Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 2000
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
101 West Spring Street, New Albany, Indiana 47150
(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (812) 944-2224
Securities Registred pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.06 per share
--------------------------------------
(Title of Class)
Indicate by check mark 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 twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES X NO_.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the asked price of $13.25 per share of such
stock as of February 28, 2001, was $33,629,918. (The exclusion from such amount
of the market value of the shares owned by any person shall not be deemed an
admission by the Registrant that such person is an affiliate of the Registrant.)
As of February 28, 2001, there were issued and outstanding 2,538,107 shares of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Annual Report to Stockholders for the fiscal year
ended December 31, 2000.
Part III of Form 10-K - Proxy Statement for the 2001 Annual Meeting of
Stockholders.
1
Form 10-K
Index
Part I: Page
------- ----
Item 1. Business 3
Item 2. Properties 25
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Part II:
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 26
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 26
Part III:
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and Management 26
Item 13. Certain Relationships and Related Transactions 27
Part IV:
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 27
Signatures 29
2
PART I
ITEM 1. BUSINESS
General
Community Bank Shares of Indiana, Inc. (the Company) is a multi-bank
holding company headquartered in New Albany, Indiana. The Company's wholly-owned
banking subsidiaries are Community Bank of Southern Indiana (CBSI), Heritage
Bank of Southern Indiana (HBSI), and Community Bank of Kentucky (CBKY). CBSI,
HBSI, and CBKY are state-chartered stock commercial banks headquartered in New
Albany, Indiana, Jeffersonville, Indiana, and Bardstown, Kentucky, respectively.
CBSI and HBSI are regulated by the Indiana Department of Financial Institutions
and the Federal Deposit Insurance Corporation. CBKY is regulated by the Kentucky
Department of Financial Institutions and the Federal Deposit Insurance
Corporation.
CBSI was founded in 1934 as a federal mutual savings and loan
association. CBSI converted to a federal mutual savings bank in 1989, and became
a federal stock savings bank on May 1, 1991. On December 2, 1996 CBSI converted
from a federal stock savings bank to a state chartered stock commercial bank.
Community's deposits have been federally insured since 1934 by the Savings
Association Insurance Fund ("SAIF") and its predecessor, the Federal Savings and
Loan Insurance Corporation, CBSI has been a member of the Federal Home Loan Bank
system since 1934.
On January 3, 1996, the Company capitalized Heritage Bank of Southern
Indiana, a newly organized state-chartered commercial bank, for a total
investment of $4,150,000. HBSI began operations as of January 8, 1996, and
provides a variety of banking services to individuals and business customers
through its two banking offices in Jeffersonville, Indiana. HBSI joined the
Federal Home Loan Bank system in 1998.
On May 6, 1998, the Company completed its acquisition of Community Bank
of Kentucky (formerly NCF Bank and Trust CO) located in Bardstown, Kentucky
through a merger with NCF Financial Corporation (NCF). CBKY, a state chartered
commercial bank with total assets of $37.0 million and $35.6 million at May 6,
1998 and December 31, 1997, respectively, became a wholly-owned subsidiary of
the Company through the exchange of 740,974 shares of the Company's common stock
for all the outstanding common stock of NCF. The acquisition was accounted for
as a pooling of interests.
The Company had total assets of $416.2 million, total deposits of
$258.2 million, and stockholders' equity of $40.9 million as of December 31,
2000. The Company's principal executive office is located at 101 West Spring
Street, New Albany, Indiana 47150, and the telephone number at that address is
(812) 944-2224.
In March 2000 the Company revised the stock repurchase, authorizing the
repurchase of the Company's outstanding common stock subject to a purchase limit
of $4,000,000 over a twelve-month period. Since the inception of the repurchase
plan in May 1999, the Company has acquired an aggregate of 216,500 shares of its
Common Stock at an average purchase price of $15.89.
Business Strategy
The Company's current business strategy is to operate well-capitalized,
profitable and independent community banks with a significant presence in their
primary market areas. The Company has sought to implement this strategy in
recent years by: (1) emphasizing the origination of residential mortgage loans,
commercial business & real estate loans, and consumer loans in the Company's
primary market area; (2) controlling operating expenses; and (3) broadening the
scope of services offered to its customers.
The Company's three subsidiaries are community-oriented financial
institutions offering a variety of financial services to their local market
areas. The subsidiaries are engaged primarily in the business of attracting
deposits from the general public and using such funds to originate 1) secured
and unsecured business
3
loans of various terms to local businesses and professional organizations, and
2) consumer loans including home equity lines of credit, automobile and
recreational vehicle, construction loans, and loans secured by deposit accounts.
Depending on each subsidiary's liquidity, interest rate risk and balance sheet
positions, fixed-rate mortgage loans are originated either for inclusion in the
retained loan portfolio or for sale in the secondary market, while adjustable
rate mortgage (ARM) loans are originated primarily for retention in each
subsidiary's loan portfolio. To a lesser extent, the subsidiaries make home
equity loans secured by the borrower's principal residence and other types of
consumer loans such as auto loans. Although CBSI holds a small amount of
multi-family residential real estate loans in its portfolio, the Company does
not emphasize the origination of such loans. In addition, the Company invests in
mortgage-backed securities issued or guaranteed by GNMA, FNMA, or FHLMC, and in
securities issued by the United States Government and agencies thereof.
Competition
The banking business is highly competitive, and as such the
affiliate banks compete not only with other commercial banks, but also with
savings and loan associations, trust companies and credit unions for deposits
and loans, as well as stock brokerages, insurance companies, and other entities
providing one or more of the services and products offered by the affiliate
Banks. In addition to competition, the Company's business and operating results
are significantly affected by the general economic conditions prevalent in its
market area.
The Banks' primary market area consists of the counties of Floyd, Clark
and Harrison, which are located in Southern Indiana along the Ohio River, and
Nelson County, which is located approximately 40 miles south east of Louisville,
Kentucky. Clark and Floyd counties are two of the seven counties comprising the
Louisville, Kentucky Standard Metropolitan Statistical Area, which has a
population in excess of one million. The population of the Floyd, Clark and
Harrison, is approximately 203,000. The population of Nelson County is
approximately 37,000. Counties surrounding Nelson County include: Spencer,
Anderson, Hardin, Washington, Marion, Larue, and Bullitt counties, which
together have a population in excess of 220,000. The Company's headquarters are
in New Albany, Indiana, a city of 48,000 located approximately three miles from
the center of Louisville.
Lending Activities
General. At December 31, 2000, the Company's net loans receivable
(excluding loans classified as held for sale) totaled $287.9 million,
representing approximately 69.0% of the Company's total assets at that date. The
principal lending activity of the Company is the origination of secured and
unsecured commercial business loans to local business and professional
organizations and residential construction loans and consumer loans (consisting
primarily of home equity loans secured by the borrower's principal residence).
Substantially all of the Company's mortgage loan portfolio consists of
conventional mortgage loans.
Since the early 1980's, the Company has worked to make its interest
earning assets more interest rate sensitive by actively originating ARM loans,
adjustable rate second mortgage loans and home equity loans, and short-term or
adjustable consumer loans. Since the early 1990's, the Company has diligently
increased the amount of commercial business loans as a percent of its total loan
portfolio.
The Company continues to actively originate fixed-rate mortgage loans,
generally with terms to maturity of between 15- to 30- year and secured by
one-to-four family residential properties. One-to-four family fixed-rate loans
generally are originated for sale in the secondary mortgage market. The Company
sells mortgage loans with servicing either retained or released. The Company
earns service fee income on those loans where servicing is retained.
The Company also originates interim construction loans on one-to-four
family residential properties, mortgage loans secured by multi-family
residential properties, and consumer loans for a variety of purposes, including
home equity loans, home improvement loans and automobile loans.
4
Analysis of Loan Portfolio
Set forth below is selected data relating to the composition of the
Company's loan portfolio by type of loan and type of security on the dates
indicated. The table does not include mortgage-backed securities as the Company
classifies such securities as investment securities.
Analysis of Loan Portfolio
At December 31
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------
(Dollars in Thousands)
Real estate loans:
Residential interim
Construction loans $ 10,563 $ 9,383 $ 578 $ 5,654 $ 6,498
Residential 91,280 93,632 104,670 106,082 114,910
Commercial real estate 76,185 52,499 35,424 22,432 17,269
---------------- ------------- -------------- -------------- ---------------
Total real estate loans $ 178,028 $ 155,514 $ 140,672 $ 134,168 $ 138,677
Commercial business loans (1) $ 89,660 $ 78,973 $ 48,057 $ 27,929 $ 20,191
Consumer Loans:
Savings account loans 999 1,276 2,049 874 593
Equity lines of credit (2) 14,017 7,344 6,760 6,846 5,215
Automobile loans 3,137 2,343 1,824 1,570 1,344
Other (2) (3) 8,493 6,333 3,330 2,490 2,236
---------------- ------------- -------------- -------------- ---------------
Total consumer loans $ 26,646 $ 17,296 $ 13,963 $ 11,780 $ 9,388
Total loans, gross $ 294,334 $ 251,783 $ 202,692 $ 173,877 $ 168,256
Less:
Loans in process 3,635 4,041 1,844 1,969 1,726
Deferred loan origination fees
and costs, net (29) (17) (3) 29 18
Allowance for loan losses 2,869 1,741 1,276 1,014 816
---------------- ------------- -------------- -------------- ---------------
Total loans, net $ 287,859 $ 246,018 $ 199,575 $ 170,865 $ 165,696
================ ============= ============== ============== ===============
(1) Commercial business loans are made on both a secured and unsecured basis
primarily to small businesses and professional organizations within the
Company's primary market area. These loans are not secured by the borrower's
real estate.
(2) Equity lines of credit and home improvement loans are secured by the
principal residence of the borrower.
(3) Includes home improvement, education and unsecured personal loans.
5
Loan Maturity Schedule
The following table sets forth certain information at December 31, 2000,
regarding the dollar amount of loans maturing in the Company's portfolio based
on their contractual terms to maturity. Demand loans and loans having no stated
schedule of repayments and no stated maturity are reported as due in one year or
less. Adjustable and floating-rate loans are shown as being due in the period in
which interest rates are next scheduled to adjust. Fixed rate loans are shown as
being due in the period in which the contractual repayment is due.
(Dollars in thousands)
Within one One through Beyond
year five years five years Total
---------------------------------------------------------------
Residential real estate
mortgages:
Adjustable $2,503 $57,330 $4,289 $64,122
Fixed 868 18,279 17,809 36,956
Second mortgages 15 529 221 765
Consumer 150 17,079 9,417 26,646
Commercial business and
commercial real estate 11,981 104,066 49,798 165,845
-------------- --------------- ----------------- ------------
Total $15,517 $197,283 $ 81,534 $ 294,334
============== =============== ================= ============
6
The following table sets forth the dollar amount of all loans due after
December 31, 2000, which have either a) fixed rates or b) floating or adjustable
interest rates.
Predetermined Floating or
rates Adjustable Total
rates
----------------- ------------- -----------------
Residential real estate mortgage loans $ 37,722 $ 64,122 $101,844
Commercial business loans, secured and unsecured 86,561 79,283 165,844
Consumer 21,082 5,564 26,646
----------------- ------------- -----------------
Total $ 145,365 $ 148,969 $294,334
================= ============= =================
Residential Real Estate Loans. The Company originates one-to-four
family, owner-occupied, residential mortgage loans secured by property located
in the Company's market area primarily for sale in the secondary market. The
majority of the Company's residential mortgage loans consists of loans secured
by owner-occupied, single family residences. At December 31, 2000, the Company
had $91.3 million, or 31.0 percent of its total loan portfolio, invested in
loans secured by one-to-four family residences.
The Company currently offers residential mortgage loans for terms up to
30 years, with adjustable or fixed interest rates. Origination of fixed-rate
mortgage loans versus ARM loans is monitored continuously and is affected
significantly by the level of market interest rates, customer preference, and
loan products offered by the Company's competitors. Therefore, even if
management's strategy is to emphasize ARM loans, market conditions may be such
that there is greater demand for fixed-rate mortgage loans.
The primary purpose of offering ARM loans is to make the Company's loan
portfolio more interest rate sensitive. However, as the interest income earned
on ARM loans varies with prevailing interest rates, such loans do not offer the
Company predictable cash flows as would long-term, fixed-rate loans. ARM loans,
however, can carry increased credit risk associated with potential higher
monthly payments by borrowers as general market interest rates increase. It is
possible, therefore, that during a period of rising interest rates, the risk of
default on ARM loans may increase due to the upward adjustment of interest costs
to the borrower.
The Company's fixed-rate mortgage loans are amortized on a monthly
basis with principal and interest due each month. Residential real estate loans
often remain outstanding for significantly shorter periods than their
contractual terms because borrowers may refinance or prepay loans at their
option.
The Company's ARM loans generally adjust annually with interest rate
adjustment limitations of two percentage points per year and six percentage
points over the life of the loan. The Company also makes ARM loans with interest
rates that adjust every one, three or five years. Under the Company's current
practice, the interest rate on new ARM loans is initially derived from the
one-year, three-year or five-year U.S. Treasury Constant Maturity Index plus a
spread. The Company's policy is to qualify borrowers for ARM loans based on the
fully indexed rate of the ARM loan. That is, a borrower is qualified for an ARM
loan by evaluating the borrower's ability to service the loan at an interest
rate equal to the maximum annual rate increase added to the current index. ARM
loans totaled $64.1 million, or 21.8 percent of the Bank's total loan portfolio
at December 31, 2000.
The Company has used different indices for its ARM loans such as the
National Average Median Cost of Funds, the Sixth District Net Cost of Funds
Monthly Index, the National Average Contract Rate for Previously Occupied Homes,
the Average three year Treasury Bill Rate, and the Eleventh District Cost of
Funds. Consequently, the adjustments in the Company's portfolio of ARM loans
tend not to reflect any one particular change in any specific interest rate
index, but general interest rate trends overall.
7
Regulations limit the amount that a bank may lend via conforming loans
qualifying for sale in the secondary market in relationship to the appraised
value of the real estate securing the loan, as determined by an appraisal at the
time of loan origination. Such regulations permit a maximum loan-to-value ratio
of 95 percent for residential property and from 65 to 90 percent for all other
real estate related loans. The Company's lending policies, however, generally
limit the maximum loan-to-value ratio on both fixed-rate and ARM loans to 80
percent of the lesser of the appraised value or the purchase price of the
property to serve as security for the loan, unless insured by a private mortgage
insurer.
The Company occasionally makes real estate loans with loan-to-value
ratios in excess of 80 percent. For real estate loans with loan-to-value ratios
of between 80 and 90 percent, the Company requires the first 20 percent of the
loan to be covered by private mortgage insurance. For real estate loans with
loan-to-value ratios of between 90 percent and 95 percent, the Company requires
private mortgage insurance to cover the first 25 to 30 percent of the loan
amount. The Company requires fire and casualty insurance, as well as title
insurance or an opinion of counsel regarding good title, on all properties
securing real estate loans made by the Company.
Construction Loans. The Company originates loans to finance the
construction of owner-occupied residential property. At December 31, 2000, the
Company had $10.6 million or 3.6 percent of its total gross loan portfolio
invested in interim construction loans. The Company makes construction loans to
private individuals for the purpose of constructing a personal residence or to
local real estate builders and developers. Construction loans generally are made
with either adjustable or fixed-rate terms of up to six months. Loan proceeds
are disbursed in increments as construction progresses and as inspections
warrant. Construction loans are structured to be converted to permanent loans
originated by the Company at the end of the construction period or to be
terminated upon receipt of permanent financing from another financial
institution.
Commercial Real Estate Loans. Loans secured by commercial real estate
constituted approximately $76.2 million, or 25.9 percent, of the Company's total
gross loan portfolio at December 31, 2000. The Company's permanent commercial
real estate loans are secured by improved property such as offices, small
business facilities, apartment buildings, nursing homes, warehouses and other
non-residential buildings, most of which are located in the Company's primary
market area and most of which are to be used or occupied by the borrowers.
Commercial real estate loans have been offered at adjustable interest rates and
at fixed rates with balloon provisions at the end of the term financing. The
Company continues to originate commercial real estate loans, commercial real
estate construction loans and land loans.
Loans secured by commercial real estate generally involve a greater
degree of risk than residential mortgage loans and carry larger loan balances.
This increased credit risk is a result of several factors, including the
concentrations of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income producing properties, and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by multifamily and commercial real
estate is typically dependent upon the successful operation of the related real
estate project. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired. The Company has increased its
origination of multi-family residential or commercial real estate loans over the
last few years, but believes, based on currently available information, that it
is adequately protected against the increased credit risk associated with these
loans through its underwriting standards of imposing stringent loan-to-value
ratios, requiring conservative debt coverage ratios, and continually monitoring
the operation and physical condition of the collateral.
Commercial Business Loans. The Company also originates non-real estate
related business loans to local small businesses and professional organizations.
Commercial business loans accounted for approximately $89.7 million or 30.5
percent of the Company's loan portfolio as of December 31, 2000. This type of
commercial loan has been offered at both variable rates and fixed rates with
balloon payments required at maturity.
8
The Company has increased its origination of commercial business loans
over the last few years. Such loans generally have shorter terms and higher
interest rates than mortgage loans. However, commercial business loans also
involve a higher level of credit risk because of the type and nature of the
collateral.
Consumer Loans. The principal types of consumer loans offered by the
Company are equity lines of credit, auto loans, home improvement loans, and
loans secured by deposit accounts. As of December 31, 2000, consumer loans
totaled $26.6 million or 9.1 percent of the Company's total loan portfolio.
Equity lines of credit are predominately made at rates which adjust periodically
and are indexed to the prime rate. Some consumer loans are offered on a
fixed-rate basis depending upon the borrower's preference. The Company's equity
lines of credit are generally secured by the borrower's principal residence and
a personal guarantee. At December 31, 2000, equity lines of credit totaled $14.0
million, or 52.6 percent of consumer loans.
The underwriting standards employed by the Company for consumer loans
include a determination of the applicant's credit history and an assessment of
ability to meet existing obligations and payments on the proposed loan. The
stability of the applicant's monthly income may be determined by verification of
gross monthly income from primary employment, and additionally from any
verifiable secondary income. Credit worthiness of the applicant is of primary
consideration, however. The underwriting process also includes a comparison of
the value of the security in relation to the proposed loan amount.
Loan Solicitation and Processing. Loan originations are derived from a
number of sources such as loan sales staff, real estate broker referrals,
existing customers, borrowers, builders, attorneys and walk-in customers.
Processing procedures are affected by the type of loan requested and whether the
loan will be funded by the Company or sold into the secondary market.
Mortgage loans that are sold into the secondary market are submitted,
when possible, for Automated Underwriting, which allows for faster approval and
an expedited closing. Our responsibility on these loans is the fulfillment of
the loan purchaser's requirement. These loans often have reduced underwriting
features and may be made without an appraisal or credit report at the option of
the purchaser. A review signature is required to signify compliance with the
terms of our commitment. Loans that are reviewed in a more traditional manner,
which are mostly loans held for the Company's own portfolio, require credit
reports, appraisals, and income verification before they are approved or
disapproved. These loans must be reviewed by two designated Company officials
who then make a decision on whether to extend credit. Loans funded by the
Company that exceed GNMA maximum loan values require approval by the President
of the subsidiary bank extending the loan. Private mortgage insurance is
required on all loans with a ratio of loan to appraised value of greater than
80%. Property insurance and flood certifications are required on all real estate
loans.
Installment loan documentation varies by the type of collateral offered
to secure the loan. In general, an application and credit report is required
before a loan is submitted for underwriting. The underwriter determines the
necessity of any additional documentation, such as income verification or
appraisal of collateral. An authorized loan officer approves or disapproves the
loan after review of all applicable loan documentation collected during the
underwriting process.
Commercial loans are underwritten by the commercial loan officer who
makes the initial contact with the customer applying for credit. The
underwriting of these loans are reviewed after the fact for compliance to the
Company's general underwriting standards. Loans exceeding the authority of the
underwriting loan officer are presented to a loan committee for approval or
disapproval.
Loan Commitments. The Company issues standby loan origination
commitments to qualified borrowers primarily for the construction and purchase
of residential real estate and commercial real estate. Such commitments are made
with specified terms and conditions for periods of up to 60 days, during which
time the interest rate is locked-in. If a loan is not scheduled to close
immediately after approval, the Company charges a fee for a loan commitment
based on a percentage of the loan amount. The loan commitment fee is credited
towards the closing costs of the loan if the borrower receives the loan from the
Company. If the potential borrower chooses to borrow funds from another
institution, the commitment fee is nonrefundable. At December 31, 2000, the
Company had commitments to originate loans of $2.2 million, as well as
commitments to fund the undisbursed portion of construction loans in process of
$3.6 million and commitments to fund commercial and personal lines of credit of
$86.1 million.
9
Loan Origination and Other Fees. In addition to interest earned on
loans, the Company generally receives loan origination fees. The Financial
Accounting Standards Board (FASB) issued SFAS No. 91 in December 1986 that deals
with the accounting for non-refundable fees and costs associated with
originating or acquiring loans. To the extent that loans are originated or
acquired for the portfolio, SFAS No. 91 requires that the Company defer loan
origination fees and costs and amortize such amounts as an adjustment of yield
over the life of the loan by use of the level yield method. Fees and costs
deferred under SFAS No. 91 are recognized in income immediately upon the sale of
the related loan. At December 31, 2000, the Company had $29,000 of outstanding
net deferred loan fees and costs.
In addition to loan origination fees, the Company also receives other
fees and service charges that consist primarily of late charges and loan
servicing fees on loans sold. The Company recognized loan servicing fees on
loans sold and late charges of $222,000, $204,000, and $203,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Loan origination and commitment fees are volatile sources of income.
Such fees vary with the volume and type of loans and commitments made and
purchased and with competitive conditions in the mortgage markets, which in turn
respond to the demand and availability of money.
Loans to One Borrower. Current Indiana regulations limit loans to one
borrower in an amount equal to 15 percent of unimpaired capital and unimpaired
surplus on an unsecured basis, and an additional amount equal to 10 percent of
unimpaired capital and unimpaired surplus if the loan is secured by readily
marketable collateral (generally, financial instruments, but not real estate).
The Company's Indiana subsidiaries had maximum loan to one borrower limits of
approximately $4.3 million and $1.2 million at December 31, 2000, for CBSI and
HBSI, respectively. Kentucky law limits loans or other extensions of credit to
any borrower to 20% of CBKY's paid-in capital and actual surplus. Such limit is
increased to 30% if the borrower provides collateral with a cash value exceeding
the amount of the loan. Loans or extensions of credit to certain borrowers are
aggregated, and loans secured by certain government obligations are exempt from
these limits. At December 31, 2000, the maximum which CBKY could lend to any one
borrower equaled $1.4 million uncollateralized and $2.1 million if the borrower
provided collateral. The Company's subsidiaries are in compliance with the
loans-to-one borrower limitations.
Delinquencies. The Company's collection procedures provide that when a
loan is 15 days past due, a late charge is added and the borrower is contacted
by mail and payment is requested. If the delinquency continues, subsequent
efforts are made to contact the delinquent borrower. Additional late charges may
be added and, if the loan continues in a delinquent status for 90 days or more,
the Company generally initiates foreclosure proceedings.
Non-Performing Assets and Asset Classification. Loans are reviewed on a
regular basis and are placed in a non-accrual status when, in the opinion of
management, the collection of additional interest is doubtful. Residential and
commercial mortgage loans are placed on non-accrual status generally when either
principal or interest is 90 days or more past due and management considers the
interest uncollectible, or when the Company commences foreclosure proceedings.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income.
Real estate acquired by the Company as a result of foreclosure or by
deed in lieu of foreclosure is classified as real estate owned ("REO") until
such time as it is sold. When REO is acquired, it is recorded at the lower of
the unpaid principal balance of the related loan or its fair market value, less
costs to sell. After the date of acquisition, all costs incurred in maintaining
the property are expensed and costs incurred for the improvement or development
of such property are capitalized up to the extent of their fair value. At
December 31, 2000, the Company did not own any property acquired as the result
of foreclosure or by deed in lieu or foreclosure.
10
The following table sets forth information regarding non-accrual loans
and other non-performing assets at the dates indicated. At December 31, 2000,
the Company had no restructured loans within the meaning of SFAS No. 15. It is
the Company's policy to generally not accrue interest on loans delinquent more
than 90 days.
At December 31,
---------------
(In thousands)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Loans accounted for on a non-
accrual basis:
Residential mortgage loans $ 180 $ 24 $ 102 $ 294 $ 1,557
Commercial real estate 862 120 368 - -
Consumer 10 1 - 22 -
------------ ------------ ------------- ------------- -------------
Total $ 1,052 $ 145 $ 470 $ 316 $ 1,557
============ ============ ============= ============= =============
Non-accrual loans as a
percentage of total gross loans 0.36% 0.06% 0.23% 0.18% 0.93%
============ ============ ============= ============= =============
Foreclosed real estate (1) $ - $ 13 $ 200 $ 724 $ 101
============ ============ ============= ============= =============
(1) Represents the book value of property acquired by the Company through
foreclosure or deed in lieu of foreclosure. Foreclosed real estate acquired
through foreclosure or deed in lieu of foreclosure is recorded at the lower of
its fair value less estimated cost to sell or cost.
11
The following is a summary of gross interest income that would have
been recorded if all loans accounted for on a non-accrual basis were current in
accordance with their original terms and gross interest income that was actually
recorded during the periods.
Year Ended December 31,
(In thousands)
2000 1999 1998
---- ---- ----
Interest income that would
have been recorded if all non-accrual
loans were on a current basis $ 34 $ 11 $ 28
============ ============ =============
Interest income actually recorded $ - $ - $ -
============ ============ =============
The following table sets forth information with respect to loans which
are still accruing interest but are contractually past due 90 days or more at
December 31, 2000:
At December 31, 2000 Number of loans
-------------------------- ---------------------
(In thousands)
Residential real estate $ 17 3
Commercial real estate and business 259 5
Consumer loans 868 6
-------------------------- ---------------------
Total $ 1,144 14
========================== =====================
Classified Assets. Loans and other assets such as debt and equity
securities considered to be of lesser quality are classified as "substandard" or
"impaired" assets. A loan or other asset is considered substandard if it is
inadequately protected by the current net worth and paying capacity of the
obligor and by the collateral pledged, if any. "Substandard" assets include
those characterized by the "distinct possibility" that the Bank will sustain
"some loss" if the deficiencies are not corrected. For debt and equity
securities, permanent impairments in value are recognized by a write-down of the
security to fair value with a corresponding charge to other income.
12
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" which requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate, or if expedient, at the loan's observable
market price or the fair value of collateral if the loan is collateral
dependent. A loan is classified as impaired by management when, based on current
information and events, it is probable that the Bank will be unable to collect
all amounts due in accordance with the terms of the loan agreement. If the fair
value, as measured by one of these methods, is less than the recorded investment
in the impaired loan, the Bank establishes a valuation allowance with a
provision charged to expense. Management reviews the valuation of impaired loans
on a monthly basis to consider changes due to the passage of time or revised
estimates. Assets that do not expose the Banks to risk sufficient to warrant
classification in one of the aforementioned categories, but which poses some
weaknesses, are required to be designated "special mention" by management.
An insured institution is required to establish and maintain an
allowance for loan losses at a level that is adequate to absorb estimated credit
losses associated with the loan portfolio, including binding commitments to
lend. General allowances represent loss allowances that have been established to
recognize the inherent risk associated with lending activities.
When an insured institution classifies problem assets as "loss," it is
required either to establish an allowance for losses equal to 100% of the amount
of the assets, or charge off the classified asset. The amount of its valuation
allowances is subject to review by the FDIC, which can order the establishment
of additional general loss allowances. The Banks regularly review the loan
portfolio to determine whether any loans require classification in accordance
with applicable regulations.
At December 31, 2000, the Banks had $5.2 million classified as special
mention assets, $6.0 million classified as substandard assets, and $958,000
classified as impaired assets.
Allowance for Loan Losses. Management's policy is to provide for
estimated losses in the Banks' loan portfolio based on management's evaluation
of the probable losses that may be incurred. The allowance for loan losses is
maintained at a level believed adequate by management to absorb credit losses
inherent in the portfolio. Such evaluation, which includes a review of all loans
for which full collectibility of interest and principal may not be reasonably
assured, considers, among other matters, the estimated fair market value of the
underlying collateral, past loss experience, volume, growth, and composition of
the portfolio.
13
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Banks' allowance for loan losses at the
dates indicated.
At
December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands)
Total loans outstanding $ 287,859 $ 246,018 $ 199,575 $ 170,865 $ 165,696
Average loans outstanding 285,470 224,119 193,725 169,651 156,895
Balance at beginning of period $ 1,741 $ 1,276 $ 1,014 $ 816 $ 700
Adjustment to conform pooled
affiliate's fiscal year end - - 8 - -
Provisions
Residential 75 100 88 86 68
Commercial 1,034 508 242 132 17
Consumer 88 46 24 8 43
---------------- ------------- -------------------------------------------
1,197 654 354 226 128
---------------- ------------- -------------------------------------------
Charge-offs
Residential - (24) (32) (11) -
Commercial (52) (136) (52) (10) -
Consumer (17) (31) (20) (13) (16)
---------------- ------------- -------------------------------------------
(69) (191) (104) (34) (12)
---------------- ------------- -------------------------------------------
Recoveries
Residential - - 1 - 4
Commercial - - 3 - -
Consumer - 2 - 6 -
---------------- ------------- ------------ ------------- -------------
- 2 4 6 4
---------------- ------------- ------------ ------------- -------------
Balance at end of period $ 2,869 $ 1,741 $ 1,276 $ 1,014 $ 816
================ ============= ============ ============= =============
Allowance for loans losses as a percent
of total loans outstanding .97% .69% .64% .59% .49%
Net loans charged off as a percent
of average loans outstanding .02% .08% .05% .02% .01%
14
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation to the allowance by category is not necessarily indicative of future
losses and does not restrict the use of the allowance to absorb losses in any
category.
At December 31,
2000 1999 1998 1997 1996
(Dollars in thousands)
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
Residential loans $172 34.60% $501 40.90% $425 51.90% $360 64.20% $358 43.90%
Commercial loans 2,496 56.30% 1,126 52.20% 754 41.20% 561 29.00% 393 48.20%
Consumer loans 201 9.10% 114 6.97% 97 6.90% 93 6.80% 65 8.00%
Total $2,869 100.00% $1,741 100.00% $1,276 100.00% $1,014 100.00% $816 100.00%
Investment Activities
In 2000, the Company has sought to decrease the percentage of its
assets invested in securities issued or guaranteed by the U.S. Government or an
agency thereof. The emphasis on reducing the Company's investment portfolio has
been to (i) improve the Banks' interest rate sensitivity by reducing the average
term to maturity of the Banks' assets, (ii) improve liquidity, and (iii)
effectively reinvest excess funds.
Each subsidiary banks' investment securities portfolio is managed by
the president of each bank in accordance with a comprehensive investment policy
which addresses strategies, types and levels of allowable investments and which
is reviewed and approved by the Board of Directors on an annual basis. The
management of the investment securities portfolio is set in accordance with
strategies developed by the Company's Asset and Liability Committee. The
Company's investment securities currently consist primarily of U.S. government
and agency securities.
Liquidity levels may be increased or decreased depending upon a) management's
projections as to the short term demand for funds to be used in each Banks' loan
origination and other activities, b) upon the yields on available investment
alternatives and its expectation of yields that will be available in the future,
and c) management's projections as to the short term demand for funds to be used
in each Banks' loan origination and other activities. To increase effective
liquidity the Company transferred it's entire portfolio of held-to-maturity
securities into the available-for-sale category persuant to its adoption of SFAS
133, Accounting for Derivative Instruments and Hedging Activities effective
October 1, 2000.
15
Securities Analysis
The following table sets forth the securities portfolio as of
December 31 for the years indicated.
2000 1999 1998
------------------------- -------------------------- ----------------------------
Weighted Weighted Weighted
Fair Amortized Average Fair Amortized Average Fair Amortized Average
Value Cost Yield Value Cost Yield Value Cost Yield
----- ---- ----- ----- ---- ----- ----- ---- -----
Securities Held to Maturity (1)
Debt securities:
Federal Agency:
Due in one year or less - - 0.00% $994 $1,000 5.00% $994 1,000 2.95%
Due after one year through five years - - 0.00% 3,833 4,000 6.00% 2,979 3,000 5.57%
Due after five years through ten years - - 0.00% 37,677 40,170 6.44% 39,151 39,174 6.49%
Due after ten years - - 0.00% 19,212 21,085 6.78% 16,006 16,085 6.61%
Municipal
Due in one year or less - - 0.00% - - 0.00% - - 0.00%
Due after one year through five years - - 0.00% 622 630 4.45% 640 633 4.05%
Due after five years through ten years - - 0.00% - - 0.00% - - 0.00%
Due after ten years - - 0.00% 3,558 3,626 5.50% 2,806 2,696 5.59%
Corporate - - 0.00% 953 1,010 7.20% - - 0.00%
Mortgage backed securities (3) - - 0.00% 25,056 26,388 6.46% 29,197 29,194 6.31%
---------------------------- -------------------------- ---------------------------
Total securities held to maturity - - 0.00% $91,905 $97,909 6.45% $91,773 $91,782 6.34%
============================ ========================== ===========================
Securities available for sale(2)
Federal Agency $54,572 $55,755 6.47% $- - 0.00% - - 0.00%
Mortgage backed securities (3) 23,651 23,954 6.54% 4,057 4,182 6.93% $666 $666 6.38%
Municipal (All due after ten yrs) 7,219 7,136 5.31% 2,371 2,630 5.00% - - 0.00%
Corporate 994 1,004 6.55% - - 0.00% - - 0.00%
Common stock - - 0.00% - - 0.00% 250 250 N/A
---------------------------- -------------------------- ---------------------------
Total securities available for sale $86,436 $87,849 6.41% $6,428 $6,812 6.19% $916 $916 6.38%
Restricted equity securities
FHLB stock $7,601 $7,601 8.16% $7,362 $7,362 8.00% $3,346 $3,346 8.00%
(1) Securities held to maturity are carried at amortized cost.
(2) Securities available for sale are carried at fair value.
(3) The expected maturities of mortgage-backed securities may differ from
contractual maturities because the mortgages underlying the obligations may be
prepaid without penalty.
16
Sources of Funds
General. The major source of funds for the Company is dividends from
its subsidiary Bank, which are limited by FDIC regulations. See "Limitations of
Capital Distributions." The following discusses the sources of funds for the
Banks. Deposits are the major source of the Banks' funds for lending and other
investment purposes. In addition to deposits, the Banks derive funds from the
amortization and prepayment of loans and mortgage-backed securities, the sale or
maturity of investment securities, and continuing operations. Advances from the
FHLB of Indianapolis are an additional source of funding for CBSI and HBSI,
while the FHLB of Cincinnati is utilized for advances for CBKY. Scheduled loan
principal repayments are a relatively stable source of funds, while deposit
inflows and outflows and loan prepayments are significantly influenced by
general interest rates and market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources or on a longer-term basis for general business purposes.
Deposits. Consumer and commercial deposits are attracted principally
from within the Banks' primary market area through the offering of a broad
selection of deposit instruments including checking, regular savings, money
market deposit, term certificate accounts (including negotiated jumbo
certificates in denominations of $100,000 or more) and individual retirement
accounts. Deposit account terms vary according to the minimum balance required,
the time periods the funds must remain on deposit and the interest rate, among
other factors. The Banks regularly evaluate the internal cost of funds, survey
rates offered by competing institutions, review cash flow requirements for
lending and liquidity, assess the interest rate risk position, and execute rate
changes when deemed appropriate. The Banks do not obtain funds through brokers,
nor do they actively solicit funds outside their primary market area.
Jumbo certificates of deposit with principal amounts of $100,000 or more
constituted $45.9 million, or 17.8 percent of the Company's total deposit
portfolio at December 31, 2000. Jumbo deposits include deposits from various
business entities, individuals and local governments and authorities. Jumbo
deposits make the Banks susceptible to large deposit withdrawals if one or more
depositors withdraw deposits. Such withdrawals may adversely impact the Banks'
cost of funds, liquidity and funds available for lending. However, as part of
the Banks' asset/liability management strategy, each entity and the Company as a
whole attempts to reduce this risk by matching the maturities of its jumbo
deposits with the maturities or repricing intervals of a similar amount of
assets such as investment securities or mortgage-backed securities.
The table below presents the average balance, interest expense, and average rate
paid by period for each major deposit category.
Year Ended December 31,
------------------------------------------------------------------
2000 1999 1998
--------------------- ------------------ ----------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Cost Balance Cost Balance Cost
------- ---- ------- ---- ------- ----
(Dollars in Thousands)
Deposits:
Demand deposits 53,112 2.39% 52,355 2.48% 37,843 2.31%
Savings 44,935 4.22 40,940 36,616 3.21
3.48
Time 144,125 6.07 125,988 129,407 5.62
5.22
----------- ----------- ----------
Total deposits 242,172 4.73 219,283 4.24 203,866 4.58
===================== =================== =====================
17
Time Deposits. The following table indicates the amount of jumbo
certificates of deposits (i.e. $100,000 or greater balance) by time remaining
until maturity as of December 31, 2000.
Certificates
Maturity Period of Deposits
--------------- -----------
(in thousands)
Three months or less $ 16,927
Three through six months 4,640
Six through twelve months 11,583
Over twelve months 12,720
--------------
Total $45,870
==============
In the unlikely event of liquidation of either of the Banks, depositors
will be entitled to full payment of their deposit accounts prior to any payment
being made to the Company as sole stockholder of the Banks.
Borrowings. Deposits are the primary source of funds of the Banks'
lending and investment activities and for its general business purposes. The
Banks, if the need arises, may rely upon advances from the Federal Home Loan
Banks (FHLB) of Indianapolis and Cincinnati as well as the Federal Reserve Bank
discount window to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. Advances from the FHLB are secured by a blanket
collateral pledge of the unpaid principal balance of permanent 1-4 family
residential mortgage loans, the outstanding balance of U.S. Government and
Agency securities (including FHLMC, FNMA, and GNMA mortgage-backed securities),
and the outstanding balance of securities representing a whole interest in 1-4
family residential mortgage loans. At December 31, 2000, the Banks had $91.8
million in advances outstanding from the FHLB's of Indianapolis and Cincinnati.
Of the $91.8 million in advances outstanding, $89 million were putable advances
whereby the Federal Home Loan Bank will automatically convert the fixed rate
advance to a variable rate should the market interest rate exceed a
predetermined strike rate.
The FHLB system functions as a central reserve bank providing credit
for the Banks and other member financial institutions. All members are required
to own capital stock in the FHLB and are authorized to apply for advances on the
security of such stock and certain of its home mortgages and other assets
(principally, securities which are obligations of, or guaranteed by, the United
States) provided certain standards related to creditworthiness have been met.
Advances are made pursuant to several different programs. Each credit program
has its own interest rate and range of maturities.
Short-term Borrowings. The Banks also obtain funds through the offering
of retail repurchase agreements. Retail repurchase agreements represent
overnight borrowings from deposit customers secured by debt securities under the
control of the Banks. As of December 31, 2000, the Banks had $22.5 million of
retail repurchase agreements outstanding. In the event of a need for funds in an
overnight capacity, HBSI maintains a $500,000 line of credit with the FHLB of
Indianapolis.
18
The following table sets forth certain information regarding borrowings
by the Company at the end of and during the periods indicated:
At December 31,
---------------
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Weighted average rate paid on:
FHLB advances 6.00% 5.54% 5.11%
Retail repurchase agreements 5.82% 4.79% 4.10%
Amount of retail repurchase agreements $22,547 $28,182 $19,499
During the Year Ended
December 31,
------------
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Weighted average rate paid on:
Retail repurchase agreements 5.57% 4.25% 3.36%
Maximum amount of borrowings outstanding
at any month end:
FHLB Advances $99,000 $87,750 $56,000
Retail repurchase agreements $25,636 $30,488 $19,499
Approximate average short-term borrowings outstanding with respect to:
FHLB Advances $94,220 $70,841 $40,081
Retail repurchase agreements $21,688 $21,907 $15,009
Personnel
As of December 31, 2000, the Company had 123 full-time employees. CBSI
employed 41 full-time and 6 part-time employees. HBSI employed 15 full-time and
1 part-time employee as of December 31, 2000. Finally, CBKY employed 12
full-time and 2 part-time employees as of December 31, 2000. None of these
entity's employees are represented by a collective bargaining group. The Company
and three subsidiary Banks believe their respective relationships with their
employees to be good.
Regulation and Supervision
As a bank holding company, the Company is regulated under the Bank
Holding Company (BHC) Act of 1956, as amended (the "Act"). The Act limits the
business of bank holding companies to banking, managing or controlling banks and
other subsidiaries authorized under the act, performing certain servicing
activities for subsidiaries and engaging in such other activities as the Federal
Reserve Board may determine to be closely related to banking. The Company is
registered with and is subject to regulation by the Federal Reserve. Among other
things, applicable statutes and regulations require the Company to file an
annual report and such additional information as the Federal Reserve Board may
require pursuant to the Act and the regulations which implement the Act. The
Federal Reserve Board also conducts examinations of the Company.
19
The Act provides that a bank holding company must obtain the prior
approval of the Federal Reserve to acquire more than 5 percent of the voting
stock or substantially all the assets of any bank or bank holding company. The
Company currently has no formal agreement or commitments about any such
transaction. However, the Company evaluates opportunities to invest in or
acquire other banks or bank holding companies as they arise and may engage in
these transactions in the future. The Act also provides that, with certain
exceptions, a bank holding company may not (i) engage in any activities other
than those of banking or managing or controlling banks and other authorized
subsidiaries or (ii) own or control more than 5 percent of the voting shares of
any company that is not a bank, including any foreign company. In addition, the
Federal Reserve Act restricts the Bank's extension of credit to the Company.
A bank holding company is permitted, however, to acquire shares of any
company, the activities of which the Federal Reserve has determined to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. The Federal Reserve's regulations state specific activities
that are permissible under that exception. The Company does not currently have
any agreements or commitments to engage in any nonbanking activities.
In approving acquisitions by bank holding companies of banks and
companies engaged in banking-related activities, the Federal Reserve considers
whether any such activity by an affiliate of the holding company can reasonably
be expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh any possible
adverse effects such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. The Federal
Reserve has cease-and-desist powers over parent holding companies and nonbanking
subsidiaries if their actions constitute a serious threat to the safety,
soundness, or stability of a subsidiary bank.
A bank holding company may also acquire shares of a company which
furnishes or performs services for a bank holding company and acquire shares of
the kinds and in the amounts eligible for investment by national banking
associations. In addition, under the financial modernization legislation enacted
by Congress in November 1999, a bank holding company that meets the eligibility
requirements and elects to be a financial holding company may engage in expanded
financial activities and acquire companies engaged in those activities, such as
securities underwriters and dealers and insurance companies. The Board of
Directors of the Company at this time has no plans for these investments or
broader financial activities.
On November 12, 1999, Congress enacted the Gramm-Leach-Bliley Act
(previously known as the Financial Services Modernization Act of 1999). The
Gramm-Leach-Bliley Act permits bank holding companies to qualify as "financial
holding companies" that may engage in a broad range of financial activities,
including underwriting, dealing in and making a market in securities; insurance
underwriting and agency activities; and merchant banking. The FRB is authorized
to expand the list of permissible financial activities. The Gramm-Leach-Bliley
Act also authorizes banks to engage through financial subsidiaries in nearly all
of the activities permitted for financial holding companies. The company has not
currently elected the status of financial holding company.
The Gramm-Leach-Bliley Act also imposes significant new financial
obligations and reporting requirements on banks as well as on other financial
institutions. Among other things, financial institutions are required to (a)
establish privacy policies and disclose them to customers both at the time of
establishing the customer relationship and on an annual basis, and (b) permit
customers to opt out of the financial institution's disclosure of customer
nonpublic personal information to third parties that are not affiliated with the
financial institution.
20
As state chartered commercial banks, CBSI, HBSI, and CBKY are subject
to examination, supervision and extensive regulation by the FDIC and their
respective Departments of Financial Institutions (DFI). CBSI and HBSI are
members of and own stock in the FHLB of Indianapolis, while CBKY is a member of
and owns stock in the FHLB of Cincinnati. The FHLB institutions located in
Indianapolis and Cincinnati are each one of the twelve regional banks in the
Federal Home Loan Bank System. CBSI, HBSI, and CBKY are also subject to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which governs reserves to be maintained against deposits and
regulates certain other matters. The extensive system of banking laws and
regulations to which the Banks are subject are intended primarily for the
protection of their customers and depositors, and not shareholders.
The FDIC and DFI regularly examine the Banks and prepare a report for
the consideration of each Bank's Board of Directors on any deficiencies that it
may find in the Bank's operations. Each Bank's relationship with its depositors
and borrowers also is regulated to a great extent by both federal and state
laws, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
Federal Regulation of Commercial Banks. The FDIC has extensive
authority over the operations of all insured commercial banks. As part of this
authority, the Banks are required to file periodic reports with the FDIC and DFI
and are subject to periodic examinations by both agencies. In the course of
these examinations the examiners may require the Banks to provide for higher
general loan loss reserves. (Financial institutions in various regions of the
United States have been called upon by examiners to write down assets to their
fair market values and to establish increased levels of reserves, primarily as a
result of perceived weaknesses in real estate values and a more restrictive
regulatory climate).
The investment and lending authority of a state-chartered bank is
prescribed by federal laws and regulations, and such banks are prohibited from
engaging in any activities not permitted by such laws and regulations. These
laws and regulations generally are applicable to all state chartered banks.
State banks are subject to the same current national bank limits on
maximum loans to one borrower. Generally, banks may not lend to a single or
related group of borrowers on an unsecured basis an amount in excess of the
greater of $500,000 or 15 percent of the bank's unimpaired capital and surplus.
An additional amount may be lent, equal to 10 percent of unimpaired capital and
surplus, if such loan is secured by readily marketable collateral, which is
defined to include certain securities, but generally does not include real
estate. See "Lending Activities -- Loans to One Borrower" for a discussion of
the effect of this requirement on the Banks.
Federal Regulations
Sections 22(h) and (g) of the Federal Reserve Act place restrictions on
loans to executive officers, directors and principal stockholders. Under Section
22(h), loans to a director, an executive officer and to a greater than 10%
stockholder of a bank, and certain affiliated interests of either, may not
exceed, together with all other outstanding loans to such person and affiliated
interests, the institution's loans to one borrower limit (generally equal to 15%
of the institution's unimpaired capital and surplus). Section 22(h) also
requires that loans to directors, executive officers and principal stockholders
be made on terms substantially the same as offered in comparable transactions to
other persons and also requires prior board approval for certain loans. In
addition, the aggregate amount of extensions of credit to all insiders cannot
exceed the institution's unimpaired capital and surplus. At December 31, 2000
the Banks were in compliance with the above restrictions.
Safety and Soundness. The FDI Act, as amended by the FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994, requires
the federal bank regulatory agencies to prescribe standards, by regulations or
guidelines, relating to the internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest-rate-risk
exposure, asset growth, asset quality, earnings, stock valuation and
compensation, fees and benefits and such other operational and managerial
standards as the agencies may deem appropriate. The federal bank regulatory
agencies adopted, effective August 9, 1995, a set of guidelines prescribing
safety and soundness standards pursuant to FDICIA, as amended. In general, the
guidelines require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the guidelines.
21
The last ratio concerning market value to book value was determined by the
agencies not to be feasible. Finally, the proposed compensation standard states
that compensation will be considered excessive if it is unreasonable or
disproportionate to the services actually performed by the individual being
compensated.
If an insured depository institution or its holding company fail to
meet any of the standards promulgated by regulation, then such institution or
company will be required to submit a plan within 30 days to the FDIC specifying
the steps it will take to correct the deficiency. In the event that an
institution or company fails to submit or fails in any material respect to
implement a compliance plan within the time allowed by the agency, Section 39 of
the FDIA provides that the FDIC must order the institution or company to correct
the deficiency and may (1) restrict asset growth; (2) require the institution or
company to increase its ratio of tangible equity to assets; (3) restrict the
rates of interest that the institution or company may pay; or (4) take any other
action that would better carry out the purpose of prompt corrective actions.
Regulatory Capital. The Company and subsidiary Banks are subject to
various regulatory capital requirements administered by the federal banking
agencies. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company must meet specific capital guidelines.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and subsidiaries to maintain minimum amounts and
ratios of total and Tier I capital to risk weighted assets and of Tier I capital
to average assets. As of December 31, 2000, the Company met all capital adequacy
requirements to which it is subject.
The following table sets forth the Company's capital position at
December 31, 2000, as compared to the minimum capital requirements.
Required
For Capital
Actual Adequacy Purposes: Excess
(Dollars in thousands) Amount Ratio Amount Ratio Amount
------ ----- ------ ----- ------
As of December 31, 2000
Total Capital (to Risk
Weighted Assets):
Consolidated $44,439 15.5% $22,903 8.0% $21,536
Tier I Capital (to Risk
Weighted Assets):
Consolidated $41,569 14.5% $ 11,451 4.0% $30,118
Tier I Capital (to Average
Assets):
Consolidated $41,569 9.9% $ 16,810 4.0% $24,759
The FDIC generally is authorized to take enforcement action against a
financial institution that fails to meet its capital requirements; Such action
may include restrictions on operations and banking activities, the imposition of
a capital directive, a cease and desist order, civil money penalties or harsher
measures such as the appointment of a receiver or conservator or a forced merger
into another institution. In addition, under current regulatory policy, an
institution that fails to meet its capital requirements is prohibited from
paying any dividends. Except under certain circumstances, further disclosure of
final enforcement action by the FDIC is required.
22
Prompt Corrective Action. Under Section 38 of the FDIA, as amended
by the Improvement Act, each federal banking agency was required to implement a
system of prompt corrective action for institutions which it regulates. The
federal banking agencies, including the FDIC, adopted substantially similar
regulations to implement Section 38 of the FDIA, effective as of December 19,
1992. Under the regulations, an institution is deemed to be (i)
"well-capitalized" if it has total risk-based capital of 10.0% or more, has a
Tier 1 risk-based capital ratio of 6.0% or more, has a Tier 1 leverage capital
ratio of 5.0% or more and is not subject to any order or final capital directive
to meet and maintain a specific capital level for any capital measure, (ii)
"adequately-capitalized" if it has a total risk-based capital ratio of 8.0% or
more, a Tier 1 risk-based capital ratio of 4.0% or more and a Tier 1 leverage
capital ratio of 4.0% or more (3.0% under certain circumstances) and does not
meet the definition of "well capitalized," (iii) "undercapitalized" if it has a
total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based
capital ratio that is less than 4.0% or a Tier 1 leverage capital ratio that is
less than 4.0% ( 3.0% under certain circumstances), (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, a Tier 1 risk-based capital ratio that is less than 3.0%, and (v)
"critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%. Section 38 of the FDIA and the
regulations promulgated thereunder also specify circumstances under which a
federal banking agency may reclassify a well capitalized institution as
adequately capitalized and may require an adequately capitalized institution or
an undercapitalized institution to comply with supervisory actions as if it were
in the next lower category (except that the FDIC may not reclassify a
significantly undercapitalized institution as critically undercapitalized). At
December 31, 2000, the Company and each of the subsidiary Banks was deemed
well-capitalized for purposes of the above regulations.
Federal Home Loan Bank System. CBSI and HBSI are both members of the
FHLB of Indianapolis, and CBKY is a member of the FHLB of Cincinnati. The FHLB
of Indianapolis and the FHLB of Cincinnati are each one of the 12 regional
FHLB's that, prior to the enactment of FIRREA, were regulated by the Federal
Home Loan Bank Board (FHLBB). FIRREA separated the home financing credit
function of the FHLB's from the regulatory functions of the FHLB's regarding
savings institutions and their insured deposits by transferring oversight over
the FHLB's from the FHLBB to a new federal agency, the Federal Home Financing
Board ("FHFB").
As members of the FHLB Banking system, CBSI, HBSI, and CBKY are
required to purchase and maintain stock in the FHLB of Indianapolis in an amount
equal to the greater of one percent of its aggregate unpaid residential mortgage
loans, home purchase contracts or similar obligations at the beginning of each
year, or 1/20 (or such greater fraction as established by the FHLB) of
outstanding FHLB advances. At December 31, 2000, $5.9 million, $900,000, and
$831,000 of FHLB stock were outstanding for CBSI, HBSI, and CBKY, respectively,
which was in compliance with this requirement. In past years, CBSI, HBSI, and
CBKY have received dividends on its FHLB stock.
Certain provisions of FIRREA require all 12 FHLB's to provide financial
assistance for the resolution of troubled savings institutions and to contribute
to affordable housing programs through direct loans or interest subsidies on
advances targeted for community investment and low-and moderate-income housing
projects. These contributions could cause rates on the FHLB advances to increase
and could affect adversely the level of FHLB dividends paid and the value of
FHLB stock in the future.
Each FHLB serves as a reserve or central bank for its members within
its assigned region. It is funded primarily from proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB. At December 31, 2000, the Company had $91.8 million in
advances from the FHLB.
Accounting. An FDIC policy statement applicable to all banks clarifies
and re-emphasizes that the investment activities of a bank must be in compliance
with approved and documented investment policies and strategies, and must be
accounted for in accordance with GAAP. Under the policy statement, management
must support its classification of and accounting for loans and securities
(i.e., whether held to maturity, available for sale or available for trading)
with appropriate documentation. The Bank is in compliance with these amended
rules.
23
Insurance of Accounts. Each Bank's deposits are insured up to $100,000
per insured member (as defined by law and regulation). Deposits of CBSI and CBKY
are insured by the Savings Association Insurance Fund (SAIF), while HBSI's
deposits are insured by the Bank Insurance Fund (BIF). This insurance is backed
by the full faith and credit of the United States Government. The SAIF and the
BIF are both administered and managed by the FDIC. As insurer, the FDIC is
authorized to conduct examinations of and to require reporting by SAIF and BIF
insured institutions. It also may prohibit any insured institution from engaging
in any activity the FDIC determines by regulation or order to pose a serious
threat to either fund. The FDIC also has the authority to initiate enforcement
actions against financial institutions. The annual assessment for deposit
insurance is based on a risk-related premium system. Each insured institution is
assigned to one of three capital groups, well capitalized, adequately
capitalized or under capitalized. Within each capital group, institutions are
assigned to one of three subgroups (A, B, or C) on the basis of supervisory
evaluations by the institution's primary federal supervisor and if applicable,
state supervisor. Assignment to one of the three capital groups, coupled with
assignment to one of three supervisory subgroups, will determine which of the
nine risk classifications is appropriate for an institution. Institutions are
assessed insurance rates based on their assigned risk classifications. The well
capitalized, subgroup "A" category institutions are assessed the lowest
insurance rate, while institutions assigned to the under capitalized subgroup
"C" category are assessed the highest insurance rate. As of December 31, 2000
the subsidiary banks were assigned to the well-capitalized, subgroup "A"
category. During 2000, CBSI, HBSI and CBKY paid an annual insurance rate of 2.1
cents per $100 of deposits.
In August 1995, the FDIC substantially reduced the deposit insurance
premiums for well-capitalized, well-managed financial institutions that are
members of the BIF. Under the new assessment schedule, approximately 92% of BIF
members paid a minimum assessment of $1,000 per year while SAIF members
continued to be assessed under the existing rate schedule of 23 cents to 31
cents per $100 of insured deposits.
On September 30, 1996, all SAIF member institutions were charged a
one-time assessment to increase SAIF's reserves to $1.25 per $100 of insured
deposits. The aggregate one-time assessment paid by CBSI and CBKY amounted to
$1.3 million with an after tax impact of approximately $779,000.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines, after a hearing, that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation,
order or any condition imposed by an agreement with the FDIC. The FDIC also may
suspend deposit insurance temporarily for any financial institution during the
hearing process for the permanent termination of insurance, if the Bank has no
tangible capital. If insurance of accounts is terminated, the insured accounts
at the institution at the time of the termination, less subsequent withdrawals,
shall continue to be insured for a period of six months to two years, as
determined by the FDIC.
The FDIC has passed regulations, under the Federal Deposit Insurance
Act, that generally prohibit payments to directors, officers and employees
contingent upon termination of their affiliation with an FDIC-insured
institution or its holding company (i.e., "golden parachute payments") if the
payment is received after or in contemplation of, among other things,
insolvency, a determination that the institution or holding company is in
"troubled condition", or the assignment of a composite examination rating of "4"
or "5" for the institution. Certain types of employee benefit plans are not
subject to the prohibition. The regulations, which are not currently applicable
to the Company, would also generally prohibit certain indemnification payments
regarding any administrative proceeding instituted against a person that results
in a final order pursuant to which the person is assessed civil money penalties
or subjected to other enforcement action. The Company has no such agreements
with any directors or employees.
The Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
and non-personal time deposits. As of December 31, 2000, no reserves were
required to be maintained on the first $5.0 million of transaction accounts,
reserves of 3% were required to be maintained against the next $42.8 million of
net transaction accounts (with such dollar amounts subject to adjustment by the
Federal Reserve Board), and a reserve of 10% (which is subject to adjustment by
the Federal Reserve Board to a level between 8% and 14%) against all remaining
net transaction accounts. Because required reserves must be maintained in the
form of vault cash or a non-interest-bearing account at a Federal Reserve Bank,
the effect of this reserve requirement is to reduce an institution's earning
assets.
24
Banks are authorized to borrow from the Federal Reserve Bank "discount
window," but Federal Reserve Board regulations require banks to exhaust other
reasonable alternative sources of funds, including FHLB advances, before
borrowing from the Federal Reserve Bank.
Federal Taxation. For federal income tax purposes, the Company and its
subsidiaries file a consolidated federal income tax return on a calendar year
basis. Consolidated returns have the effect of eliminating intercompany
distributions, including dividends, from the computation of consolidated taxable
income for the taxable year in which the distributions occur.
The Company and its subsidiaries are subject to the rules of federal
income taxation generally applicable to corporations under the Internal Revenue
Code of 1986, as amended (the "Code").
The Company is subject to the corporate alternative minimum tax which
is imposed to the extent it exceeds the Company's regular income tax for the
year. The alternative minimum tax will be imposed at the rate of 20 percent of a
specially computed tax base. Included in this base will be a number of
preference items, including the following: (i) 100 percent of the excess of a
financial institution's bad debt deduction over the amount that would have been
allowable on the basis of actual experience; (ii) interest on certain tax-exempt
bonds issued after August 7, 1986; and (iii) for years beginning in 1988 and
1989 an amount equal to one-half of the amount by which a institution's "book
income" (as specially defined) exceeds its taxable income with certain
adjustments, including the addition of preference items (for taxable years
commencing after 1989 this adjustment item is replaced with a new preference
item relating to "adjusted current earnings" as specially computed). In
addition, for purposes of the new alternative minimum tax, the amount of
alternative minimum taxable income that may be offset by net operating losses is
limited to 90 percent of alternative minimum taxable income.
The Company has not been audited by the Internal Revenue Service for
the past ten years.
Indiana Taxation. Effective January 1, 1990, the State of Indiana
imposed a franchise tax assessed on the net income (adjusted gross income as
defined in the statute) of financial institutions. The new tax replaced the
gross receipts tax, excise tax and supplemental net income tax imposed prior to
1990. This new financial institution's tax is imposed at the rate of 8.5 percent
of the Company's adjusted gross income. In computing adjusted gross income, no
deductions are allowed for municipal interest, U.S. Government interest and
pre-1990 net operating losses. The Company's state franchise tax returns have
been audited through the tax year ended December 31, 1997.
In 2000, the Indiana financial institution tax law was amended to
treat resident financial institutions the same as nonresident financial
institutions by providing for apportionment of Indiana income based on receipts
in Indiana. This revision allowed for the exclusion of receipts from out of
state sources and federal government and agency obligations. This change was
effective retroactively to January 1, 1999. The provision of income taxes for
2000 includes a credit of $88,927 in recognition of this change.
25
ITEM 2. PROPERTIES
The Company conducts its business through the main office located in
New Albany, Indiana, and eight branch offices of its subsidiaries CBSI and HBSI
located in Clark and Floyd Counties, Indiana, and two branch offices of its CBKY
subsidiary in Nelson County, Kentucky. The following table sets forth certain
information concerning the main offices and each branch office at December 31,
2000. The aggregate net book value of premises and equipment was $10.3 million
at December 31, 2000.
Owned or Leased
Location Year Opened
Community Bank of Southern Indiana:
101 West Spring St. - Main Branch 1999 Owned
New Albany, IN 47150
202 East Spring St. - Drive Thru for Main Branch 1937 Leased
New Albany, IN 47150
2626 Charlestown Road 1995 Owned
New Albany, IN 47150
480 New Albany Plaza 1974 Leased
New Albany, IN 47130
901 East Highway 131 1981 Owned
Clarksville, IN 47130
701 Highlander Point Drive 1990 Owned
Floyds Knobs, IN 47119
102 Heritage Square 1992 Owned
Sellersburg, IN 47172
Heritage Bank of Southern Indiana:
201 W. Court Ave. 1996 Owned
Jeffersonville, IN 4710
5112 Highway 62 1997 Owned
Jeffersonville, IN 47130
Community Bank of Kentucky:
106A West John Rowan Blvd. 1997 Owned
Bardstown, KY 40004
119 East Stephen Foster Ave. 1972 Owned
Bardstown, KY 40004
26
ITEM 3. LEGAL PROCEEDINGS
There are various claims and law suits in which the Company or its
subsidiaries are periodically involved, such as claims to enforce liens,
condemnation proceedings on properties in which the Banks hold security
interests, claims involving the making and servicing of real property loans and
other issues incident to the Banks' business. In the opinion of management, no
material loss is expected from any of such pending claims or lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
See page 22 of the Annual Report to Stockholders incorporated herein
as Exhibit 13, which is incorporated herein by reference to information under
the heading "Market Price of Community Bank Shares of Indiana, Inc. and Related
Shareholder Matters."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
See pages 8, 9 and 13 of the Annual Report to Stockholders incorporated
herein as Exhibit 13, which are incorporated herein by reference to information
under the headings "Financial Condition Data," "Key Operating Ratios," and
"Summary of Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See pages 6 - 22 of the Annual Report to Stockholders incorporated
herein as Exhibit 13, which are incorporated herein by reference to information
under the heading "Management's Discussion and Analysis."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See pages 21 -22 of the Annual Report to Stockholders incorporated
herein as Exhibit 13, which are incorporated herein by reference to information
under the heading "Market Risk Analysis."
ITEM 8. FINANCIAL STATEMENTS
See pages 26 - 54 of the 2001 Annual Report to Stockholders
incorporated herein as Exhibit 13, which are incorporated herein by reference to
information under the heading "AUDITOR'S REPORT."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
See page 23 of the Annual Report to Stockholders incorporated herein as
Exhibit 13, which are incorporated herein by reference to information under the
headings "Change In or Disagreements with Accountants".
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Information concerning Directors and executive officers of the Registrant
and reporting under Section 16 of the Securities Exchange Act of 1934 is
incorporated herein by reference to information under the headings "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on May 15, 2001.
27
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference to the information under the headings "Executive Compensation",
"Compensation of Directors", "Defined Benefit Pension Plans", "Defined
Contribution 401(k) Plan", "Employee Stock Ownership Plan", "Stock Incentive
Plan", "Employment Agreement" and "Compensation Committee Interlocks and Insider
Participation" in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 15, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning security ownership of certain owners and management
is incorporated herein by reference to the information under the heading
"Beneficial Ownership of Common Stock By Certain Beneficial Owners and
Management" in the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on May 15, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning relationships and transactions is incorporated
herein by reference to the information under the headings "Compensation
Committee Interlocks and Insider Participation", "Indebtedness of Management",
and "Other Transactions with Management and Related Parties" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 15, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements
The following information appearing in the Registrant's Annual Report to
Stockholders for the year ended December 31, 2000, is incorporated by reference
in this Annual Report on Form 10-K as Exhibit 13.
Page in Annual
Annual Report Section Report
Selected Financial Data 9, 10, 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 6 - 22
Change in or disagreements with Accountants 23
Independent Auditor's Report 26
Consolidated Balance Sheets as of December 31, 2000 and 1999 27
Consolidated Statement of Stockholders' Equity
for the years ended December 31, 2000, 1999 and 1998 28
Consolidated Statements of Income for the years ended
December 31, 2000, 1999, and 1998 29
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998 30
Notes to Consolidated Financial
Statements 31 - 54
28
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted as the required
information is inapplicable or the required information has been included in the
Consolidated Financial Statements or notes thereto.
(a) (3) Exhibits
Exhibit
Number Document
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.0 Common Stock Certificate * (1)
10.1 Employment Agreement with Dale L. Orem *
10.2 Retirement Agreement with Robert E. Yates *
10.3 Employment Agreement with Michael L. Douglas * (2)
10.4 Community Bank Shares of Indiana, Inc. 1997 Stock Incentive Plan * (3)
10.5 Community Bank Shares of Indiana, Inc. Dividend Reinvestment Plan * (4)
10.6 Employment Agreement with James T. Rickard * (5)
13.0 Annual Report to Security Holders
21.0 Subsidiaries of Registrant
23.0 Consent of Monroe Shine & Co., Inc.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Report pursuant to Item 601 of Regulation S-K.
(1) Incorporated herein by reference to Registration Statement on Form S-1 filed
December 9, 1994, (File No. 33-87228).
(2) Incorporated by reference to the Annual Report of Form 10-K filed March 30,
2000.
(3) Incorporated by reference from the exhibits filed with the Registration
Statement on Form S-8, and any amendments thereto, Registration statement No.
333- 60089.
(4) Incorporated by reference from the exhibits filed with the Registration
statement on Form S-3, and any amendments thereto, Registration Statement No.
333-40211.
(5) Incorporated by reference to the Annual Report of Form 10-K filed March 30,
2001.
29
(b) Reports on Form 8-K: A report of Form 8-K was filed on March 30, 2000,
announcing that the Company's Board of Directors of Community Bank Shares of
Indiana, Inc. (the "Company") authorized the repurchase of up to $4,000,000 of
the Company's outstanding common stock. A report of Form 8-K was filed on August
23, 2000, announcing Michael L.Douglas' resignation as President and CEO of
Community Bank Shares, Inc. (the "Company"). James D. Rickard was appointed the
new President and CEO of the Company. Mr. Douglas was to serve as Executive Vice
President and Chief Operating Officer for Community Bank Shares of Indiana, Inc.
and President and Chief Executive Officer for Community Bank until Douglas'
retirement in early 2001. A report on Form 8-K was filed on November 1, 2000,
announcing, under item 5 of that report, the appointment of the Company's Chief
Financial Officer, Paul A. Chrisco. Lastly, a report of form 8-K was also filed
on November 1, 2000, announcing, under item 5 of that report, that Michael L.
Douglas resigned from his duties as executive vice president, chief operating
officer, and director of Community Bank Shares of Indiana, Inc. effective
October 24, 2000. This resignation was in preparation for Mr. Douglas'
retirement from Community Bank Shares, which is slated to occur in May of 2001.
30
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMMUNITY BANK SHARES OF INDIANA, INC.
Date: March 30, 2001 By: \s\ James Rickard
-----------------
JAMES RICKARD
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: \s\ C. Thomas Young By: \s\ Timothy T. Shea
-------------------- -------------------
C. THOMAS YOUNG, TIMOTHY T. SHEA,
Chairman of the Board Vice Chairman of the Board
of Directors of Directors
Date: March 30,2001 Date: March 30,2001
By: \s\ Robert J. Koetter, Sr. By: \s\ Steven Stemler
-------------------------- ------------------
ROBERT J. KOETTER, SR., STEVEN STEMLER,
Director Director
Date: March 30,2001 Date: March 30,2001
By: \s\ Gary L. Libs By: \s\ Dale L. Orem
------------------- ----------------
GARY L. LIBS, DALE L. OREM,
Director Director
Date: March 30,2001 Date: March 30,2001
By: \s\ James W. Robinson By: \s\ Paul A. Chrisco
--------------------- -------------------
JAMES W. ROBINSON, PAUL A. CHRISCO,
Director Vice President,
Date: March 30,2001 Chief Financial Officer
Date: March 30,2001
By: \s\ Gordon L. Huncilman
---------------------
GORDON L. HUNCILMAN,
Director
Date: March 30,2001
By: \s\ Kerry M. Stemler
---------------------
KERRY M. STEMLER,
Director
Date: March 30,2001
By: \s\ James Rickard
-----------------
JAMES RICKARD,
President, Chief Executive
Officer, and Director
Date: March 30,2001
31
Exhibit Index
Exhibit
Number Document
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.0 Common Stock Certificate * (1)
10.1 Employment Agreement with Dale L. Orem *
10.2 Retirement Agreement with Robert E. Yates *
10.3 Employment Agreement with Michael L. Douglas * (2)
10.4 Community Bank Shares of Indiana, Inc. 1997 Stock Incentive Plan * (3)
10.5 Community Bank Shares of Indiana, Inc. Dividend Reinvestment Plan * (4)
10.6 Employment Agreement with James T. Rickard * (5)
13.0 Annual Report to Security Holders
21.0 Subsidiaries of Registrant
23.0 Consent of Monroe Shine & Co., Inc.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Report pursuant to Item 601 of Regulation S-K.
(1) Incorporated herein by reference to Registration Statement on Form S-1 filed
December 9, 1994, (File No. 33-87228).
(2) Incorporated by reference to the Annual Report of Form 10-K filed March 30,
2000.
(3) Incorporated by reference from the exhibits filed with the Registration
Statement on Form S-8, and any amendments thereto, Registration statement No.
333- 60089.
(4) Incorporated by reference from the exhibits filed with the Registration
statement on Form S-3, and any amendments thereto, Registration Statement No.
333-40211.
(5) Incorporated by reference to the Annual Report of Form 10-K filed March 30,
2001.
32