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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 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [NO FEE REQUIRED]
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)
United States 35-1938254
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification Number
202 East Spring Street, New Albany, Indiana 47150
(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (812)944-2224
Securities Registered pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 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, [ ].
As of March 14, 1997, there were issued and outstanding 1,983,722 shares of
the Registrant's Common Stock.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the asked price of $14.50 per share of
such stock as of March 14, 1997, was approximately $22.7 million. (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.)
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Annual Report to Stockholders for the fiscal
year ended December 31, 1996.
Part III of Form 10-K - Proxy Statement for the 1995 Annual Meeting of
Stockholders.
PART I
ITEM 1. BUSINESS
General
Community Bank Shares of Indiana, Inc. (the Company) is a bank holding
company of Community Bank of Southern Indiana, (Community) and Heritage Bank
of Southern Indiana, (Heritage) two wholly -owned subsidiaries. Community
and Heritage are state chartered stock commercial banks headquartered in New
Albany, Indiana and Jeffersonville, Indiana, respectively. Community and
Heritage are regulated by the Indiana Department of Financial Institutions
and the Federal Deposit of Insurance Corporation.
Community was founded in 1934 as a federal mutual savings and loan
association. Community converted to a federal mutual savings bank in 1989,
and became a federal stock savings bank on May 1, 1991. On December 2, 1996
Community 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, and
Community 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. Heritage began operations as of January 8, 1996
and provides a variety of banking services to individuals and business
customers through its office in Jeffersonville, Indiana.
The Company had total assets of $237.6 million, total deposits of
$176.6 million, and stockholders' equity of $26.1 million as of December 31,
1996. The Company's principal executive office is located at 202 East
Spring Street, New Albany, Indiana 47150, and the telephone number at that
address is (812) 944-2224.
The Company's two subsidiaries are community oriented financial
institutions offering a variety of financial services to their local
community. The subsidiaries are engaged primarily in the business of
attracting deposits from the general public and using such funds to
originate mortgage loans for the purchase of single-family homes in Floyd
and Clark Counties, Indiana, and in surrounding communities. The
subsidiaries primary lending activity involves the origination of 15 and
30-year fixed-rate and adjustable-rate mortgage ("ARM") loans secured by
single family residential real estate. Fixed-rate mortgage loans are
originated primarily for sale in the secondary market, while ARM loans are
retained in the subsidiary's portfolio. To a lesser extent, the
subsidiaries makes home equity loans secured by the borrower's principal
residence and other types of consumer loans such as auto loans.
Although Community holds a small amount of multi-family residential
and commercial real estate loans in its portfolio, the Company does not
emphasize the origination of such loans. The Company's affiliates make
secured and unsecured business loans to local businesses and professional
organizations. 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.
THE CONVERSION AND REORGANIZATION
On October 18, 1994, the Boards of Directors of the Community Savings
Bank, FSB (predecessor to Community Bank of Southern Indiana) and Community
Bank Shares, M.H.C. (the MHC), the predecessor to Community Bank Shares of
Indiana, Inc., adopted a Plan of Conversion and Agreement and Plan of
Reorganization (the Plan). Pursuant to the Plan, (i) the MHC, which owned
approximately 51 percent of Community, converted from mutual to stock form
and simultaneously merged with and into Community, with Community being the
surviving entity; (ii) the Bank then merged into an interim savings bank
formed as a wholly-owned subsidiary of Community Bank Shares of Indiana,
Inc. (the Company), a newly organized Indiana corporation, with Community
being the surviving entity; and (iii) the outstanding shares of Community
common stock (other than those held by the MHC, which were canceled) were
converted into shares of common stock of the Company. Pursuant to the
Plan, the Company then sold additional shares equal to approximately 51
percent of the common shares of the Company.
Shares of the Company's common stock were offered in a subscription
offering in descending order of priority to eligible account holders,
tax-qualified employee stock benefit plans, supplemental eligible account
holders, other members, directors, officers and employees and public
stockholders.
On April 7, 1995, Community Bank Shares of Indiana, Inc. (the
Company) was formally established. The Company received proceeds from the
sale of stock, net of conversion expenses, of $9.5 million. Community
received a capital distribution from the Company equal to 50% of the net
proceeds or $4.8 million.
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, small to medium size commercial business loans,
and consumer loans in the Company's primary market area; (2) maintaining a
conservative interest rate risk exposure profile; (3) controlling operating
expense; and (4) broadening the scope of services offered to its customers.
The success of the current business strategy is reflected in the
consistent increases in capital and a retail growth strategy that has
included upgrading two limited service offices to full service offices,
opening two full service branch offices to attract retail customers and the
formation of a de novo bank Heritage Bank of Southern Indiana which in
addition to traditional banking services sells alternative financial
products as well.
Market Area
The Company's primary market area is the counties of Floyd, Clark and
Harrison, which are located in Southern Indiana along the Ohio River. 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 Company's primary market area
is approximately 185,000. The Company's headquarters are in New Albany,
Indiana, a city of 45,000, which is located approximately three miles from
the center of Louisville.
The Company's business and operating results are significantly
affected by the general economic conditions prevalent in its market area.
Lending Activities
General. At December 31, 1996, the Company's net portfolio of loans
receivable (including loans classified as held for sale) totaled $136.8
million, representing approximately 57.6% of the Company's total assets at
that date. The principal lending activity of the Company is the origination
of single-family residential loans. To a lesser extent the Company also
originates residential construction loans and consumer loans (consisting
primarily of home equity loans secured by the borrower's principal
residence.) In addition, the Company also originates secured and unsecured
commercial business loans to local business and professional organizations.
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 percentage of local commercial loan
originations and outstandings.
The Company continues to actively originate fixed-rate mortgage loans,
generally with 15 to 30 year terms to maturity secured by one-to-four family
residential properties. One-to-four family fixed-rate loans generally are
originated for resale in the secondary mortgage market. The Company sells
loans where servicing is retained and released on its mortgage loans with
service fee income realized 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, loans to small businesses and consumer loans for a
variety of purposes, including home equity loans, home improvement loans and
automobile loans.
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
1996 1995 1994
------------------------------------------------------------------
(Dollars in Thousands)
Conventional real estate
loans:
Residential interim
construction loans $ 3,184 2.33% $ 2,583 2.19% $ 3,921 3.63%
Residential 89,097 65.11% 91,451 77.39% 91,502 84.63%
Commercial real estate 16,954 12.39% 7,403 6.26% 4,192 3.88%
Commercial business loans(1) 20,191 14.76% 11,769 9.96% 4,663 4.31%
----------- --------- --------- -------- --------- --------
Total real estate loans $ 129,426 94.59% $113,206 95.80% $104,278 96.45%
Consumer Loans:
Savings account loans 593 0.43% 458 0.39% 313 0.29%
Equity lines of credit (2) 5,215 3.82% 4,045 3.42% 4,065 3.76%
Automobile loans 1,344 0.98% 1,042 0.88% 1,145 1.06%
Other(2)(3) 2,167 1.58% 1,335 1.13% 1,129 1.04%
----------- --------- --------- -------- --------- --------
Total consumer loans $ 9,319 6.81% $ 6,880 5.82% $ 6,652 6.15%
Less:
Loans in process 1,245 0.91% 1,282 1.08% 2,220 2.05%
Deferred loan origination fees 0.00%
and costs, net 10 0.01% 34 0.03% 50 0.05%
Allowance for loan losses 655 0.48% 600 0.51% 541 0.50%
----------- --------- --------- -------- --------- --------
Total loans, net $ 136,835 100.00% $118,170 100.00% $108,119 100.00%
=========== ========= ========= ======== ========= ========
(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.
Type of Security
At December 31
1996 1995 1994
---------------------------------------------------------------
Type of Security (Dollars in Thousands)
Residential real estate:
1 to 4 family (1) $ 88,777 64.88% $ 89,718 75.92% $ 90,835 84.01%
Other dwelling units 3,504 2.56% 4,316 3.65% 4,588 4.24%
Commercial real estate 16,954 12.39% 7,403 6.26% 4,192 3.88%
Equity lines of credit 5,215 3.82% 4,045 3.42% 4,065 3.76%
Commercial business 20,191 14.76% 11,769 9.96% 4,663 4.31%
Savings accounts 593 0.43% 458 0.39% 313 0.29%
Automobile loans 1,344 0.98% 1,042 0.88% 1,145 1.06%
Other (2) 2,167 1.58% 1,335 1.13% 1,129 1.04%
--------- -------- --------- ------- --------- --------
Total $138,745 101.40% $120,086 101.62% $110,930 102.60%
Less:
Loans in process 1,245 0.91% 1,282 1.08% 2,220 2.05%
Deferred loan origination fees 0.00%
and costs, net 10 0.01% 34 0.03% 50 0.05%
Allowance for loan losses 655 0.48% 600 0.51% 541 0.50%
--------- -------- --------- ------- --------- --------
Total loans, net $136,835 100.00% $118,170 100.00% $108,119 100.00%
========= ======== ========= ======= ========= ========
(1) Includes construction loans converted to permanent loans.
(2) Includes unsecured personal loans, education loans and home improvement
loans.
Related Party Transactions.
The following table represents the indebtedness of certain directors,
officers and their associates as of December 31, 1996. Such indebtedness
was incurred in the ordinary course of business on substantially the same
terms as those prevailing at the time for comparable transactions with other
persons and does not involve more than normal risk of collectibility or
present other unfavorable features.
Loan Balance
Line of Line of Credit
Credit/Loan
Name Position Total Disbursed
Available
- ------------------ ------------------------- ----------------- ----------------
J. Robert Ellnor Executive Vice President $ 194,056 $ 69,056
Robert J. Koetter, Sr. Director 2,413,433 2,319,537
Gary L. Libs Director 1,409,064 1,409,064
M. Diane Murphy Senior Vice President 216,446 177,369
James W. Robinson Director 672,495 641,575
Timothy T. Shea Director 447,531 422,531
Kerry M. Stemler Director 817,495 302,513
James M. Stutsman Senior Vice President 123,971 123,971
Robert E. Yates President and CEO 119,339 96,800
C. Thomas Young Chairman of Board of Directors 348,577 292,218
Loan Maturity Schedule
The following table sets forth certain information at December 31,
1996, 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.
Within One Three Five Ten through
one through through through Beyond
year three five years ten years twenty twenty Total
years years years
------------------------------------------------------------------------------
Real estate mortgages:
Adjustable $ 34,336 $ 16,487 $ 13,038 $ 9,735 $ 40 $ 0 $ 73,636
Fixed 4,839 3,386 1,004 655 15,998 13,098 38,980
Second mortgages 670 423 718 0 0 23 1,834
Installment 1,078 992 1,155 880 0 0 4,104
Commercial business
financial and
agricultural 12,811 3,471 2,481 1429 0 0 20,191
--------- ---------- ------------ ---------- ----------- ---------- --------
Total $ 53,734 $ 24,757 $ 18,396 $ 12,699 $ 16,038 $ 13,121 $138,745
========= ========== ============ ========== =========== ========== =========
The following table sets forth the dollar amount of all loans due
after December 31, 1996, which have fixed rates and have floating or
adjustable interest rates.
Predetermined Floating or
rates Adjustable Total
rates
------------ ------------- ------------
Real estate mortgage $ 33,316 $ 58,966 $ 92,282
Commercial business loans 13,764 23,381 37,145
Consumer 8,180 1,138 9,318
------------ ------------- ------------
Total $ 55,260 $ 83,485 $ 138,745
============ ============= ============
Residential Real Estate Loans. The Company's primary lending activity
consists of the origination of one-to-four family, owner-occupied,
residential mortgage loans secured by property located in the Company's
primary market area. The majority of the Company's residential mortgage
loans consist of loans secured by owner-occupied, single family residences.
At December 31, 1996, the Company had $89.1 million, or 64.2 percent of its
net 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 on an ongoing basis
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, 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 majority of the Company's fixed-rate loans are originated with the
expectation that they will be resold in the secondary mortgage market. The
Bank'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 adjust annually with interest rate adjustment
limitations of 2 percentage points per year and 6 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. The interest rate on ARM loans is
based on the one-year, three-year or five-year U.S. Treasury Constant
Maturity Index commensurate with the applicable like term mortgage plus 275
basis points. 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 $59.0 million, or 42.5 percent of
the Bank's total loan portfolio at December 31, 1996.
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.
Since 1988, the Company's policy has been to attempt to sell a
majority of its fixed-rate single family residential loans in the secondary
mortgage market, either through FHLMC or FNMA programs or other secondary
sources. The Company's warehouse of unsold loans has ranged between $0 and
$1,074,000 over the past twelve month period.
The Company has limited its real estate loan originations to
properties within its primary market area since 1988. However, during the
five year period through 1988, the Company purchased at par approximately
$45 million of one-to-four family residential loans from its wholly owned
service corporation subsidiary, First Community Service Corp. (the "Service
Corporation"). The Service Corporation operated loan production offices in
Port St. Lucie, Naples, and West Palm Beach, Florida and Louisville,
Kentucky. The offices originated primarily one-year ARM loans with 30 year
terms, and to a lesser extent, one-year ARM loans with 15 year terms.
During this same period, the Company purchased for its portfolio
approximately $15.0 million of one-to-four family mortgage loans in several
packages from various savings associations and mortgages companies. The
mortgages purchased were predominantly ARM loans with annual rate
adjustments. These purchased loans, both from the Service Corporation and
from outside sources, accounted for the majority of the Company's variable
rate, one-to-four family residential mortgage loans from 1983 through 1988.
Concentration on lending exclusively in the Company's primary market
area, and increasing both its portfolio of investment securities and
increasing the Company's commercial and consumer loan portfolio has caused
the Company's loan portfolio of residential loans to decline from $116.7
million at December 31, 1989, to $92.3 million at December 31, 1996.
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, 1996,
the Company had $ 3.2 million or 2.3 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 upon receiving permanent financing
from another financial institution.
Commercial Real Estate Loans. Loans secured by commercial real estate
constituted approximately $17.0 million, or 12.4 percent, of the Company's
total net loan portfolio at December 31, 1996. 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 for adjustment periods of up to 5 years. The
Company continues to selectively 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. Currently, the Company does not emphasize the origination of
multi-family residential or commercial real estate loans. In addition, the
Company imposes stringent loan-to-value ratios, requires conservative debt
coverage ratios, and continually monitors 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 $20.2
million or 14.8 percent of the Company's loan portfolio of December 31,
1996. Most commercial business loans have variable rates which adjust
quarterly, semiannually or annually with the New York prime rate as reported
in the Wall Street Journal, ranging from 0 to 3.0 percentage points above
this index.
The Company intends to increase its origination of commercial business
loans. 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. As of December 31, 1996, consumer loans totaled $9.3
million or 6.8 percent of the Company's total loan portfolio. 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.
Equity lines of credit are made at rates which adjust every six months and
are indexed to the prime rate of New York banks. 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, 1996, equity
lines of credit totaled $ 5.2 million, or 56.0 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.
Upon receipt of a loan application, a credit report is made to verify
specific information relating to the applicant's employment, income, and
credit standing. In the case of a real estate loan, an appraisal of the
real estate intended to secure the proposed loan is undertaken by an
independent appraiser approved by the Company. A loan application file is
first reviewed by the Company's loan department and then, depending on the
amount of the loan, is submitted for approval to a loan committee consisting
of at least two senior officers of the Company, or their designee, and
subsequently ratified by the full Board of Directors. One-to-four family
residential mortgage loans with principal balances in excess of $500,000 and
multi-family and commercial real estate loans with principal balances in
excess of $500,000 must be submitted by the loan department directly to the
Executive Loan Committee of the Board of Directors for approval. Once the
Board of Directors ratifies or approves a loan, a loan commitment is
promptly issued to the borrower.
If the loan is approved, the commitment letter specifies the terms and
conditions of the proposed loan including the amount of the loan, interest
rate, amortization term, a brief description of the required collateral, and
required insurance coverage. The borrower must provide proof of fire and
casualty insurance on the property serving as collateral and must be
maintained during the full term of the loan. Title insurance or an
attorney's opinion based on a title search of the property is required on
all loans secured by real property.
Loan Originations, Purchases and Sales. Approximately 96.0 percent of
all loans in the Company's portfolio at December 31, 1996 were originated by
the Company. The Company no longer purchases loans originated by others.
The following table sets forth the Company's gross loan originations and
loans sold for the periods indicated.
Years Ended December 31,
--------------------------
1996 1995 1994
Loans originated:
Interim Construction loans $ 4,612 $ 4,688 $ 7,776
Residential 16,231 16,814 21,611
Commercial real estate 16,070 5,118 2,118
Consumer loans 6,796 2,602 2,038
Commercial business loans 6,471 17,031 17,206
==========================
Total loans originated $ 50,180 $46,253 $50,749
==========================
Loans sold:
Whole loans $ 8,290 $ 5,743 $ 5,847
==========================
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 on specified terms and conditions and are made 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
borrower chooses to receive the loan from another institution, the
commitment fee is forfeited by the potential borrower. At December 31,
1996, the Company had commitments to originate loans of $3.1 million, as
well as commitments to fund the undisbursed portion of construction loans in
process of $1.2 million.
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") in December 1986 issued SFAS No. 91 on
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 into income immediately upon the sale of
the related loan. At December 31, 1996, the Company had $ 10,212 of net
deferred loan fees and costs.
In addition to loan origination fees, the Company also receives other
fees and service charges which 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 $205,453, $211,122, and $213,053 for the
years ended December 31, 1996, 1995 and 1994, 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. Under FIRREA, current 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
and bullion, but not real estate). Under FIRREA, the Company's subsidiaries
maximum loan to one borrower limit was approximately $ 3.2 million and $
621,000 at December 31, 1996, for Community Bank and Heritage Bank,
respectively. 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 on 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 cost 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, 1996, the Company owned approximately
$101,000 of property acquired as the result of foreclosure or by deed in
lieu or foreclosure.
The following table sets forth information regarding non-accrual loans
and other non-performing assets at the dates indicated. At December 31,
1996, the Company had no restructured loans within the meaning of SFAS No.
15 and no impaired loans within the meaning of SFAS No.114. It is the
Company's policy to generally not accrue interest on loans delinquent more
than 90 days.
At December 31,
(In thousands)
1996 1995 1994 1993 1992
Loans accounted for on a
non-accrual basis:
Residential mortgage loans $ 207 $ 27 $ 576 $ 771 $ 586
Commercial real estate
Consumer 2 2
======== ======== ======== ======== ========
Total $ 207 $ 27 $ 578 $ 771 $ 588
======== ======== ======== ======== ========
Percentage of total loans 0.15% 0.02% 0.09% 0.78% 0.64%
Foreclosed real estate(1) $ 101 $ - $ 102 $3,213 $3,623
======== ======== ======== ======== ========
(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.
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)
1996 1995 1994
Gross interest income that
would have been recorded if all non-accrual
loans were on a current basis $ 13 $ 10 $ 39
======== ======== ========
Gross interest income actually recorded $ 2 $ 5 $ 29
======== ======== ========
The following table sets forth information with respect to the Banks'
delinquent loans at December 31, 1996:
At December 31, Number of
1996 loans
------------------ -------------
(In thousands)
Residential real
estate:
Loans (30 to 89 days
delinquent) $ 603 10
Loans more than 90 days
delinquent 377 5
Commercial real estate loans:
(30 days or more
delinquent) 85 4
Consumer loans (30 to 89 days
delinquent) 4 2
================== =============
Total $ 1,069 21
================== =============
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.
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 which
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, 1996, the Banks had $100,800 classified as special
mention assets and $594,848 classified as substandard assets. The Bank did
not have any assets classified as impaired at December 31, 1996.
Allowance for Loan Losses. Management's policy is to provide for estimated
losses in the Banks' loan portfolio based on management's 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. During 1994 the Company credited $70,000 to the
provision for losses on loans. In 1996 and 1995 the Company charged
approximately $67,000 and $58,000, respectively, to the provision for losses on
loans. Management will continue to review the entire loan portfolio to determine
the extent, if any, to which further additional loan loss provisions may be
deemed necessary.
Analysis of the Allowance For Loan Losses. The following table sets
forth information with respect to the Bank's allowance for loan losses at
the dates indicated.
At December 31,
1996 1995 1994
(In thousands)
Total loans outstanding $136,835 $120,086 $110,930
Average loans outstanding 128,034 116,279 101,735
Allowance balance
(at beginning of period) $ 600 $ 541 $ 611
Provision (credit)
Residential 7 6 (7)
Commercial 17 15 (18)
Consumer 43 37 (44)
Recoveries (charge offs), net
Residential (4) 1 (1)
Commercial - - -
Consumer 16 - -
Allowance balance --------- --------- ---------
(at end of period) $ 655 $ 600 $ 541
========= ========= =========
Allowance for loans
losses as a percent of
total loans outstanding .48% 0.50% 0.49%
Net loans charged off
as a percent of average
loans outstanding .01% 0.00% 0.00%
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
further losses and does not restrict the use of the allowance to absorb
losses in any category.
At December 31,
1996 1995 1994
(in thousands)
Residential loans $ 197 30.0% $ 60 10.0% $ 54 10.0%
Commercial loans 393 60.0% 150 25.0% 135 25.0%
Consumer loans 65 10.0% 390 65.0% 352 65.0%
================= ================= =================
Total $ 655 100.0% $ 600 100.0% $ 541 100.0%
================= ================= =================
Investment Activities
In recent years, the Bank has sought to increase the percentage of its
assets invested in securities issued or guaranteed by the U.S. Government
or an agency thereof. The emphasis on the Bank's investment portfolio has
been to (i) improve the Bank's interest rate sensitivity by reducing the
average term to maturity of the Bank's assets, (ii) improve liquidity, and
(iii) effectively reinvest excess funds. The Bank's mortgage-backed
securities consist primarily of FHLMC and FNMA REMICs and FHLMC, FNMA, and
GNMA certificates. Mortgage-backed securities generally increase the
quality of the Bank's assets by virtue of the insurance or guarantees that
back them. However, mortgage-backed securities are subject to interest rate
and prepayment risk.
The Banks' investment securities portfolio is managed by the President
and Chief Executive Officer of the Banks 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 Banks' Asset and
Liability Committee. The Banks' investment securities currently consist
primarily of U.S. agency and government securities.
Liquidity levels may be increased or decreased depending upon the
yields on investment alternatives and upon management's judgment as to the
attractiveness of the yields then available in relation to other
opportunities and its expectation of the level of yield that will be
available in the future, as well as management's projections as to the short
term demand for funds to be used in the Banks' loan origination and other
activities.
========================
Securities Analysis
========================
The following table sets forth the securities portfolio as of December 31
for the years indicated.
1996 1995
--------------------------- -------------------------
Fair Amortized Percent of Fair Amortize Percent of
Value Cost Portfolio Value Cost Portfolio
Securities Held to
Maturity (1)
Debt
securities:
U.S. Government:
Due in one year or less $ 999 $ 1,000 1.34%
Due after one year through five years
Federal Agency:
Due in one year or less $ 4,985 $ 5,000 5.96% 499 500 0.67%
Due after one year through five
years $ 16,873 $ 16,000 19.08% 24,845 25,098 33.54%
Due after five years through
ten years $ 26,883 $ 27,197 32.43% 8,743 8,687 11.61%
Due after one year through five years
Due after ten years $ 4,419 $ 4,500 5.37% 2,023 2,001 2.67%
Municipal
Due after five years through
ten years $ 626 $ 637 0.76% 628 639 0.85%
Due after ten years $ 2,060 $ 2,012 2.40% 530 518 0.69%
Mortgage backed securities (3) $ 24,689 $ 24,724 29.49% $27,517 $27,522 36.79%
=========================== =========================
Total securities held
to maturity $ 80,535 $ 80,070 95.49% $65,784 $65,965 88.16%
=========================== =========================
Nonmarketable equity securities
FHLB stock $ 1,250 $ 1,250 1.49% $ 1,231 $ 1,231 1.64%
--------------------------- -------------------------
Securities available for sale(2)
Debt securities:
Federal Agency:
Due in one year or less $ 251 $ 250 0.33%
Due after one year through five years $ 1,502 $ 1,500 0.33%
Due after five years through ten years
Due after ten years
Mortgage backed securities (3) $ 1,029 $ 1,034 1.23% $ 7,488 $ 7,388 9.87%
=========================== =========================
Total securities available for sale $ 2,539 $ 2,534 3.02% $ 7,739 $ 7,638 10.20%
=========================== =========================
(1) Securities held to maturity are carried at amortized cost.
(2) Securities available for sale are carried at fair value at December 31,
1996. Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board ("FASB") No. 115. See note 1 of Notes to Consolidated
Financial Statements included in the Annual Report for a discussion of FASB
115. Prior to that date, Securities available for sale were carried at the
lower of amortized cost or 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.
Sources of Funds
General. The major source of funds for the Company are dividends from its
subsidiaries, the Banks, 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, operations and advances from the FHLB of
Indianapolis. 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 Bank's 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 $25.7 million, or 14.5 percent of the Company's total deposit
portfolio at December 31, 1996. 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. At December
31, 1996, the Bank had a deposit of public funds in the amount of $5.0 million.
Deposit Flow The following table sets forth the change in dollar amount of
deposits in the various types of deposit accounts offered by the Company's
affiliate Banks at the dates indicated.
Balance % of Increase Balance % of Increase
at at
12/31/96 Deposits(Decrease) 12/31/95 Deposits(Decrease)
Checking accounts $ 31,352 17.8% $ 10,397 $ 20,955 12.5% $ (821)
Jumbo certificates 25,670 14.5% 6,496 19,174 11.4% (365)
Passbook and regular savings 32,666 18.5% (13,863) 46,529 27.7% (12,207)
One-to-twelve month money
market certificates 31,489 17.8% 2,435 29,054 17.3% 5,616
12 to 60 month certificates 45,327 25.7% 2,716 42,611 25.3% 872
IRA certificate accounts 10,120 5.7% 352 9,768 5.8% 1,067
========================== ==========================
Total $176,624 100.0% $ 8,533 $168,091 100.0% $(5,838)
========================== ==========================
Balance % of Increase
at
12/31/94 Deposits(Decrease)
Checking accounts $ 21,776 12.5% $ 6,198
Jumbo certificates 19,539 11.2% 6,757
Passbook and regular savings 58,736 33.8% 6,063
One-to-twelve month money
market certificates 23,438 13.4% 2,365
12 to 60 month certificates 41,739 24.1% (346)
IRA certificate accounts 8,701 5.0% (914)
==========================
Total $173,929 100.0% $20,123
==========================
Deposits
Consolidated deposits of the Banks as of December 31, 1996, were
represented by the various types of savings programs described below.
Weighted
Average Percentage
Interest Minimum Minimum of Total
Rate Term Category Amount Balance Savings
(in
thousands)
Non-interest bearing
-- None checking accounts 250 $ 13,803 7.8%
Interest bearing
2.78% None checking accounts 500 17,549 9.9%
Passbook and
3.16% None statement accounts 250 31,956 18.1%
3.00% None IRA Passbook accounts 100 710 0.4%
------------ ----------
64,018 36.2%
Certificates of Deposit
4.81% 1 - 5 months Fixed term,fixed rate 1,000 123 0.1%
4.58% 6 -11 months Fixed term,fixed rate 500 13,614 7.7%
5.22% 12-17 months Fixed term,fixed rate 500 17,752 10.1%
5.75% 18-29 months Fixed term,fixed rate 500 16,203 9.2%
6.10% 30-35 months Fixed term,fixed rate 500 9,115 5.2%
6.00% 36-59 months Fixed term,fixed rate 500 13,860 7.8%
5.67% (a) IRA accounts 500 10,120 5.7%
5.57% (a) Jumbo 100,000 25,670 14.5%
6.02% + 60 months 500 6,149 3.5%
------------ ----------
112,606 63.8%
$ 176,624 100.0%
============ ==========
(a) IRA accounts and jumbo certificates of deposits are generally offered with
various maturities from seven days to over 60 months.
Time Deposits by Rates. The following table sets forth the
time deposits classified by rates as of the dates indicated.
At December 31,
Weighted Average 1996 1995 1994
- ----------------- ---- ---- ----
Rate
- ----
0.00 - 3.99% $ -- $ 715 $16,093
4.00 - 6.00% 87,995 69,617 61,417
6.01 - 8.00% 24,593 30,076 13,474
8.01 - 10.00% 18 199 2,433
======== ========= ========
$112,606 $100,607 $93,417
======== ========= ========
Time Deposit Maturity Schedule. The following table sets
forth the amount and maturities of time deposits at December 31,
1996.
Less than 1 - 2 2 - 3 After
Weighted Average One Year Years Years 3 Years Total
Rate
(In thousands)
0.00 - 3.99% $ -- $ -- $ -- $ -- $ --
4.00 - 6.00% 63,973 17,654 4,061 2,307 87,995
6.01 - 8.00% 10,892 6,387 4,082 3,232 24,593
8.01 - 10.00% 8 1 4 5 18
============= ======== ========= ======== ========
$74,873 $24,042 $8,147 $5,544 $112,606
============= ======== ========= ======== ========
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, 1996.
Certificates
Maturity Period of Deposits
(in thousands)
$Three months or less $ 9,166
Three through six months 7,704
Six through twelve months 4,950
Over twelve months 3,850
=========
Total $ 25,670
=========
Deposit Activity. The following table sets forth the
deposit activities for the periods indicated. Balances are
reported in thousands.
1996 1995 1994
---- ---- ----
Deposits $1,030,642 $755,574 $606,700
Withdrawals 1,027,570 767,338 590,999
---------- -------- ---------
Net increase (decrease)
before interest credited 3,072 (11,764) 15,701
Interest credited 5,462 5,926 4,422
---------- -------- ---------
Net increase (decrease)
in deposits $ 8,534 $(5,838) $ 20,123
========== ======== =========
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 FHLB of Indianapolis and 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 loans. At December 31, 1996, the Banks had $23,000,000 of
advances outstanding from the FHLB of Indianapolis.
The FHLB of Indianapolis functions as a central reserve bank providing
credit for the Bank and other member financial institutions. All members are
required to own capital stock in the FHLB and is 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.
The following table sets forth certain information regarding borrowings by
the Company at the end of and during the periods indicated:
At December 31,
1996 1995 1994
---- ---- ----
Weighted average rate paid on:
FHLB advances 5.65% 5.68% 5.38%
During the Year Ended
December 31,
1996 1995 1994
---- ---- ----
Maximum amount of borrowings
outstanding at any month end:
FHLB Advances $23,000 $21,099 $15,601
Approximate average short-term
borrowings outstanding with
respect to:
FHLB Advances(1) $10,550 $ 9,354 $ 3,375
(1) Average balances are derived from month-end
balances.
Competition
There is strong competition both in attracting deposits and in originating
real estate and other loans. The most direct competition for deposits has come
historically from commercial banks, other savings associations and credit unions
in the Banks' market area. The Banks expect continued strong competition from
such financial institutions in the foreseeable future. The Banks' market area
includes branches of several commercial banks which are substantially larger
than the Banks in terms of state-wide deposits. The Banks compete for savings by
offering depositors a high level of personal service together with a wide range
of financial services.
The competition for real estate and other loans comes principally from
commercial banks, mortgage banking companies and other savings associations.
This competition for loans has increased substantially in recent years as a
result of the large number of institutions choosing to compete in the Banks'
market area.
The Banks compete for loans primarily through the interest rates and loan
fees charged and the efficiency and quality of services provided to borrowers,
real estate brokers and builders. Factors that affect competition include
general and local economic conditions, current interest rate levels and
volatility of the mortgage markets.
Regulation
As state chartered commercial banks, Community and Heritage are subject to
examination, supervision and extensive regulation by the FDIC and the Indiana
Department of Financial Institutions (DFI). Community is a member of and owns
stock in the FHLB of Indianapolis, which is one of the twelve regional banks in
the Federal Home Loan Bank System. Both Banks also are subject to regulation by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") governing reserves to be maintained against deposits and certain other
matters.
The FDIC and or DFI regularly examines the Banks and prepares 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 Savings 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. When these examinations are
conducted, 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 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 it is 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 lend to a single or related
group of borrowers on an unsecured basis, an amount equal to 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 Bank.
Proposed Federal Legislation. Currently, Congress has under consideration
a proposal which, if implemented, could have a material effect on financial
institutions in general, and the Banks in particular. Consolidation of the four
Federal banking agencies (the Federal Reserve Board, OTS, FDIC and the Office of
the Comptroller of the Currency) has been and will continue to be considered.
The outcome of this proposal is uncertain and the Company is unable to determine
the extent to which the legislation if enacted, would affect its business.
Federal Regulations.
Section 22(h) and (g) of the Federal Reserve Act places 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 interest 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, 1996 the Bank was in compliance with the above restrictions.
Safety and Soundness. On November 18, 1993, a joint notice of proposed
rulemaking was issued by the OTS, the FDIC, the Office of the Comptroller of the
Currency and the Federal Reserve Board (collectively, the "agencies") concerning
standards for safety and soundness required to be prescribed by regulation
pursuant to Section 39 of the FDIA. In general, the standards relate to (1)
operational and managerial matters; (2) asset quality and earnings; and (3)
compensation. The operational and managerial standards cover (a) internal
controls and information systems, (b) internal audit system, (c) loan
documentation, (d) credit underwriting, (e) interest rate risk exposure, (f)
asset growth, and (g) compensation, fees and benefits. Under the proposed asset
quality and earnings standards, the Bank would be required to maintain (1) a
maximum ratio of classified assets (assets classified substandard, doubtful and
to the extent that related losses have not been recognized, assets classified
loss) to total capital of 1.0, and (2) minimum earnings sufficient to absorb
losses without impairing capital. 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, 1996, 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, 1996, as compared to the minimum capital requirements.
For Capital
Actual Adequacy Purposes: Excess
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996
Total Capital (to Risk
Weighted Assets):
Consolidated $26,675 22.6% $ 9,446 8.0% $17,229 14.6%
Tier I Capital (to Risk
Weighted Assets):
Consolidated $26,020 22.0% $ 4,723 4.0% $21,297 18.0%
Tier I Capital (to average Assets):
Consolidated $26,020 10.9% 9,571 4.0% $16,449 6.9%
The FDIC generally is authorized to take enforcement action against a
financial institution that fails to meet its capital requirements, which 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.
Prompt Corrective Action. Under Section 38 of the FDIA, as added 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, 1996, the Bank was deemed well
capitalized for purposes of the above regulations.
Federal Home Loan Bank System. Community is a member of the FHLB of
Indianapolis, which is one of the 12 regional FHLB's that, prior to the
enactment of FIRREA, were regulated by the 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 a member of the FHLB Bank of Indianapolis, Community is 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, 1996, Community had $1.25 million in FHLB of
Indianapolis stock, which was in compliance with this requirement. In past
years, Community has 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, 1996, the Company had $23 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.
Insurance of Accounts. Each Bank's deposits are insured up to $100,000 per
insured member (as defined by law and regulation). Community's deposits are
insured by the Savings Association Insurance Fund (SAIF) and Heritage'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
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, 1996
both banks were assigned to the well capitalized, subgroup "A" category. During
1996, Community Bank paid an annual insurance rate of 23 cents per $100 of
deposits, while Heritage Bank paid the minimum assessment required by a BIF
insured institution of $1,000.
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. Community's charge amounted to $1.2 million with an after tax impact
of approximately $678,000. Commencing in 1997, both SAIF and BIF insured
institutions will pay insurance at the rate of 6.4 cents per $100 in deposits.
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 savings 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, 1996, no reserves were
required to be maintained on the first $4.3 million of transaction accounts,
reserves of 3% were required to be maintained against the next $52.0 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 noninterest-bearing account at a Federal reserve Bank,
the effect of this reserve requirement is to reduce an institution's earning
assets.
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
thrift 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.
Effective with the year ended December 31, 1993, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. This statement requires a liability approach for measuring
deferred tax assets and liabilities based on temporary differences existing at
each balance sheet date using enacted tax rates in effect when those differences
are expected to reverse. The cumulative effect of adopting Statement No. 109 at
January 1, 1993 is included in income tax expense in the accompanying
Consolidated Statement of Operations. (See Item 14 (a) 1 -Financial Statements)
Earnings appropriated to the Banks' bad debt reserve will not be available
for the payment of cash dividends or for distribution to stockholders (including
distributions made on dissolution or amount deemed necessary to pay the
resulting federal income tax). As of December 31, 1996, the Bank had
approximately $4.5 million of accumulated earnings for which federal income tax
has not been provided. If such amount is used for any purpose other than bad
debt losses, including a dividend distribution or a distribution in liquidation,
it will be subject to federal income tax at the then current rate.
The Bank 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 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 Banks'
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.
Personnel
As of December 31, 1996, the Company had 75 full-time employees. Community
Bank employed 38 full-time and 7 part-time employees as of December 31, 1996.
Heritage Bank employed 11 full-time and 1 part-time employees as of December 31,
1996. Neither entity's employees are represented by a collective bargaining
group. The Company and two subsidiary Banks believe their respective
relationships with their employees to be good.
ITEM 2. PROPERTIES
The Company conducts its business through the main office located in New
Albany, Indiana, and six branch offices of its subsidiaries Community Bank and
Heritage Bank located in Clark and Floyd Counties, Indiana. The following table
sets forth certain information concerning the main offices and each branch
office at December 31, 1996. The aggregate net book value of premises and
equipment was $3.5 million at December 31, 1996.
Lease
Expiration
Location Year Opened Owned or Date
Leased
Community Bank of Southern
Indiana:
202 East Spring 1937 Owned ---
St.
New Albany, IN 47150
147 East Spring Street 1990 Leased Month to month
New Albany, IN 47150
2626 Charlestown Road 1995 Owned ---
New Albany, IN 47150
901 East Highway 131 1981 Owned ---
Clarksville, IN
47130
701 Highlander Point 1990 Owned ---
Drive
Floyds Knobs, IN 47119
102 Heritage 1992 Owned ---
Square
Sellersburg, IN
47172
Community Bank Shares of Indiana, Inc.:
201 W. Court 1996 Owned ---
Ave.
Jeffersonville, IN 47130
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,
1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Page 20 of the 1996 Annual Report to Stockholders are herein incorporated by
reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
Pages 9 - 11 of the 1996 Annual Report to Stockholders are
herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pages 12 - 17 of the 1996 Annual Report to Stockholders are
herein incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS
Pages 22 - 25 of the 1996 Annual Report to Stockholders are
herein incorporated by reference.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Information concerning Directors and executive officers of the Registrant
is incorporated herein by reference from the Bank's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on April 15, 1997 a copy of
which will be filed no later than 120 days after the close of the fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference from the Bank's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on April 15, 1997 a copy of which will be filed no later
than 120 days after the close of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning security ownership of certain owners and management
is incorporated herein by reference from the Bank's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on April 15, 1997 a copy of
which will be filed no later than 120 days after the close of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning relationships and transactions is incorporated
herein by reference from the Bank's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on April 15, 1997 a copy of which will be
filed no later than 120 days after the close of the fiscal year.
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, 1996, is incorporated by reference
in this Annual Report on Form 10-K as Exhibit 13.
Annual Report Section Pages in Annual Report
Selected Financial Data 9 - 11
Management's Discussion and Analysis 12 - 17
of Financial Condition and Results
of Operations
Report of Independent Auditor 21
Consolidated Balance Sheets 22
Consolidated Statements of Income 24
Consolidated Statements of Cash Flows 25
Consolidated Statement of 23
Stockholders' Equity
Notes to Consolidated Financial 26 - 44
Statements
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted as the required
information is inapplicable or has been included in the Notes to
Consolidated Financial Statements.
(a) (3) Exhibits
Sequential Page
Number Where
Reference to Prior Attached Exhibits
Filing or Exhibit Are Located in
Regulation S-K Number Attached This Form 10-K
Exhibit Number Document Hereto Report
3.1 Federal Stock Charter * Not Applicable
3.2 Bylaws * Not Applicable
4 Instruments defining the * Not Applicable
rights of security holders,
including debentures
13 Form of Annual Report to ** Not Applicable
Security Holders
22 Subsidiary of Registrant 22
Annual Proxy Statement **
Not Applicable
* Filed as exhibits to the Registrant's Form MHC-2 Application filed with
the OTS on May 16, 1991. All of such previously filed documents are hereby
incorporated herein by reference in accordance with Item 601 of Regulation S-K.
** Filed with the Securities and Exchange Commission in original paper form
on March 29, 1997.
(b) Reports on Form 8-K:
No reports on form 8-K were filed in the fourth quarter of 1996.
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
Date: March 31, 1997 By: \s\ Robert E. Yates
ROBERT E. YATES
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\ James Stutsman
C. THOMAS YOUNG JAMES STUTSMAN,
Chairman of the Board Senior vice President
of Directors and Chief Financial Officer
Date: March 31, 1997 Date: March 31, 1997
By: \s\ Edward Pinaire By: \s\ Robert J. Koetter, Sr.
EDWARD PINAIRE, ROBERT J. KOETTER, SR.,
Vice Chairman of the Board Director
of Directors
Date: March 31, 1997 Date: March 31, 1997
By: \s\ Gary L. Libs By: \s\ M. Diane Murphy
GARY L. LIBS, M. DIANE MURPHY,
Director Senior Vice President and
Corporate Secretary
Date: March 31, 1997 Date: March 31, 1997
By: \s\ James W. Robinson By: \s\ J. Robert Ellnor
JAMES W. ROBINSON, J. ROBERT ELLNOR,
Director Executive Vice President
Date: March 31, 1997 Date: March 31, 1997
By: \s\ Timothy T. Shea By: \s\ Stan Krol
TIMOTHY T. SHEA, STAN KROL,
Director Chief of Operations
Date: March 31, 1997 Date March 31, 1997
Exhibit 22
Name of Subsidiary Community Bank of Southern
Indiana,
Address of Subsidiary 202 East Spring Street
New Albany, Indiana 47150
State of Incorporation Indiana
Currently doing business as Community Bank of Southern Indiana
Name of Subsidiary First Community Service
Corporation
Address of Subsidiary 202 East Spring Street
New Albany, Indiana 47150
State of Incorporation Indiana
Currently doing business as First Community Service Corporation.
Name of Subsidiary Heritage Bank of Southern Indiana,
Address of Subsidiary 201 West Court Avenue
Jeffersonville, Indiana 47131
State of Incorporation Indiana
Currently doing business as Heritage Bank of Southern Indiana