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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 [NO FEE REQUIRED]
For the Fiscal Year Ended December 31, 1997
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 25, 1998, there were issued and outstanding 1,983,722 shares of the
Registrant's Common Stock.
1
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the asked price of $23.875 per share of
such stock as of March 25, 1997, was approximately $38.0 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, 1997.
Part III of Form 10-K - Joint Proxy Statement/Prospectus for the 1998 Annual
Meeting of Stockholders.
2
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 $254.1 million, total deposits of
$186.0 million, and stockholders' equity of $27.7 million as of December 31,
1997. 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 and the origination of small to medium sixed business
loans. 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 loans and various term business related
real estate loans. Depending on each subsidiary's liquidity, interest rate risk
and balance sheet positions, fixed-rate mortgage loans are originated for
inclusion in the retained loan portfolio or sale in the secondary market, while
ARM loans are originated primarily for retention in each subsidiary's portfolio.
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 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.
3
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 Savings Bank (the Bank), converted from mutual to stock form and
simultaneously merged with and into the Bank, with Community Savings Bank 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. 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 second
subsidiary 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.
4
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, 1997, the Company's net portfolio of loans
receivable (including loans classified as held for sale) totaled $143.8 million,
representing approximately 56.6% of the Company's total assets at that date. The
principal lending activity of the Company is the origination of single-family
residential loans and secured and unsecured commercial business loans to local
business and professional organizations. 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 terms to maturity of between 15- to 30- years terms and secured
by one-to-four family residential properties. One-to-four family fixed-rate
loans generally are originated for retention in the loan portfolio or resale in
the secondary mortgage market. The Company sells mortgage loans with servicing
either retained or released. The Company earns service fee income on those loans
where servicing is retained.
The Company also originates interim construction loans on one-to-four
family residential properties, mortgage loans secured by multi-family
residential properties, and consumer loans for a variety of purposes, including
home equity loans, home improvement loans and automobile loans.
5
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,
------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- --------------------------- --------------------------
Conventional real estate loans: (Dollars in Thousands)
Residential interim
Construction loans $ 1,981 1.38% $ 3,184 2.33% $ 2,583 2.19%
Residential 82,184 57.14% 89,097 65.11% 91,451 77.39%
Commercial real estate 21,803 15.16% 16,954 12.39% 7,403 6.26%
Commercial business loans (1) 27,929 19.42% 20,191 14.76% 11,769 9.96%
------------- ----------- ------------- ----------- ------------- ----------
Total real estate loans $133,897 93.10% $129,426 94.59% $113,206 95.80%
Consumer Loans:
Savings account loans 874 0.61% 593 0.43% 458 0.39%
Equity lines of credit (2) 6,846 4.76% 5,215 3.82% 4,045 3.42%
Automobile loans 1,570 1.09% 1,344 0.98% 1,042 0.88%
Other (2) (3) 2,327 1.62% 2,167 1.58% 1,335 1.13%
------------- ----------- ------------- ----------- ------------- ----------
Total consumer loans $11,617 8.08% $9,319 6.81% $6,880 5.82%
Less:
Loans in process 836 0.58% 1,245 0.91% 1,282 1.08%
Deferred loan origination fees
and costs, net 22 0.02% 10 0.01% 34 0.03%
Allowance for loan losses 837 0.58% 655 0.48% 600 0.51%
============= =========== ============= =========== ============= ==========
Total loans, net $143,819 100.00% $136,835 100.00% $118,170 100.00%
============= =========== ============= =========== ============= ==========
(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.
6
Type of Security
At December 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Type of Security
(Dollars in Thousands)
Residential real estate:
1 to 4 family (1) $ 80,857 56.22% $ 88,777 64.88% $ 89,718 75.92%
Other dwelling units 3,308 2.30% 3,504 2.56% 4,316 3.65%
Commercial real estate 21,803 15.16% 16,954 12.39% 7,403 6.26%
Equity lines of credit 6,846 4.76% 5,215 3.82% 4,045 3.42%
Commercial business 27,929 19.42% 20,191 14.76% 11,769 9.96%
Savings accounts 874 .61% 593 0.43% 458 0.39%
Automobile loans 1,570 1.09% 1,344 0.98% 1,042 0.88%
Other (2) 2,327 1.62% 2,167 1.58% 1,335 1.13%
------------- ----------- ------------ ---------- ------------- -------------
Total $ 145,514 101.18% $138,745 101.40% $120,086 101.62%
Less:
Loans in process 836 .58% 1,245 0.91% 1,282 1.08%
Deferred loan origination fees
and costs, net 22 .02% 10 0.01% 34 0.03%
Allowance for loan losses 837 .58% 655 0.48% 600 0.51%
------------- ----------- ------------ ---------- ------------- -------------
Total loans, net $ 143,819 100.00% $136,835 100.00% $118,170 100.00%
============= =========== ============ ========== ============= =============
(1) Includes construction loans converted to permanent loans.
(2) Includes unsecured personal loans, education loans and home improvement
loans.
7
Related Party Transactions
The following table represents the indebtedness of certain directors,
officers and their associates as of December 31, 1997. 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/Loan Credit
Name Position Total Available Disbursed
- -------------------------- ------------------------------------ ------------------------- -----------------------
Robert J. Koetter, Sr. Director $976,132.28 $976,132.28
Gary L. Libs Director 778,169.43 778,169.43
M. Diane Murphy Senior Vice President 102,677.84 77,962.00
Timothy T. Shea Director 196,034.72 196,034.72
Kerry M. Stemler Director 1,950,791.85 1,344,191.85
James M. Stutsman Senior Vice President 118,710.53 118,710.53
Robert E. Yates President and CEO 111,164.11 83,925.47
C. Thomas Young Chairman of Board of Directors 569,859.74 504,162.88
Steven Stemler Director 82,929.04 52,929.04
Dale Orem Director 197,984.16 194,586.56
8
Loan Maturity Schedule
The following table sets forth certain information at December 31, 1997,
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 One through Three through Five through Ten through Beyond
year three years five years ten years twenty years twenty years Total
------------------------------------------------------------------------------------------------
Real estate mortgages:
Adjustable $ 23,313 $ 19,294 $ 8,702 $ 938 $ -- $ -- $ 52,247
Fixed 2,671 4,010 7,837 6,653 6,046 1,892 29,109
Second mortgages 60 143 471 835 1,096 204 2,809
Installment 2,252 1,688 2,173 2,852 2,613 39 11,617
Commercial business
financial and agricultural 22,021 10,200 12,914 2,513 2,084 -- 49,732
------------ ----------- ---------- ----------- ----------- ------------ ------------
Total $ 50,317 $ 35,335 $ 32,097 $ 13,791 $ 11,839 $ 2,135 $ 145,514
============ =========== =========== =========== =========== ============ ============
9
The following table sets forth the dollar amount of all loans due after
December 31, 1997, which have fixed rates and have floating or adjustable
interest rates.
Predetermined Floating or
rates Adjustable rates Total
------------------ -------------------- -----------------
Real estate mortgage $ 29,109 $ 55,056 $ 84,165
Commercial business loans 17,731 32,001 49,732
Consumer 10,445 1,172 11,617
------------------ -------------------- -----------------
Total $ 57,285 $ 88,229 $ 145,514
================== ==================== =================
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, 1997, the
Company had $80.9 million, or 56.2 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 Banks' fixed-rate mortgage loans are amortized on a monthly basis
with principal and interest due each month. Residential real estate loans often
remain outstanding fro 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
10
interest rate equal to the maximum annual rate increase added to the current
index. ARM loans totaled $52.2 million, or 36.3 percent of the Bank's total
loan portfolio at December 31, 1997.
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.
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"). Of this
original $45 million, $9.8 million was still outstanding as of December 31,
1997. 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 banks
and mortgages companies. Of this original $15 million, $5.1 million was still
outstanding as of December 31, 1997. 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 $84.2 million at December 31, 1997.
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.
11
Construction Loans. The Company originates loans to finance the
construction of owner-occupied residential property. At December 31, 1997, the
Company had $ 2.0 million or 1.4 percent of its total gross loan portfolio
invested in interim construction loans. The Company makes construction loans to
private individuals for the purpose of constructing a personal residence or to
local real estate builders and developers. Construction loans generally are made
with either adjustable or fixed-rate terms of up to six months. Loan proceeds
are disbursed in increments as construction progresses and as inspections
warrant. Construction loans are structured to be converted to permanent loans
originated by the Company at the end of the construction period or to be
terminated upon receipt of permanent financing from another financial
instituion.
Commercial Real Estate Loans. Loans secured by commercial real estate
constituted approximately $21.8 million, or 15.2 percent, of the Company's total
net loan portfolio at December 31, 1997. The Company's permanent commercial real
estate loans are secured by improved property such as offices, small business
facilities, apartment buildings, nursing homes, warehouses and other
non-residential buildings, most of which are located in the Company's primary
market area and most of which are to be used or occupied by the borrowers.
Commercial real estate loans have been offered at adjustable interest rates and
at fixed rates with balloon provisions at the end of the term financing. The
Company continues to originate commercial real estate loans, commercial real
estate construction loans and land loans.
Loans secured by commercial real estate generally involve a greater
degree of risk than residential mortgage loans and carry larger loan balances.
This increased credit risk is a result of several factors, including the
concentrations of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income producing properties and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by multifamily and commercial real
estate is typically dependent upon the successful operation of the related real
estate project. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired. 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 $27.9 million or 19.4
percent of the Company's loan portfolio of December 31, 1997. This type of
commercial loan has been offered at both variable rates and fixed rates with
balloon payments required at maturity.
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, 1997, consumer loans totaled $11.6
million or 8.1 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 predominately made at rates which adjust periodically and
are indexed to the prime rate. Some consumer loans are offered on a fixed-rate
basis depending upon the borrower's preference. The Company's equity lines of
12
credit are generally secured by the borrower's principal residence and a
personal guarantee. At December 31, 1997, equity lines of credit totaled $ 6.8
million, or 59.0 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 independent appraiser approved by the
Company undertakes an appraisal of the real estate intended to secure the
proposed loan. 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 such insurance 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.
13
Loan Originations, Purchases and Sales. The Company originated
approximately 96.0 percent of all loans in the Company's portfolio at December
31, 1997. 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,
------------------------------------
1997 1996 1995
---- ---- ----
Loans originated:
Interim Construction loans $ 2,725 $ 4,612 $ 4,688
Residential 15,045 16,231 16,814
Commercial real estate 10,464 16,070 5,118
Consumer loans 3,140 6,796 2,602
Commercial business loans 10,910 6,471 17,031
====================================
Total loans originated $ 42,284 $ 50,180 $ 46,253
====================================
Loans sold:
Whole loans $ 8,290 $ 5,743 $ 3,974
====================================
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 potential borrower chooses to borrow funds from another
institution, the commitment fee is forfeited. At December 31, 1997, the Company
had commitments to originate loans of $3.6 million, as well as commitments to
fund the undisbursed portion of construction loans in process of $836,000.
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, 1997, the Company had $ 22,277 of outstanding 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 $199,940, $205,453, and $211,122 for the years
ended December 31, 1997, 1996 and 1995, respectively.
14
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, but not real
estate). Under FIRREA, the Company's subsidiaries had maximum loan to one
borrower limits of approximately $ 3.4 million and $ 652,000 at December 31,
1997, 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, 1997, the Company did not own any property acquired as the result
of foreclosure or by deed in lieu or foreclosure.
15
The following table sets forth information regarding non-accrual loans
and other non-performing assets at the dates indicated. At December 31, 1997,
the Company had no restructured loans within the meaning of SFAS No. 15. It is
the Company's policy to generally not accrue interest on loans delinquent more
than 90 days.
At December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
Loans accounted for on
a non-accrual basis:
Residential mortgage loans $ 103 $ 207 $ 27 $ 576 $ 771
Commercial real estate -- -- -- -- --
Consumer 22 -- -- 2 --
============ ============= ============= ============ ============
Total $ 125 $ 207 $ 27 $ 578 $ 771
============ ============= ============= ============ ============
Percentage of total loans .09% 0.15% 0.02% 0.09% 0.78%
Foreclosed real estate (1) $ -- $ 101 $ -- $ 102 $ 3,213
============ ============= ============= ============ ============
(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)
1997 1996 1995
---- ---- ----
Gross interest income that would
have been recorded if all non-accrual
loans were on a current basis $ 11 $ 13 $ 10
============= ============= ============
Gross interest income actually recorded $ -- $ 2 $ 5
============= ============= ============
16
The following table sets forth information with respect to the Banks'
delinquent loans at December 31, 1997:
At December 31, 1997 Number of loans
----------------------- -------------------
(In thousands)
Residential real estate:
Loans (30 to 89 days delinquent) $ 315 6
Loans more than 90 days delinquent 294 5
Commercial real estate loans:
(30 days or more delinquent) 550 6
Consumer loans (30 to 89 days delinquent) 314 7
======================= ===================
Total $ 1,473 24
======================= ===================
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 review the loan portfolio monthly to
determine whether any loans require classification in accordance with applicable
regulations.
17
At December 31, 1997, the Banks had $771,185 classified as special
mention assets, $482,813 classified as substandard assets, and no assets
classified as impaired assets.
Allowance for Loan Losses. Management's policy is to provide for
estimated losses in the Banks' loan portfolio based on management's evaluation
of the probable losses that may be incurred. The allowance for loan losses is
maintained at a level believed adequate by management to absorb credit losses
inherent in the portfolio. Such evaluation, which includes a review of all loans
for which full collectibility of interest and principal may not be reasonably
assured, considers, among other matters, the estimated fair market value of the
underlying collateral, past loss experience, volume, growth, and composition of
the portfolio. During 1995 the Company credited $58,000 to the provision for
losses on loans. In 1997 and 1996 the Company charged approximately $210,000 and
$67,000, 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.
18
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,
1997 1996 1995
---- ---- ----
(In thousands)
Total loans outstanding $ 143,819 $ 136,835 $ 120,086
Average loans outstanding 141,825 128,034 116,279
Allowance balance
(at beginning of period) $ 655 $ 600 $ 541
Provision (credit)
Residential 70 7 6
Commercial 132 17 15
Consumer 8 43 37
Recoveries (charge offs), net
Residential (11) (4) 1
Commercial (10) - -
Consumer (7) 16 -
------------- ------------- -------------
Allowance balance (at end of
period) $ 837 $ 655 $ 600
============= ============= =============
Allowance for loans losses as
a percent of total loans
outstanding .58% .48% 0.50%
Net loans charged off as a
percent of average loans
outstanding .02% .01% 0.00%
19
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,
1997 1996 1995
---- ---- ----
(in thousands)
Residential loans $ 183 22.0% $ 197 30.0% $ 60 10.0%
Commercial loans 561 67.0% 393 60.0% 150 25.0%
Consumer loans 93 11.0% 65 10.0% 390 65.0%
======================== ========================= =========================
Total $ 837 100.0% $ 655 100.0% $ 600 100.0%
======================== ========================= =========================
Investment Activities
In recent years, the Banks' have 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 Banks' investment portfolio has been to
(i) improve the Banks' interest rate sensitivity by reducing the average term to
maturity of the Banks assets, (ii) improve liquidity, and (iii) effectively
reinvest excess funds.
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.
20
Securities Analysis
The following table sets forth the securities portfolio as of
December 31 for the years indicated.
1997 1996
-------------------------------------- -----------------------------------
Fair Amortized Percent of Fair Amortized Percent of
Value Cost Portfolio Value Cost Portfolio
Securities Held to Maturity (1)
Debt securities:
U.S. Government:
Due in one year or less -- -- -- -- -- --
Due after one year through five years -- -- -- -- -- --
Federal Agency:
Due in one year or less $ 6,434 $ 6,500 7.03% $ 4,985 $ 5,000 5.96%
Due after one year through five years $ 7,500 $ 7,500 8.11% $ 15,873 $ 16,000 19.08%
Due after five years through ten years $ 38,060 $ 38,006 41.09% $ 26,883 $ 27,197 32.43%
Due after ten years $ 11,942 $ 12,000 12.97% $ 4,419 $ 4,500 5.37%
Municipal
Due after one year through five years $ 635 $ 635 .69% -- -- --
Due after five years through ten years $ 910 $ 883 .95% $ 626 $ 637 0.76%
Due after ten years $ 1,194 $ 1,130 1.22% $ 2,060 $ 2,012 2.40%
Mortgage backed securities (3) $ 23,585 $ 23,387 25.28% $ 24,689 $ 24,724 29.49%
==================================== ===================================
Total securities held to maturity $ 90,260 $ 90,041 97.35% $ 79,535 $ 80,070 95.49%
==================================== ===================================
Nonmarketable equity securities
FHLB stock $ 1,575 $ 1,575 1.70% $ 1,250 $ 1,250 1.49%
------------------------------------ -----------------------------------
Securities available for sale(2) Debt securities:
Federal Agency:
Due in one year or less
Due after one year through five years -- -- -- $ 1,502 $ 1,500 1.79%
Due after five years through ten years -- -- -- -- -- --
Due after ten years -- -- -- -- -- --
Mortgage backed securities(3) $ 883 $ 878 .95% $ 1,029 $ 1,034 1.23%
==================================== ===================================
Total securities available for sale $ 883 $ 878 .95% $ 2,531 $ 2,534 3.02%
==================================== ===================================
(1) Securities held to maturity are carried at amortized cost.
(2) Securities available for sale are carried at fair value at
December 31, 1997. 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.
21
Sources of Funds
General. The major source of funds for the Company is 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 $28.3 million, or 15.2 percent of the Company's total deposit
portfolio at December 31, 1997. 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.
22
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 at % of Increase Balance at % of Increase
12/31/97 Deposits (Decrease) 12/31/96 Deposits (Decrease)
Checking accounts $ 33,428 18.0% $ 2,076 $ 31,352 17.8% $ 10,397
Jumbo certificates 28,328 15.2% 2,658 25,670 14.5% 6,496
Passbook and regular savings 31,377 16.9% (1,210) 32,666 18.5% (13,863)
One-to-twelve month money
market certificates 28,425 15.3% (3,009) 31,489 17.8% 2,435
12 to 60 month certificates 53,657 28.8% 8,196 45,327 25.7% 2,716
IRA certificate accounts 10,806 5.8% 686 10,120 5.7% 352
======================================= ======================================
Total $ 186,021 100.0% $ 9,397 $ 176,624 100.0% $ 8,533
======================================= ======================================
Balance at % of Increase
12/31/95 Deposits (Decrease)
Checking accounts $ 20,955 12.5% $ (821)
Jumbo certificates 19,174 11.4% (365)
Passbook and regular savings 46,529 27.7% (12,207)
One-to-twelve month money
market certificates 29,054 17.3% 5,616
12 to 60 month certificates 42,611 25.3% 872
IRA certificate accounts 9,768 5.8% 1,067
=======================================
Total $ 168,091 100.0% $ (5,838)
=======================================
23
Deposits
Consolidated deposits of the Banks as of December 31, 1997, 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 $ 10,544 5.7%
Interest bearing
2.65% None checking accounts 500 22,884 12.3%
Passbook and
3.38% None statement accounts 250 30,731 16.5%
3.01% None IRA Passbook accounts 100 646 0.3%
---------- ------------ -----------
$ 64,805 34.8%
Certificates of Deposit
------------------------
4.81% 1 - 5 months Fixed term, fixed rate 1,000 $ 97 0.1%
4.58% 6 - 11 months Fixed term, fixed rate 500 11,113 6.0%
5.22% 12 - 17 months Fixed term, fixed rate 500 19,804 10.6%
5.75% 18 - 29 months Fixed term, fixed rate 500 26,335 14.2%
6.10% 30 - 35 months Fixed term, fixed rate 500 6,562 3.5%
6.00% 36 - 59 months Fixed term, fixed rate 500 7,821 4.2%
5.67% (a) IRA accounts 500 10,806 5.8%
5.57% (a) Jumbo 100,000 28,328 15.2%
6.02% + 60 months 500 10,350 5.6%
----------- ------------ -----------
121,216 65.2%
$ 186,021 100.0%
============ ===========
(a) IRA accounts and jumbo certificates of deposits are generally offered with
various maturities from seven days to over 60 months.
24
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 Rate 1997 1996 1995
0.00 - 3.99% $ -- $ -- $ 715
4.00 - 6.00% 89,533 87,995 69,617
6.01 - 8.00% 31,673 24,593 30,076
8.01 - 10.00% 10 18 199
============= ============= ============
$121,216 $112,606 $100,607
============= ============= ============
Time Deposit Maturity Schedule. The following table sets forth the amount and
maturities of time deposits at December 31, 1997.
Less than 1 - 2 2 - 3 After
Weighted Average Rate One Year Years Years 3 Years Total
(In thousands)
0.00 - 3.99% $ -- $ -- $ -- $ -- $ --
4.00 - 6.00% 66,637 15,773 5,111 2,012 89,533
6.01 - 8.00% 11,507 15,784 3,301 1,081 31,673
8.01 - 10.00% 1 4 5 -- 10
================== ============= ============= ============ =============
$ 78,145 $ 31,561 $ 8,417 $ 3,093 $121,216
================== ============= ============= ============ =============
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, 1997.
Certificates
Maturity Period of Deposits
(in thousands)
Three months or less $ 14,136
Three through six months 5,668
Six through twelve months 2,801
Over twelve months 5,723
=============
Total $ 28,328
=============
25
Deposit Activity. The following table sets forth the deposit activities for the
periods indicated. Balances are reported in thousands.
1997 1996 1995
(In thousands)
Deposits $1,273,895 $1,030,642 $755,574
Withdrawals 1,269,871 1,027,570 767,338
--------------- -------------- ------------
Net increase (decrease)
before interest credited 4,024 3,072 (11,764)
Interest credited 5,373 5,462 5,926
--------------- -------------- ------------
Net increase (decrease)
in deposits $9,397 $8,534 $(5,838)
=============== ============== ============
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, 1997, the Banks had
$27,000,000 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.
Short-term Borrowings. The Banks also obtain funds through the offering
of retail repurchase agreements. Retail repurchase agreements represent
overnight borrowings from deposit customers secured by debt securities under the
control of the Banks. As of December 31, 1997, the Banks had $12.1 million of
retail repurchase agreements outstanding. In addition, Community Bank maintains
a $2,000,000 line of credit with the FHLB of Indianapolis in the event of a need
for funds in an overnight capacity.
26
The following table sets forth certain information regarding borrowings
by the Company at the end of and during the periods indicated:
At December 31,
1997 1996 1995
Weighted average rate paid on:
FHLB advances 5.77% 5.65% 5.68%
Retail repurchase agreements 4.77% 4.47% --
During the Year Ended
December 31,
1997 1996 1995
Maximum amount of borrowings Outstanding at any month end:
FHLB Advances $29,500 $23,000 $ 21,099
Retail repurchase agreements $15,165 $12,496 --
Approximate average short-term
Borrowings outstanding with Respect to :
FHLB Advances(1) $12,625 $ 10,550 $ 9,354
Retail repurchase agreements $12,100 $1,797 --
(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.
27
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 DFI regularly examine 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 Banks' 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 not lend to a single or
related group of borrowers on an unsecured basis an amount in excess of the
greater of $500,000 or 15 percent of the bank's unimpaired capital and surplus.
An additional amount may be lent, equal to 10 percent of unimpaired capital and
surplus, if such loan is secured by readily marketable collateral, which is
defined to include certain securities, but generally does not include real
estate. See "Lending Activities -- Loans to One Borrower" for a discussion of
the effect of this requirement on the 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
28
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, 1997
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, 1997, the Company met all capital adequacy
requirements to which it is subject.
29
The following table sets forth the Company's capital position at
December 31, 1997, 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, 1997
Total Capital (to Risk
Weighted Assets):
Consolidated $ 28,441 21.7% $ 10,475 8.0% $ 17,966 13.7%
Tier I Capital (to Risk
Weighted Assets):
Consolidated $ 27,604 21.1% $ 5,238 4.0% $ 22,366 17.1%
Tier I Capital (to average
Assets):
Consolidated $ 27,604 11.7% $ 9,442 4.0% $ 18,162 7.7%
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, 1997, the Bank was deemed well
capitalized for purposes of the above regulations.
30
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, 1997, Community had $1.58 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, 1997, the Company had $27 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
31
capitalized subgroup "C" category are assessed the highest insurance rate. As of
December 31, 1997 both banks were assigned to the well capitalized, subgroup "A"
category. During 1997, Community Bank paid an annual insurance rate of 6.3 cents
per $100 of deposits, while Heritage Bank paid an annual insurance rate of 1.26
cents per $100 of deposits.
In August 1995, the FDIC substantially reduced the deposit insurance
premiums for well-capitalized, well-managed financial institutions that are
members of the BIF. Under the new assessment schedule, approximately 92% of BIF
members paid a minimum assessment of $1,000 per year while SAIF members
continued to be assessed under the existing rate schedule of 23 cents to 31
cents per $100 of insured deposits.
On September 30, 1996, all SAIF member institutions were charged a one
time assessment to increase SAIF's reserves to $1.25 per $100 of insured
deposits. Community Bank's charge amounted to $1.2 million with an after tax
impact of approximately $678,000.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines, after a hearing, that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation,
order or any condition imposed by an agreement with the FDIC. The FDIC also may
suspend deposit insurance temporarily for any financial institution during the
hearing process for the permanent termination of insurance, if the Bank has no
tangible capital. If insurance of accounts is terminated, the insured accounts
at the institution at the time of the termination, less subsequent withdrawals,
shall continue to be insured for a period of six months to two years, as
determined by the FDIC.
The FDIC has passed regulations, under the Federal Deposit Insurance
Act, that generally prohibit payments to directors, officers and employees
contingent upon termination of their affiliation with an FDIC-insured
institution or its holding company (i.e., "golden parachute payments") if the
payment is received after or in contemplation of, among other things,
insolvency, a determination that the institution or holding company is in
"troubled condition", or the assignment of a composite examination rating of "4"
or "5" for the institution. Certain types of employee benefit plans are not
subject to the prohibition. The regulations, which are not currently applicable
to the Company, would also generally prohibit certain indemnification payments
regarding any administrative proceeding instituted against a person that results
in a final order pursuant to which the person is assessed civil money penalties
or subjected to other enforcement action. The Company has no such agreements
with any directors or employees.
The Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
and non-personal time deposits. As of December 31, 1997, 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.
32
Banks are authorized to borrow from the Federal Reserve Bank "discount
window," but Federal Reserve Board regulations require banks to exhaust other
reasonable alternative sources of funds, including FHLB advances, before
borrowing from the Federal Reserve Bank.
Federal Taxation. For federal income tax purposes, the Company and its
subsidiaries file a consolidated federal income tax return on a calendar year
basis. Consolidated returns have the effect of eliminating intercompany
distributions, including dividends, from the computation of consolidated taxable
income for the taxable year in which the distributions occur.
The Company and its subsidiaries are subject to the rules of federal
income taxation generally applicable to corporations under the Internal Revenue
Code of 1986, as amended (the "Code").
The Company is subject to the corporate alternative minimum tax which
is imposed to the extent it exceeds the Company's regular income tax for the
year. The alternative minimum tax will be imposed at the rate of 20 percent of a
specially computed tax base. Included in this base will be a number of
preference items, including the following: (i) 100 percent of the excess of a
financial institution's bad debt deduction over the amount that would have been
allowable on the basis of actual experience; (ii) interest on certain tax-exempt
bonds issued after August 7, 1986; and (iii) for years beginning in 1988 and
1989 an amount equal to one-half of the amount by which a institution's "book
income" (as specially defined) exceeds its taxable income with certain
adjustments, including the addition of preference items (for taxable years
commencing after 1989 this adjustment item is replaced with a new preference
item relating to "adjusted current earnings" as specially computed). In
addition, for purposes of the new alternative minimum tax, the amount of
alternative minimum taxable income that may be offset by net operating losses is
limited to 90 percent of alternative minimum taxable income.
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)
The Company has not been audited by the Internal Revenue Service for
the past ten years.
Indiana Taxation. Effective January 1, 1990, the State of Indiana
imposed a franchise tax assessed on 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.
33
Personnel
As of December 31, 1997, the Company had 80 full-time employees.
Community Bank employed 41 full-time and 6 part-time employees as of December
31, 1997. Heritage Bank employed 12 full-time employees as of December 31, 1997.
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 and an operations
center located in New Albany, Indiana, and seven 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, 1997. The aggregate net
book value of premises and equipment was $3.7 million at December 31, 1997.
Lease Expiration
Location Year Opened Owned or Leased Date
Community Bank of Southern Indiana:
202 East Spring St. - Main Branch 1937 Owned ---
New Albany, IN 47150
147 East Spring Street - Operations Center 1990 Leased Month to month
New Albany, IN 47150
2626 Charlestown Road 1995 Owned ---
New Albany, IN 47150
480 New Albany Plaza 1974 Leased 1999
New Albany, IN 47130
901 East Highway 131 1981 Owned ---
Clarksville, IN 47130
701 Highlander Point Drive 1990 Owned ---
Floyds Knobs, IN 47119
102 Heritage Square 1992 Owned ---
Sellersburg, IN 47172
Community Bank Shares of Indiana, Inc.:
201 W. Court Ave. 1996 Owned ---
Jeffersonville, IN 47130
Heritage Bank of Southern Indiana:
5112 Highway 62 1997 Owned ---
Jeffersonville, IN 47130
34
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,
1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The common stock of Community Bank Shares of Indiana, Inc. is traded
over the counter under the NASDAQ Small Cap symbol of CBIN.
Quarterly Dividends and Market Price Summary
Cash
Dividends
Paid Per
High Low Share
------------- ------------ ------------
1996
--------------------
First Quarter $ 14.75 $ 13.75 $ 0.085
Second Quarter 14.75 12.25 0.085
Third Quarter 13.75 11.75 0.085
Fourth Quarter 13.25 11.75 0.085
1997
--------------------
First Quarter 15.00 12.25 $ 0.105
Second Quarter 15.25 14.25 0.105
Third Quarter 23.50 14.25 0.105
Fourth Quarter 23.50 19.00 0.105
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
See pages 6 - 8 of the 1997 Annual Report to Stockholders incorporated
herein as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See pages 9 - 16 of the 1997 Annual Report to Stockholders incorporated
herein as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS
See pages 20 - 24 of the 1997 Annual Report to Stockholders
incorporated herein as Exhibit 13.
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.
35
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 28, 1998 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 28, 1998 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 28, 1998 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 28, 1998 a copy of which will be
filed no later than 120 days after the close of the fiscal year.
36
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, 1997, is incorporated herein as
Exhibit 13 in this Annual Report on Form 10-K.
Annual Report Section Pages in Annual Report
Selected Financial Data 6 - 8
Management's Discussion and Analysis 9 - 16
of Financial Condition and Results
of Operations
Report of Independent Auditor 20
Consolidated Balance Sheets 21
Consolidated Statements of Income 23
Consolidated Statements of Cash Flows 24
Consolidated Statement of
Stockholders' Equity 22
Notes to Consolidated Financial 25 - 41
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.
37
(a) (3) Exhibits
Exhibit Number Document
3.1 Articles of incorporation *
3.2 Bylaws *
4 Common Stock Certificate *
10 Stock Option Plan **
13 Form of Annual Report to Security Holders
21 Subsidiaries of Registrant
27 Financial Data Schedule
* Incorporated herein by reference to Registration Statement on Form S-1
dated December 9, 1994, Registration No. 33-87228.
** Incorporated herein by reference to the Definitive Proxy Statement filed
March 25, 1997.
(b) Reports on Form 8-K:
A Form 8-K was filed on December 18, 1997 to report the execution of a
definitive agreement providing for the affiliation of NCF Financial Corp. of
Bardstown, Kentucky, with Community Bank Shares of Indiana, Inc.
38
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\ Gordon L. Huncilman
C. THOMAS YOUNG GORDON L. HUNCILMAN
Chairman of the Board Director
of Directors
Date: March 27, 1998 Date: March 27, 1998
By: \s\ Robert J. Koetter, Sr. By: \s\ Steven Stemler
ROBERT J. KOETTER, SR., STEVEN STEMLER
Director Director
Date: March 27, 1998 Date: March 27, 1998
By: \s\ Gary L. Libs By: \s\ Dale Orem
GARY L. LIBS, DALE OREM
Director Director
Date: March 27, 1998 Date: March 27, 1998
By: \s\ James W. Robinson By: \s\ James Stutsman
JAMES W. ROBINSON, JAMES M. STUTSMAN
Director Senior Vice President
and Chief Financial Officer
Date: March 27, 1998 Date: March 27, 1997
By: \s\ Timothy T. Shea By: \s\ M. Diane Murphy
TIMOTHY T. SHEA, M. DIANE MURPHY,
Director Senior Vice President and
Corporate Secretary
Date: March 27, 1998 Date: March 27, 1997
By: \s\ Kerry M. Stemler By: \s\ Stan Krol
KERRY M. STEMLER STAN KROL,
Director Chief of Operations
Date: March 27, 1998 Date: March 27, 1997
39