Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 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 November 10, 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
September 30, 2000 and December 31, 1999 1
Consolidated Statements of Income for the Three
Months Ended September 30, 2000 and 1999 2
Consolidated Statements of Income for the Nine
Months Ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999 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 16
Jeffersonville Bancorp and Subsidiary
Consolidated Balance Sheets
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
Cash and due from banks $ 11,600,000 $ 9,104,000
Securities available for sale, at fair value 93,410,000 88,847,000
Securities held to maturity, estimated fair value of $6,217,000
in 2000 and $4,768,000 in 1999 6,144,000 4,730,000
Loans, net of allowance for loan losses of $2,460,000
in 2000 and $2,336,000 in 1999 140,871,000 137,925,000
Accrued interest receivable 2,068,000 1,726,000
Premises and equipment, net 2,791,000 2,984,000
Federal Home Loan Bank stock 1,628,000 1,628,000
Other real estate owned 2,382,000 693,000
Cash surrender value of bank-owned life insurance 6,838,000 6,265,000
Other assets 3,234,000 3,058,000
------------ ------------
TOTAL ASSETS $270,966,000 $256,960,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposits (non-interest bearing) $ 38,759,000 $ 33,278,000
NOW and super NOW accounts 29,900,000 28,092,000
Savings and insured money market deposits 66,725,000 58,382,000
Time deposits 89,126,000 81,851,000
------------ ------------
TOTAL DEPOSITS 224,510,000 201,603,000
Federal Home Loan Bank borrowings 20,000,000 20,000,000
Short-term debt 747,000 11,981,000
Accrued expenses and other liabilities 2,162,000 1,375,000
------------ ------------
TOTAL LIABILITIES 247,419,000 234,959,000
------------ ------------
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 September 30, 2000 and December 31,
1999, respectively 795,000 798,000
Paid-in capital 8,072,000 8,232,000
Treasury stock, at cost; 84,505 shares at September 30, 2000
and 68,619 shares at December 31, 1999 (540,000) (206,000)
Retained earnings 16,908,000 15,500,000
Accumulated other comprehensive income(loss) (1,688,000) (2,323,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 23,547,000 22,001,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $270,966,000 $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 September 30,
2000 1999
---------- ----------
INTEREST INCOME
Loan interest and fees $3,219,000 $3,094,000
Securities:
Taxable 1,257,000 1,203,000
Non-taxable 310,000 310,000
Federal funds sold 118,000 1,000
---------- ----------
TOTAL INTEREST INCOME 4,904,000 4,608,000
---------- ----------
INTEREST EXPENSE
Deposits 1,886,000 1,564,000
Federal Home Loan Bank borrowings 286,000 290,000
Other 8,000 17,000
---------- ----------
TOTAL INTEREST EXPENSE 2,180,000 1,871,000
---------- ----------
NET INTEREST INCOME 2,724,000 2,737,000
Provision for loan losses (75,000) (75,000)
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,649,000 2,662,000
---------- ----------
NON-INTEREST INCOME
Service charges 317,000 287,000
Increase in cash surrender value
of bank-owned life insurance 96,000 86,000
Net security gains (losses) (5,000) 7,000
Other non-interest income 246,000 303,000
---------- ----------
TOTAL NON-INTEREST INCOME 654,000 683,000
---------- ----------
NON-INTEREST EXPENSES
Salaries and wages 877,000 934,000
Employee benefits 362,000 292,000
Occupancy and equipment expenses 389,000 339,000
Other real estate owned expenses, net 203,000 80,000
Other non-interest expenses 575,000 673,000
---------- ----------
TOTAL NON-INTEREST EXPENSES 2,406,000 2,318,000
---------- ----------
Income before income taxes 897,000 1,027,000
Income taxes (298,000) (297,000)
---------- ----------
NET INCOME $ 599,000 $ 730,000
---------- ----------
Basic earnings per common share $ 0.39 $ 0.48
---------- ----------
Weighted average common shares outstanding 1,520,643 1,533,259
---------- ----------
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(Unaudited)
For the Nine Months
Ended September 30,
2000 1999
----------- -----------
INTEREST INCOME
Loan interest and fees $ 9,687,000 $ 9,246,000
Securities:
Taxable 3,649,000 3,451,000
Non-taxable 964,000 916,000
Federal funds sold 150,000 37,000
----------- -----------
TOTAL INTEREST INCOME 14,450,000 13,650,000
----------- -----------
INTEREST EXPENSE
Deposits 5,266,000 4,785,000
Federal Home Loan Bank borrowings 865,000 857,000
Other 100,000 46,000
----------- -----------
TOTAL INTEREST EXPENSE 6,231,000 5,688,000
----------- -----------
NET INTEREST INCOME 8,219,000 7,962,000
Provision for loan losses (225,000) (225,000)
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,994,000 7,737,000
----------- -----------
NON-INTEREST INCOME
Service charges 944,000 805,000
Increase in cash surrender value
of bank-owned life insurance 273,000 266,000
Net security gains (losses) (5,000) 22,000
Other non-interest income 672,000 561,000
----------- -----------
TOTAL NON-INTEREST INCOME 1,884,000 1,654,000
----------- -----------
NON-INTEREST EXPENSES
Salaries and wages 2,651,000 2,467,000
Employee benefits 1,145,000 917,000
Occupancy and equipment expenses 1,103,000 925,000
Other real estate owned expenses, net 394,000 190,000
Other non-interest expenses 1,772,000 1,735,000
----------- -----------
TOTAL NON-INTEREST EXPENSES 7,065,000 6,234,000
----------- -----------
Income before income taxes 2,813,000 3,157,000
Income taxes (583,000) (916,000)
----------- -----------
NET INCOME $ 2,230,000 $ 2,241,000
----------- -----------
Basic earnings per common share $ 1.46 $ 1.46
----------- -----------
Weighted average common shares outstanding 1,523,492 1,535,092
----------- -----------
See accompanying notes to unaudited consolidated interim financial
statements.
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months
Ended September 30,
2000 1999
------------ ------------
OPERATING ACTIVITIES
Net income $ 2,230,000 $ 2,241,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses 225,000 225,000
Write down of other real estate owned 69,000 12,000
Gain on sales of other real estate owned (88,000) (47,000)
Depreciation and amortization 478,000 378,000
Net earnings from cash surrender value
of bank-owned life insurance (223,000) (12,000)
Net security (gains) losses 5,000 (22,000)
Increase in accrued interest receivable (374,000) (472,000)
Increase (decrease) in other assets (577,000) (352,000)
Increase in accrued
expenses and other liabilities 787,000 268,000
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,532,000 2,219,000
------------ ------------
INVESTING ACTIVITIES
Proceeds from maturities and calls:
Securities available for sale 8,276,000 7,498,000
Securities held to maturity 1,279,000 528,000
Proceeds from sales of securities
available for sale -- 7,133,000
Purchases :
Securities available for sale (11,785,000) (21,126,000)
Securities held to maturity (2,693,000) (1,284,000)
Disbursements for loan originations, net of
principal collections (5,543,000) (6,476,000)
Purchases of Federal Home Loan Bank stock -- (115,000)
Purchase of bank owned life insurance (350,000) --
Net purchases of premises and equipment (276,000) (528,000)
Proceeds from sales of other real estate owned 702,000 465,000
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (10,390,000) (13,905,000)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 22,907,000 12,291,000
Increase (decrease) in short-term debt (11,234,000) 2,207,000
Cash dividends paid (822,000) (683,000)
Purchases and retirements of common stock (497,000) (243,000)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,354,000 13,572,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,496,000 1,886,000
Cash and cash equivalents at beginning of period 9,104,000 8,203,000
------------ ------------
Cash and cash equivalents at end of period $ 11,600,000 $ 10,089,000
============ ============
Supplemental imformation:
Cash paid for:
Interest $ 6,197,000 $ 5,714,000
Income taxes 655,000 1,052,000
Transfer of loans to other real estate owned 2,460,000 400,000
See accompanying notes to unaudited consolidated interim financial
statements.
JEFFERSONVILLE BANCORP
AND SUBSIDIARY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 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 September
30, 2000 and December 31, 1999, and the results of operations and cash flows
for the three and nine month periods ended September 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 September 30, 2000 and 1999 based on weighted average common
shares outstanding of 1,520,643 and 1,533,259, respectively. Basic earnings
per share amounts were calculated for the nine month periods ended September
30, 2000 and 1999 based on weighted average common shares outstanding of
1,523,492 and 1,535,092, 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 for the three-month periods ended September 30,
2000 and 1999 was $1,169,000 and $628,000, respectively. Comprehensive income
for the nine-month periods ended September 30, 2000 and 1999 was $2,865,000
and $433,000, respectively. The following summarizes the components of the
Company's other comprehensive income (loss) for the nine-month periods:
Nine Months Ended September 30, 2000:
Net unrealized holding gains arising
during the period, net of tax
(pre-tax amount of $1,054,000) $632,000
Reclassification adjustment for net losses
realized in net income during the period,
net of tax (pre-tax amount of $5,000) $ 3,000
Other comprehensive income (pre-tax amount
of $1,059,000) $635,000
Nine Months Ended September 30, 1999:
Net unrealized holding losses arising
during the period, net of tax
(pre-tax amount of $2,992,000) $(1,795,000)
Reclassification adjustment for net gains
realized in net income during the period,
net of tax (pre-tax amount of $22,000) $ (13,000)
Other comprehensive loss (pre-tax amount
of $3,014,000) $(1,808,000)
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 amends the accounting
and reporting standards of SFAS No. 133 for certain derivative instruments
and certain hedging activities. Management has determined that the impact of
SFAS No. 133 will not be significant.
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 September 30, 2000, total
assets increased $14,006,000 or 5.5%. Securities available for sale increased
by $4,563,000 or 5.1% primarily due to diminished loan demand. Net loans
increased from $137,925,000 at year end 1999 to $140,871,000 at September 30,
2000, an increase of $2,946,000 or 2.1%.
Deposits increased from $201,603,000 at December 31, 1999 to
$224,510,000 at September 30, 2000, an increase of $22,907,000 or 11.4%.
Growth occurred in all deposit categories. Demand deposits increased from
$33,278,000 at December 31, 1999 to $38,759,000 at September 30, 2000, an
increase of $5,481,000 or 16.5%. These lower cost deposits are an important
offset to the cost of higher priced funds, and allowed the repayment of short
term borrowings. Short-term debt (primarily Federal Home Loan Bank
borrowings) decreased $11,234,000 from $11,981,000 at December 31, 1999. The
funds were originally borrowed to enhance liquidity, eliminating the need to
sell higher yielding securities
Total stockholders' equity increased $1,546,000 or 7.0% from $22,001,000
at December 31, 1999 to $23,547,000 at September 30, 2000. This increase was
the result of net income of $2,230,000, plus a decrease of $635,000 in
accumulated other comprehensive loss, less cash dividends of $822,000,
purchases and retirements of common stock of $163,000 and the acquisition of
$334,000 of treasury stock.
B. Provision for Loan Losses
The provision for loan losses reflects management's assessment of the
risk inherent in the loan portfolio, the general state of the economy and
past loan experience. The provision for loan losses was $225,000 for the nine
months ended September 30, 2000 and 1999. Total charge-offs for the 2000 nine
month period were $221,000 compared to $223,000 for the same period in the
prior year, while recoveries decreased from $130,000 for the 1999 period to
$120,000 for the 2000 period. The amounts represent a net charge-off of
$101,000 in the first nine months of 2000 versus a net charge-off of $93,000
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 nine month periods ended September 30:
2000 1999
Balance at beginning of period $2,336,000 $2,310,000
Provision for loan losses 225,000 225,000
Loans charged off (221,000) (223,000)
Recoveries 120,000 130,000
---------- ----------
Balance at end of period $2,460,000 $2,442,000
========== ==========
Net charge-offs as a percentage
of average outstanding loans 0.07% 0.07%
Allowance for loan losses to:
Total loans 1.72% 1.77%
Total non-performing loans 101.2 % 110.8 %
C. Non Accrual and Past Due Loans
Non-performing loans are summarized as follows at September 30:
September 30, September 30,
2000 1999
Non-accrual loans $ 740,000 $ 881,000
Loans past due 90 days or more and
still accruing interest 1,691,000 1,322,000
---------- ----------
Total non-performing loans $2,431,000 $2,203,000
Non-performing loans as a percentage
of total loans 1.7% 1.6%
---------- ----------
The effects of non-accrual and restructured loans on interest income
were as follows for the nine months ended September 30:
2000 1999
Interest contractually due
at original rates $115,000 $59,000
Interest income recognized 6,000 53,000
-------- -------
Interest income not recognized $109,000 $ 6,000
======== =======
As of September 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 $367,000, 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.
Other Real Estate was impacted by a $2.2 million default of a commercial
mortgage. A deed in lieu of foreclosure on 81 condo units was negotiated,
thereby avoiding a protracted and expensive foreclosure. The Company is
currently making necessary capital improvements and marketing the 81 units at
the Grandview Palace in Loch Sheldrake, New York. The Company anticipates a
negative impact on earnings for the year 2000 of approximately $350,000.
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 nine
months ended September 30, 2000, a total of 7,716 shares have been purchased
and retired at a cost of $163,000. The Company acquired an additional 15,886
shares of treasury stock at a cost of $334,000 during the nine months ended
September 30, 2000.
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 17.6% of
risk-weighted assets at September 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 9.3% at September 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 September 30, 2000.
TIER I CAPITAL
Stockholders' equity, excluding the
after-tax net unrealized
loss on securities available for sale $ 25,235,000
TIER II CAPITAL
Allowance for loan losses 1 1,936,000
------------
Total risk-based capital $ 27,171,000
------------
Risk-weighted assets 2 $154,348,000
Average assets $272,851,000
RATIOS
Tier I risk-based capital (minimum 4.0%) 16.4%
Total risk-based capital (minimum 8.0%) 17.6%
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
E. Result of Operations
Three Months Ended September 30, 2000 versus Three Months Ended
September 30, 1999:
Net income for the quarter ended September 30, 2000 decreased by
$131,000 to $599,000 compared to $730,000 for the corresponding period in
1999. Increases in interest income were not enough to offset an increase in
interest expense and non-interest expenses and a decrease in non-interest
income. The Company's annualized return on average assets was 0.9% for the
quarter ended September 30, 2000 compared to 1.1% for the same quarter in
1999. The return on average stockholders' equity was 10.4% and 12.9% for the
third quarter of 2000 and 1999, respectively.
Total interest income for the third quarter of 2000 increased $296,000
or 6.4% from the corresponding period in 1999, while total interest expense
increased $309,000 or 16.5% from the corresponding period in 1999. Net
interest income decreased $13,000 or 0.5% 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
$253,394,000 for the three month period ended September 30, 2000 compared to
$240,715,000 for the corresponding period in 1999, an increase of $12,679,000
or 5.3%. An increase in loans of $7,527,000 accounted for 59.4% of this
increase. The yield on interest earning assets increased by 7 basis points
from 7.92% for the three month period ended September 30, 1999 to 7.99% for
the three month period ended September 30, 2000. This increase was primarily
due to a 21 basis point increase in the yield on investment securities from
6.58% for the quarter ended September 30, 1999 to 6.79% for the quarter ended
September 30, 2000 offset by an 11 basis point decrease in the yield on loans
from 8.91% for the quarter ended September 30, 1999 to 8.80% for the quarter
ended September 30, 2000. The decrease in the yield on loans was primarily
attributed to lost interest income in a large commercial real estate loan
which became non-performing during the quarter ended September 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 $212,248,000 for the three month period ended September 30,
2000 compared to $196.073,000 for the corresponding period in 1999, an
increase of $16,175,000 or 8.2%. The yield on interest bearing liabilities
increased by 25 basis points from 3.86% for the three month period ended
September 30, 1999 to 4.11% for the three month period ended September 30,
2000.
Non-interest income was $654,000 for the three month period ended
September 30, 2000 compared to $683,000 for the corresponding period in 1999,
a decrease of $29,000 or 4.2%. This decrease was primarily due to the lack of
gains on the sales of other real estate owned.
Non-interest expenses were $2,406,000 for the three month period ended
September 30, 2000 compared to $2,318,000 for the corresponding period in
1999, an increase of $88,000 or 3.8%. Occupancy and equipment expense
increased by $50,000 as a result of adding two new branches. Other real
estate owned expenses increased by $123,000 as a result of more foreclosures
occurring during the third quarter of 2000. Lower other non-interest expenses
totaling $98,000 are the result of decreases in several expense categories.
Nine Months Ended September 30, 2000 versus Nine Months Ended
September 30, 1999:
Net income for the first nine months of 2000 decreased by $11,000 to
$2,230,000 compared to $2,241,000 for the same period in 1999. Increases of
$257,000 in net interest income and $230,000 in non-interest income were
partially offset by an increase of $831,000 in non-interest expenses. The
Company's annualized return on average assets was 1.1% in the nine month
period compared to 1.2% in the same period last year. The return on average
stockholders' equity was 13.3% and 13.0% for the first nine months of 2000
and 1999, respectively. With proper execution of our tax planning strategies,
we anticipate the effective tax rate for the year to be between 21% to 23% of
pre-tax income.
Tax equivalent interest income increased $825,000 or 5.8% in the first
nine months of 2000 compared to the same period in 1999. The yield on
investment securities increased 29 basis points from 6.56% in 1999 to 6.85%
in 2000. The yield on the total loan portfolio decreased by 2 basis points in
the nine months ended September 30, 2000 compared to the first nine months of
1999. Commercial, home equity and installment loan yields increased slightly
during the nine months ended September 30, 2000 compared to the first nine
months of 1999. The average yield on real estate mortgage loans, the major
portion of the loan portfolio, decreased 8 basis points to 8.47% from 8.55%
during the nine months ended September 30, 2000 compared to the first nine
months of 1999. The overall yield on interest earning assets increased 15
basis points from 7.96% for the nine months ended September 30, 1999 to 8.11%
for the same period in 2000. In addition, the increase in interest income on
earning assets for the first nine months of 2000 resulted from an increase in
average earning assets. The total average balance for earning assets was
$245,869,000 for the nine month period ended September 30, 2000 compared to
$236,509,000 for the same nine month period in 1999, an increase of
$9,360,000 or 4.0%. An increase in loans of $6,774,000 accounted for 72.4% of
this increase.
The yield on interest bearing liabilities increased by 18 basis points
for the nine month period from 3.87% in 1999 to 4.05% in 2000. The overall
net interest margin decreased 2 basis points from 4.75% in the nine months of
1999 to 4.73% in the nine months of 2000.
Non-interest expenses were $7,065,000 for the nine months of 2000
compared to $6,234,000 for the same period in 1999, an increase of $831,000
or 13.3%. This increase reflects a $412,000 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 $178,000 for the nine
months ended September 30, 2000 as a result of adding two new branches.
Expenses associated with other real estate increased by $204,000 as the
result of more foreclosures. Legal and consulting fees increased by $119,000
for the nine months ended September 30, 2000 as compared to the similar
period last year due to the implementation of tax saving planning strategies.
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 September
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 September 30, 2000 and December 31, 1999 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 was 4.8% and 1.5% of total
assets as of September 30, 2000 and December 31, 1999, respectively.
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
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John M. Riley
Treasurer
November 9, 2000