UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter Ended March 31, 2007
OR
| | o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
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 incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
P.O. Box 398, Jeffersonville, New York | 12748 |
| (Address of principal executive offices) | (Zip Code) |
(845) 482-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered |
| NONE | NONE |
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, $0.50 Par Value
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer x Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at May 10, 2007 |
| Common Stock, $0.50 par value per share | 4,277,818 shares |
INDEX TO FORM 10-Q
| | | Page |
PART 1 | Financial Information | |
| | | |
| Item 1. | Consolidated Interim Financial Statements (Unaudited) | |
| | Consolidated Balance Sheets at March 31, 2007 and December 31, 2006 | 3 |
| | | |
| | Consolidated Statements of Income for the three months ended | |
| | March 31, 2007 and 2006 | 4 |
| | | |
| | Consolidated Statements of Cash Flows for the three months ended | |
| | March 31, 2007 and 2006 | 5 |
| | | |
| | Notes to Unaudited Consolidated Interim Financial Statements | 6 |
| | | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 |
| | | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 15 |
| | | |
| Item 4. | Controls and Procedures | 15 |
| | | |
PART 2 | Other Information | |
| | | |
| Item 1. | Legal Proceedings | 15 |
| | | |
| Item 1A. | Risk Factors | 15 |
| | | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 15 |
| | | |
| Item 3. | Defaults Upon Senior Securities | 16 |
| | | |
| Item 4. | Submission of Matters to a Vote of Security Holders | 16 |
| | | |
| Item 5. | Other Information | 16 |
| | | |
| Item 6. | Exhibits | 16 |
| | | |
| | Signatures | 17 |
Consolidated Balance Sheets
Unaudited
(Dollars in thousands, except per share data)
| | | March 31, 2007 | | December 31, 2006 | |
| | | | | | |
ASSETS | | | | | |
| Cash and cash equivalents | | $ | 22,127 | | $ | 12,270 | |
| Securities available for sale, at fair value | | | 91,166 | | | 99,788 | |
| Securities held to maturity, estimated fair value of $9,801 | | | | | | | |
| at March 31, 2007 and $9,570 at December 31, 2006 | | | 9,688 | | | 9,445 | |
| Loans, net of allowance for loan losses of $3,497 at | | | | | | | |
| March 31, 2007 and $3,516 at December 31, 2006 | | | 245,473 | | | 247,244 | |
| Accrued interest receivable | | | 2,512 | | | 2,441 | |
| Premises and equipment, net | | | 3,344 | | | 3,040 | |
| Federal Home Loan Bank stock | | | 2,296 | | | 2,296 | |
| Bank-owned life insurance | | | 13,777 | | | 13,651 | |
| Other assets | | | 6,145 | | | 7,116 | |
| Total Assets | | $ | 396,528 | | $ | 397,291 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
| Liabilities | | | | | | | |
| Deposits: | | | | | | | |
| Demand deposits | | $ | 65,897 | | $ | 64,974 | |
| NOW and super NOW accounts | | | 32,247 | | | 31,276 | |
| Savings and insured money market deposits | | | 103,967 | | | 100,391 | |
| Time deposits | | | 121,615 | | | 128,432 | |
| Total Deposits | | | 323,726 | | | 325,073 | |
| | | | | | | | |
| Federal Home Loan Bank borrowings | | | 20,000 | | | 20,000 | |
| Short-term debt | | | 412 | | | 903 | |
| Other liabilities | | | 10,595 | | | 10,040 | |
| Total Liabilities | | | 354,733 | | | 356,016 | |
| | | | | | | | |
| Commitments and contingent liabilities | | | | | | | |
| | | | | | | | |
| Stockholders’ equity: | | | | | | | |
| Series A preferred stock, no par value; | | | | | | | |
| 2,000,000 shares authorized, none issued | | | — | | | — | |
| Common stock, $0.50 par value; 11,250,000 shares | | | | | | | |
| authorized, 4,767,786 shares issued | | | 2,384 | | | 2,384 | |
| Paid-in capital | | | 6,483 | | | 6,483 | |
| Treasury stock, at cost; 489,968 shares at March 31, 2007 | | | | | | | |
| and 462,438 at December 31, 2006 | | | (4,235 | ) | | (3,722 | ) |
| Retained earnings | | | 39,706 | | | 38,963 | |
| Accumulated other comprehensive loss | | | (2,543 | ) | | (2,833 | ) |
| Total Stockholders’ Equity | | | 41,795 | | | 41,275 | |
| Total Liabilities and Stockholders’ Equity | | $ | 396,528 | | $ | 397,291 | |
See accompanying notes to unaudited consolidated interim financial statements.
Consolidated Statements of Income
(Unaudited)
(In thousands, except for per share data)
| | | For the three months ended March 31, | |
| | | 2007 | | 2006 | |
INTEREST AND DIVIDEND INCOME | | | | | | | |
| Loan interest and fees | | $ | 4,647 | | $ | 4,401 | |
| Securities: | | | | | | | |
| Taxable | | | 770 | | | 652 | |
| Non-taxable | | | 488 | | | 484 | |
| Federal funds sold | | | 46 | | | 230 | |
| Total Interest and Dividend Income | | | 5,951 | | | 5,767 | |
| | | | | | | | |
INTEREST EXPENSE | | | | | | | |
| Deposits | | | 1,946 | | | 1,558 | |
| Federal Home Loan Bank borrowings | | | 243 | | | 298 | |
| Other | | | 8 | | | 3 | |
| Total Interest Expense | | | 2,197 | | | 1,859 | |
| | | | | | | | |
| Net interest income | | | 3,754 | | | 3,908 | |
| Provision (credit) for loan losses | | | (370 | ) | | 90 | |
| Net Interest Income After Provision (Credit) for Loan Losses | | | 4,124 | | | 3,818 | |
| | | | | | | | |
NON-INTEREST INCOME | | | | | | | |
| Service charges | | | 462 | | | 431 | |
| Earnings on bank-owned life insurance | | | 126 | | | 114 | |
| Net security gains (losses) | | | (7 | ) | | — | |
| Foreclosed real estate income (loss), net | | | 9 | | | (13 | ) |
| Other non-interest income | | | 276 | | | 263 | |
| Total Non-Interest Income | | | 866 | | | 795 | |
| | | | | | | | |
NON-INTEREST EXPENSES | | | | | | | |
| Salaries and employee benefits | | | 1,955 | | | 2,019 | |
| Occupancy and equipment expenses | | | 488 | | | 505 | |
| Other non-interest expenses | | | 886 | | | 846 | |
| Total Non-Interest Expenses | | | 3,329 | | | 3,370 | |
| | | | | | | | |
| Income before income tax expense | | | 1,661 | | | 1,243 | |
| Income tax expense | | | 402 | | | 270 | |
| Net Income | | $ | 1,259 | | $ | 973 | |
| | | | | | | | |
| Basic earnings per common share | | $ | 0.29 | | $ | 0.22 | |
| | | | | | | | |
| Average common shares outstanding | | | 4,296 | | | 4,434 | |
| | | | | | | | |
| Cash dividends declared per share | | $ | 0.12 | | $ | 0.11 | |
See accompanying notes to unaudited consolidated interim financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
| | | For the three months ended March 31, | |
| | | 2007 | | 2006 | |
| | | | | | |
OPERATING ACTIVITIES: | | | | | |
Net income | | $ | 1,259 | | $ | 973 | |
| Adjustments to reconcile net income to net | | | | | | | |
| cash provided by operating activities: | | | | | | | |
| Provision (credit) for loan losses | | | (370 | ) | | 90 | |
| Depreciation and amortization | | | 144 | | | 143 | |
| Write down of foreclosed real estate | | | — | | | 7 | |
| Net earnings on bank-owned life insurance | | | (126 | ) | | (114 | ) |
| Net security losses (gains) | | | 7 | | | — | |
| Deferred income tax benefit | | | (286 | ) | | — | |
| Increase in accrued interest receivable | | | (71 | ) | | (200 | ) |
| Decrease (increase) in other assets | | | 1,064 | | | (659 | ) |
| Increase in other liabilities | | | 682 | | | 476 | |
| Net Cash Provided by Operating Activities | | | 2,303 | | | 716 | |
| | | | | | | | |
INVESTING ACTIVITIES: | | | | | | | |
Proceeds from maturities and calls: | | | | | | | |
| Securities available for sale | | | 3,971 | | | 1,573 | |
| Securities held to maturity | | | 329 | | | 305 | |
| Proceeds from sales of securities available for sale | | | 5,000 | | | — | |
| Purchases: | | | | | | | |
| Securities available for sale | | | — | | | (3,994 | ) |
| Securities held to maturity | | | (572 | ) | | (80 | ) |
| Disbursement for loan originations, net of principal collections | | | 2,141 | | | 254 | |
| Net purchases of premises and equipment | | | (448 | ) | | (308 | ) |
| Net Cash Provided by (Used in) Investing Activities | | | 10,421 | | | (2,250 | ) |
| | | | | | | | |
FINANCING ACTIVITIES: | | | | | | | |
Net increase (decrease) in deposits | | | (1,347 | ) | | 18,858 | |
| Net decrease in short-term borrowings | | | (491 | ) | | (409 | ) |
| Purchases of treasury stock | | | (513 | ) | | — | |
| Cash dividends paid | | | (516 | ) | | (488 | ) |
| Net Cash Provided (Used) by Financing Activities | | | (2,867 | ) | | 17,961 | |
| Net Increase in Cash and Cash Equivalents | | | 9,857 | | | 16,427 | |
| Cash and Cash Equivalents at Beginning of Year | | | 12,270 | | | 24,192 | |
| Cash and Cash Equivalents at End of Year | | $ | 22,127 | | $ | 40,619 | |
| | | | | | | | |
SUPPLEMENTAL INFORMATION: | | | | | | | |
Cash paid for: | | | | | | | |
| Interest | | $ | 2,141 | | $ | 1,760 | |
| Income taxes | | | 290 | | | 754 | |
| Transfer of loans to foreclosed real estate | | | — | | | 47 | |
See accompanying notes to unaudited consolidated interim financial statements.
AND SUBSIDIARY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)
A. Financial Statement Presentation
The accompanying unaudited interim consolidated financial statements include the accounts of Jeffersonville Bancorp and its wholly owned subsidiary, The First National Bank of Jeffersonville (collectively, Jeffersonville Bancorp and its subsidiary are referred to herein as the “Company”). In the opinion of Management of the Company, the accompanying unaudited consolidated interim financial statements contain all adjustments necessary to present the financial position as of March 31, 2007 and December 31, 2006, the results of operations and the cash flows for the three month periods ended March 31, 2007 and 2006. Certain reclassifications have been made in order to conform with the current year’s presentation. All adjustments are normal and recurring. First quarter results are not indicative of full year results. The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and should be read in conjunction with the Company's consolidated year-end financial statements, including notes thereto, which are included in the 2006 Annual Report on Form 10-K.
Basic earnings per share amounts were calculated based on weighted average common shares outstanding. For the three month periods ended March 31, 2007 and 2006, the weighted average common shares outstanding were 4,295,892 and 4,434,321 respectively. There were no dilutive securities during any of the periods. Earnings per share were $0.29 for the quarter ended March 31, 2007, as compared to $0.22 per share for the same period in 2006.
The following tables show comprehensive income for the three month periods ended March 31, 2007 and 2006, dollars shown in thousands.
| | | Three Months Ended | |
| | | | | | |
| | | March 31, 2007 | | March 31, 2006 | |
| | | | | | |
| Net Income | | $ | 1,259 | | $ | 973 | |
| | | | | | | | |
| Other Comprehensive Income: | | | | | | | |
| Net unrealized holding gains (losses) arising during the period, | | | | | | | |
| net of tax (pretax amount of $350 for 2007 and $1,067 in 2006) | | | 210 | | | (640 | ) |
| Reclassification adjustment for net losses realized in net | | | | | | | |
| income during the period, net of tax (pretax amount of $7) | | | 4 | | | - | |
| Minimum pension liability adjustment, net of tax | | | | | | | |
| (pretax amount of $ 49) | | | 30 | | | - | |
| Other comprehensive income on FAS 87 liabilities, net of tax | | | | | | | |
| (pretax amount of $77) | | | 46 | | | - | |
| Other comprehensive income | | | 290 | | | (640 | ) |
| | | | | | | | |
| Total comprehensive income | | $ | 1,549 | | $ | 333 | |
The following table shows the components of accumulated other comprehensive loss at March 31, 2007 and December 31, 2006, dollars show in thousands:
| | | March 31, 2007 | | December 31, 2006 | |
| Supplemental executive retirement plan, net of taxes of | | | | | | | |
| $197 in 2007, and $232 in 2006 | | $ | (296 | ) | $ | (348 | ) |
| Postretirement benefits, net of tax benefit of $135 | | | | | | | |
| in 2007, and $139 in 2006 | | | 203 | | | 209 | |
| Defined benefit pension liability, net of taxes of $1,390 in 2007, | | | | | | | |
| and $1,410 in 2006 | | | (2,085 | ) | | (2,115 | ) |
| Net unrealized holding losses, net of taxes of $243 | | | | | | | |
| in 2007, and $386 in 2006 | | | (365 | ) | | (579 | ) |
| Accmumlated other comprehensive loss | | $ | (2,543 | ) | $ | (2,833 | ) |
| D. | New Accounting Pronouncements |
In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company has adopted FIN No. 48 as reported in the 2006 Form 10-K. Management believes that there are no uncertain tax positions. Interest and penalties, if recorded, would be included in other income and expense. For the current fiscal year, there have not been any significant interest or penalties incurred.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157. The Company is continuing to evaluate the impact of this statement and is not adopting this statement early.
In September 2006, the FASB ratified the consensus reached by the EITF in Issue 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4 applies to life insurance arrangements that provide an employee with a specified benefit that is not limited to the employee’s active service period, including certain bank-owned life insurance (“BOLI”) policies. EITF 06-4 requires an employer to recognize a liability and related compensation costs for future benefits that extend to postretirement periods. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, with earlier application permitted. The Company is continuing to evaluate the impact of this consensus, which will require the Company to recognize an additional liability and compensation expense related to its BOLI policies.
In September 2006, the Task Force reached a conclusion on EITF Issue No. 06-5, “Accounting for Purchases of Life Insurance-Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance” (“EITF 06-5”). The scope of EITF 06-5 consists of six separate issues relating to accounting for life insurance policies purchased by entities protecting against the loss of “key persons.” The six issues are clarifications of previously issued guidance on FASB Technical Bulletin No. 85-4. EITF 06-5 is effective for fiscal years beginning after December 15, 2006. The adoption did not have a material impact on the Company’s consolidated financial statements.
In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 “Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements” (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of there terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The Company is currently assessing the impact of EITG 06-10 on its consolidated financial position and results of operations.
| E. | Pension and Other Postretirement Benefits |
The Company has a noncontributory defined benefit pension plan covering substantially all of its employees. The Company also sponsors a postretirement medical, dental and life insurance benefit plan for qualifying pension plan retirees as disclosed in the 2006 Annual Report on Form 10-K. The components of the net periodic benefit cost for these plans follows:
For the three months ended March 31, 2007 and 2006, dollars shown in thousands:
| | | Pension benefit | | Postretirement benefit | |
| | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Service cost | | $ | 109 | | $ | 109 | | $ | 36 | | $ | 44 | |
| Interest cost | | | 129 | | | 119 | | | 39 | | | 42 | |
| Expected return on plan assets | | | (112 | ) | | (101 | ) | | — | | | — | |
| Amortization of prior service cost | | | — | | | — | | | (12 | ) | | (11 | ) |
| Amortization of transition (asset) obligation | | | 6 | | | 6 | | | — | | | — | |
| Recognized net actuarial loss | | | 43 | | | 49 | | | 1 | | | 10 | |
| | | | | | | | | | | | | | |
| Net periodic benefit cost | | $ | 175 | | $ | 182 | | $ | 64 | | $ | 85 | |
The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2006, that it expected to contribute $472,000 to its pension plan and $72,000 to its other postretirement benefits plan in 2007. As of March 31, 2007, a contribution of $99,000 was made to the pension plan and $18,000 of contributions had been made to the other postretirement benefits plan. The Company continues to expect that the contributions noted above for 2007 will be made.
The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally arise in connection with lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit totaled approximately $2,028,000 at March 31, 2007 and $1,175,000 at December 31, 2006 and represent the maximum potential future payments the Company could be required to make. Typically, these instruments have terms of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit for on-balance sheet instruments. Company policies governing loan collateral apply to standby letters of credit at the time of credit extension. Loan-to-value ratios are generally consistent with loan-to-value requirements for other commercial loans secured by similar types of collateral. The fair value of the Company's standby letters of credit at March 31, 2007 was insignificant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
In addition to historical information, this report includes certain forward-looking statements with respect to the financial condition, results of operations and business of the Company based on current management’s expectations. Economic circumstances, the Company's operations and the Company’s actual results could differ significantly from those discussed in the forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company’s loan and securities portfolios, changes in accounting principles, and other economic, competitive, governmental, and technological factors affecting the Company's operations, markets, products, services and prices. Some of these and other factors are discussed in the Company’s annual and quarterly reports filed with the Securities and Exchange Commission. Such developments could have an adverse impact on the Company’s financial position and results of operations.
| A. | Overview - Financial Condition |
During the period from December 31, 2006 to March 31, 2007, total assets decreased $763,000 or 0.2%. Decreases in securities available for sale, net loans and other assets were partially offset by increases in cash and cash equivalents. Securities available for sale decreased from $99,788,000 at year end 2006 to $91,166,000 at March 31, 2007, a decrease of $8,622,000 or 8.6%. The $8,100,000 increase in federal funds sold, a component of cash and cash equivalents, was partially funded by security sales, and was in anticipation of the upcoming repayment of $3,000,000 in brokered deposits and a Federal Home Loan Bank repayment of $5,000,000.
Total deposits decreased from $325,073,000 at December 31, 2006 to $323,726,000 at March 31, 2007, a decrease of $1,347,000 or 0.4%. Time deposits decreased $6,817,000 or 5.3% to $121,615,000 at March 31, 2007 from December 31, 2006 due to $5,842,000 of brokered deposits coming due. Partially offsetting this decrease was savings deposit growth of $3,576,000 or 3.6% from $100,391,000 at December 31, 2006 to $103,967,000 at March 31, 2007. NOW and super NOW accounts increased $971,000 from December 31, 2006 to $32,247,000 or 3.1% at March 31, 2007. Demand deposits increased $923,000 to $65,897,000 at March 31, 2007, an increase of 1.4%.
As previously disclosed in the 2006 Form 10-K, the proposed 2007 New York State budget bill contained a provision that would disallow the exclusion of dividends paid by a real estate investment trust subsidiary (“REIT”). The bill was not passed as drafted and a revised bill was enacted whereby the REIT elimination has a four-year phase out with a carve-out for banks with assets up to $8 billion. As the Bank is well below the carve-out threshold, the REIT deduction will remain in tact for the Company. In addition, banks received a reduction in their tax rate from 7.5% to 7.1% which takes effect for 2007.
Total stockholders’ equity increased $520,000 or 1.3% from $41,275,000 at December 31, 2006 to $41,795,000 at March 31, 2007. This increase was the result of net income of $1,259,000 and a $290,000 decrease in accumulated other comprehensive loss, less cash dividends of $516,000 and the purchase of treasury stock of $513,000.
Loan Portfolio Composition, dollars in thousands:
| | | March 31, 2007 | | December 31, 2006 | |
| | | Amount | | Percent | | Amount | | Percent | |
REAL ESTATE LOANS | | | | | | | | | |
| Residential | | $ | 95,168 | | | 38.2 | % | $ | 95,520 | | | 38.1 | % |
| Commercial | | | 76,625 | | | 30.8 | | | 82,987 | | | 33.1 | |
| Home Equity | | | 24,275 | | | 9.8 | | | 24,195 | | | 9.6 | |
| Farm land | | | 3,692 | | | 1.5 | | | 3,726 | | | 1.5 | |
| Construction | | | 12,160 | | | 4.9 | | | 6,087 | | | 2.4 | |
| | | | 211,919 | | | 85.2 | | | 212,515 | | | 84.7 | |
OTHER LOANS | | | | | | | | | | | | | |
| Commercial loans | | | 27,241 | | | 10.9 | | | 28,106 | | | 11.3 | |
| Consumer installment loans | | | 9,553 | | | 3.8 | | | 9,773 | | | 3.9 | |
| Other consumer loans | | | 118 | | | 0.0 | | | 118 | | | 0.0 | |
| Agricultural loans | | | 139 | | | 0.1 | | | 248 | | | 0.1 | |
| | | | 37,051 | | | 14.8 | | | 38,245 | | | 15.3 | |
| Total loans | | | 248,970 | | | 100.0 | % | | 250,760 | | | 100.0 | % |
| | | | | | | | | | | | | | |
| Allowance for loan losses | | | (3,497 | ) | | | | | (3,516 | ) | | | |
| Total loans, net | | $ | 245,473 | | | | | $ | 247,244 | | | | |
| B. | Allowance for Loan Losses |
The allowance for loan losses reflects management’s assessment of the risk inherent in the loan portfolio, which includes factors such as the general state of the economy and past loan experience. As disclosed in the Company’s 10-K, the Company recovered $441,000 on a previously written-off loans. This recovery was for a loans made in 2002. The loan turned out to be fraudulent and the participants brought a legal suit against the Bank of New York. The participating lenders prevailed and received their settlements in the first quarter of 2007. The Bank recovered $376,000 in previously charged off loans and $65,000 in lost interest, which was taken into interest income. Based on our evaluation of the allowance for loan losses, it was determined that the large recovery created an excess in our reserves to the extent of $370,000. Accordingly, $370,000 was transferred out of the allowance for loan losses during the first quarter, resulting in a provision (credit) for loan losses of ($370,000) for the three months ended March 31, 2007 compared to $90,000 for the three months ended March 31, 2006. Total charge-offs for the three month period ended March 31, 2007 were $64,000 compared to $241,000 for the same period in the prior year, while recoveries increased from $38,000 for the 2006 period to $415,000 for the 2007 period. The amounts represent net recoveries of $351,000 in the first quarter of 2007 versus net charge-offs of $203,000 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 periods ended, dollars in thousands:
| | | Three months ended March 31, 2007 | | Three months ended March 31, 2006 | | Year ended December 31, 2006 | |
| Balance at beginning of period | | $ | 3,516 | | $ | 3,615 | | $ | 3,615 | |
| Provision (credit) for loan losses | | | (370 | ) | | 90 | | | 90 | |
| Loans charged-off | | | (64 | ) | | (241 | ) | | (533 | ) |
| Recoveries | | | 415 | | | 38 | | | 344 | |
| Balance at ending of period | | $ | 3,497 | | $ | 3,504 | | $ | 3,516 | |
| | | | | | | | | | | |
| Annualized net charge-offs (recoveries) as a percentage of | | | | | | | | | | |
| Average outstanding loans | | | (0.4)% | | | 0.33% | | | 0.08% | |
| Allowance for loan losses to: | | | | | | | | | | |
| Total loans | | | 1.40% | | | 1.44% | | | 1.40% | |
| Total non-performing loans | | | 144.9% | | | 141.4% | | | 187.0% | |
| C. | Nonaccrual and Past Due Loans |
The Company places a loan on nonaccrual status when collectability of principal or interest in accordance with the provisions of the loan documents is doubtful, or when either principal or interest is 90 days or more past due, or if the loan is in the process of collection. The majority of the Company’s total nonaccrual and past due loans are secured loans and, as such, management anticipates there will be limited risk of loss upon their ultimate resolution. Interest income on nonaccrual loans which are well secured, are recorded on a cash basis.
Nonperforming loans are summarized as follows at the following dates, dollars in thousands:
| | | March 31, 2007 | | December 31, 2006 | |
| Nonaccrual loans | | $ | 2,401 | | $ | 1,867 | |
| Loans past due 90 days or more and still accruing interest | | | 11 | | | 13 | |
| Total nonperforming loans | | $ | 2,412 | | $ | 1,880 | |
| Non-performing loans as a percentage of total loans | | | 0.97% | | | 0.75% | |
As of March 31, 2007, there were $1,965,000, and $1,528,000 as of December 31, 2006 of loans which were considered to be impaired under Statement of Financial Accounting Standards (“SFAS”) No.114.
Under the Federal Reserve Bank’s risk-based capital rules, the Company’s Tier I risk-based capital was 16.9% and total risk-based capital was 18.2% of risk-weighted assets at March 31, 2007. 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 11.1% at March 31, 2007 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 as of March 31, 2007, dollars in thousands:
As of March 31, | | 2007 | |
| | | | |
| TIER I CAPITAL | | | | |
| Stockholders’ equity, excluding accumulated other comprehensive loss | | $ | 44,338 | |
| | | | | |
| TIER II CAPITAL | | | | |
| Allowance for loan losses (1) | | | 3,279 | |
| Total risk-based capital | | $ | 47,617 | |
| Risk-weighted assets (2) | | $ | 262,136 | |
| Average assets | | $ | 397,831 | |
| | | | | |
| RATIOS | | | | |
| Tier I risk-based capital (minimum 4.0%) | | | 16.9% | |
| Total risk-based capital (minimum 8.0%) | | | 18.2% | |
| Leverage (minimum 4.0%) | | | 11.1% | |
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 the portion allowance of loan losses excluded from total risk-based capital. |
Consolidated Average Balance Sheet as of March 31, 2007 Year to Date
(Fully Taxable Equivalent)
Dollars in thousands
| | | Average balance | | Interest earned/paid | | Average yield/rate | |
ASSETS | | | | | | | |
Securities available for sale and held to maturity:(1) | | | | | | | | | | |
| Taxable securities | | $ | 62,541 | | $ | 770 | | | 4.92% | |
Tax exempt securities (2) | | | 48,224 | | | 740 | | | 6.14% | |
Total securities | | | 110,765 | | | 1,510 | | | 5.45% | |
| Short-term investments | | | 3,985 | | | 46 | | | 4.62% | |
| Loans | | | | | | | | | | |
Real estate mortgages | | | 182,928 | | | 3,167 | | | 6.93% | |
Home equity loans | | | 24,277 | | | 411 | | | 6.77% | |
Time and demand loans | | | 25,848 | | | 596 | | | 9.22% | |
Installment and other loans | | | 17,151 | | | 473 | | | 11.03% | |
Total loans(3) | | | 250,204 | | | 4,647 | | | 7.43% | |
Total interest earning assets | | | 364,954 | | | 6,203 | | | 6.80% | |
| Other assets | | | 32,877 | | | | | | | |
Total assets | | $ | 397,831 | | | | | | | |
| | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | |
| NOW and Super NOW deposits | | $ | 36,131 | | | 45 | | | 0.50% | |
| Savings and insured money market deposits | | | 103,914 | | | 605 | | | 2.33% | |
| Time deposits | | | 126,110 | | | 1,296 | | | 4.11% | |
Total interest bearing deposits | | | 266,155 | | | 1,946 | | | 2.92% | |
| Federal funds purchased and other short-term debt | | | 502 | | | 8 | | | 6.37% | |
| Long-term debt | | | 20,000 | | | 243 | | | 4.86% | |
Total interest bearing liabilities | | | 286,657 | | | 2,197 | | | 3.07% | |
| Demand deposits | | | 59,319 | | | | | | | |
| Other liabilities | | | 10,539 | | | | | | | |
Total liabilities | | | 356,515 | | | | | | | |
| Stockholders’ equity | | | 41,316 | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 397,831 | | | | | | | |
| Net interest income - tax effected | | | | | | 4,006 | | | | |
| Less: Tax gross up on exempt securities | | | | | | (252 | ) | | | |
| Net interest income per statement of income | | | | | $ | 3,754 | | | | |
| Net interest spread | | | | | | | | | 3.73% | |
Net interest margin(4) | | | | | | | | | 4.39% | |
1 | Yields on securities available for sale are based on amortized cost. |
2 | Tax exempt securities are effected using a 34% tax rate |
3 | For purpose of this schedule, interest in nonaccruing loans has been included only to the extent reflected in the consolidated income statement. However, the nonaccrual loan balances are included in the average amount outstanding. |
4 | Computed by dividing tax effected net interest income by total interest earning assets. |
Consolidated Average Balance Sheet as of March 31, 2006 Year to Date
(Fully Taxable Equivalent)
Dollars in thousands
| | | Average balance | | Interest earned/paid | | Average yield/rate | |
| | | | | | | | |
ASSETS | | | | | | | |
Securities available for sale and held to maturity:(1) | | | | | | | | | | |
| Taxable securities | | $ | 52,406 | | $ | 652 | | | 4.98% | |
Tax exempt securities(2) | | | 48,168 | | | 734 | | | 6.10% | |
| Total securities | | | 100,574 | | | 1,386 | | | 5.51% | |
| Short-term investments | | | 21,409 | | | 230 | | | 4.30% | |
| Loans | | | | | | | | | | |
| Real estate mortgages | | | 174,583 | | | 3,012 | | | 6.90% | |
| Home equity loans | | | 22,778 | | | 358 | | | 6.29% | |
| Time and demand loans | | | 27,819 | | | 568 | | | 8.17% | |
| Installment and other loans | | | 17,818 | | | 463 | | | 9.63% | |
Total loans(3) | | | 242,998 | | | 4,401 | | | 7.24% | |
| Total interest earning assets | | | 364,981 | | | 6,017 | | | 6.59% | |
| Other assets | | | | | | 32,027 | | | | |
| Total assets | | $ | 397,008 | | | | | | | |
| | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | |
| NOW and Super NOW deposits | | $ | 40,469 | | | 50 | | | 0.49% | |
| Savings and insured money market deposits | | | 89,830 | | | 384 | | | 1.71% | |
| Time deposits | | | 125,314 | | | 1,124 | | | 3.59% | |
| Total interest bearing deposits | | | 255,613 | | | 1,558 | | | 2.44% | |
| Federal funds purchased and other short-term debt | | | 287 | | | 3 | | | 4.18% | |
| Long-term debt | | | 25 | | | 298 | | | 4.77% | |
| Total interest bearing liabilities | | | 280,900 | | | 1,859 | | | 2.64% | |
| Demand deposits | | | 65,206 | | | | | | | |
| Other liabilities | | | 8,247 | | | | | | | |
| Total liabilities | | | 354,353 | | | | | | | |
| Stockholders’ equity | | | 42,655 | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 397,008 | | | | | | | |
| Net interest income - tax effected | | | | | | 4,158 | | | | |
| Less: Tax gross up on exempt securities | | | | | | (250 | ) | | | |
| Net interest income per statement of income | | | | | $ | 3,908 | | | | |
| Net interest spread | | | | | | | | | 3.95% | |
Net interest margin(4) | | | | | | | | | 4.56% | |
1 | Yields on securities available for sale are based on amortized cost. |
2 | Tax exempt securities are effected using a 34% tax rate |
3 | For purpose of this schedule, interest in nonaccruing loans has been included only to the extent reflected in the consolidated income statement. However, the nonaccrual loan balances are included in the average amount outstanding. |
4 | Computed by dividing tax effected net interest income by total interest earning assets. |
VOLUME AND RATE ANALYSIS (dollars in thousands)
| | | Three months ended March 31, 2007 compared to 2006 increase (decrease) due to change in | |
| | | Volume | | Rate | | Total | |
INTEREST INCOME | | | | | | | | | | |
| Investment securities and securities available for sale | | $ | 140 | | $ | (16 | ) | $ | 124 | |
| Short-term investments | | | (187 | ) | | 3 | | | (184 | ) |
| Loans | | | 131 | | | 115 | | | 246 | |
| Total interest income | | | 84 | | | 102 | | | 186 | |
| | | | | | | | | | | |
INTEREST EXPENSE | | | | | | | | | | |
| NOW and Super NOW deposits | | | (5 | ) | | — | | | (5 | ) |
| Savings and insured money market deposits | | | 60 | | | 161 | | | 221 | |
| Time deposits | | | 7 | | | 165 | | | 172 | |
| Federal funds purchased and other short-term debt | | | 2 | | | 3 | | | 5 | |
| Long-term debt | | | (60 | ) | | 5 | | | (55 | ) |
| Total interest expense | | | 4 | | | 334 | | | 338 | |
| Net interest income | | $ | 80 | | $ | (232 | ) | $ | (152 | ) |
Net income for the first three months of 2007 increased $286,000 to $1,259,000 compared to $973,000 for the same period in 2006. This overall increase was primarily due to a $441,000 loan loss recovery which permitted the Company to reduce the current provision for loan losses by $370,000, adding that amount to income during the quarter, and provided additional interest income for the quarter. Total interest income increased $184,000 to $5,951,000 or 3.2%, with $246,000 of the increase attributable to income from loan interest and fees. Lower cash balances in federal funds sold reduced interest earned by $184,000 to $46,000 for the three months ended March 2007 verses 2006. Offsetting income gains, interest expense increased $338,000 or 18.2% from $1,859,000 for the three months ended March 31, 2006 compared to $2,197,000 for the three months ended March 31, 2007.
Tax equivalent net interest income decreased $152,000 or 3.7% in the first three months of 2007 compared to the same period in 2006, primarily due to rising interest rates. The yield on investment securities decreased 6 basis points from 5.51% in 2006 to 5.45% in 2007 as the result of sales of available for sale securities. The cash proceeds are earmarked to reduce pending liability maturities. The yield on Federal funds sold increased by 32 basis points from 4.30% to 4.62% for the period ended March 31, 2007 as compared to the prior year. The yield on the total loan portfolio increased by 19 basis points in the quarter ended March 31, 2007 compared to the first quarter of 2006. The average yield on real estate mortgage loans which compromise a major portion of the loan portfolio, increased only 3 basis points for the three month period primarily due to the competitiveness of the market. Home equity loans had a 49 basis point increase to 6.77% at March 31, 2007 due to higher interest rates. The overall yield on interest earning assets increased 21 basis points to 6.80% in 2007 up from 6.59% in 2006. The total average balance for earning assets was $397,831,000 for the three month period ended March 31, 2007 compared to $397,008,000 for the same three month period in 2006, an increase of $823,000 or 0.2%. An increase in average loans of $7,206,000 and an increase in average securities of $10,191,000, offset partially by a decrease in Federal funds sold of $17,424,000 accounted for the change from March 31, 2006 to March 31, 2007.
The ever increasing interest rate environment caused the Company to re-price its deposits which resulted in a 48 basis point increase in the cost on interest bearing deposits for the three month period ended March 31, 2007 as compared to the same period in 2006. The overall net interest margin decreased 17 basis points from 4.56% in the first quarter of 2006 to 4.39% in the first quarter of 2007.
The provision (credit) for loan losses was ($370,000) for the three months ended March 31, 2007, a decrease of $460,000 compared to $90,000 for the three months ended March 31, 2006. The provision for loan losses was decreased by $370,000 in the first quarter of 2007 due mainly to the $441,000 recovery previously mentioned and loans continuing to be well secured.
Non-interest income was $866,000 for the first three months of 2007 compared to $795,000 for the same period in 2006, an increase of $71,000 or 8.9%. This increase was primarily due to an increase in service charges of $31,000. All other non-interest income increased $40,000.
Non-interest expenses were $3,329,000 for the first three months of 2007 compared to $3,370,000 for the same period in 2006, a decrease of $41,000 or 1.2 % of which the largest component was salaries and wages which decreased $64,000 from lower retirement costs and FAS 91 deferrals.
Income tax expense was $402,000 for the three month period ended March 31, 2007 compared to $270,000 for the corresponding period in 2006, an increase of $132,000 or 29.4%. The Company’s effective tax rates were 24.2% and 21.7% for the three month periods ended March 31, 2007 and 2006, respectively. This increase was primarily due to tax exempt income being a smaller component of pretax income in 2007 verses 2006.
| F. | Critical Accounting Policies |
Management of the Company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that such judgments can have on the results of operations. The allowance for loan losses is maintained at a level deemed adequate by management based on an evaluation of such factors as economic conditions in the Company's market area, past loan loss experience, the financial condition of individual borrowers, and underlying collateral values based on independent appraisals. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions and values of real estate particularly in Sullivan County. Collateral underlying certain real estate loans could lose value which could lead to future additions to the allowance for loan losses. In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.
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, 2006. 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.
DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of March 31, 2007. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes made in the Company's internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
PART II - OTHER INFORMATION
There are no pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or which their property is subject.
There have been no material changes from the risk factors as previously disclosed in response to Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
| Unregistered Sales of Equity Securities and Use of Proceeds |
The Company did not sell any unregistered securities.
During 2006, the Board of Directors approved a Stock Repurchase Program under which the company could repurchase up to 150,000 shares of outstanding stock. In March 2007, the Board of Directors approved an increase in the number of shares to 200,000 under this program. During the first quarter of 2007, the following shares were purchased as a part of the repurchase program:
| | | Shares purchased | | Average price paid per share | | Shares purchased as part of repurchase program | | Capacity to purchase more shares | |
| | | | | | | | | | |
| 1/1/2007 - 1/31/2007 | | | — | | $ | — | | | — | | | | |
| 2/1/2007 - 2/28/2007 | | | 19,230 | | $ | 18.595 | | | 19,230 | | | | |
| 3/1/2007 - 3/31/2007 | | | 8,300 | | $ | 18.669 | | | 8,300 | | | | |
Total | | | 27,530 | | $ | 18.617 | | | 27,530 | | | 43,497 | |
| Defaults Upon Senior Securities |
Not Applicable
| Submission of Matters to a Vote of Security Holders |
None
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley of 2002 |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
| 32.1 | Written Statement of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
| 32.2 | Written Statement of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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 (registrant) |
|
|
|
| | | /s/ Raymond Walter |
| |
Raymond Walter |
| | President and Chief Executive Officer |
| | | |
| | | /s/ Charles E. Burnett |
| |
Charles E. Burnett |
| | Chief Financial Officer and Treasurer |
May 10, 2007
