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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2002
-------------
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 W. Spring Street, New Albany, Indiana 47150
----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 812-944-2224
------------
Not applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 2,411,967 shares of common stock were outstanding as of August
9, 2002.
COMMUNITY BANK SHARES OF INDIANA, INC.
INDEX
Page
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-21
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 22-24
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Forms 8-K 25
Signatures 26
- 2 -
PART I - FINANCIAL INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2002 2001
---- ----
(In thousands,except per share data)
ASSETS
Cash and due from banks $ 13,650 $ 8,442
Interest bearing deposits in other financial institutions 20,020 2,657
Securities available for sale, at fair value 87,217 99,101
Loans held for sale 1,550 1,401
Loans, net 297,801 294,030
Federal Home Loan Bank stock, at cost 7,679 7,658
Foreclosed real estate 560 560
Premises and equipment, net 11,405 11,216
Accrued interest receivable and other assets 15,165 4,551
---------------------------------------------------
Total Assets $ 455,047 $ 429,616
===================================================
LIABILITIES
Deposits $ 296,140 $ 255,892
Short-term borrowings 21,806 39,075
Federal Home Loan Bank advances 91,000 89,000
Accrued interest payable and other liabilities 2,858 3,284
---------------------------------------------------
Total Liabilities 411,804 387,251
---------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, without par value;
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value per share;
10,000,000 shares authorized; 2,728,298 shares issued;
2,447,467 and 2,475,894 shares outstanding 273 273
Additional paid-in capital 19,524 19,513
Retained earnings 26,914 26,653
Accumulated other comprehensive income (loss) 827 (259)
Unearned ESOP and performance share awards - 10,835
shares (13,713 shares at December 31, 2001) (111) (143)
Treasury stock, at cost - 269,996 shares (238,691
shares at December 31, 2001) (4,184) (3,672)
---------------------------------------------------
Total Stockholders' Equity 43,243 42,365
---------------------------------------------------
Total Liabilities and Stockholders' Equity $ 455,047 $ 429,616
===================================================
See accompanying notes to consolidated financial statements.
- 3 -
PART I - FINANCIAL INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME (In thousands, except per share data)
Loans, including fees $5,121 $5,829 $10,229 $11,959
Securities:
Taxable 958 1,271 1,942 2,518
Tax exempt 117 99 249 189
Federal Home Loan Bank stock dividends 116 142 226 295
Interest bearing deposits in other financial institutions 32 172 44 280
------------------------- -------------------------
Total interest income 6,344 7,513 12,690 15,241
------------------------- -------------------------
INTEREST EXPENSE
Deposits 1,944 2,902 3,874 5,947
Federal Home Loan Bank advances 1,480 1,328 2,824 2,665
Short-term borrowings 76 192 174 470
------------------------- -------------------------
Total interest expense 3,500 4,422 6,872 9,082
------------------------- -------------------------
Net interest income 2,844 3,091 5,818 6,159
Provision for loan losses 692 144 830 351
------------------------- -------------------------
Net interest income after provision for loan losses 2,152 2,947 4,988 5,808
------------------------- -------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 232 261 432 496
Commission income 66 155 215 374
Gain (loss) on sale of available for sale securities 58 - 120 (18)
Net gain on sale of mortgage loans 252 116 325 179
Loan servicing income, net of amortization 19 26 40 54
Other 181 57 320 91
------------------------- -------------------------
Total non-interest income 808 615 1,452 1,176
------------------------- -------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,496 1,276 2,875 2,456
Occupancy and equipment 389 341 784 681
Data processing 312 216 573 425
Other 495 469 948 850
------------------------- -------------------------
Total non-interest expense 2,692 2,302 5,180 4,412
------------------------- -------------------------
Income before income taxes 268 1,260 1,260 2,572
Income tax expense 12 411 286 889
------------------------- -------------------------
Net Income $ 256 $ 849 $ 974 $ 1,683
========================= =========================
Earnings per share:
Basic $ 0.10 $ 0.34 $ 0.40 $ 0.67
========================= =========================
Diluted $ 0.10 $ 0.34 $ 0.39 $ 0.67
========================= =========================
See accompanying notes to consolidated financial statements.
- 4 -
PART I - FINANCIAL INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar amounts in thousands, except per share data)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Unearned
Accumulated ESOP
Common Additional Other And Total
Shares Common Paid-In Retained Comprehensive Performance Treasury Stockholders'
Outstanding Stock Capital Earnings Income Shares Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2002 2,475,894 $ 273 $ 19,513 $ 26,653 $ (259) $ (143) $ (3,672) $ 42,365
Cash dividends declared on
common stock ($0.145 per share) - - - (355) - - - (355)
Repurchase common stock (35,037) - - - - - (567) (567)
Commitment of shares to be released
under the ESOP 1,439 - 8 - - 15 - 23
Stock options exercised 2,000 - (5) - - - 31 26
Comprehensive income:
Net income - - - 718 - - - 718
Change in unrealized gain (loss)
on securities available for sale,
net of tax effects - - - - (106) - - (106)
Minimum pension liability, net of tax
effects - - - - (2) - - (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 610
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2002 2,444,296 $ 273 $ 19,516 $ 27,016 $ (367) $ (128) $ (4,208) $ 42,102
====================================================================================================================================
Cash dividends declared on
common stock ($0.145 per share) - - - (358) - - - (358)
Repurchase common stock (1,870) - - - - - (32) (32)
Commitment of shares to be released
under the ESOP 1,439 - 10 - - 15 - 25
Stock options exercised 3,602 - (2) - - 2 56 56
Comprehensive income:
Net income - - - 256 - - - 256
Change in unrealized gain (loss)
on securities available for sale,
net of tax effects - - - - 1,151 - - 1,151
Minimum pension liability, net of tax
effects - - - - 43 - - 43
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 1,450
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2002 2,447,467 $ 273 $ 19,524 $ 26,914 $ 827 $ (111) $ (4,184) $ 43,243
====================================================================================================================================
See accompanying notes to consolidated financial statements.
- 5 -
PART I - FINANCIAL INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES (In thousands)
Net income $ 974 $ 1,683
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 830 351
Depreciation expense 444 349
Net amortization of securities 336 102
Loss (gain) on sale of available for sale securities (120) 18
Mortgage loans originated for sale (10,371) (19,086)
Proceeds from mortgage loan sales 26,581 18,605
Net gain on sales of mortgage loans (325) (179)
Net loss on sale of foreclosed real estate 2 -
Federal Home Loan Bank stock dividends (21) (30)
ESOP and performance share award expense 51 51
Minimum pension liability expense 41 -
Changes in assets and liabilities:
Accrued interest receivable and other assets (11,148) 1,715
Accrued interest payable and other liabilities (426) (1,948)
----------------------------
Net cash from operating activities 6,848 1,631
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest bearing deposits with banks (17,363) (4,552)
Activity in available for sale securities:
Sales 15,561 2,982
Purchases (12,304) (29,427)
Maturities, prepayments and calls 10,020 12,481
Loan originations and payments, net (20,811) 10,095
Proceeds from sale of foreclosed real estate 143 -
Purchase of premises and equipment, net (633) (900)
----------------------------
Net cash from investing activities (25,387) (9,321)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 40,248 8,073
Net decrease in short-term borrowings (17,269) (1,443)
Proceeds from Federal Home Loan Bank advances 11,000 7,000
Repayment of advances from Federal Home Loan Bank (9,000) (9,800)
Purchase of treasury stock (599) (261)
Stock options exercised 82 -
Dividends paid (715) (728)
----------------------------
Net cash from financing activities 23,747 2,841
----------------------------
Net increase (decrease) in cash and due from banks 5,208 (4,849)
Cash and due from banks at beginning of period 8,442 12,805
----------------------------
Cash and due from banks at end of period $ 13,650 $ 7,956
============================
Non cash transfers:
Transfer from loans to loans held for sale $ 16,034 $ -
Transfer from loans to foreclosed real estate $ 145 $ -
Transfer from loans to repossessed assets $ 31 $ -
See accompanying notes to consolidated financial statements.
- 6 -
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Presentation of Interim Information
Community Bank Shares of Indiana, Inc. (the "Company") was incorporated
on April 7, 1995. The Company is a multi-bank holding company
headquartered in New Albany, Indiana. The Company's wholly-owned
banking subsidiaries (the "Banks") are Community Bank of Southern
Indiana ("Community") and Community Bank of Kentucky ("Community of
Kentucky"). During the quarter ended March 31, 2002, a former
subsidiary of the Company, Heritage Bank of Southern Indiana, was
merged with and into Community. Community and Community of Kentucky are
state-chartered stock commercial banks headquartered in New Albany,
Indiana and Bardstown, Kentucky, respectively.
In the opinion of management, the unaudited consolidated financial
statements include all normal adjustments considered necessary to
present fairly the financial position as of June 30, 2002, the results
of operations for the three and six months ended June 30, 2002 and
2001, and cash flows for the six months ended June 30, 2002 and 2001.
All of these adjustments are of a normal, recurring nature. Interim
results are not necessarily indicative of results for a full year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with
the instructions for Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by accounting principles
generally accepted in the United States of America for complete
financial statements.
For further information, refer to the consolidated financial statements
and footnotes included in the Company's annual report for the year
ended December 31, 2001.
The consolidated financial statements include the accounts of the
Company and the Banks. All material intercompany balances and
transactions have been eliminated in consolidation.
- 7 -
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Securities
The amortized cost and fair value of available for sale securities and
the related unrealized holding gains and losses were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------
(in thousands)
June 30, 2002:
Securities available for sale:
U. S. Government and federal agency $18,865 $ 277 $ - $ 19,142
State and municipal 9,776 300 (3) 10,073
Mortgage-backed 48,836 865 (4) 49,697
Corporate bonds 8,309 56 (60) 8,305
------------------------------------------------------
Total securities available for sale $85,786 $1,498 $ (67) $ 87,217
======================================================
December 31, 2001:
Securities available for sale:
U. S. Government and federal agency $27,023 $ 232 $ (166) $ 27,089
State and municipal 10,838 94 (225) 10,707
Mortgage-backed 54,467 327 (440) 54,354
Corporate bonds 6,950 32 (31) 6,951
------------------------------------------------------
Total securities available for sale $99,278 $ 685 $ (862) $ 99,101
======================================================
3. Loans
Loans at June 30, 2002 and December 31, 2001 consisted of the
following:
June 30, 2002 December 31, 2001
---------------------------------------------------
(in thousands)
Commercial $ 103,530 $ 94,159
Mortgage loans on real estate:
Residential 66,999 81,249
Commercial 68,435 76,754
Construction 26,420 14,506
Home equity 26,251 19,818
Consumer and other 9,880 10,574
---------------------------------------------------
Subtotal 301,515 297,060
Less:
Allowance for loan losses (3,714) (3,030)
---------------------------------------------------
Loans, net $ 297,801 $ 294,030
===================================================
- 8 -
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Deposits
Deposits at June 30, 2002 and December 31, 2001 consisted of the
following:
June 30, 2002 December 31, 2001
------------------------------------------------
(in thousands)
Demand (NOW) $ 41,243 $ 43,378
Money market accounts 59,144 10,782
Savings 36,133 45,897
Individual retirement accounts 16,753 15,412
Certificates of deposit, $100,000 and over 34,156 39,030
Other certificates of deposit 80,750 81,277
------------------------------------------------
Total interest bearing deposits 268,179 235,776
Total non-interest bearing deposits 27,961 20,116
------------------------------------------------
Total deposits $ 296,140 $ 255,892
================================================
- 9 -
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Supplemental Disclosure for Earnings Per Share
Earnings per share were computed as follows:
Three months ended Six months ended
In thousands, except for share June 30, June 30,
------------------------------- --------------------------------
and per share amounts 2002 2001 2002 2001
---------------------
-------------- --------------- --------------- ---------------
Basic:
Earnings:
Net income $ 256 $ 849 $ 974 $ 1,683
============== =============== =============== ===============
Shares:
Weighted average
common shares outstanding 2,445,269 2,503,225 2,457,247 2,508,337
============== =============== =============== ===============
Net income per share, basic $ 0.10 $ 0.34 $ 0.40 $ 0.67
============== =============== =============== ===============
Diluted:
Earnings:
Net income $ 256 $ 849 $ 974 $ 1,683
============== =============== =============== ===============
Shares:
------
Weighted average
Common shares outstanding 2,445,269 2,503,225 2,457,247 2,508,337
Add: Dilutive effect of
outstanding options
and restricted share
awards 22,417 715 17,800 -
-------------- --------------- --------------- ---------------
Weighted average common shares
outstanding, as adjusted 2,467,686 2,503,940 2,475,047 2,508,337
============== =============== =============== ===============
Net income per share, diluted $ 0.10 $ 0.34 $ 0.39 $ 0.67
============== =============== =============== ===============
Stock options for 64,000 and 135,817 shares of common stock were excluded from
the three months ended June 30, 2002 and June 30, 2001 diluted net income per
share, respectively, because their impact was antidilutive. Stock options for
71,700 and 184,817 shares of common stock were excluded from the six months
ended June 30, 2002 and June 30, 2001 diluted net income per share,
respectively, because their impact was antidilutive.
- 10 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Safe Harbor Statement for Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the
federal securities laws. These statements are not historical facts but rather
statements based on the Company's current expectations regarding its business
strategies and their intended results and its future performance.
Forward-looking statements are preceded by terms such as "expects," "believes,"
"anticipates," "intends" and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause or contribute to the Company's actual
results, performance and achievements to be materially different from those
expressed or implied by the forward-looking statements. Factors that may cause
or contribute to these differences include, without limitation, general economic
conditions, including changes in market interest rates and changes in monetary
and fiscal policies of the federal government; legislative and regulatory
changes; competitive conditions in the banking markets served by the Banks; the
adequacy of the allowance for losses on loans and the level of future provisions
for losses on loans; and other factors disclosed periodically in the Company's
filings with the Securities and Exchange Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
The Company assumes no obligation to update any forward-looking statements.
Financial Condition
Total assets increased 5.9% from $429.6 million at December 31, 2001 to $455.0
million at June 30, 2002, primarily as a result of increases in interest bearing
deposits in other financial institutions ($17.4 million) and other assets ($10.0
million). Other assets increased primarily because of the investment of $10
million in life insurance on key bank employees. These increases were partially
offset by a decrease in investment securities ($11.9 million). Funding for the
growth in assets was provided by total liabilities, which increased by $24.6
million, or 6.3%, primarily as a result of an increase in deposits ($40.2
million). The increase in deposits was partially offset by a decrease in short-
term borrowings ($17.3 million).
Loans receivable, net, were $294.0 million at December 31, 2001, compared to
$297.8 million at June 30, 2002, an increase of 1.3%. This increase was
primarily the result of increases in commercial business loans of $9.4 million,
construction real estate loans of $11.9 million, and home equity lines of credit
of $6.4 million as the Company continued to emphasize lending in these areas.
The balance of residential mortgage loans declined by $14.3 million because of
the transfer from loans to loans held for sale of $16.0 million of residential
mortgage loans as the Company moved to reduce its balances of longer duration
assets. The Company continues to sell substantially all conforming mortgage
loans that it originates into the secondary market to reduce the interest rate
risk of holding such assets should interest rates rise.
Securities available for sale decreased from $99.1 million at December 31, 2001
to $87.2 million at June 30, 2002 as a result of sales and maturities of U. S.
Government and federal agency securities and sales of and principal repayments
on mortgage-backed securities.
- 11 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Cash and due from banks and interest bearing deposits in other financial
institutions increased from $11.1 million at December 31, 2001 to $33.7 million
at June 30, 2002 due to the transfer from loans to loans held for sale and the
proceeds received on the subsequent sale of $16.0 million in mortgage loans at
the end of the second quarter of 2002. See Part I - Item 3, Quantitative and
Qualitative Disclosures about Market Risk, for a more detailed discussion of
this transfer of mortgage loans from loans to loans held for sale. The Company
expects to invest about $15.0 million over the third quarter of 2002 in
investment securities.
Total deposits increased from $255.9 million at December 31, 2001 to $296.1
million at June 30, 2002. Growth in deposits over the last six months occurred
primarily in money market accounts, which management attributes primarily to its
competitive pricing. Total deposits increased $29.8 million from $266.3 million
as of June 30, 2001 to $296.1 million at June 30, 2002. Growth over the last
year is primarily attributed to the same factors driving growth over the last
six months. The Company continues to focus on non-interest demand deposits as a
way to reduce its borrowing costs. The Company is opening non-interest deposit
accounts at a faster rate than in past years, but these accounts generally have
low average balances and it requires a large number of accounts to substantially
affect the totals outstanding. Total certificates of deposit declined $5.4
million over the last six months as the Company focused on lower-cost
transaction accounts.
Results of Operations
Net Income. Net income was $256,000 ($0.10 per share diluted) for the three
months ended June 30, 2002 compared to $849,000 ($0.34 per share diluted) for
the three months ended June 30, 2001. Return on average assets was 0.23% for the
three months ended June 30, 2002 as compared to 0.82% for the same period in
2001. Return on average equity was 2.38% for the second quarter of 2002 as
compared to 8.02% for the same quarter in 2001. Net income, earnings per share,
return on average assets, and return on average equity all decreased for the
three months ended June 30, 2002 as compared to the same period in 2001
primarily because of increases in provision for loan losses and non-interest
expense and decreased net interest income. Partially offsetting these items was
a reduced effective income tax rate. Return on average equity was also affected
by the repurchase of the Company's common stock; average treasury stock was $4.2
million for the three months ended June 30, 2002 as compared to $3.1 million for
the same period in 2001. The Company expects net income and diluted earnings per
share will be less in the third and fourth quarters of 2002 as compared to the
same periods last year because of reduced net interest margin and increased
operating expenses.
Net income was $974,000 ($0.39 per share diluted) for the six months ended June
30, 2002 compared to $1,683,000 ($0.67 per share diluted) for the six months
ended June 30, 2001. Return on average assets was 0.45% for the six months ended
June 30, 2002 as compared to 0.83% for the same period in 2001. Return on
average equity was 4.55% for the six months ended June 30, 2002 as compared to
8.04% for the same period in 2001. Net income, earnings per share, return on
average assets, and return on average equity were all adversely affected by the
same factors that affected results for the second quarter of 2002. Return on
average equity was also affected by the repurchase of the Company's common
stock; average treasury stock was $4.0 million for the six months ended June 30,
2002 as compared to $3.1 million for the same period in 2001.
- 12 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Net interest income. Net interest income decreased $247,000 from $3.1 million
the second quarter of 2001 to $2.8 million for the second quarter of 2002
primarily because of a rapid decline in market interest rates during 2001. The
yield on interest-earning assets decreased to 6.09% for the second quarter of
2002 from 7.63% for the same quarter in 2001. The cost of interest-bearing
liabilities decreased to 3.70% from 5.05% over the same period. As a result, net
interest margin declined to 2.73% for the second quarter of 2002 compared with
3.14% for the same period in 2001. Partially offsetting the decline in net
interest margin was an increase in average interest-earning assets to $417.6
million for the second quarter of 2002 from $394.7 million for the same quarter
in 2001.
Net interest income decreased $341,000 from $6.2 million the six months ended
June 30, 2001 to $5.8 million for the same period in 2002 because of the same
factors affecting the second quarter of 2002. As a result, net interest margin
declined to 2.85% for the first six months of 2002 compared with 3.17% for the
same period in 2001. Partially offsetting the decline in net interest margin was
an increase in average interest-earning assets to $411.8 million for the first
six months of 2002 from $392.1 million for the same period in 2001. The yield on
interest-earning assets decreased to 6.21% for the first six months of 2002 from
7.84% for the same period in 2001. The cost of interest-bearing liabilities
decreased to 3.71% from 5.28% over the same period.
The reasons for the decline in net interest margin for both the three and six
month periods ended June 30, 2002 were substantially the same. The yield on
interest-earning assets declined faster than the cost of funds because the
volume of assets repricing over the last year exceeded the volume of liabilities
repricing over the same period. Additionally, various asset and liability
concentrations have contributed to the decline in net interest margin. At
December 31, 2000, the Company owned approximately $53.6 million in callable
agency securities, which is a type of security that can be called by the issuer
as of a specific date(s) when it is in the issuer's interest to do so.
Generally, issuers of these securities will exercise the call as market interest
rates for securities with similar characteristics fall below the coupon on a
given issue. Consequently, most of the callable agency securities owned by the
Company as of December 31, 2000 were called during 2001 as market interest rates
declined. The Company reinvested at substantially lower interest rates,
resulting in a decline in the Company's net interest margin over 2001 that has
persisted into 2002.
The cost of funds has been significantly affected by the $91.0 million in
funding provided by Federal Home Loan Bank (FHLB) advances, which principally
consist of putable (or convertible) instruments that give the FHLB the option at
the conversion date and quarterly thereafter to put the advance back to the
Company's subsidiary banks, at which time the subsidiary banks can prepay the
advance without penalty or can allow the advance to adjust to three-month LIBOR
(London Interbank Offer Rate) at the conversion date (principally throughout
2002) and quarterly thereafter. The Company estimates that three-month LIBOR
would have to rise in excess of 300 basis points before the FHLB would exercise
its option on any of the individual advances. The cost of FHLB advances for the
second quarter of 2002 was 5.95%, only 3 basis points less than the same period
in 2001. The cost of FHLB advances for the six months ended June 30, 2002 was
5.85%, only 15 basis points less than the same period in 2001. In contrast, the
cost of federal funds purchased and repurchase agreements, which are both highly
interest sensitive, fell to 1.17% and 1.19% for the three and six months ended
June 30, 2002, respectively, from 3.22% and 4.39% for the same periods in 2001.
- 13 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
The Company will continue to explore strategies to improve its net interest
margin and reduce the exposure to changing interest rates.
- 14 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Average Balance Sheets. The following tables set forth certain information
relating to the Company's average balance sheets and reflects the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are computed on daily average balances, when
available. Management does not believe that the use of month-end balances
instead of daily average balances has caused any material difference in the
information presented.
Three Months Ended June 30,
------------------------------------------------------------------------
2002 2001
----------------------------------- -----------------------------------
Average Average Average Average
ASSETS Balance Interest Yield/Cost Balance Interest Yield/Cost
------------ --------- ----------- ---------- --------- -----------
Earning assets:
Interest-bearing deposits with banks $ 6,841 $ 32 1.88% $ 14,936 $ 172 4.62%
Taxable securities 81,530 958 4.71% 82,156 1,271 6.21%
Non-taxable securities 10,138 117 4.63% 7,575 99 5.24%
Total loans and fees 311,452 5,121 6.60% 282,462 5,829 8.28%
FHLB stock 7,668 116 6.07% 7,601 142 7.49%
------------ --------- ---------- ---------
Total earning assets 417,629 6,344 6.09% 394,730 7,513 7.63%
Less: Allowance for loan losses 3,133 2,862
Non-earning assets:
Cash and due from banks 6,616 7,302
Bank premises and equipment, net 11,327 10,787
Accrued interest receivable and other assets 14,324 5,131
------------ ----------
Total assets $ 446,763 $ 415,088
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits $ 253,183 1,944 3.08% $ 238,044 2,902 4.89%
Federal funds purchased and repurchase
agreements 26,095 76 1.17% 23,899 192 3.22%
FHLB Advances 99,846 1,480 5.95% 89,000 1,328 5.98%
------------ --------- ---------- ---------
Total interest-bearing liabilities 379,124 3,500 3.70% 350,943 4,422 5.05%
--------- ---------
Non-interest bearing liabilities:
Non-interest demand deposits 22,148 19,209
Accrued interest payable and other liabilities 2,333 2,477
Stockholders' equity 43,158 42,459
------------ ----------
Total liabilities and stockholders' equity $ 446,763 $ 415,088
============ ==========
Net interest income $ 2,844 $ 3,091
========= =========
Net interest spread 2.39% 2.58%
Net interest margin 2.73% 3.14%
- 15 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Six Months Ended June 30,
------------------------------------------------------------------------
2002 2001
----------------------------------- -----------------------------------
Average Average Average Average
ASSETS Balance Interest Yield/Cost Balance Interest Yield/Cost
------------ --------- ----------- ---------- --------- -----------
Earning assets:
Interest-bearing deposits with banks $ 4,688 $ 44 1.89% $ 10,974 $ 280 5.15%
Taxable securities 82,326 1,942 4.76% 80,323 2,518 6.32%
Non-taxable securities 10,499 249 4.78% 7,355 189 5.18%
Total loans and fees 306,661 10,229 6.73% 285,819 11,959 8.44%
FHLB stock 7,663 226 5.95% 7,601 295 7.83%
------------ --------- ---------- ---------
Total earning assets 411,837 12,690 6.21% 392,072 15,241 7.84%
Less: Allowance for loan losses 3,104 3,101
Non-earning assets:
Cash and due from banks 7,993 7,993
Bank premises and equipment, net 11,273 10,609
Accrued interest receivable and other assets 12,063 3,526
------------ ----------
Total assets $ 440,062 $ 411,099
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits $ 246,393 $3,874 3.17% $ 235,635 5,947 5.09%
Federal funds purchased and repurchase
agreements 29,455 174 1.19% 21,579 470 4.39%
FHLB Advances 97,354 2,824 5.85% 89,508 2,665 6.00%
------------ --------- ---------- ---------
Total interest-bearing liabilities 373,202 6,872 3.71% 346,722 9,082 5.28%
--------- ---------
Non-interest bearing liabilities:
Non-interest demand deposits 21,777 19,649
Accrued interest payable and other liabilities 1,933 2,494
Stockholders' equity 43,150 42,234
------------ ----------
Total liabilities and stockholders' equity $ 440,062 $ 411,099
============ ==========
Net interest income $ 5,818 $ 6,159
========= =========
Net interest spread 2.50% 2.56%
Net interest margin 2.85% 3.17%
- 16 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Rate/Volume Analysis. The table below illustrates the extent to which changes in
interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities affected the Company's interest income and interest
expense during the periods indicated. Information is provided in each category
with respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
Three Months Ended June 30, 2002 Six Months Ended June 30, 2002
compared to compared to
Three Months Ended June 30, 2001 Six Months Ended June 30, 2001
Increase/(Decrease) Due to Increase/(Decrease) Due to
Total Net Total Net
Change Volume Rate Change Volume Rate
------------------------------------- --------------------------------------
(In Thousands)
Interest income:
Interest-bearing deposits with banks $ (140) $ (67) $ (73) $ (236) $ (112) $ (124)
Taxable securities (313) (10) (303) (576) 61 (637)
Tax-exempt securities 18 31 (13) 60 76 (16)
Total loans and fees (708) 557 (1,265) (1,730) 825 (2,555)
FHLB stock (26) 1 (27) (69) 2 (71)
------------------------------------- ---------------------------------------
Total increase (decrease) in
interest income (1,169) 512 (1,681) (2,551) 852 (3,403)
Interest Expense:
Deposits (958) 175 (1,133) (2,073) 260 (2,333)
Federal funds purchased and
repurchase agreements (116) 16 (132) (296) 130 (426)
FHLB advances 152 161 (9) 159 229 (70)
------------------------------------- ---------------------------------------
Total increase (decrease) in
interest expense (922) 352 (1,274) (2,210) 619 (2,829)
------------------------------------- ---------------------------------------
Increase (decrease) in net
interest income $ (247) $ 160 $ (407) $ (341) $ 233 $ (574)
===================================== =======================================
- 17 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Allowance and Provision for Loan Losses. The provision for loan losses was
$692,000 and $830,000 for the three and six months ended June 30, 2002,
respectively, as compared to $144,000 and $351,000 for the same periods in 2001.
The provision for loan losses increased for both periods because of increases in
non-performing loans and the level of estimated loss exposure from impaired
loans. Loans (including impaired loans under SFAS 114 and 118) are placed on
non-accrual status when they become past due 90 days or more as to principal or
interest (180 days for residential real estate). When loans are placed on
non-accrual status, all unpaid accrued interest is reversed. These loans remain
on non-accrual status until the loan becomes current or the loan is deemed
uncollectible and is charged off. The Company defines impaired loans to be those
commercial loans that management has classified as doubtful (collection of total
amount due is highly questionable or improbable) or loss (all or a portion of
the loan has been written off or a specific allowance for loss has been
provided). Impaired loans increased from $1.9 million at December 31, 2001, to
$8.6 million at June 30, 2002. The increase in impaired loans is related to a
determination by the Company through its normal credit risk monitoring
procedures that certain specific borrower situations, most of which had been
classified as of December 31, 2001 as substandard (collection of total amount
due is unlikely), exhibited an increased risk of loss this quarter. The Company
does not believe that this indicates a trend in the overall loan portfolio. The
allowance for loan losses increased $684,000 to $3.7 million at June 30, 2002 as
compared to $3.0 million at December 31, 2001 primarily as a result of the
incresae in impaired loans. Management believes, based on information presently
available, that it has adequately provided for loan losses at June 30, 2002.
Summary of Loan Loss Experience:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------------
Activity for the period ended: 2002 2001 2002 2001
---------------------------------- ---------------------------------
(in thousands)
Beginning balance $ 3,144 $ 2,824 $ 3,030 $ 2,869
Charge-offs:
Real Estate (24) - (24) -
Commercial (77) (31) (102) (243)
Consumer (26) (6) (26) (46)
---------------------------------- ---------------------------------
Total (127) (37) (152) (289)
Recoveries:
Real Estate - - - -
Commercial 3 - 3 -
Consumer 2 - 3 -
---------------------------------- ---------------------------------
Total 5 - 6 -
Provision 692 144 830 351
---------------------------------- ---------------------------------
Ending balance $ 3,714 $ 2,931 $ 3,714 $ 2,931
================================== =================================
- 18 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Non-performing loans:
June 30, 2002 December 31, 2001
------------------------------------------------
(dollars in thousands)
Loans on non-accrual status $ 3,805 $ 1,588
Loans past due 90 days or more and still accruing - 39
------------------------------------------------
Total non-performing loans 3,805 1,627
Other real estate owned 560 560
------------------------------------------------
Total non-performing assets $ 4,365 $ 2,187
================================================
Non-performing loans to total loans 1.26% 0.55%
Non-performing assets to total loans 1.45% 0.74%
Allowance as a percent of non-performing loans 97.61% 186.23%
Allowance as a percent of total loans 1.23% 1.03%
Non-interest income. Non-interest income increased 31.4% to $808,000 for the
three months ended June 30, 2002 from $615,000 for the three months ended June
30, 2001. The increase is attributable primarily to increases in net gain on
sale of mortgage loans ($136,000) and other income ($124,000). Net gain on sale
of loans increased primarily because of the transfer from loans to loans held
for sale and subsequent sale of $16.0 million of residential mortgage loans at
the end of the second quarter of 2002. See Part I - Item 3, Quantitative and
Qualitative Disclosures about Market Risk, for a more detailed discussion of
this transaction. Other income increased primarily due to earnings on the cash
surrender value of life insurance purchased on key employees of the Banks during
the first quarter of 2002. The Banks purchased life insurance on key employees
to offset employee benefits expenses and because the tax-equivalent yields were
better than other alternative investments. The Company reduced its risk in
relation to the life insurance purchase by spreading the total investment among
three life insurance carriers rated AA or better by Standard & Poor's. Also
contributing to the increase in total non-interest income was a gain of $58,000
on the sale of securities, the proceeds of which were used to provide necessary
liquidity early in the second quarter of 2002. Partially offsetting these items
was a decrease in commission income on sale of investment products of $89,000
between the two periods. The decrease in commission income from investment
products is the result of reduced customer transactions due to substantial
declines and increased volatility in major stock markets over the past year.
The changes in non-interest income categories between the six month periods
ended June 30, 2001 and 2002 were caused by the same factors that affected the
three month periods ended June 30, 2001 and 2002.
- 19 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Non-interest expense. Non-interest expense increased by $390,000 for the three
months ended June 30, 2002 as compared to the same period in 2001. Compensation
and benefits expense increased by $220,000 from 2001 to 2002 due to the hiring
of key personnel within the commercial and retail management areas of the
Company and the implementation of a customer call center. Occupancy and
equipment costs increased $48,000 in the second quarter of 2002 compared to the
same quarter in 2001 due to initiatives to improve the Company's technological
and retail infrastructures. Data processing service expense increased $96,000
due primarily to an increase in third party data processing costs related to
additional services offered to customers of the Banks. Other operating expenses
increased $26,000 primarily as a result of increased marketing and advertising.
Non-interest expense increased by $768,000 for the six months ended June 30,
2002 as compared to the same period in 2001. The factors affecting each category
of non-interest expense in the second quarter of 2002 were also the reasons for
the increases in these categories from the first six months of 2001 to the same
period in 2002.
Income tax expense. Income tax expense for the three-month period ended June 30,
2002 was $12,000 as compared to $411,000 for the same period in 2001. The
effective tax rate for the three months ended June 30, 2002 was 4.5% compared to
32.6% for the same period in 2001. The effective tax rate declined substantially
for the three months ended June 30, 2002 as compared to the same period in 2001
due to various tax strategies implemented in the first quarter of 2002 coupled
with this year-to-date decline in net income before taxes.
- 20 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. Historically, the Company has been able to retain a significant
amount of its deposits as they mature.
The Company's primary sources of funds are customer deposits, customer
repurchase agreements, proceeds from loan repayments, maturing securities and
FHLB advances. While loan repayments and maturities are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by market
interest rates, general economic conditions and competition. At June 30, 2002,
the Company had cash and interest-bearing deposits with banks of $33.7 million
and securities available-for-sale with a fair value of $87.2 million. If the
Company requires funds beyond its ability to generate them internally, it has
$27.0 million in additional borrowing capacity with the Federal Home Loan Banks
of Indianapolis and Cincinnati, and federal funds lines of credit with various
nonaffiliated financial institutions of $33.0 million.
The Banks are required to maintain specific amounts of capital pursuant to
regulatory requirements. As of June 30, 2002, the Banks were in compliance with
all regulatory capital requirements that were effective as of such date with
tangible, core and risk-based capital ratios as follows:
Total Capital To Tier 1 Capital To Tier 1 Capital
Risk-weighted Assets Risk-weighted Assets To Average Assets
---------------------------- ---------------------------- -------------------------
Consolidated 14.7% 13.5% 9.4%
Community Bank 13.6% 12.3% 8.6%
Community Bank of Kentucky 20.0% 19.0% 13.1%
Minimum to be well capitalized: 10.0% 6.0% 5.0%
The Company has actively been repurchasing shares of its common stock since May
21, 1999. A net total of 269,996 shares at $4.2 million have been repurchased
since that time, with 36,907 shares costing $599,000 purchased since December
31, 2001.
The Company's Board of Directors authorized a share repurchase plan in March
2001 of up to $3.0 million of the Company's common stock. Through June 30, 2002,
a total of $1,164,512 had been expended to purchase shares under this repurchase
plan.
- 21 -
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Asset/liability management is the process of balance sheet control designed to
ensure safety and soundness and to maintain liquidity and regulatory capital
standards while sustaining acceptable net interest income. Interest rate risk is
the exposure to adverse changes in net interest income as a result of market
fluctuations in interest rates. Management continually monitors interest rate
and liquidity risk so that it can implement appropriate funding, investment, and
other balance sheet strategies. Management considers market interest rate risk
to be the Company's most significant ongoing business risk consideration.
The Company utilizes an earnings simulation model to analyze net interest income
sensitivity. Current balance sheet amounts, current yields and costs,
corresponding maturity and repricing amounts and rates, other relevant
information, and certain assumptions made by management are combined with
instantaneous movements in interest rates of 100 and 200 basis points within the
model to estimate their combined effects on net interest income over a one-year
horizon. Assumptions based on the historical behavior of the Company's deposit
rates and balances in relation to changes in interest rates are incorporated
into the model. These assumptions are inherently uncertain and, as a result, the
model cannot precisely measure future net interest income or precisely predict
the impact of fluctuations in market interest rates on net interest income. The
Company continually monitors and updates the assumptions as new information
becomes avalaible. Actual results will differ from the model's simulated
results due to timing, magnitude and frequency of interest rate changes and
actual variations from the managerial assumptions utilized under the model, as
well as changes in market conditions and the application and timing of various
management strategies.
Given an immediate, sustained 200 basis point upward shock to the yield curve
used in the simulation model, it is estimated that as of June 30, 2002 net
interest income for the Company would increase by 10.7 percent over one year.
This compares to an estimated decrease of 6.0 percent over one year as of
December 31, 2001. A 200 basis point immediate, sustained downward shock in the
yield curve would cause a decrease in net interest income of an estimated 25.5
percent over one year. This compares to an estimated decrease of 8.1 percent as
of December 31, 2001. The Company is asset sensitive in that its interest-
earning assets are likely to reprice faster in response to changing interest
rates than its interest-bearing liabilities. The estimated changes in net
interest income under the 200 basis point downward shock in the yield curve are
not within the policy guidelines established by the Company's board of
directors. Consequently, the Company will be taking action to limit its exposure
to falling interest rates.
The Company attributes the change in its interest rate sensitivity projections
primarily to a modification of assumptions regarding the interest sensitivity of
deposit accounts. The Company modified its interest rate risk model on the
belief that its deposit accounts are less sensitive to changes in market
interest rates than previously thought. The transfer from loans to loans held
for sale and subsequent sale of $16.0 million of mortgage loans also contributed
to the change in the Company's interest rate sensitivity by reducing the
duration of its interest-earning assets. The Company sold these loans, which
were a combination of 15 and 30 year fixed rate and 5 year adjustable rate
loans, to reduce the interest rate risk of holding such assets should interest
rates rise. The Company attributes the balance of the change in its interest
rate risk position to various asset/liability management strategies designed to
increase net interest income during a period of rising interest rates.
- 22 -
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The interest sensitivity profile of the Company at any point in time will be
affected by a number of factors. These factors include the mix of interest
sensitive assets and liabilities as well as their relative repricing schedules.
It is also influenced by market interest rates, deposit growth, loan growth, and
other factors. The table below is representative only and is not a precise
measurement of the effect of changing interest rates on the Company's net
interest income in the future.
- 23 -
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The following table illustrates the Company's estimated one year net interest
income sensitivity profile based on the asset/liability model as of June 30,
2002:
Interest Rate Sensitivity for the Year Ended June 30, 2003
-----------------------------------------------------------------------------
Decrease in Rates Increase in Rates
----------------- -----------------
200 100 100 200
Basis Points Basis Points Base Basis Points Basis Points
--------------- -------------- --------------- -------------- ---------------
(Dollars in thousands)
Projected Interest Income:
Loans $16,021 $17,951 $19,551 $20,834 $22,056
Investments 3,565 4,020 4,402 4,611 4,752
Short-term investments - 174 405 637 869
--------------- -------------- --------------- -------------- ---------------
Total Interest Income 19,586 22,145 24,358 26,082 27,677
Projected Interest Expense:
Deposits 6,072 6,848 7,623 8,399 9,174
Other borrowings 5,158 5,231 5,517 5,804 6,090
--------------- -------------- --------------- -------------- ---------------
Total Interest Expense 11,230 12,079 13,140 14,203 15,264
--------------- -------------- --------------- -------------- ---------------
Net Interest Income $8,356 $10,066 $11,218 $11,879 $12,413
=============== ============== =============== ============== ===============
Change from base $(2,862) $(1,152) $661 $1,194
Percent change from base (25.5)% (10.3)% 5.9% 10.7%
The following table illustrates the Company's estimated one year net interest
income sensitivity profile based on the asset/liability model as of December 31,
2001:
Interest Rate Sensitivity for the Year Ended December 31, 2002
-----------------------------------------------------------------------------
Decrease in Rates Increase in Rates
----------------- -----------------
200 100 100 200
Basis Points Basis Points Base Basis Points Basis Points
--------------- -------------- --------------- -------------- ---------------
(Dollars in thousands)
Projected Interest Income:
Loans $18,438 $19,736 $20,951 $22,071 $23,164
Investments 4,673 5,052 5,368 5,612 5,824
Short-term investments 4 14 24 43 61
--------------- -------------- --------------- -------------- ---------------
Total Interest Income 23,115 24,802 26,343 27,726 29,049
Projected Interest Expense:
Deposits 4,762 5,373 6,559 8,060 9,406
Other borrowings 5,487 5,635 5,783 6,107 6,488
--------------- -------------- --------------- -------------- ---------------
Total Interest Expense 10,249 11,008 12,342 14,167 15,894
--------------- -------------- --------------- -------------- ---------------
Net Interest Income $12,866 $13,794 $14,001 $13,559 $13,155
=============== ============== =============== ============== ===============
Change from base $(1,135) $(207) $(442) $(846)
Percent change from base (8.1)% (1.5)% (3.2)% (6.0)%
- 24 -
PART II
OTHER INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 21,
2002. Matters submitted to, and approved by, stockholders are
listed below, as is a tabulation of voting. There were no
abstentions with regard to the election of Directors or non-votes
on any of the matters voted on at the meeting.
(1) The following persons nominated as Directors were elected:
Withhold
Class For Authority
----------------------------------------------------------------------------------
Nominees for Director for Three-Year Terms Expiring in 2005:
George M. Ballard 1,852,300 15,219
Dale L. Orem 1,850,756 16,763
James D. Rickard 1,850,156 17,363
Steven R. Stemler 1,855,089 12,430
Directors whose term of office contintued after the meeting
were as follows: Gordon L. Huncilman, James W. Robinson, Timothy
T. Shea, Robert J. Koetter, Sr., Gary L. Libs, Kerry M. Stemler.
(2) The appointment by the Board of Directors of Crowe Chizek
and Company LLP, as the Company's independent auditors for the
fiscal year ending December 31, 2002, was ratified by the
following vote:
For Against Abstain
1,862,157 2,743 2,619
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits required by Item 601 of Regulation S-K are listed in
the Exhibit Index of this Form 10-Q and are filed as a part of
this report.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on April 17, 2002
reporting, under Item 5, earnings for the three months ended
March 31, 2002.
The Company filed two reports on Form 8-K on May 9, 2002
reporting, under Item 5, an agreement with Wal-Mart to open
branches in two Wal-Mart Supercenters.
The Company filed a report on Form 8-K on May 15, 2002 reporting,
under Item 5, the death of its Chairman, C. Thomas Young and the
election of Vice-chairman Timothy T. Shea by the Company's Board
of Directors to succeed Mr. Young as chairman.
- 25 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
COMMUNITY BANK SHARES OF INDIANA, INC.
(Registrant)
Dated: August 14, 2002 BY: /s/ James D. Rickard
-------------------------------- -----------------------------
James D. Rickard
President and CEO
Dated: August 14, 2002 BY: /s/ Paul A. Chrisco
--------------------------------- ------------------------
Paul A. Chrisco
Chief Financial Officer
- 26 -
EXHIBIT INDEX
COMMUNITY BANK SHARES OF INDIANA, INC.
EXHIBIT INDEX
Exhibit Description Incorporated By Reference To
- --------------------------------------------------------------------------------
11 Statement Regarding Computation Filed as Exhibit 11 of this Form 10-Q
Per Share Earnings for the period ended June 30, 2002
99 Certification of Principal Filed as Exhibit 99 of this Form 10-Q
Executive Officer and Principal for the period ended June 30, 2002
Financial Officer Pursuant to
18 U.S.C. Section 1350
COMMUNITY BANK SHARES OF INDIANA, INC.
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
See Part 1, Note 5 "Supplemental Disclosure for Earnings Per Share" for
calculations.
COMMUNITY BANK SHARES OF INDIANA, INC.
Exhibit 99.
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Form 10-Q of Community Bank Shares of
Indiana, Inc. for the quarter ended June 30, 2002, I, James D. Rickard, Chief
Executive Officer of Community Bank Shares of Indiana, Inc., hereby certify
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § of the
Sarbanes-Oxely Act of 2002, that:
(1) such Form 10-Q for the quarter ended June 30, 2002 fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) the information contained in such Form 10-Q for the quarter ended June 30,
2002 fairly presents, in all material respects, the financial condition and
results of operation of Community Bank Shares of Indiana, Inc.
By: /s/ James D. Rickard
------------------------
James D. Rickard
Chief Executive Officer
Date: August 14, 2002.
In connection with the accompanying Form 10-Q of Community Bank Shares of
Indiana, Inc. for the quarter ended June 30, 2002, I, James D. Rickard, Chief
Executive Officer of Community Bank Shares of Indiana, Inc., hereby certify
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § of the
Sarbanes-Oxely Act of 2002, that:
(1) such Form 10-Q for the quarter ended June 30, 2002 fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) the information contained in such Form 10-Q for the quarter ended June 30,
2002 fairly presents, in all material respects, the financial condition and
results of operation of Community Bank Shares of Indiana, Inc.
By: /s/ Paul A. Chrisco
------------------------
Paul A. Chrisco
Chief Financial Officer
Date: August 14, 2002.