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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 0-25766
Community Bank Shares of Indiana, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1938254
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 W. Spring Street, New Albany, Indiana 47150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 812-944-2224
Not applicable
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 2,371,641 shares of common stock were outstanding as of May
15, 2003.
COMMUNITY BANK SHARES OF INDIANA, INC.
INDEX
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-20
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21-23
Item 4. Controls and Procedures 24
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 27-28
- 2 -
PART I - FINANCIAL INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2003 2002
--------- ---------
(In thousands, except share data)
ASSETS
Cash and due from banks $ 8,906 $ 6,631
Interest bearing deposits in other financial institutions 981 950
Securities available for sale, at fair value 77,175 92,374
Loans held for sale 10,588 9,230
Loans, net 340,936 321,634
Federal Home Loan Bank stock, at cost 7,709 7,700
Accrued interest receivable 1,938 1,967
Premises and equipment, net 11,267 11,324
Cash surrender value life insurance 10,647 10,514
Other assets 3,164 3,225
--------- ---------
Total Assets $ 473,311 $ 465,549
========= =========
LIABILITIES
Deposits
Non-interest bearing $ 30,551 $ 25,790
Interest bearing 269,242 264,040
--------- ---------
Total deposits 299,793 289,830
Short-term borrowings 38,411 36,393
Federal Home Loan Bank advances 88,000 92,700
Accrued interest payable 337 337
Other liabilities 3,597 2,992
--------- ---------
Total Liabilities 430,138 422,252
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, without par value;
5,000,000 shares authorized; none issued -- --
Common stock, $.10 par value per share;
10,000,000 shares authorized; 2,728,298 shares issued;
2,373,001 and 2,394,545 shares outstanding 273 273
Additional paid-in capital 19,536 19,533
Retained earnings 27,775 27,373
Accumulated other comprehensive income (loss) 1,147 1,332
Unearned ESOP and performance share awards - 6,701
shares (7,657 shares at December 31, 2002) (70) (80)
Treasury stock, at cost - 348,596 shares (326,096
shares at December 31, 2002) (5,488) (5,134)
--------- ---------
Total Stockholders' Equity 43,173 43,297
--------- ---------
Total Liabilities and Stockholders' Equity $ 473,311 $ 465,549
========= =========
See accompanying notes to consolidated financial statements.
- 3 -
PART I - FINANCIAL INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
2003 2002
------ ------
(In thousands, except per share data)
INTEREST INCOME
Loans, including fees $5,405 $5,108
Securities:
Taxable 587 984
Tax-exempt 149 132
Federal Home Loan Bank cash and stock dividends 105 110
Interest bearing deposits in other financial institutions 4 12
------ ------
Total interest income 6,250 6,346
------ ------
INTEREST EXPENSE
Deposits 1,408 1,930
Federal Home Loan Bank advances 1,298 1,344
Short-term borrowings 101 98
------ ------
Total interest expense 2,807 3,372
------ ------
Net interest income 3,443 2,974
Provision for loan losses 296 138
------ ------
Net interest income after provision for loan losses 3,147 2,836
------ ------
NON-INTEREST INCOME
Service charges on deposit accounts 411 200
Commission income 56 148
Gain on sale of available for sale securities 95 62
Gain on sale of mortgage loans 223 73
Loan servicing income, net of amortization 24 21
Increase in cash surrender value of life insurance 133 89
Other 51 50
------ ------
Total non-interest income 993 643
------ ------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,757 1,379
Occupancy 224 205
Equipment 231 192
Data processing 293 261
Marketing and advertising 52 95
Loss on sale of foreclosed real estate 121 --
Other 467 355
------ ------
Total non-interest expense 3,145 2,487
------ ------
Income before income taxes 995 992
Income tax expense 249 274
------ ------
Net Income $ 746 $ 718
====== ======
Earnings per share:
Basic $ 0.31 $ 0.29
====== ======
Diluted $ 0.31 $ 0.29
====== ======
See accompanying notes to consolidated financial statements.
- 4 -
PART I - FINANCIAL INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar amounts in thousands, except per share data)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Additional Other Total
Shares Common Paid-In Retained Comprehensive Unearned Treasury Stockholders'
Outstanding Stock Capital Earnings Income ESOP Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2003 2,394,545 $ 273 $ 19,533 $ 27,373 $ 1,332 $ (80) $ (5,134) $ 43,297
Cash dividends declared on
common stock ($0.145 per share) -- -- -- (344) -- -- -- (344)
Purchase treasury stock (23,500) -- -- -- -- -- (369) (369)
Commitment of shares to be released
under the ESOP 956 -- 5 -- -- 10 -- 15
Stock options exercised 1,000 -- (2) -- -- -- 15 13
Comprehensive income:
Net income -- -- -- 746 -- -- -- 746
Change in unrealized gain (loss) on
interest rate swap, net of
reclassifications and tax effects -- -- -- -- 45 -- -- 45
Change in unrealized gain (loss)
on securities available for sale, net
of tax effects -- -- -- -- (223) -- -- (223)
Change in minimum pension liability,
net of tax effects -- -- -- -- (7) -- -- (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 561
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2003 2,373,001 $ 273 $ 19,536 $ 27,775 $ 1,147 $ (70) $ (5,488) $ 43,173
====================================================================================================================================
See accompanying notes to consolidated financial statements.
- 5 -
PART I - FINANCIAL INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2003 2002
-------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 746 $ 718
Adjustments to reconcile net income to net cash
from operating activities:
Provision for loan losses 296 138
Depreciation expense 270 237
Net amortization of securities 246 186
Gain on sale of available for sale securities (95) (62)
Mortgage loans originated for sale (12,443) (7,373)
Proceeds from mortgage loan sales 11,308 7,897
Net gain on sales of mortgage loans (223) (73)
Loss on sale of foreclosed real estate 121 --
Increase in cash surrender value of life insurance (133) (89)
Federal Home Loan Bank stock dividends (9) (10)
ESOP and performance share award expense 15 23
Net change in
Accrued interest receivable 29 227
Accrued interest payable -- 46
Other assets (76) 45
Other liabilities 681 (333)
-------- --------
Net cash from operating activities 733 1,577
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest bearing deposits with banks (31) (1,129)
Activity in available for sale securities:
Sales 8,165 10,231
Purchases (2,069) (12,304)
Maturities, prepayments and calls 8,613 5,731
Loan originations and payments, net (20,013) (8,406)
Purchase of premises and equipment, net (213) (202)
Proceeds from sale of foreclosed real estate 509 --
Investment in cash surrender value of life insurance -- (10,000)
-------- --------
Net cash from investing activities (5,039) (16,079)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 9,963 6,762
Net change in short-term borrowings 2,018 (3,489)
Proceeds from Federal Home Loan Bank advances 44,140 11,000
Repayment of advances from Federal Home Loan Bank (48,840) --
Purchase of treasury stock (369) (541)
Stock options exercised 13 --
Dividends paid (344) (360)
-------- --------
Net cash from financing activities 6,581 13,372
-------- --------
Net change in cash and due from banks 2,275 (1,130)
Cash and due from banks at beginning of period 6,631 8,442
-------- --------
Cash and due from banks at end of period $ 8,906 $ 7,312
======== ========
Non cash transfers:
Transfer from loans to foreclosed real estate $ 415 $ --
See accompanying notes to consolidated financial statements.
- 6 -
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Presentation of Interim Information
Community Bank Shares of Indiana, Inc. (the "Company") was incorporated on April
7, 1995. The Company is a multi-bank holding company headquartered in New
Albany, Indiana. The Company's wholly-owned banking subsidiaries (the "Banks")
are Community Bank of Southern Indiana ("Community") and Community Bank of
Kentucky ("Community of Kentucky"). During the quarter ended March 31, 2002, a
former subsidiary of the Company, Heritage Bank of Southern Indiana, was merged
with and into Community. Community and Community of Kentucky are state-chartered
stock commercial banks headquartered in New Albany, Indiana and Bardstown,
Kentucky, respectively.
In the opinion of management, the unaudited consolidated financial statements
include all normal adjustments considered necessary to present fairly the
financial position as of March 31, 2003, the results of operations for the three
months ended March 31, 2003 and 2002, and cash flows for the three months ended
March 31, 2003 and 2002. All of these adjustments are of a normal, recurring
nature. Interim results are not necessarily indicative of results for a full
year.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions for Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes included in the Company's annual report for the year ended December
31, 2002. The consolidated financial statements include the accounts of the
Company and the Banks. All material intercompany balances and transactions have
been eliminated in consolidation.
Stock Compensation: Employee compensation expense under stock options is
reported using the intrinsic value method. No stock-based compensation cost is
reflected in net income, as all options granted had an exercise price equal to
or greater than the market price of the underlying common stock at date of
grant. The following table illustrates the effect on net income and earnings per
share if expense was measured using the fair value recognition provisions of
Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation.
Three months ended
March 31,
In thousands, except per share amounts 2003 2002
- --------------------------------------------------------------------------------
Net income as reported $ 746 $ 718
Less: Stock-based compensation expense
determined under fair value based method 18 20
------- -------
Pro forma net income $ 728 $ 698
======= =======
Basic earnings per share as reported $ 0.31 $ 0.29
Pro forma basic earnings per share 0.31 0.28
Diluted earnings per share as reported 0.31 0.29
Pro forma diluted earnings per share 0.31 0.28
- 7 -
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Securities
The amortized cost and fair value of available for sale securities and the
related unrealized holding gains and losses were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(in thousands)
March 31, 2003:
Securities available for sale:
U. S. Government and federal agency $ 3,532 $ 108 $ -- $ 3,640
State and municipal 12,667 418 (30) 13,055
Mortgage-backed 50,395 820 (25) 51,190
Corporate bonds 9,242 58 (10) 9,290
-------- -------- -------- --------
Total securities available for sale $ 75,836 $ 1,404 $ (65) $ 77,175
======== ======== ======== ========
December 31, 2002:
Securities available for sale:
U. S. Government and federal agency $ 8,552 $ 204 $ -- $ 8,756
State and municipal 12,687 391 (38) 13,040
Mortgage-backed 60,209 1,109 (23) 61,295
Corporate bonds 9,249 34 -- 9,283
-------- -------- -------- --------
Total securities available for sale $ 90,697 $ 1,738 $ (61) $ 92,374
======== ======== ======== ========
3. Loans
Loans at March 31, 2003 and December 31, 2002 consisted of the following:
March 31, 2003 December 31, 2002
-------------- -----------------
(in thousands)
Commercial $ 111,934 $ 106,576
Mortgage loans on real estate:
Residential 83,367 81,618
Commercial 74,443 67,745
Construction 31,592 29,081
Home equity 31,977 29,595
Loans secured by deposit accounts 428 345
Consumer 11,195 10,488
--------- ---------
Subtotal 344,936 325,448
Less:
Allowance for loan losses (4,000) (3,814)
--------- ---------
Loans, net $ 340,936 $ 321,634
========= =========
- 8 -
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Deposits
Deposits at March 31, 2003 and December 31, 2002 consisted of the following:
March 31, 2003 December 31, 2002
-------------- -----------------
(in thousands)
Demand (NOW) $ 36,737 $ 38,008
Money market accounts 74,687 74,448
Savings 30,203 30,656
Individual retirement accounts-savings 322 338
Individual retirement accounts-certificates
of deposits 16,742 16,173
Certificates of deposit, $100,000 and over 31,572 28,048
Other certificates of deposit 78,979 76,369
-------- --------
Total interest bearing deposits 269,242 264,040
Total non-interest bearing deposits 30,551 25,790
-------- --------
Total deposits $299,793 $289,830
======== ========
- 9 -
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Supplemental Disclosure for Earnings Per Share
Earnings per share were computed as follows:
Three months ended
March 31,
In thousands, except for share -------------------------
and per share amounts 2003 2002
---------- ----------
Basic:
Earnings:
Net income $ 746 $ 718
========== ==========
Shares:
Weighted average
common shares outstanding 2,382,646 2,467,922
========== ==========
Net income per share, basic $ 0.31 $ 0.29
========== ==========
Diluted:
Earnings:
Net income $ 746 $ 718
========== ==========
Shares:
Weighted average
common shares outstanding 2,382,646 2,467,922
Add: Dilutive effect of
outstanding options 6,380 13,586
---------- ----------
Weighted average common shares
outstanding, as adjusted 2,389,026 2,481,508
========== ==========
Net income per share, diluted $ 0.31 $ 0.29
========== ==========
Stock options for 95,900 and 75,500 shares of common stock were excluded from
the entries for the three months ended March 31, 2003 and March 31, 2002 diluted
net income per share, respectively, because their impact was antidilutive.
- 10 -
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Derivative Financial Instruments and Hedging Activities
The Company uses derivative financial instruments for the purpose of hedging the
risks of future cash flows caused by movements in interest rates. The Company
uses derivatives only for the purpose of hedging such risks, not for
speculation. The Company entered into a hedging relationship such that the
changes in cash flows of items and transactions being hedged are expected to be
offset by corresponding changes in the values of the derivatives. At March 31,
2003, a hedging relationship existed for $25.0 million in floating rate
commercial loans. During the first quarter of 2003 and the last four months of
2002 (the swap was entered into on August 30, 2002), the hedge was highly
effective; changes in the fair value of the swap are accordingly reported in
other comprehensive income and will be reclassified to earnings over the life of
the hedge. During the three months ended March 31, 2003, the Company
reclassified $141,000 of the market value of the interest rate swap as an
increase to interest income on loans.
Following is an analysis of the changes in the pretax net gain on cash flow
hedges included in accumulated other comprehensive income.
March 31, 2003 March 31, 2002
-------------- --------------
(in thousands)
Beginning balance $ 746,000 $ --
Increase in value for the period 215,000 --
Reclassified to interest income on loans (141,000) --
--------- ---------
Ending balance $ 820,000 $ --
========= =========
- 11 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Safe Harbor Statement for Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the
federal securities laws. These statements are not historical facts but rather
statements based on the Company's current expectations regarding its business
strategies and their intended results and its future performance.
Forward-looking statements are preceded by terms such as "expects," "believes,"
"anticipates," "intends" and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause or contribute to the Company's actual
results, performance and achievements to be materially different from those
expressed or implied by the forward-looking statements. Factors that may cause
or contribute to these differences include, without limitation, general economic
conditions, including changes in market interest rates and changes in monetary
and fiscal policies of the federal government; legislative and regulatory
changes; competitive conditions in the banking markets served by the Banks; the
adequacy of the allowance for losses on loans and the level of future provisions
for losses on loans; and other factors disclosed periodically in the Company's
filings with the Securities and Exchange Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
The Company assumes no obligation to update any forward-looking statements.
Financial Condition
Total assets increased 1.7% to $473.3 million at March 31, 2003 from $465.5
million at December 31, 2002, primarily as a result of increases in net loans
receivable of $19.3 million and cash and due from banks of $2.3 million, though
such increases were offset by a decrease in securities available for sale of
$15.2 million. Funding provided by total liabilities increased $7.9 million from
December 31, 2002, primarily as a result of an increase in deposits of $10.0
million. Total equity increased $125,000 from December 31, 2002, a result of an
increase in retained earnings offset by a reduction in unrealized gains on
securities as well as treasury stock purchases and dividends paid to
shareholders.
Loans receivable, net, were $340.9 million at March 31, 2003 as compared to
$321.6 million at December 31, 2002, an increase of 6.0%. The Banks continue to
focus on originating loans secured by owner occupied manufacturing and retail
facilities, general business assets, and single family residential real estate.
Loan growth was particularly strong in the commercial loan area as commercial
mortgage loans rose $6.7 million and commercial business loans rose $5.4 million
as sustained lower interest rates continued to stimulate commercial loan demand.
In addition, residential real estate loans increased $1.7 million. The Company
currently retains ten year mortgage loans that it originates and sells
substantially all fifteen and thirty-year conforming mortgage loans into the
secondary market to reduce the interest rate risk of holding such assets should
interest rates rise.
- 12 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Securities available for sale decreased 16.5% from $92.4 million at December 31,
2002 to $77.2 million at March 31, 2003. This decrease is the result of
generally lower mortgage interest rates causing an increase in the rate of
prepayment with respect to the Company's mortgage backed securities.
Additionally, $8.2 million in securities were sold during the first quarter of
2003 to fund loan growth.
Total deposits increased from $289.8 million at December 31, 2002 to $299.8
million at March 31, 2003, an increase of 3.4%. Growth in deposits over the last
three months occurred primarily in non-interest bearing demand deposits, which
increased 18.5%, and time deposits, which grew 5.5%. Non-interest bearing
deposits increased $4.8 million to $30.6 million at March 31, 2003 from $25.8
million at December 31, 2002 as the Company focused on acquiring non-interest
demand deposits in an effort to lower its borrowing costs. Management attributes
the growth in time deposits primarily to its competitive pricing in an effort to
attract intermediate-term funding.
Results of Operations
Net Income. Net income was $746,000 ($0.31 per share diluted) for the three
months ended March 31, 2003 as compared to $718,000 ($0.29 per share diluted)
for the three months ended March 31, 2002. Return on average assets was 0.64%
for the three months ended March 31, 2003 as compared to 0.67% for the same
period in 2002. Return on average equity was 7.00% for the first quarter of 2003
compared to 6.75% for the same quarter in 2002. Net income increased during the
period as a result of increases in net interest and non-interest income, which
were partially offset by increases in non-interest expense and the provision for
loan losses. A lower effective tax rate also contributed to the increase in net
income. Return on average equity was favorably affected by the repurchase of the
Company's common stock; average treasury stock was $5.3 million for the three
months ended March 31, 2003 as compared to $3.8 million for the same period in
2002.
The Company expects that net income for the second quarter of 2003 will be
higher than the $256,000 reported for the same period in 2002. Net income for
the second quarter of 2002 was substantially lower than the other quarters of
2002 primarily because of the $692,000 provision for loan losses that was
recorded during the period. Provision for loan losses during the second quarter
of 2002 resulted from increases in non-performing loans and the level of
estimated loss exposure from impaired loans as management determined through its
normal credit risk monitoring procedures that certain specific loans exhibited
an increased risk of loss.
- 13 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Net interest income. Net interest income increased 15.8% to $3.4 million for the
first quarter of 2003 from $3.0 million for the same period in 2002 as the
Company's net interest margin improved due to its borrowing costs declining
faster than its yield on interest-earning assets. The Company was able to
stabilize the yield on interest-earning assets by reallocating cash inflows from
the investment securities portfolio into the higher-yielding loan portfolio and
by utilizing a financial derivative called an interest rate swap to hedge the
cash flows on floating-rate commercial loans against possible future declines in
interest rates.
An interest rate swap is a financial instrument that derives its cash flows, and
therefore its value, by reference to underlying interest rate indexes. The
Company entered into a $25 million, five year interest rate swap agreement on
August 30, 2002 in an effort to mitigate the risks associated with an
asset-sensitive balance sheet. Derivative contracts are written in amounts
referred to as notional amounts, which only provide the basis for calculating
payments between counterparties and do not represent amounts to be exchanged
between parties or a measure of financial risk. On March 31, 2003, the Company
had financial derivative instruments outstanding with notional amounts totaling
$25 million and an estimated fair value of $820,000 reported in other assets and
as a component of other comprehensive income, net of tax. In connection with the
interest rate swap, the Company recorded additional interest income on loans of
$141,000 during the first quarter of 2003.
The cost of interest-bearing liabilities has been significantly affected by the
$88.0 million in funding provided by Federal Home Loan Bank (FHLB) advances,
which principally consists of putable (or convertible) instruments that give the
FHLB the option at the conversion date (and quarterly thereafter) to put an
advance back to the Banks. If an advance is put back to the Banks by the FHLB,
the Banks can choose to prepay the advance without penalty or allow the interest
rate on the advance to adjust to three-month LIBOR (London Interbank Offer Rate)
at the conversion date (and adjusted quarterly thereafter). The Company
estimates that three-month LIBOR would have to rise in excess of 300 basis
points before the FHLB would exercise its option on any of the individual
advances. The cost of FHLB advances for the first quarter of 2003 was 5.81%
compared to 5.75% for the same period in 2002. In contrast, the cost of federal
funds purchased and repurchase agreements, which are both highly interest rate
sensitive, fell to 1.04% for the three months ended March 31, 2003 from 1.21%
for the same period in 2002.
The Company uses FHLB advances for both short- and long-term funding. The
balances reported at both December 31, 2002 and March 31, 2003 are substantially
comprised of long-term advances. Proceeds from FHLB advances of $44.1 million
and repayment of FHLB advances of $48.8 million reported as cash flows from
financing activities were substantially all associated with variable-rate,
short-term advances.
- 14 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Average Balance Sheets. The following tables set forth certain information
relating to the Company's average balance sheets and reflects the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are computed on daily average balances, when
available. Management does not believe that the use of month-end balances
instead of daily average balances has caused any material difference in the
information presented. Yields on tax-exempt securities have not been presented
on a tax equivalent basis. Loans held for sale and loans no longer accruing
interest are included in total loans.
Three Months Ended March 31,
-----------------------------------------------------------------
2003 2002
------------------------------- ------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
-------- -------- -------- -------- -------- --------
ASSETS (in thousands) (in thousands)
Earning assets:
Interest-bearing deposits with banks $ 1,116 $ 4 1.45% $ 2,521 $ 12 1.93%
Taxable securities 70,552 587 3.37% 83,351 984 4.79%
Non-taxable securities 12,679 149 4.77% 10,888 132 4.92%
Total loans and fees 347,207 5,405 6.31% 301,817 5,108 6.86%
FHLB stock 7,700 105 5.53% 7,658 110 5.83%
-------- -------- -------- -------- -------- --------
Total earning assets 439,254 6,250 5.77% 406,235 6,346 6.34%
Less: Allowance for loan losses 3,849 3,074
Non-earning assets:
Cash and due from banks 7,685 9,386
Bank premises and equipment, net 11,393 11,218
Accrued interest receivable and other assets 16,508 9,533
-------- --------
Total assets $470,991 $433,298
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits $263,741 $ 1,408 2.17% $239,527 $ 1,930 3.27%
Federal funds purchased and repurchase
agreements 39,473 101 1.04% 32,852 98 1.21%
FHLB advances 90,586 1,298 5.81% 94,833 1,344 5.75%
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 393,800 2,807 2.89% 367,212 3,372 3.72%
Non-interest bearing liabilities:
Non-interest demand deposits 27,601 21,402
Accrued interest payable and other liabilities 6,355 1,543
Stockholders' equity 43,235 43,141
-------- --------
Total liabilities and stockholders' equity $470,991 $433,298
======== ========
Net interest income $ 3,443 $ 2,974
======== ========
Net interest spread 2.88% 2.62%
Net interest margin 3.18% 2.97%
- 15 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Rate/Volume Analysis. The table below illustrates the extent to which changes in
interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities affected the Company's interest income and interest
expense during the periods indicated. Information is provided in each category
with respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
---------------------------------
Three Months Ended March 31, 2003
compared to
Three Months Ended March 31, 2002
Increase/(Decrease) Due to
---------------------------------
Total Net
Change Volume Rate
------ ------ -----
(in thousands)
Interest income:
Interest-bearing deposits with banks $ (8) $ (6) $ (2)
Taxable securities (397) (136) (261)
Tax-exempt securities 17 21 (4)
Total loans and fees 297 728 (431)
FHLB stock (5) 1 (6)
----- ----- -----
Total increase (decrease) in interest income (96) 608 (704)
----- ----- -----
Interest expense:
Deposits (522) 180 (702)
Federal funds purchased and repurchase agreements 3 18 (15)
FHLB advances (46) (61) 15
----- ----- -----
Total increase (decrease) in interest expense (565) 137 (702)
----- ----- -----
Increase (decrease) in net interest income $ 469 $ 471 $ (2)
===== ===== =====
- 16 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Allowance and Provision for Loan Losses. The provision for loan losses was
$296,000 for the three months ended March 31, 2003 as compared to $138,000 for
the same period in 2002. The provision for loan losses increased in
consideration of the current economic environment and the inherent risk in the
loan portfolio. Loans (including impaired loans under the Financial Accounting
Standard Board's Statement of Financial Accounting Standards 114 and 118) are
placed on non-accrual status when they become past due ninety days or more as to
principal or interest. When loans are placed on non-accrual status, all unpaid
accrued interest is reversed. These loans remain on non-accrual status until the
loan becomes current or the loan is deemed uncollectible and is charged off. The
Company defines impaired loans to be those commercial loans that management has
classified as doubtful (collection of total amount due is highly questionable or
improbable) or loss (all or a portion of the loan has been written off or a
specific allowance for loss has been provided). Impaired loans increased from
$1.7 million at December 31, 2002 to $2.5 million at March 31, 2003. The
increase in impaired loans is related to a determination by the Company through
its normal credit risk monitoring procedures that certain specific loans, most
of which had been classified as of December 31, 2002 as substandard (collection
of total amount due is unlikely), exhibited an increased risk of loss during the
first quarter. The Company does not believe that this indicates a trend in the
overall loan portfolio. Management believes, based on information presently
available, that it has adequately provided for loan losses at March 31, 2003.
Summary of Loan Loss Experience:
Three Months Ended
March 31,
-------------------------
Activity for the period ended: 2003 2002
------- -------
(in thousands)
Beginning balance $ 3,814 $ 3,030
Charge-offs:
Real Estate (117) --
Commercial -- (25)
Consumer -- --
------- -------
Total (117) (25)
Recoveries:
Real Estate 4 --
Commercial 2 --
Consumer 1 1
------- -------
Total 7 1
Provision 296 138
------- -------
Ending balance $ 4,000 $ 3,144
======= =======
- 17 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Non-performing loans:
March 31, 2003 December 31, 2002
-------------- -----------------
(in thousands)
Loans on non-accrual status $ 3,205 $ 3,171
Loans past due 90 days or more and still accruing -- --
--------- ---------
Total non-performing loans 3,205 3,171
Other real estate owned 415 630
--------- ---------
Total non-performing assets $ 3,620 $ 3,801
========= =========
Non-performing loans to total loans 0.93% 0.97%
Non-performing assets to total loans 1.05% 1.17%
Allowance as a percent of non-performing loans 124.80% 120.28%
Allowance as a percent of total loans 1.16% 1.17%
Non-interest income. Non-interest income increased 54.4% to $993,000 for the
three months ended March 31, 2003 from $643,000 for the three months ended March
31, 2002. The increase is primarily attributable to increases in service charges
on deposit accounts and gain on sale of mortgage loans. Service charges on
deposit accounts increased 106% between the periods due to enhancements to the
Company's checking account product line and an increase in the total number of
checking accounts. Gain on sale of residential mortgage loans increased to
$223,000 for the first quarter of 2003 compared to $73,000 for the same period
in 2002. This growth is attributable to the increase in mortgage loans sold of
$3.4 million as management decided to sell substantially all new fifteen and
thirty year mortgage loans originated during the first quarter of 2003 into the
secondary market in an effort to reduce the interest rate risk of holding such
assets should interest rates rise.
Other factors that affected non-interest income in the first quarter of 2003
compared to the same period in 2002 include the increase in cash surrender value
of life insurance and gain on sale of available for sale securities, offset by a
decrease in commission income on the sale of investment products. The increase
in the cash surrender value of life insurance between the periods is the result
of the Company realizing a full quarter's income as the investment in life
insurance on key employees of the Banks occurred in February of 2002. The
proceeds from the sale of investment securities were used to fund loan growth.
Management attributes the decrease in commission income to reduced consumer
confidence levels in relation to the volatile U.S. stock market that reduced the
volume of transactions at Heritage Financial Services, a division of Community
that sells non-deposit investment products.
- 18 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Non-interest expense. Non-interest expense increased by $658,000 for the three
months ended March 31, 2003 as compared to the same period in 2002, primarily
the result of an increase in salaries and employee benefits, which increased
$378,000 between the periods. The increase in salaries and employee benefits
largely resulted from the opening of three new offices during 2002. Each of
Community and Community of Kentucky opened in-store Wal-Mart branches in
mid-2002; Community opened such a branch on Grant Line Road in New Albany,
Indiana and Community of Kentucky opened such a branch in the Fern Creek area of
Louisville, Kentucky. Community also opened a loan production office on
Blankenbaker Parkway in Louisville, Kentucky. The Company expects that
non-interest expense will continue to increase throughout 2003 as it expands
into the Louisville, Kentucky market through additional banking offices.
Other factors affecting non-interest expense in the first quarter of 2003
compared to the same period in 2002 include the loss on sale of foreclosed real
estate and an increase in occupancy and equipment costs related to initiatives
to improve the Company's technological and retail infrastructures and the
aforementioned new branches. The increase in other non-interest expense occurred
in professional services fees, including legal and accounting fees, and other
general overhead expenses related to the growth of the Company.
Income tax expense. Income tax expense for the three-month period ended March
31, 2003 was $249,000 compared to $274,000 for the same period in 2002. The
effective tax rate for the three months ended March 31, 2003 was 25.0% compared
to 27.6% for the same period in 2002. The effective tax rate declined between
the periods due to the Company experiencing a full quarter's effect of the
various tax strategies implemented during the first quarter of 2002.
- 19 -
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMMUNITY BANK SHARES OF INDIANA, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
satisfy financial commitments, and take advantage of investment opportunities.
Historically, the Company has been able to retain a significant amount of its
deposits as they mature.
The Company's primary sources of funds are customer deposits, customer
repurchase agreements, proceeds from loan repayments, maturing securities and
FHLB advances. While loan repayments and maturities are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by market
interest rates, general economic conditions and competition. At March 31, 2003,
the Company had cash and interest-bearing deposits with banks of $9.9 million
and securities available-for-sale with a fair value of $77.2 million. If the
Company requires funds beyond the funds it is able to generate internally, it
has $26.3 million in additional aggregate borrowing capacity with the Federal
Home Loan Banks of Indianapolis and Cincinnati, and unused federal funds lines
of credit with various nonaffiliated financial institutions of $10.8 million.
The Banks are required to maintain specific amounts of capital pursuant to
regulatory requirements. As of March 31, 2003, the Banks were in compliance with
all regulatory capital requirements that were effective as of such date with
capital ratios as follows:
Total Tier 1 Tier 1
Capital To Capital To Capital To
Risk-weighted Risk-weighted Average
Assets Assets Assets
------------- ------------- ----------
Consolidated 13.05% 11.91% 8.88%
Community Bank 12.62% 11.46% 8.47%
Community Bank of Kentucky 16.97% 15.98% 12.49%
Minimum to be well capitalized
under regulatory capital
requirements: 10.0% 6.0% 5.0%
The Company has actively been repurchasing shares of its common stock since May
21, 1999. A net total of 348,596 shares at an aggregate cost of $5.5 million
have been repurchased since that time under both the current and prior
repurchase plans, with 23,500 shares at a cost of $369,000 purchased in 2003.
The Company's Board of Directors authorized another share repurchase plan in May
2001 under which a maximum of $3.0 million of the Company's common stock may be
purchased. Through March 31, 2003, a total of $2.6 million had been expended to
purchase 157,007 shares under the current repurchase plan.
- 20 -
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Asset/liability management is the process of balance sheet control designed to
ensure safety and soundness and to maintain liquidity and regulatory capital
standards while sustaining acceptable net interest income. Interest rate risk is
the exposure to adverse changes in net interest income as a result of market
fluctuations in interest rates. Management continually monitors interest rate
and liquidity risk so that it can implement appropriate funding, investment, and
other balance sheet strategies. Management considers market interest rate risk
to be the Company's most significant ongoing business risk consideration.
The Company currently contracts with an independent consulting firm to measure
its interest rate risk position. The consulting firm utilizes an earnings
simulation model to analyze net interest income sensitivity. Current balance
sheet amounts, current yields and costs, corresponding maturity and repricing
amounts and rates, other relevant information, and certain assumptions made by
management are combined with gradual movements in interest rates of 100 basis
points down and 200 basis points up within the model to estimate their combined
effects on net interest income over a one-year horizon. Interest rate movements
are spread equally over the forecast horizon of one year. The Company does not
project growth in amounts for any balance sheet category when constructing the
model because of the belief that projected growth can mask current interest rate
risk imbalances over the projection horizon. The Company believes that the
changes made to its interest rate risk measurement process have improved the
accuracy of results of the process. Consequently, the Company believes that it
has better information on which to base asset and liability allocation decisions
going forward.
Assumptions based on the historical behavior of the Company's deposit rates and
balances in relation to changes in interest rates are incorporated into the
model. These assumptions are inherently uncertain and, as a result, the model
cannot precisely measure future net interest income or precisely predict the
impact of fluctuations in market interest rates on net interest income. The
Company continually monitors and updates the assumptions as new information
becomes available. Actual results will differ from the model's simulated results
due to timing, magnitude and frequency of interest rate changes and actual
variations from the managerial assumptions utilized under the model, as well as
changes in market conditions and the application and timing of various
management strategies.
Given a gradual 200 basis point increase in the projected yield curve used in
the simulation model, it is estimated that as of March 31, 2003 net interest
income for the Company would decrease by 3.6 percent over one year ending March
31, 2004. However, the simulation analysis indicates that over two years net
interest income would increase approximately 1.1% in response to a 200 basis
points gradual increase in the yield curve over the first year. As of December
31, 2002, the Company estimated that net interest income would decrease 3.0
percent over one year ending December 31, 2002 using a gradual 200 basis points
increase in the yield curve. It is estimated that a gradual decline of 100 basis
points in the yield curve would cause almost no change in net interest income
over one year ending March 31, 2004 as compared to an estimated decrease of 1.1
percent for one year ending December 31, 2003. The estimated changes in net
interest income for all interest rate change scenarios are within the policy
guidelines established by the Company's board of directors. However, the Company
will continue to take action to limit its exposure to stable or falling interest
rate environments.
- 21 -
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The interest sensitivity profile of the Company at any point in time will be
affected by a number of factors. These factors include, among other things, the
mix of interest sensitive assets and liabilities as well as their relative
repricing schedules. Such profile is also influenced by market interest rates,
deposit growth, loan growth, and other factors. The table below is
representative only and is not a precise measurement of the effect of changing
interest rates on the Company's net interest income in the future.
- 22 -
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The following table illustrates the Company's estimated one-year net interest
income sensitivity profile based on the asset/liability model as of March 31,
2003:
Interest Rate Sensitivity for the Year Ended March 31, 2003
------------------------------------------------------------------
Gradual Decrease in Gradual Increase in
Rates of 100 Rates of 200
Basis Points Base Basis Points
----------------------- ------------------- ----------------------
(in thousands)
Projected interest income:
Loans $21,691 $22,081 $22,699
Investments 2,441 2,547 2,859
FHLB stock 427 427 427
Interest-bearing bank deposits 31 54 101
------- ------- -------
Total interest Income 24,590 25,109 26,086
Projected interest expense:
Deposits 5,315 5,593 6,601
Other borrowings 5,375 5,612 6,085
------- ------- -------
Total interest expense 10,690 11,205 12,686
------- ------- -------
Net interest income $13,900 $13,904 $13,400
======= ======= =======
Change from base $(4) $(504)
Percent change from base (0.0)% (3.6)%
The following table illustrates the Company's estimated one-year net interest
income sensitivity profile based on the asset/liability model as of December 31,
2002:
Interest Rate Sensitivity for the Year Ended December 31, 2002
------------------------------------------------------------------
Gradual Gradual
Decrease in Increase in
Interest Interest
Rates of 100 Rates of 200
Basis Points Base Basis Points
------------------- -------------------- -------------------------
(Dollars in thousands)
Projected interest income:
Loans $ 21,357 $ 21,744 $ 22,508
Investments 3,203 3,340 3,608
Short-term investments 431 442 466
-------- -------- --------
Total interest income 24,991 25,526 26,582
Projected interest expense:
Deposits 5,640 5,814 6,826
Other borrowings 5,332 5,533 6,004
-------- -------- --------
Total interest expense 10,972 11,347 12,830
-------- -------- --------
Net interest income $ 14,019 $ 14,179 $ 13,752
======== ======== ========
Change from base $ (160) $ (427)
Percent change from base (1.1)% (3.0)%
- 23 -
PART I - ITEM 4
CONTROLS AND PROCEDURES
Company management, including the Chief Executive Officer (serving as the
principal executive officer) and Chief Financial Officer, have conducted an
evaluation of the effectiveness of disclosure controls and procedures pursuant
to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the disclosure controls
and procedures are effective in ensuring that all material information required
to be filed in this quarterly report has been made known to them in a timely
fashion. There have been no significant changes in internal controls, or in
other factors that could significantly affect internal controls, subsequent to
the date the Chief Executive Officer and the Chief Financial Officer completed
their evaluation.
- 24 -
PART II
OTHER INFORMATION
COMMUNITY BANK SHARES OF INDIANA, INC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index of this Form 10-Q and are filed as a part of this report.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on January 29, 2003 reporting,
under Item 5, earnings for the three months ended December 31, 2002.
- 25 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
COMMUNITY BANK SHARES OF INDIANA, INC.
(Registrant)
Dated: May 15, 2003 BY: /s/ James D. Rickard
- ----------------------------- -----------------------------
James D. Rickard
President and
Chief Executive Officer
(Principal Executive Officer)
Dated: May 15, 2003 BY: /s/ Paul A. Chrisco
- ------------------------------ ------------------------
Paul A. Chrisco
Senior Vice-President and
Chief Financial Officer
(Principal Financial Officer)
- 26 -
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, James D. Rickard, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Community Bank Shares
of Indiana, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ James D. Rickard
- -------------------------------------
James D. Rickard
President and Chief Executive Officer
- 27 -
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Paul A. Chrisco, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Community Bank Shares
of Indiana, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Paul A. Chrisco
- -------------------------------------------
Paul A. Chrisco
Senior Vice-President and Chief Financial Officer
- 28 -
EXHIBIT INDEX
COMMUNITY BANK SHARES OF INDIANA, INC.
EXHIBIT INDEX
Exhibit No. Description
- ----------- ----------------------------------------------------------------------
11 Statement Regarding Computation of Per Share Earnings
99.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
- 29 -