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Community Bank Shares of Indiana, Inc. reports a 1st quarter net loss attributable to common shareholders of $1.0 million, or $0.19 per diluted common share

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Community Bank Shares of Indiana, Inc. (NASDAQ:CBIN) reported first quarter net loss attributable to common shareholders of $1.0 million and loss per diluted common share of $0.19. Excluding merger and integration expenses resulting from the acquisition of First Financial Service Corporation of Elizabethtown, Kentucky (“FFKY”), net income available to common shareholders for the quarter would have been $1.4 million, or $0.27 per share, compared to $2.0 million, or $0.59 per share, for the same period in 2014 (for a reconciliation of non-GAAP financial information, see “Regulation G Disclosure” below).

“We expected a net loss in the first quarter because of the merger and integration charges associated with the acquisition of First Financial Service Corporation of Elizabethtown, Kentucky. The merger closed on January 1, 2015 and we completed our customer data conversion during the first quarter and now all of our customers are on the same data platforms,” stated James Rickard, President and Chief Executive Officer. “We can now fully pursue the cultural integration and balance sheet restructuring that will be necessary to improve the combined Company’s net interest margin and profitability. Based on our progress to date we remain confident that we can achieve our expected level of cost savings and earnings growth communicated at the announcement of the acquisition.”

“We recently applied to close one of our transaction-oriented branches on July 17, 2015,” Mr. Rickard continued. “We expect that this step will save the Company approximately $250,000 per year. While we don’t have any specific plans to close additional branch locations, we understand that more and more transactions are migrating out of branches and that to remain competitive a community bank will have to look at the efficiency and profitability of all of its operations.”

The following points summarize significant financial information for the first quarter of 2015:

  • The Company completed its acquisition of FFKY and its subsidiary bank, First Federal Savings Bank, on January 1, 2015. FFKY had total assets on the date of acquisition of $773.7 million based on the Company’s preliminary determination of their fair value. As part of the transaction, the Company issued 792,392 of its common shares to shareholders of First Financial and paid option holders $423,000. Based on the Company’s stock price at December 31, 2014, the total amount of consideration paid was $21.9 million and $7.5 million was allocated to goodwill.
  • Immediately after the acquisition, the Company purchased the outstanding preferred shares of FFKY plus accrued and unpaid dividends. The preferred shares were purchased for $12.3 million while the accrued and unpaid dividends totaled $5.7 million. Of the 20,000 preferred shares purchased, the holder of 3,309 shares converted their shares, plus accrued and unpaid dividends, into the Company’s common stock while the remaining 16,691 shares were paid in cash. Commensurate with the transaction, the Company completed its private placement of common shares with institutional and accredited investors. The Company issued 1,120,950 of its common shares including the shares converted from the holder of 3,309 preferred shares described above. The total amount of common equity raised in the private placement, net of issuance costs, was $23.8 million.
  • In total, the Company issued 1,913,342 of its common shares in conjunction with its acquisition of FFKY, including the associated private placement.
  • Net loss for the first quarter of 2015 was $936,000 while net loss attributable to common shareholders was $1.0 million. Excluding merger and integration expenses of $3.8 million ($2.5 million, net of tax), net income would have been $1.6 million.
  • Tangible book value per common share was $19.30 as of March 31, 2015 as compared to $20.55 at 12/31/2014 and $18.03 at 3/31/2014.
  • Net interest income increased to $13.5 million from $7.5 million due to the increase in interest-earning assets, interest-bearing liabilities and non-interest bearing deposits resulting from the acquisition of FFKY. During the first quarter of 2015 the Company recognized in net interest income $1.2 million of accretion resulting from acquired assets and assumed liabilities.
  • Fully tax equivalent net interest margin was 3.87%, a decrease from 4.13% for the same period in 2014. The decline in net interest margin was directly attributable to the acquisition of FFKY on January 1, 2015. FFKY had a lower yield on earning assets than the Company at the time of acquisition, in part because it held a higher proportion of its earning assets in securities. FFKY also had a higher cost of interest-bearing liabilities than the Company in large part because time deposits were a greater proportion of total deposits. These factors led to a lower net interest margin for the Company upon its acquisition of FFKY.
  • Provision for loan losses was $106,000, a decrease from $282,000 for the same quarter in 2014.
  • Non-interest income increased to $2.4 million for the first quarter of 2015 compared to $1.7 million in 2014. The increase was mostly attributable to the acquisition of FFKY on January 1, 2015.
  • Non-interest expense was $17.9 million as compared to $6.6 million for the same quarter in 2014. The increase was due to the assumption of FFKY operating costs effective January 1, 2015 as well as merger and integration expenses of $3.8 million. Excluding merger and integration expenses non-interest expense would have been $14.2 million for the first quarter.
  • Beginning March 31, 2015, the Company and its subsidiaries were subject to the new Basel III capital standards and met the definition of well-capitalized under the revised rules.
  • Selected performance ratios for the company are set out in the following table.
Three Months Ended Twelve Months Ended
March December September June March December December
31, 31, 30, 30, 31, 31, 31,
2015 2014 2014 2014 2014 2014 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Return on average assets (0.23 )% 1.11 % 1.07 % 1.00 % 1.00 % 1.04 % 1.04 %
Return on average assets, excluding merger and integration expenses, net of income taxes 0.38 % 1.17 % 1.12 % 1.07 % 1.03 % 1.10 % 1.11 %
Return on average equity (2.26 )% 9.83 % 9.59 % 9.25 % 9.48 % 9.54 % 10.03 %
Return on average equity, excluding merger and integration expenses, net of income taxes 3.75 % 10.46 % 10.11 % 9.88 % 9.61 % 10.03 % 10.72 %
Net interest margin, fully tax equivalent 3.87 % 4.52 % 4.28 % 4.24 % 4.13 % 4.29 % 4.27 %
Efficiency ratio (1) 82.07 % 57.15 % 66.15 % 62.02 % 67.09 % 63.75 % 60.18 %

______________________

(1)

Net interest income on a fully taxable equivalent basis. Excludes gains or losses on sales of securities, foreclosed asset expenses, amortization of intangibles, and merger and integration expenses.

Community Bank Shares of Indiana, Inc.

Consolidated Balance Sheets

March 31,
2015

December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(In thousands)
ASSETS
Cash and due from financial institutions $ 45,784 $ 12,872 $ 14,540 $ 19,350 $ 18,197
Interest-bearing deposits in other financial institutions 56,290 6,808 5,655 18,727 4,403
Securities available for sale 385,498 202,177 202,174 199,071 194,506
Loans held for sale 221 246
Loans 999,906 603,575 593,124 588,160 573,643
Allowance for loan losses (7,120 ) (6,465 ) (7,784 ) (8,481 ) (8,378 )
Federal Home Loan Bank and Federal Reserve stock 5,451 4,964 5,964 5,964 5,955
Accrued interest receivable 4,802 3,152 3,028 3,144 2,990
Premises and equipment, net 31,793 18,124 17,986 18,204 18,431
Premises and equipment held for sale 6,155
Company owned life insurance 33,095 22,058 21,887 21,718 21,550
Goodwill 7,544
Core deposit intangible 5,951 682 759 839 920
Foreclosed and repossessed assets 15,818 4,431 4,677 6,029 6,334
Settlement receivable for security sales 3,400
Other assets 29,430 16,368 3,945 2,945 4,131
Total Assets $ 1,620,618 $ 888,746 $ 865,955 $ 875,916 $ 846,082
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing $ 285,634 $ 200,142 $ 187,592 $ 201,259 $ 192,749
Interest-bearing 1,052,089 450,802 467,619 482,356 462,327
Total deposits 1,337,723 650,944 655,211 683,615 655,076
Short-term borrowings 39,228 45,818 37,070 37,459 41,056
Subscriptions agreement proceeds in escrow 20,774
Other borrowings 83,874 67,000 72,000 57,000 57,000
Accrued interest payable 462 158 87 87 94
Other liabilities 14,059 4,504 5,099 3,566 1,964
Total liabilities 1,475,346 789,198 769,467 781,727 755,190
SHAREHOLDERS’ EQUITY
Preferred stock (1) 28,000 28,000 28,000 28,000 28,000
Common stock 578 386 386 386 386
Additional paid-in capital 89,342 44,421 44,085 43,948 43,752
Retained earnings 30,419 32,110 30,196 28,403 26,777
Accumulated other comprehensive income (loss) 3,788 1,809 1,035 754 (661 )
Treasury stock (6,855 ) (7,178 ) (7,214 ) (7,302 ) (7,362 )
Total shareholders’ equity 145,272 99,548 96,488 94,189 90,892
Total Liabilities and Shareholders’ Equity $ 1,620,618 $ 888,746 $ 865,955 $ 875,916 $ 846,082
Book value per common share $ 21.81 $ 20.75 $ 19.88 $ 19.24 $ 18.30
Tangible book value per common share $ 19.30 $ 20.55 $ 19.66 $ 18.99 $ 18.03

______________________

(1)

On September 15, 2011, as part of the Small Business Lending Fund (“SBLF”) program, the Company sold $28.0 million of Non-Cumulative Perpetual Preferred Stock, Series B (the “SBLF Preferred Stock”), to the Secretary of the Treasury (the “Secretary”), and used the proceeds from the sale of the SBLF Preferred Stock to redeem the 19,468 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “CPP Preferred Stock”), issued in 2009 to the Treasury under the CPP, plus the accrued and unpaid dividends owed on the CPP Preferred Stock. The Company will be subject to all terms, conditions and other requirements for participation in SBLF for as long as any SBLF Preferred Stock remains outstanding.

Community Bank Shares of Indiana, Inc.

Consolidated Statements of Operations

Three Months Ended Twelve Months Ended
March December September June March December December
31, 31, 30, 30, 31, 31, 31,
2015 2014 2014 2014 2014 2014 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
(In Thousands)
Interest and dividend income
Loans, including fees $ 12,523 $ 7,911 $ 7,317 $ 7,098 $ 6,624 $ 28,950 $ 27,377
Investment securities and other 2,233 1,322 1,313 1,312 1,377 5,324 5,876
Interest and dividend income 14,756 9,233 8,630 8,410 8,001 34,274 33,253
Interest expense
Deposits 574 245 255 267 253 1,020 1,191
Borrowed Funds 698 291 201 206 223 921 1,036
Total interest expense 1,272 536 456 473 476 1,941 2,227
Net interest income 13,484 8,697 8,174 7,937 7,525 32,333 31,026
Provision for loan losses 106 637 166 190 282 1,275 3,410
Net interest income after provision for loan losses 13,378 8,060 8,008 7,747 7,243 31,058 27,616
Non-interest income
Service charges on deposit accounts 1,391 854 874 835 792 3,355 3,394
Interchange income 444 287 281 330 270 1,168 1,092
Earnings on company owned life insurance 252 170 169 168 164 672 678
Net gain on sales of available for sale securities 51 172 1 295 468 742
Mortgage banking income 117 42 40 28 16 126 217
Commission income 47 48 50 48 48 194 173
Bargain purchase gain 1,879
Other income 110 128 113 130 92 462 509
Non-interest income 2,412 1,529 1,699 1,540 1,677 6,445 8,684
Non-interest expense
Salaries and employee benefits 9,119 3,276 3,869 3,366 3,367 13,878 13,381
Occupancy & equipment 2,208 966 971 850 1,027 3,814 3,511
Data processing 1,814 670 618 663 666 2,617 2,794
Core deposit intangible amortization 397 78 80 81 83 322 302
Foreclosed assets, net 344 118 (148 ) 53 138 162 644
Other expense 4,042 1,444 1,467 1,516 1,270 5,696 5,439
Total non-interest expense 17,924 6,552 6,857 6,529 6,551 26,489 26,071
Income (loss) before income taxes (2,134 ) 3,037 2,850 2,758 2,369 11,014 10,229
Income tax expense (benefit) (1,198 ) 600 534 610 257 2,001 _1,562
Net income (loss) (936 ) 2,437 2,316 2,148 2,112 9,013 8,667
Preferred stock dividend (110 ) (110 ) (110 ) (109 ) (110 ) (439 ) (802 )
Net income (loss) available (attributable) to common shareholders $ (1,046 ) $ 2,327 $ 2,206 $ 2,039 $ 2,002 $ 8,574 $ 7,865
Earnings (loss) per basic share $ (0.19 ) $ 0.68 $ 0.64 $ 0.59 $ 0.59 $ 2.49 $ 2.32
Earnings (loss) per diluted share $ (0.19 ) $ 0.66 $ 0.63 $ 0.59 $ 0.59 $ 2.46 $ 2.32
Dividend per common share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48 $ 0.43
Average number of basic shares 5,374,819 3,446,486 3,443,787 3,483,794 3,421,157 3,437,643 3,387,906
Average number of dilutive shares 5,374,819 3,499,951 3,480,816 3,468,424 3,437,943 3,487,117 3,387,906
Merger and integration expenses contained in:
Salaries and employee benefits 2,105 543
Occupancy & equipment 310
Data processing 719
Other expense 633 238 190 223 46 697 366
Total merger and integration expenses 3,767 238 190 223 46 697 909
Total merger and integration expenses, net of income taxes 2,486 157 125 147 30 460 600

Community Bank Shares of Indiana, Inc.

Average Balances, Interest Yields and Costs

Three Months Ending,
03/31/15 12/31/14 09/30/14 06/30/14 03/31/14

Average
Balance

Average
Yield/
Cost
Average
Balance
Average
Yield/
Cost
Average
Balance
Average
Yield/
Cost
Average
Balance
Average
Yield/
Cost
Average
Balance
Average
Yield/
Cost
ASSETS
Earning assets:
Interest-bearing deposits with banks $ 63,092 0.36 % $ 6,113 0.39 % $ 14,424 0.51 % $ 13,433 0.26 % $ 13,173 0.80 %
Taxable securities 318,695 1.70 117,961 1.78 109,297 1.76 112,139 1.75 121,285 1.88
Tax-exempt securities 83,217 5.49 80,416 5.49 80,809 5.50 81,619 5.59 78,968 5.73
Total loans and fees 993,536 5.15 595,578 5.34 592,327 4.97 583,345 4.94 564,635 4.81
FHLB and Federal Reserve stock 6,484 5.94 5,768 3.71 5,964 4.78 5,962 4.24 5,955 3.60
Total earning assets 1,465,024 4.22 805,836 4.78 802,621 4.50 796,498 4.47 784,016 4.38
Less: Allowance for loan losses (6,838 ) (7,743 ) (8,505 ) (8,501 ) (8,480 )
Non-earning assets:
Cash and due from banks 38,987 22,388 16,032 16,788 10,068
Bank premises and equipment, net 38,136 17,959 18,143 18,376 18,474
Other assets 124,855 40,034 38,889 39,963 41,563
Total assets $ 1,660,164 $ 878,474 $ 867,180 $ 863,124 $ 845,641
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings and other $ 697,094 0.15 % $ 338,104 0.18 % $ 338,092 0.18 % $ 329,190 0.20 % $ 309,676 0.19 %
Time deposits 377,230 0.33 133,684 0.28 138,573 0.28 144,331 0.29 148,458 0.30
Short-term borrowings 38,253 0.23 42,819 0.24 35,879 0.21 39,813 0.23 45,390 0.27
Other borrowings 87,999 3.12 71,837 1.46 57,707 1.25 60,187 1.22 64,333 1.22
Total interest-bearing liabilities 1,200,576 0.43 586,444 0.36 570,251 0.32 573,521 0.33 567,587 0.34
Non-interest bearing liabilities:
Non-interest demand deposits 279,879 185,844 195,011 191,466 183,084
Accrued interest payable and other liabilities 12,026 7,800 6,127 4,968 4,328
Shareholders’ equity 167,683 98,386 95,791 93,169 90,372
Total liabilities and shareholders’ equity $ 1,660,164 $ 878,474 $ 867,180 $ 863,124 $ 845,641
Net interest spread 3.79 % 4.42 % 4.18 % 4.14 % 4.04 %
Net interest margin 3.87 4.52 4.28 4.24 4.13

Accretion and Amortization of Fair Value Adjustments

Three Months Ending,
03/31/15 12/31/14 09/30/14 06/30/14 03/31/14
Fair Value
Accretion
Impact on
Net
Interest
Margin
Fair Value
Accretion
Impact on
Net
Interest
Margin
Fair Value
Accretion
Impact on
Net
Interest
Margin
Fair Value
Accretion
Impact on
Net
Interest
Margin
Fair Value
Accretion
Impact on
Net
Interest
Margin
Loans $ 601 0.17 % $ 775 0.21 % $ 126 0.03 % $ 61 0.02 % $ 45 0.01 %
Interest-bearing deposits 542 0.15 0.00 0.00 0.00 0.00
FHLB advances 62 0.02 0.00 0.00 0.00 0.00
Subordinated debentures 33 0.01 0.00 0.00 0.00 0.00
Total fair value accretion $ 1,238 0.34 % $ 775 0.21 % $ 126 0.03 % $ 61 0.02 % $ 45 0.01 %

Community Bank Shares of Indiana, Inc.

Selected Loan Information

March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(In thousands)
ACQUIRED LOANS
Loans on non-accrual status $ 9,401 $ 96 $ 178 $ 400 $ 304
Loans past due 90 days or more and still accruing
Foreclosed and repossessed assets 12,282 254 126 820 1,268
Total non-performing assets 21,683 350 304 1,220 1,572
Non-accretable yield on acquired loans 18,554 571 849 878 1,308
LEGACY LOANS
Loans on non-accrual status 7,354 7,439 9,031 9,189 9,334
Loans past due 90 days or more and still accruing 803 55
Foreclosed and repossessed assets 3,535 4,177 4,551 5,209 5,066
Total non-performing assets 11,692 11,616 13,637 14,398 14,400
Total Legacy Loans 588,076 570,864 556,525 549,192 531,446
Allowance for loan losses 7,120 6,465 7,784 8,481 8,378
Allowance for loan losses to legacy loans 1.21 % 1.13 % 1.40 % 1.54 % 1.58 %
TOTAL LOANS
Loans on non-accrual status 16,755 7,535 9,209 9,589 9,638
Loans past due 90 days or more and still accruing 803 55
Foreclosed and repossessed assets 15,817 4,431 4,677 6,029 6,334
Total non-performing assets $ 33,375 $ 11,966 $ 13,941 $ 15,618 $ 15,972
Non-performing assets to total assets 2.06 % 1.35 % 1.60 % 1.78 % 1.89 %
Allowance for loan losses to total loans 0.71 % 1.07 % 1.31 % 1.44 % 1.46 %

Reconciliation of Fully Tax Equivalent Adjustments to GAAP Net Interest Income

3/31/2015 12/31/2014 9/30/2014 6/30/2014 3/31/2014
Net
Interest
Income
Yield Net
Interest
Income
Yield Net
Interest
Income
Yield Net
Interest
Income
Yield Net
Interest
Income
Yield
GAAP net interest income $ 13,484 3.73 % $ 8,697 4.28 % $ 8,174 4.04 % $ 7,937 4.00 % $ 7,525 3.89 %
Tax equivalent adjustment
Investment securities 382 0.11 379 0.19 381 0.19 387 0.20 379 0.20
Loans 98 0.03 100 0.05 100 0.05 88 0.04 79 0.04
Total tax equivalent adjustment 480 0.14 479 0.24 481 0.24 475 0.24 458 0.24
Tax equivalent net interest income 13,965 3.87 % 9,176 4.52 % 8,655 4.28 % 8,412 4.24 % 7,983 4.13 %

Regulation G Disclosure

This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission (the “SEC”). The Company believes that these non-GAAP financial measures provide information that is useful to the users of its financial information regarding the Company’s financial condition and results of operations. Additionally, the Company uses these non-GAAP measures to evaluate its past performance and prospects for future performance. The Company believes that this non-GAAP financial information is helpful in understanding the results of operations separate and apart from items that may, or could, have a disproportional positive or negative impact in any particular period.

While the Company believes that these non-GAAP financial measures are useful in evaluating Company performance, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with U.S. GAAP. Further, these non-GAAP financial measures may differ from similar measures presented by other companies.

The Company recognized expenses associated with its acquisition of First Financial Service Corporation during the three months ended March 31, 2015 and for the year ended December 31, 2014 which substantially impacts the reported financial results for those periods. The Company believes excluding the charge provides investors and other interested parties with an additional meaningful measure to evaluate the Company’s results of operations.

Three Months Ended
March 31, 2015
Earnings (loss) per
common share
impact

Net loss attributable to common shareholders reconciliation:

Net loss attributable to common shareholders as reported $ (1,046 ) $ (0.19 )
Less: Merger and integration expenses reported in non-interest expense (3,767 ) (0.70 )
Less: Tax effect of merger and integration charges 1,281 0.24
Net income available to common shareholders excluding merger and integration expense and related tax effect $ 1,440 $ 0.27

Net loss reconciliation:

Net loss as reported $ (936 )
Less: Merger and integration expenses reported in non-interest expense (3,767 )
Less: Tax effect of merger and integration charges 1,281
Net income excluding merger and integration expense and related tax effect $ 1,550

Non-interest expense reconciliation:

Non-interest expenses as reported $ 17,924
Less: Merger and integration charges (3,767 )
Non-interest expense excluding merger and integration expense and related tax effect $ 14,157

About Community Bank Shares of Indiana, Inc.

Community Bank Shares of Indiana, Inc. is a bank holding company headquartered in New Albany, Indiana. It includes two wholly owned, state-chartered subsidiary banks, Your Community Bank and The Scott County State Bank. The Company operates 41 financial centers in Indiana and Kentucky. The Banks are engaged primarily in the business of attracting deposits from the general public and using such funds for the origination of commercial business and real estate loans and secured consumer loans such as home equity lines of credit, automobile loans, and recreational vehicle loans. Additionally, the Banks originate and sell into the secondary market mortgage loans for the purchase of single-family homes. For more information visit www.yourcommunitybank.com and www.scottcountystatebank.com.

Statements in this press release relating to the Company’s plans, objectives, or future performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations. The Company’s actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties, including those discussed in the Company’s 2014 Form 10-K filed with the Securities and Exchange Commission.

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