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, 1999 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 12, 1999
--------------------- -----------------------
$0.50 par value 1,533,259
<PAGE>
INDEX TO FORM 10-Q
------------------
Page
Part 1
- ------
Item 1 Consolidated Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998 1
Consolidated Statements of Income for the Three
Months Ended September 30, 1999 and 1998 2
Consolidated Statements of Income for the Nine
Months Ended September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 4-5
Notes to Consolidated Interim Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-17
Item 3 Quantitative and Qualitative Disclosures
about Market Risk 17
Part 2
Item 1 Legal Proceedings NONE
Item 2 Changes in Securities and Use of Proceeds NONE
Item 3 Defaults upon Senior Securities 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 17
<PAGE>
Jeffersonville Bancorp and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks .......................................... $ 10,089,000 $ 8,203,000
Securities available for sale, at fair value ...................... 92,353,000 88,891,000
Securities held to maturity, estimated fair value of $4,349,000
in 1999 and $3,755,000 in 1998 ............................. 4,358,000 3,602,000
Loans, net of allowance for loan losses of $2,442,000
in 1999 and $2,310,000 in 1998 ............................... 135,882,000 130,031,000
Accrued interest receivable ....................................... 1,864,000 1,392,000
Premises and equipment, net ....................................... 2,831,000 2,681,000
Federal Home Loan Bank stock ...................................... 1,275,000 1,160,000
Other real estate owned ........................................... 505,000 535,000
Cash surrender value of bank-owned life insurance ................. 6,195,000 6,183,000
Other assets ...................................................... 2,593,000 1,175,000
------------- -------------
TOTAL ASSETS ............................................ $ 257,945,000 $ 243,853,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposits (non-interest bearing) ................... $ 33,825,000 $ 31,287,000
NOW and super NOW accounts ................................ 28,888,000 28,726,000
Savings and insured money market deposits ................. 61,955,000 56,089,000
Time deposits ............................................. 85,737,000 82,012,000
------------- -------------
TOTAL DEPOSITS ......................................... 210,405,000 198,114,000
Federal Home Loan Bank borrowings ............................ 20,000,000 20,000,000
Short-term debt .............................................. 2,541,000 334,000
Accrued expenses and other liabilities ....................... 2,475,000 2,388,000
------------- -------------
TOTAL LIABILITIES ...................................... 235,421,000 220,836,000
------------- -------------
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 ; 1,601,918 shares and 1,468,276 shares
issued at September 30, 1999 and December 31,
1998, respectively ...................................... 801,000 734,000
Paid-in capital ........................................... 8,330,000 5,431,000
Treasury stock, at cost; 68,618 shares at September 30,1999
and 62,381 shares at December 31, 1998 ............... (206,000) (206,000)
Retained earnings ......................................... 15,144,000 16,795,000
Accumulated other comprehensive income(loss) .............. (1,545,000) 263,000
------------- -------------
TOTAL STOCKHOLDERS' EQUITY ............................ 22,524,000 23,017,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY ................................................ $ 257,945,000 $ 243,853,000
============= =============
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
1
<PAGE>
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(Unaudited)
For the Three Months
Ended September 30,
1999 1998
------------- ------------
INTEREST INCOME
Loan interest and fees .............. $ 3,094,000 $ 2,982,000
Securities:
Taxable ........................ 1,203,000 1,008,000
Non-taxable .................... 310,000 291,000
Federal funds sold .................. 1,000 45,000
----------- -----------
TOTAL INTEREST INCOME ............... 4,608,000 4,326,000
----------- -----------
INTEREST EXPENSE
Deposits ............................ 1,564,000 1,632,000
Federal Home Loan Bank borrowings ... 290,000 217,000
Other ............................... 17,000 12,000
----------- -----------
TOTAL INTEREST EXPENSE .............. 1,871,000 1,861,000
----------- -----------
NET INTEREST INCOME ................. 2,737,000 2,465,000
Provision for loan losses ........... (75,000) (175,000)
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ...... 2,662,000 2,290,000
---------- -----------
NON-INTEREST INCOME
Service charges ..................... 287,000 204,000
Increase in cash surrender value
of bank-owned life insurance .. 86,000 --
Net security gains .................. 7,000 2,000
Other non-interest income ........... 303,000 240,000
----------- -----------
TOTAL NON-INTEREST INCOME ........... 683,000 446,000
----------- -----------
NON-INTEREST EXPENSES
Salaries and wages .................. 934,000 809,000
Employee benefits ................... 292,000 234,000
Occupancy and equipment expenses .... 339,000 344,000
Other real estate owned expenses, net 80,000 38,000
Other non-interest expenses ......... 673,000 477,000
----------- -----------
TOTAL NON-INTEREST EXPENSES ......... 2,318,000 1,902,000
----------- -----------
Income before income taxes .......... 1,027,000 834,000
Income taxes ........................ (297,000) (255,000)
----------- -----------
NET INCOME .......................... $ 730,000 $ 579,000
=========== ===========
Basic earnings per common share ..... $ 0.48 $ 0.37
============ ===========
Average common shares outstanding ... 1,533,259 1,559,108
========= =========
Share and per share data has been adjusted for the effect of the 10% stock
dividend distributed in May 1999
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,
1999 1998
--------------- --------------
INTEREST INCOME
Loan interest and fees .............. $ 9,246,000 $ 8,915,000
Securities:
Taxable ........................ 3,451,000 2,758,000
Non-taxable .................... 916,000 878,000
Federal funds sold .................. 37,000 146,000
------------ ------------
TOTAL INTEREST INCOME ............... 13,650,000 12,697,000
------------ ------------
INTEREST EXPENSE
Deposits ............................ 4,785,000 4,991,000
Federal Home Loan Bank borrowings ... 857,000 545,000
Other ............................... 46,000 28,000
------------ ------------
TOTAL INTEREST EXPENSE .............. 5,688,000 5,564,000
------------ ------------
NET INTEREST INCOME ................. 7,962,000 7,133,000
Provision for loan losses ........... (225,000) (450,000)
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ...... 7,737,000 6,683,000
------------ ------------
NON-INTEREST INCOME
Service charges ..................... 805,000 609,000
Increase in cash surrender value
of bank-owned life insurance .. 266,000 --
Net security gains .................. 22,000 14,000
Other non-interest income ........... 561,000 530,000
------------ ------------
TOTAL NON-INTEREST INCOME ........... 1,654,000 1,153,000
------------ ------------
NON-INTEREST EXPENSES
Salaries and wages .................. 2,467,000 2,223,000
Employee benefits ................... 917,000 744,000
Occupancy and equipment expenses .... 925,000 879,000
Other real estate owned expenses, net 190,000 160,000
Other non-interest expenses ......... 1,735,000 1,391,000
------------ ------------
TOTAL NON-INTEREST EXPENSES ......... 6,234,000 5,397,000
------------ ------------
Income before income taxes .......... 3,157,000 2,439,000
Income taxes ........................ (916,000) (716,000)
------------ ------------
NET INCOME .......................... $ 2,241,000 $ 1,723,000
============ ============
Basic earnings per common share (1) . $ 1.46 $ 1.11
============ ============
Average common shares outstanding (1) 1,535,092 1,559,108
============ ============
(1) Share and per share data has been adjusted for the effect of the 10%
stock dividend distributed in May 1999.
See accompanying notes to unaudited consolidated interim financial statements.
3
<PAGE>
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1999 1998
-------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income ............................................... $ 2,241,000 $ 1,723,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses ........................... 225,000 450,000
Write down of other real estate owned ............... 12,000 83,000
Gain on sales of other real estate owned ............ (47,000) --
Depreciation and amortization ....................... 378,000 368,000
Net increase in cash surrender value
of bank-owned life insurance .................. (12,000) (100,000)
Net security gains .................................. (22,000) (14,000)
Increase in accrued interest receivable ............. (472,000) (287,000)
Increase in other assets ........................... (352,000) (69,000)
Increase in accrued
expenses and other liabilities ................. 268,000 217,000
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ................. 2,219,000 2,371,000
---------- ------------
INVESTING ACTIVITIES Proceeds from maturities and calls:
Securities available for sale ...................... 7,498,000 19,756,000
Securities held to maturity ........................ 528,000 609,000
Proceeds from sales of securities
available for sale ................................ 7,133,000 11,566,000
Purchases :
Securities available for sale ...................... (21,126,000) (42,491,000)
Securities held to maturity ........................ (1,284,000) (488,000)
Disbursements for loan originations, net of
principal collections ............................. (6,476,000) (3,441,000)
Purchases of Federal Home Loan Bank stock ................ (115,000) (122,000)
Purchase of bank owned life insurance .................... -- (6,008,000)
Net purchases of premises and equipment .................. (528,000) (454,000)
Proceeds from sales of other real estate owned ........... 465,000 462,000
------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES ....................... (13,905,000) (20,611,000)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits ................................. 12,291,000 18,159,000
Increase in short-term debt .............................. 2,207,000 45,000
Cash dividends paid ...................................... (683,000) (638,000)
Proceeds from Federal Home Loan Bank
borrowing ......................................... -- 5,000,000
Purchases and retirements of common stock ................ (243,000) (142,000)
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ...................... 13,572,000 22,424,000
------------ ------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS ................. 1,886,000 4,184,000
Cash and cash equivalents at beginning of period ......... 8,203,000 7,163,000
------------ ------------
Cash and cash equivalents at end of period ..................$ 10,089,000 $ 11,347,000
============ ============
(Continued)
4
<PAGE>
</TABLE>
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows, Continued
(Unaudited)
For the Nine Months
Ended September 30,
1999 1998
-------------------------------
Supplemental imformation:
Cash paid for:
Interest ......................... $5,714,000 $5,586,000
Income taxes ..................... 1,052,000 799,000
Transfer of loans to other real estate owned 400,000 564,000
See accompanying notes to unaudited consolidated interim financial statements.
5
<PAGE>
JEFFERSONVILLE BANCORP
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
A. Financial Statement Presentation
In the opinion of Management of Jeffersonville Bancorp (the
"Company"), the accompanying unaudited consolidated interim
financial statements contain all adjustments necessary to present
the financial position as of September 30, 1999 and December 31,
1998, the results of operations for the three and nine month
periods ended September 30, 1999 and 1998, and cash flows for the
nine month periods ended September 30, 1999 and 1998. All
adjustments are normal and recurring. The accompanying unaudited
consolidated interim financial statements should be read in
conjunction with the 1998 consolidated annual financial
statements, including the notes thereto, which are included in the
Company's 1998 Annual Report.
B. Earnings Per Share
Basic earnings per share amounts were calculated based on
weighted average common shares outstanding of 1,533,259 and
1,559,108, for the three month periods ended September 30, 1999
and 1998 respectively, and 1,535,092 and 1,559,108 for the nine
month periods ended September 30, 1999 and 1998, respectively.
There were no dilutive securities during these periods. All per
share data has been restated for the effect of 10% stock dividend
discussed in Note C.
In January 1999, the Board of Directors allocated $1,000,000
for the repurchase and retirement of common stock on the open
market. As of September 30, 1999, a total of 10,478 shares have
been repurchased and retired at a cost of $239,000.
6
<PAGE>
C. Stock Dividend
On April 13, 1999, the Company announced a 10% stock dividend
payable on May 11, 1999 to common stockholders of record as of
April 27, 1999. Under the terms of the dividend, stockholders
received a dividend of one share of common stock for every ten
shares owned as of the record date, plus cash in lieu of any
fractional shares. A total of 145,625 common shares were issued in
connection with the stock dividend. The fair value of the shares
issued ($3.2 million) was charged to retained earnings, with a
corresponding combined increase in common stock and paid-in
capital.
D. Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income", defines comprehensive income as the
reported net income of a company adjusted for certain 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 and the
net change during the period in net unrealized gains or losses on
securities available for sale. The Company's accumulated other
comprehensive income (loss) at September 30, 1999 and December 31,
1998 represents the after-tax net unrealized gain (loss) on
securities available for sale.
Comprehensive income for the three month periods ended
September 30, 1999 and 1998 was $628,000 and $913,000, respectively.
Comprehensive income for the nine month periods ended September 30,
1999 and 1998 was $433,000 and $1,982,000, respectively. At the
Company, comprehensive income represents net income plus other
comprehensive income, which consists of net changes to unrealized
gains and
7
<PAGE>
losses on available for sale securities for the period. The
following summarizes the components of other comprehensive income
(loss) for the nine month periods:
Nine Months Ended September 30, 1999:
Net unrealized holding losses arising
during the period, net of tax
(pre-tax amount of $2,992,000) $(1,795,000)
Reclassification adjustment for net
gains realized in net income during
the period, net of tax
(pre-tax amount of $22,000) (13,000)
-----------
Other comprehensive loss
(pre-tax loss of $3,013,000) $(1,808,000)
Nine Months Ended September 30, 1998:
Net unrealized holding losses 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 loss
(pre-tax loss of $432,000) $259,000
===========
E. Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In June of
1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133", which deferred the effective date of SFAS 133
by one year from fiscal years beginning after June 15, 1999 to fiscal
years beginning after June 15, 2000. Management is currently evaluating
the impact of SFAS No. 133 on the Company's consolidated financial
statements.
8
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operation
Forward-Looking Statements
When used in this filing or future filings by the Company with
the Securities and Exchange Commission, in the Company's press
releases or other public or shareholder communications, or in oral
statements made with the approval of an authorized executive
officer, the words or phrases "will likely result", "are expected
to", "will continue", "is anticipated", "estimate", "project",
"believe", or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. In addition, certain
disclosures and information customarily provided by financial
institutions are inherently based upon predictions of future
events and circumstances. Furthermore, form time to time, the
Company may publish other forward-looking statements relating to
such matters as anticipated financial performance, business
prospects, and similar matters.
A. Overview - Financial Condition
During the period from December 31, 1998 to September 30,
1999, total assets increased $14,092,000 or 5.8%. Securities
available for sale increased $3,462,000 or 3.9% during the nine
month period. Net loans increased from $130,031,000 at year-end
1998 to $135,882,000 at September 30, 1999, an increase of
$5,851,000 or 4.5%. Net loans increased $53,000 from June 30, 1999
to September 30, 1999, reflecting limited loan demand. Loan demand
was unseasonably low in all areas of lending for the second and
third quarters due to increased rate competition from other
lenders.
Deposits increased from $198,114,000 at December 31, 1998 to
$210,405,000 at September 30, 1999, an increase of $12,291,000 or
6.2%. Deposits increased by $5,233,000 during the third quarter,
which can be mainly attributed to the deposit of school taxes
during late September into savings account which increased by
$3,282,000.
9
<PAGE>
Third quarter growth of time deposits was $1,158,000.
Such deposits helped to reduce the need for short-term borrowings
which decreased to $2,500,000 from $4,900,000 during the quarter.
Demand deposits increased from $31,287,000 at
December 31, 1998 to $33,825,000 at September 30, 1999, an
increase of $2,538,000 or 8.1% primarily due to competitive
consumer account service charges. Inflow of these lower cost
deposits is important to offset the cost of the higher priced
funds.
Total stockholders' equity of $23,017,000 at December 31, 1998
decreased $493,000 or 2.1% to $22,524,000 at September 30, 1999.
This decrease was principally the result of net income of
$2,241,000, less a decrease of $1,808,000 in accumulated other
comprehensive income, cash dividend payments of $425,000, and
common shares purchased and retired for $239,000.
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 $225,000 for the nine months ended September 30, 1999
compared to $450,000 for the nine months ended September 30, 1998.
This decrease is primarily due to a decrease in non-accrual loans
from $2,125,000 at September 30, 1998 to $881,000 at September 30,
1999. Total charge-offs for the 1999 nine month period were
$223,000 compared to $252,000 for the same period in the prior
year, while recoveries decreased from $153,000 for the nine month
period in 1998 to $130,000 for the same period in 1999. The
aforementioned charge-offs and recoveries resulted in net
charge-offs of $93,000 for the first nine months of 1999 and
$99,000 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 for loan losses is adequate.
10
<PAGE>
Changes in the allowance for loan losses are summarized as follows
the nine month periods ended September 30:
1999 1998
---- ----
Balance at beginning of period $ 2,310,000 $ 1,862,000
Provision for loan losses ...... 225,000 450,000
Loans charged off ............. (223,000) (252,000)
Recoveries .................... 130,000 153,000
----------- -----------
Balance at end of period ...... $ 2,442,000 $ 2,213,000
=========== ===========
Net charge-offs as a percentage
of average outstanding loans .. 0.07% 0.08%
Allowance for loan losses to:
Total loans ................ 1.77% 1.70%
Total non-performing loans . 110.8% 65.5%
C. Non Accrual and Past Due Loans
Non-performing loans are summarized as follows at September 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Non-accrual loans ............................................. $ 881,000 $2,125,000
Loans past due 90 days or more and still accruing interest .... 1,322,000 1,254,000
--------- ---------
Total non-performing loans .................................... $2,203,000 $3,379,000
========== ==========
Non-performing loans as a percentage of total loans ........... 1.59% 2.59%
--------- ---------
</TABLE>
11
<PAGE>
The effects of non-accrual and restructured loans on interest income were
as follows for the nine months ended September 30:
1999 1998
---- ----
Interest contractually due at original rates $ 59,000 $153,000
Interest income recognized on a cash basis . 53,000 97,000
------ ------
Interest income not recognized ............. $ 6,000 $ 56,000
======== ========
As of September 30, 1999 and 1998, the recorded investment in
loans considered to be impaired under SFAS No.114 totaled $367,000
and $537,000, 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
Under the Federal Reserve Bank's risk-based capital rules, the
Company's Tier I risk-based capital was 16.6% and total risk-based
capital was 17.8% of risk-weighted assets at September 30, 1999.
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 total assets) of 9.5% at September 30, 1999 is well above
the 4.0% minimum regulatory requirement.
12
<PAGE>
The following table shows the Company's actual capital
measurements compared to the minimum regulatory requirements at
September 30, 1999.
TIER I CAPITAL
Stockholders' equity, excluding the after-tax net
unrealized loss on securities available for sale $ 24,069,000
TIER II CAPITAL
Allowance for loan losses1 .......................... 1,825,000
- ------------
Total risk-based capital ............................ $ 25,894,000
------------
Risk-weighted assets2 ............................... $145,420,000
- ------------
Average total assets ................................ $253,908,000
------------
RATIOS
Tier I risk-based capital (minimum 4.0%) ............ 16.6%
Total risk-based capital (minimum 8.0%) ............. 17.8%
Leverage (minimum 4.0%) ............................. 9.5%
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
E. Results of Operations
Three Month Results
Net income for the current third quarter was $730,000 compared
to $579,000 for 1998, an increase of $151,000 or 26.08%. Increases
of $272,000 in net interest income, a $237,000 increase in
non-interest income and a decrease of $100,000 in the provision
for loan losses, were partially offset by an increase of $416,000
in non-interest expenses and an increase of $42,000 in income
taxes. Earnings per share for the third quarter of 1999 were $0.48
compared to $0.37 for the similar period of 1998.
13
<PAGE>
The increase in net interest income was primarily due to
investment portfolio income caused by the increased volume of
investments. Non-interest income increased due to ATM transaction
volume and other service charge fees.
Non-interest expense increases were attributed to ATM & credit
card expense, normal salary expense and the director survivor
income plan expense.
Net Income
Net income for the first nine months of 1999 was $2,241,000
compared to $1,723,000 for the same period in 1998, an increase of
$518,000 or 30.1%. Increases of $1,062,000 in net interest income
and $227,000 in non-interest income, and a decrease of $225,000 in
the provisions for loan losses, were partially offset by increases
of $837,000 in non-interest expenses and $200,000 in income tax
expense. The Company's annualized return on average assets was
1.18% in the current nine month period compared to 1.02% in the
same period last year. The return on average stockholders' equity
was 12.98% and 10.16% for the first nine months of 1999 and 1998,
respectively.
Interest Income and Expense
Total tax-equivalent interest income increased $973,000 or
7.40% in the first nine months of 1999 compared to the same period
in 1998. Although the overall yield on interest earning assets was
down 24 basis points from 8.20% for the nine months ended
September 30, 1998 to 7.96% for the same period in 1999, interest
income on earning assets increased as a result of an increase in
average earning assets. The total average balance for earning
assets was $236,509,000 for the nine month period ended September
30, 1999 compared to $213,745,000 for the same nine month period
in 1998.
The overall yield on the loan portfolio decreased by 19 basis
points to 8.99% for the first nine months of 1999 from 9.18% for
the same period in 1998. The average yield on real estate mortgage
loans, the major portion of the loan portfolio, also decreased 17
basis points to 8.55% in 1999 from 8.72% for the 1998 nine month
period due to higher rate mortgage loans being replaced by lower
yielding loans. The tax equivalent yield on investment securities
decreased 44 basis points from 7.00% in 1998 to 6.56% in 1999 due
to lower reinvestment rates.
14
<PAGE>
The yield on interest bearing liabilities decreased from 4.14%
for the nine month period ended September 30, 1998 to 3.65% for
the same period in 1999. The overall net interest margin increased
2 basis point from 4.73% in the first nine months of 1998 to 4.75%
in the first nine months of 1999
Non-Interest Income and Expense
Non-interest income for the first nine months of 1999
increased $227,000 or 19.7% compared to the same period in 1998.
Changes in service charge policies and increases in cash surrender
value on bank-owned life insurance accounted for most of the
increase.
Non-interest expenses were $6,234,000 for the first nine
months of 1999 compared to $5,397,000 for the same period in 1998,
an increase of $837,000 or 15.5%. This increase reflects a
$244,000 increase in compensation and benefits costs, primarily
due to higher employee benefit costs, director survivor income
plan expense and normal salary adjustments for the existing staff.
Technology expenditures and costs associated with the new debit
card program also contributed to the nine month increase.
Year 2000
F. Year 2000 or "Y2K" issues continue 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
15
<PAGE>
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.
The Company has met its Y2K goals to date and believes it will
continue to meet the goals of the Plan. By June 30, 1999, the
Company had performed risk assessments; assessed the Y2K
preparedness of major vendors and supplies as well as large
customers; started its customer awareness program; had finished
development of the Y2K Contingency Plan; and met its deadline of
final testing of mission critical 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 its total cash
outlays in connection with Y2K compliance will not exceed $50,000,
excluding costs of Company employees involved in Y2K compliance
activities. Approximately $45,000 has been expended as of
September 30, 1999.
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 its 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
16
<PAGE>
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 public
reaction to Y2K. 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.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
The Company's most significant form of market risk is interest
rate risk, as the majority of the assets and liabilities are
sensitive to changes in interest rates. There have been no
material changes in the Company's interest rate risk position
since December 31, 1998. Other types of market risk, such as
foreign exchange rate risk and commodity price risk, do not arise
in the normal course of the Company's business activities.
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 12, 1999
------------------------------------------
K. Dwayne Rhodes
Treasurer and Chief Accounting Officer
17
<PAGE>
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