Community Bank Shares of Indiana, Inc. (NASDAQ:CBIN) reported the declaration of a quarterly cash dividend and results for the third quarter ended September 30, 2008. On October 28, 2008, the Company’s Board of Directors declared a $0.175 cash dividend per share on the common stock of the Company to be paid on November 26, 2008 to the stockholders of record of the Company at the close of business on November 11, 2008. The following tables summarize the Company’s third quarter results (in thousands, except per share data):

The Company’s net income for the quarter ended September 30, 2008 decreased to $919,000 from $1.1 million for the third quarter of 2007 and increased from $218,000 for the second quarter of 2008. The decrease in quarterly income as compared to 2007 was primarily due to increases in the provision for loan losses of $470,000 and non-interest expense of $321,000, offset by increases in net interest income, non-interest income, and a decrease in income tax expense. Net income for the first nine months of 2008 was also substantially impacted by an increase in the provision for loan losses of $2.9 million which was countered by an increase in non-interest income and a decrease in income tax expense. Basic and diluted earnings per share declined for the three and nine months ended September 30, 2008 compared to the same periods in 2007 due to the decrease in net income described above.

Total assets grew 4.9% and 4.1% from September 30, 2007 and December 31, 2007, respectively, to $857.0 million at September 30, 2008, from increases in cash and due from banks, interest bearing deposits in other financial institutions, net loans, and investments.

“During this time of uncertainty, we are pleased to report that we have been able to not only retain the confidence of our customer base, but add new customers as well,” stated James D. Rickard, President and CEO. “We have continued to grow our non-interest bearing deposits, which have increased by approximately 16% from the end of 2007. The growth in our deposits has allowed to us to increase our liquidity substantially which will be utilized judiciously to provide the highest possible return for our investors while also assisting our customers and the communities we serve.”

Asset Quality

The Company recorded a provision for loan losses of $3.3 million for the nine months ended September 30, 2008 as compared to $404,000 for the same period in 2007 and $580,000 for the three months ended September 30, 2008. The increase in the provision for loan losses for the three and nine month periods was due primarily to an increase in classified loans identified by the Company’s internal loan classification system and by a decline in the ratings of certain classified loan relationships. Also impacting the provision for loan losses for the nine month period was a continued deterioration in the underlying collateral values of loans secured by commercial real estate. In addition, the Company has experienced an increase in impaired, non-performing, and classified loans since December 31, 2007. Accordingly, the Company has recorded a provision for loan losses sufficient to cover the probable incurred losses in its loan portfolio, resulting in an increase in the allowance for loan losses to total loans from 0.99% at December 31, 2007 to 1.09% at September 30, 2008 after charge-offs of $2.7 million during the nine month period. The reduction in ratings and deterioration in underlying collateral values were identified as part of the Company’s ongoing loan monitoring process and represents changes in circumstances occurring during 2008, primarily in the second quarter. The Company’s non-performing and impaired loans as of September 30, 2008 have decreased from June 30, 2008 by $1.9 million and $955,000, respectively, which reflects management’s continued efforts in resolving problem credits. Management continues to closely monitor the loan portfolio, including classified credits, and will aggressively seek to mitigate losses. The Company does not originate or hold any loans that are considered “subprime” and, therefore, does not have loss exposure within its portfolio from those types of loans.

Non-Interest Income

Non-interest income for the three and nine months ended September 30, 2008 increased by 37.7% and 51.6%, respectively, from the same periods in 2007 due to net gains realized on sales of investment securities, primarily in the second quarter, an increase in service charges on deposit accounts, and a reduction in interest rate settlements and increase in fair value of the Company’s interest rate swap. The net gain realized on sales of investment securities increased as management was able to sell certain securities at a gain and reinvest the proceeds at a relatively equivalent yield without materially extending the duration of the portfolio. Service charges on deposit accounts increased $103,000 and $146,000 for the three and nine months ended September 30, 2008 as compared to the same periods in 2007 due to income from new deposit product offerings. The Company’s interest rate swap matured in June 2008 which resulted in an increase in the unrealized gain while reducing interest rate settlement payments to the counterparty in 2008 as compared to 2007. Other non-interest income decreased for both the three and nine month periods ended September 30, 2008 as compared to 2007 due primarily to a decrease in fee income related to processing of customer’s credit and debit card transactions.

Non-Interest Expense

Non-interest expense increased by $321,000 and $173,000 for the three and nine month periods ended September 30, 2008 as compared to same periods in 2007. Occupancy expenses increased for both the three and nine month periods due to 1) opening of new branches in June of 2007 and August 2008, and 2) an increase in common area maintenance at certain of the Company’s leased branch locations in 2008. Data processing expense decreased by 10.4% for the three months ended September 30, 2008 and by 15.7% for the nine month period from the equivalent periods in 2007 due to a reduction in the Company’s core data processing fees as a result of the execution of a new contract with the an existing vendor. Marketing and advertising expense increased for the three and nine months as the Company incurred expenses in the second and third quarters of 2008 related to a new branding campaign in addition to an increase in advertising expenses to promote the opening of a new branch location. Other expenses decreased for the nine months in 2008 as compared to 2007 primarily due to a reduction in certain third party vendor expenses and a decrease in charge-offs of overdrawn customer checking accounts.

The Company recognized income tax expense of $223,000 and $263,000 for the three and nine month periods ended September 30, 2008 compared to $343,000 and $917,000 for the equivalent periods in 2007. The Company’s effective tax rate was 19.5% for the third quarter of 2008 compared to 24.0% in 2007 and 10.8% for the nine month period in 2008 compared to 23.3% in 2007. The decrease in income tax expense for the nine month period was primarily due to a decrease in taxable income for the quarter which did not fully offset the level of aggregate tax preference items and fixed tax credits. Also, the Company reduced its reserve for unrecognized tax benefits, reversed its accrual for the associated interest and penalties, and recorded a receivable which reduced income tax expense in the first quarter of 2008 as a result of a favorable resolution to audits of the Company’s 2004 and 2005 tax returns by the Internal Revenue Service.

Community Bank Shares of Indiana, Inc. is the parent company of Your Community Bank in New Albany, Indiana and The Scott County State Bank in Scottsburg, Indiana, which are full-service banking subsidiaries. The Company is traded on the NASDAQ under the symbol CBIN.

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 2007 Form 10-K and subsequent 10-Qs filed with the Securities and Exchange Commission.

Community Bank Shares of Indiana, Inc.
Paul Chrisco, CFO, 812-981-7375