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, 2000 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 (845) 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 8, 2000
$0.50 par value 1,520,643
INDEX TO FORM 10-Q
Page
Part 1
Item 1 Consolidated Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 2000 and December 31, 1999 1
Consolidated Statements of Income for the Three
Months Ended June 30, 2000 and 1999 2
Consolidated Statements of Income for the Six
Months Ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 3-4
Notes to Consolidated Interim Financial Statements 5-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-14
Item 3 Quantitative and Qualitative Disclosures about Market Risk 15-16
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 19
Jeffersonville Bancorp and Subsidiary
Consolidated Balance Sheets
June 30, December 31,
2000 1999
(Unaudited)
ASSETS
Cash and due from banks $ 12,342,000 $ 9,104,000
Securities available for sale, at fair value 84,762,000 88,847,000
Securities held to maturity, estimated fair value of $6,649,000
in 2000 and $3,755,000 in 1999 6,614,000 4,730,000
Loans, net of allowance for loan losses of $2,428,000
in 2000 and $2,336,000 in 1999 144,425,000 137,925,000
Accrued interest receivable 1,327,000 1,726,000
Premises and equipment, net 2,921,000 2,984,000
Federal Home Loan Bank stock 1,628,000 1,628,000
Other real estate owned 550,000 693,000
Cash surrender value of bank-owned life insurance 6,760,000 6,265,000
Other assets 3,611,000 3,058,000
TOTAL ASSETS $264,940,000 $256,960,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposits (non-interest bearing) $ 40,181,000 $ 33,278,000
NOW and super NOW accounts 29,203,000 28,092,000
Savings and insured money market deposits 62,535,000 58,382,000
Time deposits 87,800,000 81,851,000
TOTAL DEPOSITS 219,719,000 201,603,000
Federal Home Loan Bank borrowings 20,000,000 20,000,000
Short-term debt 627,000 11,981,000
Accrued expenses and other liabilities 1,609,000 1,375,000
TOTAL LIABILITIES 241,955,000 234,959,000
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 ; 1,589,262 shares and 1,596,978 shares
issued at June 30, 2000 and December 31,
1999, respectively 795,000 798,000
Paid-in capital 8,072,000 8,232,000
Treasury stock, at cost; 68,619 shares at June 30, 2000
and 68,619 shares at December 31, 1999 (206,000) (206,000)
Retained earnings 16,582,000 15,500,000
Accumulated other comprehensive income(loss) (2,258,000) (2,323,000)
TOTAL STOCKHOLDERS' EQUITY 22,985,000 22,001,000
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $264,940,000 $256,960,000
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,
2000 1999
INTEREST INCOME
Loan interest and fees $3,322,000 $3,129,000
Securities:
Taxable 1,203,000 1,087,000
Non-taxable 326,000 307,000
Federal funds sold 17,000 28,000
TOTAL INTEREST INCOME 4,868,000 4,551,000
INTEREST EXPENSE
Deposits 1,727,000 1,601,000
Federal Home Loan Bank borrowings 288,000 285,000
Other 53,000 11,000
TOTAL INTEREST EXPENSE 2,068,000 1,897,000
NET INTEREST INCOME 2,800,000 2,654,000
Provision for loan losses 75,000 75,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,725,000 2,579,000
NON-INTEREST INCOME
Service charges 313,000 292,000
Increase in cash surrender value
of bank-owned life insurance 91,000 91,000
Net security gains - 8,000
Other non-interest income 269,000 153,000
TOTAL NON-INTEREST INCOME 673,000 544,000
NON-INTEREST EXPENSES
Salaries and wages 957,000 791,000
Employee benefits 395,000 322,000
Occupancy and equipment expenses 369,000 293,000
Other real estate owned expenses, net 113,000 57,000
Other non-interest expenses 647,000 563,000
TOTAL NON-INTEREST EXPENSES 2,481,000 2,026,000
Income before income taxes 917,000 1,097,000
Income taxes (38,000) (334,000)
NET INCOME $ 879,000 $ 763,000
Basic earnings per common share $ 0.58 $ 0.50
Average common shares outstanding 1,523,602 1,533,809
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,
2000 1999
INTEREST INCOME
Loan interest and fees $6,468,000 $6,152,000
Securities:
Taxable 2,392,000 2,248,000
Non-taxable 654,000 606,000
Federal funds sold 32,000 36,000
TOTAL INTEREST INCOME 9,546,000 9,042,000
INTEREST EXPENSE
Deposits 3,380,000 3,221,000
Federal Home Loan Bank borrowings 579,000 567,000
Other 92,000 29,000
TOTAL INTEREST EXPENSE 4,051,000 3,817,000
NET INTEREST INCOME 5,495,000 5,225,000
Provision for loan losses 150,000 150,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,345,000 5,075,000
NON-INTEREST INCOME
Service charges 627,000 518,000
Increase in cash surrender value
of bank-owned life insurance 177,000 178,000
Net security gains - 15,000
Other non-interest income 426,000 260,000
TOTAL NON-INTEREST INCOME 1,230,000 971,000
NON-INTEREST EXPENSES
Salaries and wages 1,774,000 1,533,000
Employee benefits 783,000 625,000
Occupancy and equipment expenses 714,000 586,000
Other real estate owned expenses, net 191,000 110,000
Other non-interest expenses 1,197,000 1,062,000
TOTAL NON-INTEREST EXPENSES 4,659,000 3,916,000
Income before income taxes 1,916,000 2,130,000
Income taxes (285,000) (619,000)
NET INCOME $1,631,000 $1,511,000
Basic earnings per common share $ 1.07 $ 0.98
Average common shares outstanding 1,523,602 1,536,008
See accompanying notes to unaudited consolidated interim financial statements.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months
Ended June 30,
2000 1999
OPERATING ACTIVITIES
Net income $ 1,631,000 $ 1,511,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses 150,000 150,000
Write down of other real estate owned 50,000 12,000
Gain on sales of other real estate owned (80,000) (34,000)
Depreciation and amortization 308,000 251,000
Net increase in cash surrender value
of bank-owned life insurance (145,000) (135,000)
Net security gains - (15,000)
Decrease (increase) in accrued interest receivable 368,000 (161,000)
Increase (decrease) in other assets (609,000) 69,000
Increase in accrued
expenses and other liabilities 234,000 376,000
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,907,000 2,024,000
INVESTING ACTIVITIES Proceeds from maturities and calls:
Securities available for sale 4,230,000 5,301,000
Securities held to maturity 525,000 441,000
Proceeds from sales of securities
available for sale - 6,330,000
Purchases :
Securities available for sale - (16,961,000)
Securities held to maturity (2,410,000) (579,000)
Disbursements for loan originations, net of
principal collections (6,840,000) (6,215,000)
Purchases of Federal Home Loan Bank stock - (40,000)
Purchase of bank owned life insurance (350,000) -
Net purchases of premises and equipment (234,000) (220,000)
Proceeds from sales of other real estate owned 362,000 311,000
NET CASH USED IN
INVESTING ACTIVITIES (4,717,000) (11,632,000)
FINANCING ACTIVITIES
Net increase in deposits 18,115,000 7,058,000
Increase (decrease) in short-term debt (11,355,000) 4,572,000
Cash dividends paid (549,000) (453,000)
Purchases and retirements of common stock (163,000) (243,000)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 6,048,000 10,934,000
NET INCREASE IN
CASH AND CASH EQUIVALENTS 3,238,000 1,326,000
Cash and cash equivalents at beginning of period 9,104,000 8,203,000
Cash and cash equivalents at end of period $ 12,342,000 $ 9,529,000
(Continued)
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows, Continued
(Unaudited)
For the Six Months
Ended June 30,
2000 1999
Supplemental imformation:
Cash paid for:
Interest $ 4,059,000 $ 3,833,000
Income taxes 470,000 631,000
Transfer of loans to other real estate owned 189,000 267,000
See accompanying notes to unaudited consolidated interim financial statements.
JEFFERSONVILLE BANCORP
AND SUBSIDIARY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2000
(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,
2000 and December 31, 1999, and the results of operations and cash flows for
the three and six month periods ended June 30, 2000 and 1999. All adjustments
are normal and recurring. The accompanying unaudited consolidated interim
financial statements should be read in conjunction with the 1999 consolidated
year-end financial statements, including notes thereto, which are included in
the Company's 1999 Annual Report.
B. Earnings per Share
Basic earnings per share amounts were calculated for the three month
periods ended June 30, 2000 and 1999 based on weighted average common shares
outstanding of 1,523,602 and 1,533,809, respectively. Basic earnings per
share amounts were calculated for the six month periods ended June 30, 2000
and 1999 based on weighted average common shares outstanding of 1,524,916 and
1,536,008, respectively. There were no dilutive securities during either
period.
C. Comprehensive Income
Comprehensive income includes the reported net income adjusted for
certain items that are 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 represents net income and the net change during the
period in net unrealized gains and losses on securities available for sale.
The Company's accumulated other comprehensive income represents the net
unrealized gains and losses on securities available for sale at the balance
sheet date, net of tax.
Comprehensive income (loss) for the three-month periods ended June 30,
2000 and 1999 was $1,126,000 and $(693,000), respectively. Comprehensive
income (loss) for the six-month periods ended June 30, 2000 and 1999 was
$1,696,000 and $(195,000), respectively. The following summarizes the
components of the Company's other comprehensive income (loss) for the
six-month periods:
Six Months Ended June 30, 2000:
Net unrealized holding gains arising during the period, net of tax
(pre-tax amount of $108,000) $ 65,000
Reclassification adjustment for net gains realized in net income
during the period, net of tax (pre-tax amount of $0) $ -
Other comprehensive income (pre-tax amount of $108,000) $ 65,000
Six Months Ended June 30, 1999:
Net unrealized holding gains arising during the period, 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 income (pre-tax amount of $2,843,000) $(1,706,000)
D. New Accounting Pronouncement
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. During the second quarter 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 No. 133 by one year from fiscal quarters
of fiscal years beginning after June 15, 1999 to fiscal quarters of fiscal
years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No.
138, "Accounting for Derivative Instruments and Hedging Activities, and
Amendment to FASB Statement No. 133". This statement includes the accounting
and reporting standards of SFAS No. 133 for certain derivative instruments
and certain hedging activities. Management is currently evaluating the impact
of SFAS No. 133, as amended by SFAS No. 138, on the Company's consolidated
financial statements.
Item 2: Management's Discussion and Analysis of Financial Conditions and
Results of Operations
A. Overview - Financial Condition
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 Parent Company and the Bank based on
current management expectations. The Company's ability to predict results or
the effect of future plans and strategies is inherently uncertain and actual
results, performance or achievements could differ materially from those
management expectations. 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 Bank'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.
During the period from December 31, 1999 to June 30, 2000, total assets
increased $7,980,000 or 3.1%. Short-term debt (primarily Federal Home Loan
Bank borrowings) decreased $11,354,000 from $11,981,000 at December 31, 1999.
The funds were originally borrowed to enhance liquidity, eliminating the need
to sell higher yielding securities. Securities available for sale decreased
by $4,085,000 or 4.60% primarily due to maturities. Net loans increased from
$137,925,000 at year end 1999 to $144,425,000 at June 30, 2000, an increase
of $6,500,000 or 4.71%.
Deposits increased from $201,603,000 at December 31, 1999 to
$219,719,000 at June 30, 2000, an increase of $18,116,000 or 9.0%. Growth
occurred in all deposit categories. Demand deposits increased from
$33,278,000 at December 31, 1999 to $40,181,000 at June 30, 2000, an increase
of $6,903,000 or 20.7%. These lower cost deposits are an important offset to
the cost of higher priced funds, and allowed the repayment of short term
borrowings.
Total stockholders' equity increased $984,000 or 4.5% from $22,001,000
at December 31, 1999 to $22,985,000 at June 30, 2000. This increase was the
result of net income of $1,631,000, plus a decrease of $65,000 in accumulated
other comprehensive loss, less cash dividends of $549,000, and purchases and
retirements of common stock of $163,000.
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, 2000 and 1999. Total charge offs for the 2000 six month
period were $160,000 compared to $141,000 for the same period in the prior
year, while recoveries decreased from $107,000 for the 1999 period to
$102,000 for the 2000 period. The amounts represent a net charge-off of
$58,000 in the first six months of 2000 versus a net charge-off of $34,000
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 June 30:
2000 1999
Balance at beginning of period $2,336,000 $2,310,000
Provision for loan losses 150,000 150,000
Loans charged off (160,000) (141,000)
Recoveries 102,000 107,000
Balance at end of period $2,428,000 $2,426,000
Net charge-offs as a percentage
of average outstanding loans 0.04% 0.05%
Allowance for loan losses to:
Total loans 1.65% 1.75%
Total non-performing loans 96.2% 122.6%
C. Non Accrual and Past Due Loans
Non-performing loans are summarized as follows at June 30:
June 30, June 30,
2000 1999
Non-accrual loans $ 689,000 $1,009,000
Loans past due 90 days or more
and still accruing interest 1,835,000 969,000
Total non-performing loans $2,524,000 $1,978,000
Non-performing loans as a
percentage of total loans 1.7% 1.4%
The effects of non-accrual and restructured loans on interest income
were as follows for the six months ended June 30:
2000 1999
Interest contractually due at original rates 17,000 56,000
Interest income recognized 7,000 38,000
Interest income not recognized 10,000 18,000
As of June 30, 2000 and 1999, the recorded investment in loans
considered to be impaired under Statement of Financial Accounting Standards
("SFAS") No.114 totaled $670,000 and $714,000, 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
In January 2000, the Board of Directors allocated $1,000,000 for the
repurchase and retirement of common stock on the open market. During the six
months ended June 30, 2000, a total of 7,716 shares have been purchased and
retired at a cost of $163,000.
Under the Federal Reserve Bank's risk-based capital rules, the Company's
Tier I risk-based capital was 15.9% and total risk-based capital was 17.2% of
risk-weighted assets at June 30, 2000. 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 9.8% at June 30, 2000 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, 2000.
TIER I CAPITAL
Stockholders' equity, excluding the after-tax net
unrealized loss on securities available for sale $ 25,243,000
TIER II CAPITAL
Allowance for loan losses1 1,979,000
Total risk-based capital $ 27,222,000
Risk-weighted assets2 $158,286,000
Average assets $261,151,000
RATIOS
Tier I risk-based capital (minimum 4.0%) 15.9%
Total risk-based capital (minimum 8.0%) 17.2%
Leverage (minimum 4.0%) 9.8%
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. Result of Operations:
Most Recent Quarter and Same Quarter in Preceding Year:
Net income for the quarter ended June 30, 2000 increased by $116,000 to
$879,000 compared to $763,000 for the corresponding period in 1999. Increases
in net interest income and non-interest income combined with a decrease in
income tax expense were partially offset by an increase in non-interest
expenses. The Company's annualized return on average assets was 1.3% for the
quarter ended June 30, 2000 compared to 1.2% for the same quarter in 1999.
The return on average stockholders' equity was 15.3% and 13.0% for the second
quarter of 2000 and 1999, respectively.
Total interest income for the second quarter of 2000 increased $317,000
or 7.0% from the corresponding period in 1999, while total interest expense
increased $171,000 or 9.0% from the corresponding period in 1999. Net
interest income increased $146,000 or 5.5% from the prior year period.
Total interest income increased as a result of an increase in interest
earning assets as well as an increase in the overall yield on interest
earning assets. The total average balance for interest earning assets was
$247,858,000 for the three month period ended June 30, 2000 compared to
$240,705,000 for the corresponding period in 1999, an increase of $7,153,000
or 3.0%. An increase in loans of $6,531,000 accounted for 91.3% of this
increase. The yield on interest earning assets increased by 30 basis points
from 7.83% for the three month period ended June 30, 199 to 18.3% for the
three month period ended June 30, 2000. This increase was primarily due to a
44 basis point increase in the yield on investment securities from 6.37% for
the quarter ended June 30, 1999 to 6.81% for the quarter ended June 30, 2000
and a 13 basis point increase in the yield on real estate mortgage loans from
8.48% for the quarter ended June 30, 1999 to 8.61% for the quarter ended June
30, 2000.
Total interest expense increased as a result of an increase in interest
bearing liabilities as well as an increase in the overall yield on interest
bearing liabilities. The total average balance for interest bearing
liabilities was $206,420,000 for the three month period ended June 30, 2000
compared to $200,562,000 for the corresponding period in 1999, an increase of
$5,858,000 or 2.9%. The yield on interest bearing liabilities increased by 13
basis points from 3.88% for the three month period ended June 30, 1999 to
4.01% for the three month period ended June 30, 2000.
Non-interest income was $673,000 for the three month period ended June
30, 2000 compared to $544,000 for the corresponding period in 1999, an
increase of $129,000 or 23.7%. This increase was primarily due to gains on
the sales of other real estate owned and an increase in deposit account
service charges.
Non-interest expenses were $2,481,000 for the three month period ended
June 30, 2000 compared to $2,026,000 for the corresponding period in 1999, an
increase of $455,000 or 22.5%. This increase reflects a $239,000 increase in
compensation and benefit costs, primarily due to the addition of the
Wurtsboro and Wal*Mart branches and normal salary adjustments. Similarly,
occupancy and equipment expense increased as a result of adding two new
branches. Other real estate owned expenses increased by $56,000 as a result
of more foreclosures occurring during the second quarter of 2000. Higher
other non-interest expenses are primarily due to a $77,000 increase in legal
and accounting expenses, which were incurred in connection with the
establishment of a Real Estate Investment Trust.
Net income for the first six months of 2000 increased by $120,000 to
$1,631,000 compared to $1,511,000 for the same period in 1999. Increases of
$270,000 in net interest income and $259,000 in non-interest income were
partially offset by an increase of $743,000 in non-interest expenses. The
Company's annualized return on average assets was 1.2% in the six month
period compared to 1.2% in the same period last year. The return on average
stockholders' equity was 14.6% and 12.9% for the first six months of 2000 and
1999, respectively.
Tax equivalent interest income increased $529,000 or 5.7% in the first
six months of 2000 compared to the same period in 1999. The yield on
investment securities increased 31 basis points from 6.52% in 1999 to 6.83%
in 2000. The yield on the total loan portfolio increased by 4 basis points in
the six months ended June 30, 2000 compared to the first six months of 1999.
Commercial, home equity and installment loan yields increased slightly during
the six months ended June 30, 2000 compared to the first six months of 1999.
The average yield on real estate mortgage loans, the major portion of the
loan portfolio, increased 5 basis points to 8.59% from 8.54% during the six
months ended June 30, 2000 compared to the first six months of 1999. The
overall yield on interest earning assets increased 18 basis points from 7.94%
for the six months ended June 30, 1999 to 8.12% for the same period in 2000.
In addition, the increase in interest income on earning assets for the first
six months of 2000 resulted from an increase in average earning assets. The
total average balance for earning assets was $243,444,000 for the six month
period ended June 30, 2000 compared to $235,701,000 for the same six month
period in 1999, an increase of $7,743,000 or 3.3%. An increase in loans of
$6,433,000 accounted for 83.1% of this increase.
The yield on interest bearing liabilities increased by 13 basis points
for the six month period from 3.87% in 1999 to 4.00% in 2000. The overall net
interest margin increased 9 basis points from 4.70% in the first half of 1999
to 4.79% in the first half of 2000.
Non-interest expenses were $4,659,000 for the first six months of 2000
compared to $3,916,000 for the same period in 1999, an increase of $743,000
or 19.0%. This increase reflects a $399,000 increase in compensation and
benefits costs, primarily due to higher employee benefit costs and salary
adjustments related to the addition of the Wurtsboro and Wal*Mart branches.
Similarly, occupancy and equipment expense increased by $128,000 for the six
months ended June 30, 2000 as a result of adding two new branches. Expenses
associated with other real estate increased by $81,000 as the result of more
foreclosures. Printing and stationary expenses increased by $103,000 for the
six months ended June 30, 2000 as compared to the similar period last year.
The remaining $32,000 of non-interest expense increases reflects increases in
several other non-interest expense categories, the majority of which is
attributable to the two new branches.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices
and interest rates. The subsidiary Bank's market risk arises primarily from
interest rate risk inherent in its lending and deposit taking activities.
Although the subsidiary Bank manages other risks, such as credit and
liquidity risk, in the normal course of its business, management considers
interest rate risk to be its most significant market risk and could
potentially have the largest material effect on the subsidiary Bank's
financial condition and results of operation. The subsidiary Bank does not
currently have a trading portfolio or use derivatives to manage market and
interest rate risk.
The subsidiary Bank's interest rate risk management is the
responsibility of the Asset/Liability Management Committee (ALCO), which
reports to the Board of Directors. The ALCO, comprised of senior management,
has developed policies to measures, manage and monitor interest rate risk.
Interest rate risk arises from a variety of factors, including differences in
the timing between the contractual maturity or repricing of the subsidiary
Bank's assets and liabilities. For example, the subsidiary Bank's net
interest income is affected by changes in the level of market interest rates
as the repricing characteristics of its loans and other assets do not
necessarily match those of its deposits, other borrowings and capital.
In managing exposure, the subsidiary Bank uses interest rate sensitivity
models that measure both net gap exposure and earnings at risk. The ALCO
monitors the volatility of its net interest income by managing the
relationship of interest rate sensitive assets to interest rate sensitive
liabilities. The ALCO utilizes a simulation model to analyze net income
sensitivity to movements in interest rates. The simulation model projects net
interest income based on both an immediate 300 basis point rise or fall in
interest rates over a twelve month period. The model is based on the actual
maturity and repricing characteristics of interest rate assets and
liabilities. The model incorporates assumptions regarding the impact of
changing interest rates on the repayment rate of certain assets and
liabilities.
Another tool used to measure interest rate sensitivity is the cumulative
gap analysis. The cumulative gap represents the net position of assets and
liabilities subject to repricing in specified time periods. Deposit accounts
without specified maturity dates are modeled based on historical run-off
characteristics of these products in periods of rising rates. As of June 30,
2000, the Company had a negative one year cumulative gap position.
The cumulative gap analysis is merely a snapshot a particular date and
does not fully reflect that certain assets and liabilities may have similar
repricing periods, but may in fact reprice at different times within the
period and at differing rate levels. Management, therefore, uses the interest
rate sensitivity gap only as a general indicator of the potential effects of
interest rate changes on net interest income. Management believes that the
gap analysis is a useful tool only when used in conjunction with its
simulation model and other tools for analyzing and managing interest rate
risk.
As of June 30, 2000 the subsidiary Bank was in a liability sensitive
position, which means that more liabilities are scheduled to mature or
reprice within the next year than assets. The cumulative negative interest
rate sensitivity gap as of June 30, 2000 was 16.31% of total assets.
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
/s/ John M. Riley
________________________________
John M. Riley
Treasurer
August 11, 2000