Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1998 Commission File Number: 0-19212
JEFFERSONVILLE BANCORP
(Exact name of Registrant as specified in its charter)
New York 22-2385448
-------- ----------
(State or other jurisdiction of (I.R.S. Employer identification no.)
incorporation or organization)
P. O. Box 398, Jeffersonville, New York 12748
- ------------------------------ -------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 482-4000
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 proceeding 12 months (or for such shorter period that the Registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class of Common Stock as of November 11, 1998
--------------------- -----------------------
$0.50 par value 1,413,105
<PAGE>
INDEX TO FORM 10-Q
Page
Part 1
Item 1 Consolidated Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at
September 30, 1998 and December 31, 1997 1
Consolidated Statements of Income for the Three
Months ended September 30, 1998 and 1997 2
Consolidated Statements of Income for the Nine
Months ended September 30, 1998 and 1997 3
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1998 and 1997 4-5
Notes to Consolidated Interim Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
Part 2
Item 1 Legal Proceedings NONE
Item 2 Changes in Securities NONE
Item 3 Defaults upon Senior Securities and use of proceeds NONE
Item 4 Submission of Matters to a Vote of Security Holders NONE
Item 5 Other Information NONE
Item 6 Exhibits and Reports on Form 8-K NONE
Signatures 16
<PAGE>
<TABLE>
<CAPTION>
Jeffersonville Bancorp and Subsidiary
Consolidated Balance Sheets
September 30 , December 31,
1998 1997
----------------- ------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks .................................... $ 8,147,000 $ 5,563,000
Federal funds sold .......................................... 3,200,000 1,600,000
------------- -------------
CASH AND CASH EQUIVALENTS ........................... 11,347,000 7,163,000
Securities available for sale, at fair value ................ 82,407,000 70,793,000
Investment securities held to maturity,
estimated fair value of $3,759,000
in 1998 and $3,821,000 in 1997 ....................... 3,617,000 3,738,000
Loans, less allowance for loan losses of $2,213,000
in 1998 and $1,862,000 in 1997 ......................... 128,220,000 125,793,000
Accrued interest receivable ................................. 1,578,000 1,291,000
Premises and equipment, net ................................. 2,695,000 2,609,000
Federal Home Loan Bank stock ................................ 875,000 753,000
Other real estate owned ..................................... 320,000 301,000
Cash surrender value of bank-owned life insurance ........... 6,108,000 --
Other assets ................................................ 1,287,000 1,218,000
------------- -------------
TOTAL ASSETS ...................................... $ 238,454,000 $ 213,659,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposits (non-interest bearing) ............. $ 28,471,000 $ 23,545,000
NOW and super NOW deposits .......................... 30,515,000 27,973,000
Savings and insured money market deposits ........... 56,061,000 54,513,000
Time deposits ....................................... 82,272,000 73,129,000
------------- -------------
TOTAL DEPOSITS ................................... 197,319,000 179,160,000
Federal Home Loan Bank advances ........................ 15,000,000 10,000,000
Short-term debt ........................................ 449,000 404,000
Accrued expenses and other liabilities ................. 2,308,000 1,919,000
------------- -------------
TOTAL LIABILITIES ................................ 215,076,000 191,483,000
------------- -------------
Stockholders' equity:
Series A preferred stock, no par value:
2,000,000 shares authorized, none issued ....... -- --
Common stock, $0.50 par value; 2,225,000 shares
authorized ; 1,413,105 shares and 1,234,711 shares
issued at September 30, 1998 and December 31,
1997, respectively .............................. 732,000 617,000
Paid-in capital ..................................... 5,629,000 446,000
Treasury stock; at cost; 62,381 shares
and 51,965 shares held at September 30, 1998
and December 31, 1997, respectively ............ (206,000) (206,000)
Retained earnings ................................... 16,411,000 20,766,000
Accumulated other comprehensive income .............. 812,000 553,000
------------- -------------
TOTAL STOCKHOLDERS' EQUITY ...................... 23,378,000 22,176,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .......................................... $ 238,454,000 $ 213,659,000
============= =============
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
1
<PAGE>
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(Unaudited)
For the Three Months
Ended September 30,
1998 1997
-------------- ---------------
INTEREST INCOME
Loan interest and fees .............. $ 2,982,000 $ 2,888,000
Securities:
Taxable ........................ 1,008,000 812,000
Non-taxable .................... 291,000 333,000
Federal funds sold .................. 45,000 45,000
----------- -----------
TOTAL INTEREST INCOME ............... 4,326,000 4,078,000
----------- -----------
INTEREST EXPENSE
Deposits ............................ 1,632,000 1,620,000
Federal Home Loan Bank advances ..... 217,000 105,000
Other ............................... 12,000 4,000
----------- -----------
TOTAL INTEREST EXPENSE .............. 1,861,000 1,729,000
----------- -----------
NET INTEREST INCOME ................. 2,465,000 2,349,000
Provision for loan losses ........... (175,000) (256,000)
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ...... 2,290,000 2,093,000
----------- -----------
NON-INTEREST INCOME
Service charges ..................... 204,000 180,000
Net security gains .................. 2,000 36,000
Other non-interest income ........... 240,000 75,000
----------- -----------
446,000 291,000
----------- -----------
NON-INTEREST EXPENSES
Salaries and wages .................. 809,000 762,000
Employee benefits ................... 234,000 186,000
Occupancy and equipment expenses .... 344,000 350,000
Other real estate owned expenses, net 38,000 7,000
Other non-interest expenses ......... 477,000 423,000
----------- -----------
1,902,000 1,728,000
----------- -----------
Income before income taxes .......... 834,000 656,000
Income taxes ........................ (255,000) (141,000)
----------- -----------
NET INCOME .......................... $ 579,000 $ 515,000
=========== ===========
Basic earnings per common share (1) . 0.41 0.36
== =========== ===========
Average common shares outstanding (1) 1,417,371 1,419,277
== ========= =========
(1) Share and per share data has been adjusted for the effect of the 20% stock
dividend distributed in February 1998.
See accompanying notes to unaudited consolidated interim financial statements.
2
<PAGE>
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
Unaudited)
For the Nine Months
Ended September 30,
1998 1997
------------ ------------
INTEREST INCOME
Loan interest and fees .............. $ 8,915,000 $ 8,278,000
Securities:
Taxable ........................ 2,758,000 2,205,000
Non-taxable .................... 878,000 1,141,000
Federal funds sold .................. 146,000 84,000
------------ ------------
TOTAL INTEREST INCOME ............... 12,697,000 11,708,000
------------ ------------
INTEREST EXPENSE
Deposits ............................ 4,991,000 4,855,000
Federal Home Loan Bank advances ..... 545,000 199,000
Other ............................... 28,000 33,000
------------ ------------
TOTAL INTEREST EXPENSE .............. 5,564,000 5,087,000
------------ ------------
NET INTEREST INCOME ................. 7,133,000 6,621,000
Provision for loan losses ........... (450,000) (696,000)
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ...... 6,683,000 5,925,000
------------ ------------
NON-INTEREST INCOME
Service charges ..................... 609,000 539,000
Net security gains .................. 14,000 89,000
Other non-interest income ........... 530,000 337,000
------------ ------------
1,153,000 965,000
------------ ------------
NON-INTEREST EXPENSES
Salaries and wages .................. 2,223,000 2,092,000
Employee benefits ................... 744,000 614,000
Occupancy and equipment expenses .... 879,000 935,000
Other real estate owned expenses, net 160,000 109,000
Other non-interest expenses ......... 1,391,000 1,301,000
------------ ------------
5,397,000 5,051,000
------------ ------------
Income before income taxes .......... 2,439,000 1,839,000
Income taxes ........................ (716,000) (352,000)
------------ ------------
NET INCOME .......................... $ 1,723,000 $ 1,487,000
============ ============
Basic earnings per common share (1) . $ 1.22 $ 1.05
== =========== ============
Average common shares outstanding (1) 1,417,371 1,419,277
== ========= =========
(1) Share and per share data has been adjusted for the effect of the 20% stock
dividend distributed in February 1998.
See accompanying notes to unaudited consolidated interim financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For the nine months
ended September 30,
1998 1997
OPERATING ACTIVITIES
<S> <C> <C>
Net income ......................................... $ 1,723,000 $ 1,487,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses ..................... 450,000 696,000
Write down of other real estate owned ........ 83,000 98,000
Depreciation and amortization ................. 368,000 365,000
Net security gains ............................ (14,000) (89,000)
Increase in accrued interest receivable ....... (287,000) (280,000)
(Increase) decrease in other assets ............ (69,000) 60,000
Increase in accrued expenses
and other liabilities .................... 217,000 3,000
Increase in cash surrender value of bank-
owned life insurance ..................... (100,000) --
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ......................... 2,371,000 2,340,000
------------ ------------
INVESTING ACTIVITIES Proceeds from maturities and calls :
Securities available for sale ................... 19,756,000 6,038,000
Investment securities ........................... 609,000 654,000
Purchases:
Securities available for sale .................... (42,491,000) (27,970,000)
Investment securities held to maturity ........... (488,000) (979,000)
Proceeds from sales of securities available for sale 11,566,000 12,123,000
Dispursements for loan originations,net of
principal collections ........................... (3,441,000) (7,669,000)
Purchases of Federal Home Loan Bank stock .......... (122,000) (36,000)
Net purchases of premises and equipment ............ (454,000) (459,000)
Purchase of bank-owned life insurance .............. (6,008,000) --
Proceeds from sales of other real estate owned ..... 462,000 574,000
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .............. (20,611,000) (17,724,000)
----------- -----------
FINANCING ACTIVITIES
Net increase in deposits ........................... 18,159,000 8,466,000
Proceeds from Federal Home Loan Bank advances ...... 5,000,000 10,000,000
Net increase in short-term debt .................... 45,000 46,000
Dividends paid ..................................... (638,000) (378,000)
Purchases and retirements of common stock .......... (142,000) (1,000)
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES .......................... 22,424,000 18,133,000
------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS .............................. 4,184,000 2,749,000
Cash and cash equivalents at beginning of period ... 7,163,000 6,023,000
------------ ------------
Cash and cash equivalents at end of period ......... $ 11,347,000 $ 8,772,000
============ ============
</TABLE>
4
<PAGE>
continued
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows,Continued
(Unaudited)
For the nine months
ended September 30,
1998 1997
SUPPLEMENTAL INFORMATION Cash paid for:
Interest ............................ $ 5,013,000 $ 5,108,000
=========== ===========
Income taxes ........................ $ 560,000 $ 419,000
=========== ===========
Transfers of loans to other real estate owned . $ 564,000 $ 228,000
=========== ===========
Change in net unrealized gain on
securities available for sale,net of tax ... $ 259,000 $ 72,000
=========== ===========
Deferred tax effect of change in net unrealized
gain on securities available for sale ...... $ 172,000 $ (51,000)
=========== ===========
See accompanying notes to unaudited consolidated interim financial statements
5
<PAGE>
JEFFERSONVILLE BANCORP
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
A. Financial Statement Presentation
In the opinion of Management of Jeffersonville Bancorp, the
accompanying unaudited consolidated interim financial statements
contain all adjustments necessary to present the financial position as
of September 30, 1998 and December 31, 1997, the results of operations
for the three and nine month periods ended September 30, 1998 and 1997,
and cash flows for the nine month periods ended September 30, 1998 and
1997. All adjustments are normal and recurring. The accompanying
unaudited consolidated interim financial statements should be read in
conjunction with Jeffersonville Bancorp's consolidated year-end
financial statements, including notes thereto, which are included in
Jeffersonville Bancorp's 1997 Annual Report.
B. Stock Dividend
On January 14, 1998, the Company announced a 20% stock dividend
payable on February 10, 1998 to common stockholders of record as of
January 27, 1998. Under the terms of the dividend, stockholders
received a dividend of one share of common stock for every five shares
owned as of the record date, plus cash in lieu of any fractional
shares. A total of 246,406 common shares were issued in connection with
the stock dividend. The fair value of the shares issued ($5.7 million)
was charged to retained earnings, with a corresponding combined
increase in common stock and paid-in capital.
6
<PAGE>
C. Comprehensive Income
On January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income". This Statement establishes
standards for reporting and display of comprehensive income and its
components. Comprehensive income includes the reported net income of
a company adjusted for items that are currently accounted for as
direct entries to equity, such as unrealized gains and losses on
securities available for sale, foreign currency items and minimum
pension liability adjustments. For the Company, comprehensive income
currently represents net income plus the net change during the period
in net unrealized gains or losses on securities available for sale.
The Company's accumulated other comprehensive income at September 30,
1998 and December 31, 1997 represents the after-tax net unrealized
gain on securities available for sale.
Comprehensive income for the three month periods ended September
30, 1998 and 1997 was $913,000 and $818,000, respectively.
Comprehensive income for the nine month periods ended September 30,
1998 and 1997 was $1,982,000 and $1,559,000, respectively. The
following summarizes the components of other comprehensive income:
Nine Months Ended September 30, 1998:
Net unrealized holding gain arising during the period,
net of tax (pre-tax amount of 445,000 ........................ $ 267,000
Reclassification adjustment for net gains realized in net income
during the period, net of tax (pre-tax amount of $14,000) .... (8,000)
- ---------------------------------------------------------------- ---------
Other comprehensive income ..................................... $ 259,000
---------
7
<PAGE>
Nine Months Ended September 30, 1997:
Net unrealized holding gains arising during the period,
net of tax (pre-tax amount of $208,000) ............. $ 125,000
Reclassification adjustment for net gains realized
in net income during the period, net of tax (pre-tax
amount of $89,000) .................................. (53,000)
- ------------------------------------------------------- ---------
Other comprehensive income ............................ $ 72,000
---------
D New Accounting Pronouncement
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 "(SFAS No. 133)", "Accounting for
DerivativeInstruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments in other contracts, and for
hedging activities. This Statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999, although earlier
adoption is permitted. SFAS No. 133 also permits a reclassification of
securities from the held to maturity category to the available for sale
category upon adoption of the standard. Management iscurrently
evaluating the impact of this Standard on the Company's consolidated
financial statements.
8
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
A. Overview - Financial Condition
During the period from December 31, 1997 to September 30, 1998,
total assets increased $24,795,000 or 11.60%. Federal funds sold
increased $1,600,000 as increased deposit funds were available after
loan demand was satisfied. The funds were deployed in federal funds
sold to enhance liquidity, while receiving a satisfactory return.
Securities available for sale increased $11,614,000 or 16.41% during
the nine month period. This total increase included a second quarter
leverage transaction in the amount of $5,000,000 in which the Company
purchased securities funded with Federal Home Loan Bank advances. Net
loans increased from $125,793,000 at year end 1997 to $128,220,000 at
September 30, 1998, an increase of $2,427,000 or 1.93%. Net loans only
increased $636,000 from June 30, 1998 to September 30, 1998, reflecting
limited loan demand. Loan demand was unseasonally low in all areas of
lending for the third quarter due to increased competition from other
lenders.
Deposits increased from $179,160,000 at December 31, 1997 to
$197,319,000 at September 30, 1998, an increase of $18,159,000 or
10.14%. Deposits grew $8,277,000, or 4.38%, during the third quarter
alone, which is a positive growth factor. Growth occurred in all types
of deposits in the third quarter. The 18 month Escalator, an account
that allows one rate modification during its term, continues to be a
popular option. Demand deposits increased from $23,545,000 at December
31, 1997 to $28,471,000 at September 30, 1998, an increase of
$4,926,000 or 20.92%. Inflow of these lower cost deposits is important
to offset the cost of the higher priced funds and may be the result of
a competitive service charge policy.
Total stockholders' equity of $22,176,000 at December 31, 1997
increased $1,202,000 or 5.42% to $23,378,000 at September 30, 1998.
This net increase was the result of net income of $1,723,000, plus an
increase of $259,000 in accumulated other comprehensive income,
partially offset by dividend payments of $638,000 and common shares
purchased and retired for $142,000.
9
<PAGE>
B. Provision for Loan Losses
The provision for loan losses reflects management's assessment of
the risk inherent in the loan portfolio, the general state of the
economy and past loan experience. The provision for loan losses was
$450,000 for the nine months ended September 30, 1998 compared to
$696,000 for the nine months ended September 30, 1997. Total charge
offs for the 1998 nine month period were $252,000 compared to $879,000
for the same period in the prior year, while recoveries decreased from
$199,000 for the nine month period ending in 1997 to $153,000 for the
same period in 1998. The amounts represent net charge-offs of $99,000
for the first nine months of 1998 verses $680,000 for the same period
in the prior year. Based on management's analysis of the loan
portfolio, management believes the current level of the allowance is
adequate.
Changes in the allowance for loan losses are summarized as follows
for the nine month periods ended September 30:
1998 1997
----------- -----------
Balance at beginning of period ........... $ 1,862,000 $ 1,711,000
Provision for loan losses ................ 450,000 696,000
Loans charged off ........................ (252,000) (879,000)
Recoveries ............................... 153,000 199,000
- ------------------------------------------ ----------- -----------
Balance at end of period ................. $ 2,213,000 $ 1,727,000
=========== ==========
Net charge-offs as a percentage
of average outstanding loans 0.08% 0.56%
Allowance for loan losses to:
Total loans 1.70% 1.39%
Total non-performing loans 65.49% 30.70%
10
<PAGE>
C. Non Accrual and Past Due Loans
Non-performing loans are summarized as follows at September 30:
1998 1997
---- ----
Non-accrual loans ........................... $2,125,000 $3,270,000
Loans past due 90 days or more and
still accruing interest 1,254,000 1,227,000
Restructured loans .......................... 1,131,000
---------- ----------
Total non-performing loans .................. $3,379,000 $5,628,000
---------- ----------
Non-performing loans as
a percentage of total loans ...... 2.59% 4.54%
==== ====
Non-accrual loans had the following effect on interest income
for the nine months ended September 30, 1998:
Interest contractually due at original rates .................. $153,000
Interest income recognized .................................... 97,000
--------
Interest income not recognized ................................ $ 56,000
--------
As of September 30, 1998 and 1997, the recorded investment in
loans considered to be impaired under SFAS No.114 totaled $537,000 and
$2,176,000, respectively. There was no allowance for loan impairment
under SFAS No.114 at either date, primarily due to prior charge offs
and the adequacy of collateral values on these loans.
D. Capital
On January 14, 1998, the Company announced a 20% stock dividend
payable on February 10, 1998 to common stockholders of record as of
January 27, 1998. Under the terms of the dividend, stockholders
received a dividend of one share of common stock for every five shares
owned as of the record date, plus cash in lieu of any fractional
shares. A total of 246,406 common shares were issued in connection with
the stock dividend.
In January 1998, the board of directors allocated $1,000,000 for
the repurchase and retirement of common stock on the open market. As of
September 30, 1998, 6,150 shares have been repurchased and retired at a
cost of $142,000.
11
<PAGE>
Under the Federal Reserve Bank's risk-based capital rules, the
Company's Tier I risk-based capital was 17.0% and total risk-based
capital was 18.3% of risk-weighted assets at September 30, 1998. These
risk-based capital ratios are well above the minimum regulatory
requirements of 4.0% for Tier I capital and 8.0% for total capital. The
Company's leverage ratio (Tier I capital to average assets) of 10.0% at
September 30, 1998 is well above the 4.0% minimum regulatory
requirement.
The following table shows the Company's actual capital
measurements compared to the minimum regulatory requirements at
September 30, 1998.
TIER I CAPITAL
Stockholders' equity, excluding the after-tax net unrealized
gain on securities available for sale ...................... $ 22,566,000
TIER II CAPITAL
Allowance for loan losses1 ................................. 1,665,000
- ------------------------------------------------------------ ------------
Total risk-based capital ................................... $ 24,231,000
------------
Risk-weighted assets2 ...................................... $132,644,000
- ------------------------------------------------------------ ------------
Average assets ............................................. $224,896,000
------------
RATIOS
Tier I risk-based capital (minimum 4.0%) ................... 17.0%
Total risk-based capital (minimum 8.0%) .................... 18.3%
Leverage (minimum 4.0%) .................................... 10.0%
1 The allowance for loan losses is limited to 1.25% of
risk-weighted assets for the purpose of this calculation.
2 Risk-weighted assets have been reduced for excess allowance
for loan losses excluded from total risk-based capital
12
<PAGE>
E. Results of Operations
Net Income
Net income for the first nine months of 1998 was $1,723,000
compared to $1,487,000 for the same period in 1997. The Company's
annualized return on average assets was 1.02% compared to 0.95% in the
same period last year. The annualized on average stockholders' equity
was 10.16% and 9.51% for the first nine months of 1998 and 1997,
respectively.
Interest Income and Expense
Total tax equivalent interest income increased $853,000 or 6.9% in
the first nine months of 1998 compared to the same period in 1997. The
overall yield on interest earning assets was down 11 basis points from
8.31% for the nine months ended September 30, 1997 to 8.20% for the
same period in 1998. The increase in interest income on earning assets
was provided by an increase in average earning assets. The total
average balance for earning assets was $213,745,000 for the nine month
period ended September 30, 1998 compared to $197,350,000 for the same
nine month period in 1997.
The overall yield on the loan portfolio increased by 12 basis
points to 9.18% from 9.06% for the first nine months of 1998 compared
to the same period in 1997. The average yield on real estate mortgage
loans, the major portion of the loan portfolio, also increased 13 basis
points to 8.72% in 1998 from 8.59% for the 1997 nine month period. The
tax equivalent yield on investment securities decreased 14 basis points
from 7.14% in 1997 to 7.00% in 1998.
The cost of interest bearing liabilities increased from 4.23% for
the nine month period ended September 30, 1997 to 4.28% for the same
period in 1998. The overall net interest margin decreased 14 basis
points from 4.87% in the first nine months of 1997 to 4.73% in the
first nine months of 1998.
13
<PAGE>
Non-Interest Income and Expense
Non-interest income for the first nine months of 1998 increased
$188,000 or 19.48% compared to the same period in 1997. Changes in
service charge policies accounted for much of the increase. Income on
bank-owned life insurance policies of $116,000 was offset by a $75,000
decrease in net security gains in 1998 compared to last year.
The Bank purchased cash value life insurance policies on the lives
of directors and officers during the second quarter of 1998. The
policies are owned by the Bank and are designed to enhance the benefit
structure and increase non-interest income.
Non-interest expenses were $5,397,000 for the first nine months of
1998 compared to $5,051,000 for the same period in 1997, an increase of
$346,000 or 6.85%. This increase reflects a $261,000 increase in
compensation and benefits costs, primarily due to higher employee
benefit costs and salary adjustments for the existing staff to maintain
the Company's competitive position.
Year 2000
Year 2000 or "Y2K" issue continues to be a top priority for the
Company. The year 2000 issue refers to uncertainties regarding the
ability of various software and hardware systems to interpret dates
correctly after the beginning of the Year 2000. The Company utilizes
and is dependent upon data processing systems and software in its
normal course of business.
In 1997, management of the Company created a Y2K task force. This
task force consists of senior management and representatives of all
processing areas. A Y2K written plan was established. Goals of the Y2K
Plan include identifying risks, testing data processing and other
systems used by the Company, informing customers of the Y2K issues and
risks, establishing a Contingency Plan for operations if Y2K issues
cause important systems or equipment to fail, implementing changes
necessary to achieve Y2K compliance, and verifying that these changes
are effective. The Board of Directors approved The Plan and reviews
progress under the Plan at its regular meetings.
14
<PAGE>
The Company has met its Y2K goals to date and believes it will
continue to meet the goals of the plan. By September 30, 1998, the
Company had performed risk assessments, assessed the Y2K preparedness
of major vendors and suppliers as well as large customers, started its
customer awareness program, begun development of the Y2K Contingency
Plan, and was in the process of testing and implementing necessary
changes in hardware and software.
The Y2K Contingency Plan calls for the Company to manually process
banking transactions and to use other data processing methods in the
event that Y2K efforts of the Company or its service providers are not
successful. Delays in processing banking transactions would result if
the Company were required to use manual processing or other methods
instead of its normal computer processes. These delays could disrupt
the normal business activities of the Company and its customers. The
Company must assure that the computer systems it uses to process
transactions are Y2K ready to avoid these disruptions..
Management believes that the cost of resolving Y2K issues related
to the Company's hardware and software will not be material to the
Company's business, operations, liquidity, capital resources or
financial condition based on information developed to date. At this
time, the Company estimates that is total cash outlays in connection
with Y2K compliance will not exceed than $50,000, excluding costs of
Company employees, involved in Y2K compliance activities. Approximately
$26,000 has been expended as of September 30, 1998.
Although the Company has completed an assessment of the Y2K
effects on its current commercial lending and other customers, the
actual effect on individual, corporate and governmental customers of
the Company and on governmental authorities that regulate the Company
and it subsidiary , and any resulting consequences to the Company,
cannot be determined with any assurance. The Company's belief that it,
and its primary vendors, will achieve Y2K compliance is based on a
number of assumptions and on statements made by third parties which are
subject to uncertainty. The Company is not able to predict the effects,
if any, on the Company, financial markets or society in general of the
publics reaction to Y2K.
15
<PAGE>
Because of this uncertainty and reliance on assumptions and statements
of the third parties, the Company cannot be assured that the results
of its Y2K Plan will be achieved. Management presently believes,
however, that the Company will be able to accomplish its Y2K goals and
that the Company will be able to continue providing financial services
for its customers into the 21st century. SIGNATURES Pursuant to the
requirements 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.
JEFFERSONVILLE BANCORP
-----------------------
Date: November 13, 1998 /S/
---------------------------------------
K. Dwayne Rhodes
Treasurer and Chief Accountig Officer
16
<PAGE>
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