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 June 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 August 10, 1999
--------------------- ---------------------
$0.50 par value 1,533,300
INDEX TO FORM 10-Q
Page
Part 1
Item 1 Consolidated Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 1999 and December 31, 1998 1
Consolidated Statements of Income for the Three
Months Ended June 30, 1999 and 1998 2
Consolidated Statements of Income for the Six
Months Ended June 30, 1999 and 1998 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 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 9-15
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 16
Part
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 16
Item 5 Other Information NONE
Item 6 Exhibits and Reports on Form 8-K NONE
Signatures 16
Jeffersonville Bancorp and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks ...................................... $ 9,529,000 $ 8,203,000
Securities available for sale, at fair value .................. 91,393,000 88,891,000
Securities held to maturity, estimated fair value of $3,765,000
in 1999 and $3,755,000 in 1998 ......................... 3,740,000 3,602,000
Loans, net of allowance for loan losses of $2,426,000
in 1999 and $2,310,000 in 1998 ........................... 135,829,000 130,031,000
Accrued interest receivable ................................... 1,553,000 1,392,000
Premises and equipment, net ................................... 2,650,000 2,681,000
Federal Home Loan Bank stock .................................. 1,200,000 1,160,000
Other real estate owned ....................................... 513,000 535,000
Cash surrender value of bank-owned life insurance ............. 6,318,000 6,183,000
Other assets .................................................. 2,243,000 1,175,000
------------- -------------
TOTAL ASSETS ........................................ $ 254,968,000 $ 243,853,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposits (non-interest bearing) ............... $ 33,533,000 $ 31,287,000
NOW and super NOW accounts ............................ 28,387,000 28,726,000
Savings and insured money market deposits ............. 58,673,000 56,089,000
Time deposits ......................................... 84,579,000 82,012,000
------------- -------------
TOTAL DEPOSITS ..................................... 205,172,000 198,114,000
Federal Home Loan Bank borrowings ........................ 20,000,000 20,000,000
Short-term debt .......................................... 4,906,000 334,000
Accrued expenses and other liabilities ................... 2,764,000 2,388,000
------------- -------------
TOTAL LIABILITIES .................................. 232,842,000 220,836,000
------------- -------------
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 June 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 June 30,1999
and 62,381 shares at December 31, 1998 ........... (206,000) (206,000)
Retained earnings ..................................... 14,644,000 16,795,000
Accumulated other comprehensive income(loss)........... (1,443,000) 263,000
------------- -------------
TOTAL STOCKHOLDERS' EQUITY ........................ 22,126,000 23,017,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY ............................................ $ 254,968,000 $ 243,853,000
============= =============
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(Unaudited)
For the Three Months
Ended June 30,
1999 1998
-------------- -------------
INTEREST INCOME
Loan interest and fees .............. $ 3,129,000 $ 3,016,000
Securities:
Taxable ........................ 1,087,000 907,000
Non-taxable .................... 307,000 292,000
Federal funds sold .................. 28,000 54,000
---------- -----------
TOTAL INTEREST INCOME ............... 4,551,000 4,269,000
---------- -----------
INTEREST EXPENSE
Deposits ............................ 1,601,000 1,710,000
Federal Home Loan Bank borrowings ... 285,000 192,000
Other ............................... 11,000 8,000
--------- ---------
TOTAL INTEREST EXPENSE .............. 1,897,000 1,910,000
--------- ---------
NET INTEREST INCOME ................. 2,654,000 2,359,000
Provision for loan losses ........... 75,000 125,000
--------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ...... 2,579,000 2,234,000
--------- ---------
NON-INTEREST INCOME
Service charges ..................... 292,000 210,000
Increase in cash surrender value
of bank-owned life insurance .. 91,000 --
Net security gains .................. 8,000 1,000
Other non-interest income ........... 153,000 194,000
--------- ---------
TOTAL NON-INTEREST INCOME ........... 544,000 405,000
--------- ---------
NON-INTEREST EXPENSES
Salaries and wages .................. 791,000 699,000
Employee benefits ................... 322,000 256,000
Occupancy and equipment expenses .... 293,000 266,000
Other real estate owned expenses, net 57,000 27,000
Other non-interest expenses ......... 563,000 473,000
--------- ---------
TOTAL NON-INTEREST EXPENSES ......... 2,026,000 1,721,000
--------- ---------
Income before income taxes .......... 1,097,000 918,000
Income taxes ........................ (334,000) (284,000)
--------- ---------
NET INCOME .......................... $ 763,000 $ 634,000
=========== ===========
Basic earnings per common share ..... $ 0.50 $ 0.41
=========== ===========
Average common shares outstanding ... 1,533,809 1,560,708
=========== ===========
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.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(Unaudited)
For the Six Months
Ended June 30,
1999 1998
------------ ------------
INTEREST INCOME
Loan interest and fees .............. $ 6,152,000 $ 5,933,000
Securities:
Taxable ........................ 2,248,000 1,750,000
Non-taxable .................... 606,000 587,000
Federal funds sold .................. 36,000 101,000
----------- ----------
TOTAL INTEREST INCOME ............... 9,042,000 8,371,000
----------- ----------
INTEREST EXPENSE
Deposits ............................ 3,221,000 3,359,000
Federal Home Loan Bank borrowings ... 567,000 328,000
Other ............................... 29,000 16,000
----------- ----------
TOTAL INTEREST EXPENSE .............. 3,817,000 3,703,000
----------- ----------
NET INTEREST INCOME ................. 5,225,000 4,668,000
Provision for loan losses ........... 150,000 275,000
----------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ...... 5,075,000 4,393,000
----------- ----------
NON-INTEREST INCOME
Service charges ..................... 518,000 405,000
Increase in cash surrender value
of bank-owned life insurance .. 178,000 --
Net security gains .................. 15,000 12,000
Other non-interest income ........... 260,000 290,000
----------- ----------
TOTAL NON-INTEREST INCOME ........... 971,000 707,000
----------- ----------
NON-INTEREST EXPENSES
Salaries and wages .................. 1,533,000 1,414,000
Employee benefits ................... 625,000 510,000
Occupancy and equipment expenses .... 586,000 535,000
Other real estate owned expenses, net 110,000 122,000
Other non-interest expenses ......... 1,062,000 914,000
----------- ----------
TOTAL NON-INTEREST EXPENSES ......... 3,916,000 3,495,000
----------- ----------
Income before income taxes .......... 2,130,000 1,605,000
Income taxes ........................ (619,000) (461,000)
----------- -----------
NET INCOME .......................... $ 1,511,000 $ 1,144,000
=========== ===========
Basic earnings per common share (1) $ 0.98 $ 0.73
=========== ===========
Average common shares outstanding (1) 1,536,008 1,560,944
=========== ===========
(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.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
------------ ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income ............................................. $ 1,511,000 $ 1,144,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses ......................... 150,000 275,000
Write down of other real estate owned ............. 12,000 83,000
Gain on sales of other real estate owned .......... (34,000) --
Depreciation and amortization ..................... 251,000 243,000
Net increase in cash surrender value
of bank-owned life insurance ................ (135,000) (25,000)
Net security gains ................................ (15,000) (12,000)
Increase in accrued interest receivable ........... (161,000) (80,000)
Increase in other assets .......................... 69,000 25,000
Increase in accrued
expenses and other liabilities ............... 376,000 690,000
------------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ............... 2,024,000 2,343,000
------------- ------------
INVESTING ACTIVITIES Proceeds from maturities and calls:
Securities available for sale .................... 5,301,000 16,146,000
Securities held to maturity ...................... 441,000 439,000
Proceeds from sales of securities
available for sale .............................. 6,330,000 6,705,000
Purchases :
Securities available for sale .................... (16,961,000) (27,675,000)
Securities held to maturity ...................... (579,000) (218,000)
Disbursements for loan originations, net of
principal collections ........................... (6,215,000) (2,446,000)
Purchases of Federal Home Loan Bank stock .............. (40,000) (72,000)
Purchase of bank owned life insurance .................. -- (6,008,000)
Net purchases of premises and equipment ................ (220,000) (165,000)
Proceeds from sales of other real estate owned ......... 311,000 298,000
------------- ------------
NET CASH USED IN
INVESTING ACTIVITIES ..................... (11,632,000) (12,996,000)
------------- ------------
FINANCING ACTIVITIES
Net increase in deposits ............................... 7,058,000 9,882,000
Increase in short-term debt ............................ 4,572,000 67,000
Cash dividends paid .................................... (453,000) (425,000)
Proceeds from Federal Home Loan Bank borrowings......... -- 5,002,000
Purchases and retirements of common stock .............. (243,000) (46,000)
------------- ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES .................... 10,934,000 14,480,000
------------- ------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS ............... 1,326,000 3,827,000
Cash and cash equivalents at beginning of period ....... 8,203,000 7,163,000
------------- ------------
Cash and cash equivalents at end of period ............. $ 9,529,000 $ 10,990,000
============ ============
(Continued)
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows, Continued
(Unaudited)
For the Six Months
Ended June 30,
1999 1998
-------------------------------------
Supplemental imformation:
Cash paid for:
Interest $ 3,833,000 $ 3,671,000
Income taxes 631,000 425,000
Transfer of loans to other real estate owned 267,000 380,000
See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
JEFFERSONVILLE BANCORP
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 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 June 30, 1999 and December 31, 1998,
the results of operations for the three and six month periods
ended June 30, 1999 and 1998, and cash flows for the six month
periods ended June 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.
Earnings Per Share
Basic earnings per share amounts were calculated based on
weighted average common shares outstanding of 1,533,809 and
1,560,708, for the three-month periods ended June 30, 1999 and
1998 respectively, and 1,536,008 and 1,560,944 for the six-month
periods ended June 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.
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 June 30, 1999 and December 31, 1998
represents the after-tax net unrealized gain (loss) on securities
available for sale.
Comprehensive income (loss) for the three-month periods ended
June 30, 1999 and 1998 was $(693,000) and $612,000, respectively.
Comprehensive income (loss) for the six-month periods ended June 30,
1999 and 1998 was $(195,000) and $1,069,000, respectively. The
following summarizes the components of other comprehensive income
(loss) for the six-month periods:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999:
-------------------------------
Net unrealized holding losses arising during the period,
<S> <C>
net of tax (pre-tax amount of $2,828,000) $ (1,697,000)
Reclassification adjustment for net gains realized in
net income during the period, net of tax (pre-tax
amount of $15,000) (9,000)
-------------
Other comprehensive loss (pre-tax loss of $2,843,000) $ (1,706,000)
-------------
Six Months Ended June 30, 1998:
-------------------------------
Net unrealized holding losses arising during the period,
net of tax (pre-tax amount of $125,000) $ (68,000)
Reclassification adjustment for net gains realized in
net income during the period, net of tax (pre-tax
amount of $(12,000) (7,000)
-------------
Other comprehensive loss (pre-tax loss of $137,000) $ (75,000)
-------------
</TABLE>
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.
<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, 1998 to June 30, 1999,
total assets increased $11,115,000 or 4.6%. Federal funds
purchased (included in short-term borrowings) increased $4,500,000
to satisfy increased loan demand experienced in the first quarter
of 1999. Securities available for sale increased $2,502,000 or
2.8% during the six-month period. Net loans increased from
$130,031,000 at year-end 1998 to $135,829,000 at June 30, 1999, an
increase of $5,798,000 or 4.5%. Net loans decreased $825,000 from
March 31, 1999 to June 30, 1999, reflecting limited loan demand.
Loan demand was unseasonably low in all areas of lending for the
second quarter due to increased competition from other lenders.
Deposits increased from $198,114,000 at December 31, 1998 to
$205,172,000 at June 30, 1999, an increase of $7,058,000 or 3.6%.
Deposits decreased by $277,000 during the second quarter, which
can be attributed to increased competition from other banks and
mutual funds. Second quarter growth in demand and super NOW
deposits was offset by the decrease in time deposits of $7,676,000
which flowed from savings accounts to benefit from higher rates.
Most of these time deposits were short-term municipal funds.
Demand deposits increased from $31,287,000 at December 31, 1998 to
$33,533,000 at June 30, 1999, an increase of $2,246,000 or 7.2%.
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 $891,000 or 3.9% to $22,126,000 at June 30, 1999. This
decrease was principally the result of net income of $1,511,000,
less a decrease of $1,706,000 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 $150,000 for the six months ended June 30, 1999
compared to $275,000 for the six months ended June 30, 1998. This
decrease is primarily due to a decrease in non-accrual loans from
$2,114,000 at June 30, 1998 to $1,009,000 at June 30, 1999. Total
charge-offs for the 1999 six month period were $141,000 compared
to $163,000 for the same period in the prior year, while
recoveries decreased from $117,000 for the six month period in
1998 to $107,000 for the same period in 1999. The amounts
represent net charge-offs of $34,000 for the first half of 1999
and $46,000 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.
Changes in the allowance for loan losses are summarized as follows
for the six-month periods ended June 30:
1999 1998
---- ----
Balance at beginning of period $ 2,310,000 $ 1,862,000
Provision for loan losses .... 150,000 275,000
Loans charged off ............ (141,000) (163,000)
Recoveries ................... 107,000 117,000
----------- -----------
Balance at end of period ..... $ 2,426,000 $ 2,091,000
=========== ===========
Net charge-offs as a percentage
of average outstanding loans ... 0.05% 0.04%
Allowance for loan losses to:
Total loans ............... 1.75% 1.61%
Total non-performing loans 122.6% 65.3%
<PAGE>
<TABLE>
<CAPTION>
C. Non Accrual and Past Due Loans
Non-performing loans are summarized as follows at June 30:
1999 1998
---------- ----------
<S> <C> <C>
Non-accrual loans ........................................ $1,009,000 $2,114,000
Loans past due 90 days or more and still accruing interest 969,000 1,090,000
---------- ----------
Total non-performing loans ............................... $1,978,000 $3,204,000
---------- ----------
Non-performing loans as a percentage of total loans ...... 1.43% 2.47%
---------- ----------
The effects of non-accrual and restructured loans on
interest income
were as follows for the six months ended June 30:
1999 1998
---------- ----------
Interest contractually due at original rates ............. $ 56,000 $ 103,000
Interest income recognized ............................... 38,000 65,000
---------- ----------
Interest income not recognized ........................... $ 18,000 $ 38,000
---------- ----------
</TABLE>
As of June 30, 1999 and 1998, the recorded investment in loans
considered to be impaired under SFAS No.114 totaled $369,000 and
$527,000, 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.
Capital
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 June 30, 1999, a total of 10,478 shares have been
repurchased and retired at a cost of $239,000.
Under the Federal Reserve Bank's risk-based capital rules, the
Company's Tier I risk-based capital was 16.4% and total risk-based
capital was 17.7% of risk-weighted assets at June 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 9.3% at June 30, 1999 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
June 30, 1998.
TIER I CAPITAL
Stockholders' equity, excluding the after-tax net
unrealized loss on securities available for sale $ 23,569,000
TIER II CAPITAL
Allowance for loan losses1 ............................. 1,796,000
------------
Total risk-based capital ............................... $ 25,365,000
------------
Risk-weighted assets2 .................................. $143,658,000
------------
Average total assets ................................... $252,583,000
------------
RATIOS
Tier I risk-based capital (minimum 4.0%) ............... 16.4%
Total risk-based capital (minimum 8.0%) ................ 17.7%
Leverage (minimum 4.0%) ................................ 9.3%
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
<PAGE>
E. Results of Operations
Net Income
Net income for the first six months of 1999 was $1,511,000
compared to $1,144,000 for the same period in 1998, an increase of
$367,000 or 32.1%. Increases of $557,000 in net interest income
and $264,000 in non-interest income, and a decrease of $125,000 in
the provisions for loan losses, were partially offset by increases
of $421,000 in non-interest expenses and $158,000 in income tax
expense. The Company's annualized return on average assets was
1.19% in the current six-month period compared to 1.03% in the
same period last year. The return on average stockholders' equity
was 12.92% and 10.19% for the first six months of 1999 and 1998,
respectively.
Interest Income and Expense
Total tax-equivalent interest income increased $740,000 or
8.6% in the first six months of 1999 compared to the same period
in 1998. Although the overall yield on interest earning assets was
down 32 basis points from 8.26% for the six months ended June 30,
1998 to 7.94% 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
$235,701,000 for the six-month period ended June 30, 1999 compared
to $208,504,000 for the same six-month period in 1998.
The overall yield on the loan portfolio decreased by 20 basis
points to 8.98% for the first six 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 20
basis points to 8.54% in 1999 from 8.74% for the 1998 six-month
period. The tax equivalent yield on investment securities
decreased 32 basis points from 6.84% in 1998 to 6.52% in 1999
The yield on interest bearing liabilities decreased from 4.34%
for the six-month period ended June 30, 1998 to 3.87% for the same
period in 1999. The overall net interest margin decreased 1 basis
point from 4.71% in the first six months of 1998 to 4.70% in the
first six months of 1999. However, the lower margin was more than
off set by balance sheet growth, resulting in higher net interest
income for the first half of 1999.
Non-Interest Income and Expense
Non-interest income for the first six months of 1999 increased
$264,000 or 37.3% compared to the same period in 1998. Changes in
service charge policies and increases in income on bank-owned life
insurance accounted for most of the increase.
Non-interest expenses were $3,916,000 for the first six months
of 1999 compared to $3,495,000 for the same period in 1998, an
increase of $421,000 or 12.0%. This increase reflects a $234,000
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
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
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 by June
30, 1999.
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 $40,000 has been expended as of June 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
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.
Item 4: Submission of Matters to a Vote of Security Holders
On April 27, 1999, the annual meeting of shareholders was held.
The election of Four Class III directors resulted in the reelection of
Hon. Lawrence Cooke, John K. Gempler, Gibson E. McKean and Edward T.
Sykes to a three-year term. The proposal to ratify the firm of KPMG
LLP as independent auditors for the fiscal year ending December 31,
1999 was approved.
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: August 10, 1999
------------------------------------------
K. Dwayne Rhodes
Treasurer and Chief Accounting Officer
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