 16%, and NCF Bank & Trust's liquidity was in excess
of 11% as of June 30, 1998.
RESULTS OF OPERATIONS
Net income for the three-month period ending June 30, 1998 was
$113,000, as compared to $697,000 for the quarter ended June 30, 1997. For the
six months ended June 30, 1998 net income was $826,000 as compared to $1,391,000
for the same six month period in 1997. The reduction in net income from one
period to the next was primarily attributable to one-time merger-related
expenses involved in the acquisition of NCF Bank
<PAGE>
PART I - ITEM 2
MANAGEMENT DISCUSSION AND
ANALYSIS OF CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION AND OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC
(Continued)
& Trust Co. and non-recurring employee benefit charges. These charges amounted
to $634,000 after application of appropriate federal and state tax credits. Net
income for the six months ended June 30, 1998 excluding these non-recurring
charges was $1,460,000, or $0.54 per basic shares, as compared to $1,391,000, or
$0.52 per basic share, for the same period in 1997. Net income for the second
quarter of 1998 excluding these non-recurring charges was $747,000, or $0.28 per
basic share, as compared to $696,000, or $0.26 per basic share, for the same
period in 1997. Net interest income increased by $145,000, or 6.45%, for the
quarter ended June 30, 1998 when measured against the same quarter in 1997.
Between the six month periods ended June 30, 1998 and 1997, net interest income
increased $383,000, or 8.75%, from $4,375,000 in 1997 to $4,758,000 in 1998.
This increase reflected growth in total interest income of $734,000, or 7.40%,
from the first two quarters of 1997 to the same period in 1998. This growth came
primarily from three areas: (1) commercial loan interest increased $732,000, or
37.99%, due primarily to a $16.9 million increase in average balances of
commercial loans for the six months ended June 30, 1998 compared to the same
period last year, (2) interest income from interest bearing deposits with banks
increased $175,000, or 43.50%, on the basis of a $6.2 million increase in
average balances from the first two quarters of 1997 to the same period in 1998,
and (3) consumer loan interest grew $122,000, or 25.23%, due to an increase in
average consumer loans outstanding of $2.4 million from the first six months of
1997 to the same period in 1998. These increases are a direct result of
management's intent to restructure the balance sheet so that it is more heavily
weighted with commercial and consumer loans, thereby placing less reliance on
mortgage loans. In response to this restructuring, interest on mortgage loans in
the first six months of 1998 fell $198,000 from the same period in 1997 as the
average balances decreased $7.6 million. The Company continues to actively
originate mortgage loans, selling many of these loans into the secondary market
and thereby earning non-interest income in the form of gains on loan sales and
loan servicing income. At the current time, however, mortgage loan payments
substantially exceed the originations of mortgage loans the Company intends to
retain in its own portfolio. From the first six months of 1997 to the same
period in 1998, interest on mortgage-backed securities and other investment
securities decreased $115,000 as the average balances of these securities fell
$3.9 million between the periods.
Interest expense, the other component of net interest income, reflected
a smaller increase than interest income, rising $351,000, or 6.34%, from the
first six months of 1997 to the same period in 1998. Interest expense rose
$96,000 between the second quarters of 1997 and 1998, from $2,833,000 to
$2,928,000. Interest on deposits, which comprised 79.75% of total interest
expense for the first six months of 1998, rose $151,000, or 3.34%, between the
six month periods ended June 30, 1997 and 1998. The increase in interest expense
on deposits is primarily due to growth in average deposits of $5.9 million from
the first two quarters of 1997 to the same quarters in 1998. In addition,
interest expense on Federal Home Loan Bank (FHLB) advances and other borrowings
increased $200,000 from one six-month period to the next as average balances
rose $7.4 million. The Company allowed higher-costing certificates of deposit
held by public entities to run off over the six-month period, replacing this
funding with lower-cost FHLB advances. These changes represent the continuance
of management's plan to restructure the balance sheet by replacing
higher-costing CD's with lower-cost transaction accounts and FHLB advances.
During the six-month period ended June 30, 1998, an addition of
$190,000 was made to the general loan loss reserve, as compared to $95,000 for
the same period in 1997. For the second quarter 1998, an addition of $102,000
was made to the general loan loss reserve, as compared to $43,000 in the same
quarter of last year. In conjunction with the findings of the internal asset
review committee, the allowance 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,
1998, 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.
<PAGE>
PART I - ITEM 2
MANAGEMENT DISCUSSION AND
ANALYSIS OF CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION AND OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC
(Continued)
Net non interest expense increased $1,097,000, from $2,055,000 in the
first six months of 1997 to $3,152,000 in the same period in 1998. Net
non-interest expense increased by $943,000 from the second quarter of 1997 to
the same 1998 quarter. Non interest income increased $167,000, or 21.9%, for the
six months ended June 30, 1998 over the same period in 1997. Three areas of
non-interest income were primarily responsible for the growth. Commission income
grew $89,000, from $142,000 for the first six months of 1997 to $231,000 during
the same period of the current year. Loan fees and other loan service charges
increased $58,000, or 18.45%, from the six months ended 1997 to the same period
in 1998. As the Company restructures its balance sheet as discussed above, non
interest income is earned on the sale of servicing of mortgage loans sold into
the secondary market.
Non interest expense increased $1,265,000, or 44.86%, for the
six-month period ended June 30, 1998 as compared to the same period ended June
30, 1997. Between the second quarter 1997 and 1998, non-interest expense rose
$1,032,000, from $1,490,000 in 1997 to $2,522,000 in 1998. This increase was
primarily attributable to the non-recurring merger and employee benefit charges
discussed above.
Income before income taxes in the first six months of 1998 decreased to
$1,416,000 from $2,226,000 in the same period in 1997. After federal and state
income taxes of $396,000 were applied, the Company netted a year-to-date after
tax profit of $826,000 through June 30, 1998. The Holding Company's effective
tax rate was 41.7% for the six months ended June 30, 1998, as compared to 37.5%
for the same period in 1997. This difference is primarily attributable to the
non-deductibility of certain non-recurring merger-related expenses discussed
above.
YEAR 2000 COMPLIANCE
The Company has developed a plan of action to ensure that its
operational and financial systems will not be adversely affected by software or
hardware failures caused by the inability of such software and hardware to
handle calculations involving dates after December 31, 1999. While the Company
believes that it is doing everything possible to ensure Year 2000 compliance, it
is to some extent dependent upon vendor cooperation. The Company is requiring
its computer hardware and software vendors to represent that their products are
or will be Year 2000 compliant. At this time the Company estimates that it will
incur $300,000 in expenses related to Year 2000 compliance. Any hardware or
software failures due to Year 2000 noncompliance could result in additional,
unestimable expenses to the Company. The Company does not internally program any
major operating system of the Company.
<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, Heritage Bank of Southern
Indiana, and NCF Bank and Trust Co., 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 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
The Annual Meeting of the Shareholders of the Company was held on April
28, 1998. At this meeting proxies were solicited under Regulation 14a of the
Securities and Exchange Act of 1934. Total shares issued and outstanding
entitled to vote at the meeting was 1,983,588. A total of 1,556,483 shares were
represented by shareholders in attendance or by proxy, representing a quorum. By
a vote of 1,346,779 for, 437 against, 927 abstaining, and 208,340 non-votes,
representing 86% in favor, shareholders approved the merger of NCF Financial
Corporation ("NCF") into Community Bank Shares.
At the same meeting, shareholders approved the following directors for
their respective terms and by their respective votes:
Director Term Votes For Votes Against
-------- ---- --------- -------------
C. Thomas Young 3 Years 1,555,607 876
Gary L. Libs 3 Years 1,555,632 851
Robert J. Koetter 3 Years 1,555,632 851
Kerry M. Stemler 3 Years 1,553,932 2,551
Gordon L. Huncilman 2 Years 1,554,132 2,351
Dale L. Orem 1 Year 1,554,632 1,851
Steven Stemler 1 Year 1,554,132 2,351
In addition, at the same April 28, 1998 meeting shareholders also
approved the ratification of Monroe Shine and Company, Inc. as the Company's
independent auditors for the year ended December 31, 1998by a vote of 1,554,230
for, 1,501 against, and 752 abstaining.
Item 5. Other Information
Additional items of substantive nature did not occur.
<PAGE>
PART II
OTHER INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC.
(Continued)
Item 6. Exhibits and Reports on Form 8-K
Community Bank Shares of Indiana, Inc. filed two forms 8-K reports
during the three months ended June 30, 1998.
On May 15, 1998, Community Bank Shares of Indiana, Inc. filed a form 8-K to
announce the merger of NCF Financial Corp. into Community Bank Shares of
Indiana, Inc. The following financial information was included in the form 8-K:
1) Unaudited Pro Forma Condensed Balance Sheet As of March 31, 1998, and 2)
Unaudited Pro Forma Condensed Combined Income Statement For the Year Ended
December 31, 1997.
On May 8, 1998, Community Bank Shares of Indiana, Inc. filed a form 8-K
to announce the retirement of President & CEO Robert E. Yates.
Exhibit Number Description
-------------- -----------------------
27 Financial Data Schedule
<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, 1998 BY: /s/ Michael Douglas
------------------------- -----------------------------
Michael Douglas
President and CEO
Dated August 15, 1998 BY: /s/ James M. Stutsman
------------------------- -----------------------------
James M. Stutsman
Chief Financial Officer
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