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, 2001 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 10, 2001
--------------------- ----------------------------
$0.50 par value 1,487,047
INDEX TO FORM 10-Q
Page
Part 1
Item 1 Consolidated Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 2001 and December 31, 2000 1
Consolidated Statements of Income for the Three
Months Ended June 30, 2001 and 2000 2
Consolidated Statements of Income for the Six
Months Ended June 30, 2001 and 2000 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2001 and 2000 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 17
Jeffersonville Bancorp and Subsidiary
Consolidated Balance Sheets
June 30, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
Cash and due from banks $ 14,338,000 $ 10,362,000
Securities available for sale, at fair value 92,422,000 94,217,000
Securities held to maturity, estimated fair value of $5,097,000
at June 30, 2001 and $5,496,000 at December 31, 2000 4,931,000 5,408,000
Loans, net of allowance for loan losses of $2,558,000
at June 30, 2001 and $2,435,000 at December 31, 2000 154,716,000 145,021,000
Accrued interest receivable 1,827,000 1,966,000
Premises and equipment, net 2,557,000 2,648,000
Federal Home Loan Bank stock 1,628,000 1,628,000
Other real estate owned 2,621,000 2,564,000
Cash surrender value of bank-owned life insurance 7,077,000 6,918,000
Other assets 2,215,000 2,552,000
------------ ------------
TOTAL ASSETS $284,332,000 $273,284,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposits (non-interest bearing) $ 42,667,000 $ 39,715,000
NOW and super NOW accounts 29,108,000 29,151,000
Savings and insured money market deposits 63,383,000 62,130,000
Time deposits 99,587,000 92,282,000
------------ ------------
TOTAL DEPOSITS 234,745,000 223,278,000
Federal Home Loan Bank borrowings 20,000,000 20,000,000
Short-term debt 626,000 2,807,000
Accrued expenses and other liabilities 2,484,000 2,090,000
------------ ------------
TOTAL LIABILITIES 257,855,000 248,175,000
------------ ------------
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 1,589,262 shares
issued at June 30, 2001 and December 31,
2000, respectively 795,000 795,000
Paid-in capital 8,072,000 8,072,000
Treasury stock, at cost; 97,664 shares at June 30, 2001
and 85,177 shares at December 31, 2000 (818,000) (554,000)
Retained earnings 18,136,000 17,230,000
Accumulated other comprehensive income(loss) 292,000 (434,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 26,477,000 25,109,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $284,332,000 $273,284,000
============ ============
See accompanying notes to unaudited consolidated interim financial
statements.
1
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(Unaudited)
For the Three Months
Ended June 30,
2001 2000
---------- ----------
INTEREST INCOME
Loan interest and fees $3,365,000 $3,322,000
Securities:
Taxable 1,316,000 1,203,000
Non-taxable 259,000 326,000
Federal funds sold 70,000 17,000
---------- ----------
TOTAL INTEREST INCOME 5,010,000 4,868,000
---------- ----------
INTEREST EXPENSE
Deposits 1,749,000 1,727,000
Federal Home Loan Bank borrowings 286,000 288,000
Other 4,000 53,000
---------- ----------
TOTAL INTEREST EXPENSE 2,039,000 2,068,000
---------- ----------
NET INTEREST INCOME 2,971,000 2,800,000
Provision for loan losses 75,000 75,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,896,000 2,725,000
---------- ----------
NON-INTEREST INCOME
Service charges 359,000 313,000
Increase in cash surrender value
of bank-owned life insurance 62,000 91,000
Net security gains -- --
Other non-interest income 253,000 196,000
---------- ----------
TOTAL NON-INTEREST INCOME 674,000 600,000
---------- ----------
NON-INTEREST EXPENSES
Salaries and wages 906,000 861,000
Employee benefits 506,000 491,000
Occupancy and equipment expenses 369,000 369,000
Other real estate owned expenses, net 160,000 40,000
Other non-interest expenses 644,000 647,000
---------- ----------
TOTAL NON-INTEREST EXPENSES 2,585,000 2,408,000
---------- ----------
Income before income taxes 985,000 917,000
Income taxes (242,000) (38,000)
---------- ----------
NET INCOME $ 743,000 $ 879,000
========== ==========
Basic earnings per common share $ 0.50 $ 0.58
========== ==========
Weighted average common shares outstanding 1,493,000 1,524,000
========== ==========
See accompanying notes to unaudited consolidated interim financial
statements.
2
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(Unaudited)
For the Six Months
Ended June 30,
2001 2000
----------- ----------
INTEREST INCOME
Loan interest and fees $ 6,682,000 $6,468,000
Securities:
Taxable 2,637,000 2,392,000
Non-taxable 528,000 654,000
Federal funds sold 168,000 32,000
----------- ----------
TOTAL INTEREST INCOME 10,015,000 9,546,000
----------- ----------
INTEREST EXPENSE
Deposits 3,653,000 3,380,000
Federal Home Loan Bank borrowings 569,000 579,000
Other 10,000 92,000
----------- ----------
TOTAL INTEREST EXPENSE 4,232,000 4,051,000
----------- ----------
NET INTEREST INCOME 5,783,000 5,495,000
Provision for loan losses 150,000 150,000
----------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,633,000 5,345,000
----------- ----------
NON-INTEREST INCOME
Service charges 701,000 627,000
Increase in cash surrender value
of bank-owned life insurance 160,000 177,000
Net security gains -- --
Other non-interest income 439,000 336,000
----------- ----------
TOTAL NON-INTEREST INCOME 1,300,000 1,140,000
----------- ----------
NON-INTEREST EXPENSES
Salaries and wages 1,662,000 1,582,000
Employee benefits 992,000 975,000
Occupancy and equipment expenses 829,000 714,000
Other real estate owned expenses, net 320,000 101,000
Other non-interest expenses 1,221,000 1,197,000
----------- ----------
TOTAL NON-INTEREST EXPENSES 5,024,000 4,569,000
----------- ----------
Income before income taxes 1,909,000 1,916,000
Income taxes (463,000) (285,000)
----------- ----------
NET INCOME $ 1,446,000 $1,631,000
=========== ==========
Basic earnings per common share $ 0.97 $ 1.07
=========== ==========
Weighted average common shares outstanding 1,498,000 1,524,000
=========== ==========
See accompanying notes to unaudited consolidated interim financial
statements.
3
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months
Ended June 30,
2001 2000
------------ -------------
OPERATING ACTIVITIES
Net income $ 1,446,000 $ 1,631,000
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 29,000 50,000
Gain on sales of other real estate owned (90,000) (80,000)
Depreciation and amortization 282,000 308,000
Net increase in cash surrender value
of bank-owned life insurance (159,000) (145,000)
Net security gains -- --
Decrease (increase) in accrued interest receivable 169,000 368,000
Decrease (increase) in other assets 224,000 (609,000)
Increase (decrease) in accrued
expenses and other liabilities (26,000) 234,000
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,025,000 1,907,000
----------- -----------
INVESTING ACTIVITIES
Proceeds from maturities and calls:
Securities available for sale 24,033,000 4,230,000
Securities held to maturity 1,792,000 525,000
Proceeds from sales of securities
available for sale -- --
Purchases:
Securities available for sale (21,005,000) --
Securities held to maturity (1,315,000) (2,410,000)
Disbursements for loan originations, net of
principal collections (10,182,000) (6,840,000)
Purchases of Federal Home Loan Bank stock -- --
Purchase of bank owned life insurance -- (350,000)
Net purchases of premises and equipment (196,000) (234,000)
Proceeds from sales of other real estate owned 341,000 362,000
------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES (6,532,000) (4,717,000)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 11,467,000 18,115,000
Increase (decrease) in short-term debt (2,181,000) (11,355,000)
Cash dividends paid (540,000) (549,000)
Purchases and retirements of common stock (263,000) (163,000)
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 8,483,000 6,048,000
------------ ------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 3,976,000 3,238,000
Cash and cash equivalents at beginning of period 10,362,000 9,104,000
------------ ------------
Cash and cash equivalents at end of period $ 14,338,000 $ 12,342,000
============ ============
Supplemental imformation:
Cash paid for:
Interest $ 4,324,000 $ 4,059,000
Income taxes 360,000 470,000
Transfer of loans to other real estate owned 337,000 189,000
See accompanying notes to unaudited consolidated interim financial
statements.
4
JEFFERSONVILLE BANCORP
AND SUBSIDIARY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(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, 2001
and December 31, 2000, the results of operations for the three and six month
periods ended June 30, 2001 and 2000, and the cash flows for the six month
periods ended June 30, 2001 and 2000. All adjustments are normal and
recurring. The accompanying unaudited consolidated interim financial
statements should be read in conjunction with the 2000 consolidated year-end
financial statements, including notes thereto, which are included in the
Company's 2000 Annual Report.
B. Earnings per Share
Basic earnings per share amounts were calculated for the three month periods
ended June 30, 2001 and 2000 based on weighted average common shares
outstanding of 1,493,000 and 1,524,000, respectively. Basic earnings per
share amounts were calculated for the six month periods ended June 30, 2001
and 2000 based on weighted average common shares outstanding of 1,498,000 and
1,524,000, respectively. There were no dilative securities during either
period.
5
C. Comprehensive Income
Comprehensive income for the three-month periods ended June 30, 2001 and 2000
was $745,000 and $1,126,000, respectively. Comprehensive income for the
six-month periods ended June 30, 2001 and 2000 was $2,172,000 and $1,696,000,
respectively. The following summarizes the components of the Company's other
comprehensive income for the six-month periods:
Six Months Ended June 30, 2001:
Net unrealized holding gains arising during the period,
net of tax (pre-tax amount of $1,233,000) $726,000
Reclassification adjustment for net gains realized in net
income during the period, net of tax (pre-tax amount of $0) $ --
--------
Other comprehensive income $726,000
========
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 $ 65,000
========
D. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement 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 Statement No. 137, which deferred the effective date of
Statement No. 133 by one year to fiscal years beginning after June 15, 2000.
In June 2000, the FASB issued Statement No. 138, which amended certain
provisions of Statement No. 133. As of January 1, 2001 and during the first
six months of 2001, the Company did not have any derivative instruments or
derivative instruments embedded in other contracts. Therefore, the adoption
of Statement No. 133, as amended, did not have a material effect on the
Company's consolidated financial statement.
6
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of Statement
142. Statement 142 will also require that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in accordance
with Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141 immediately.
Management does not expect the adoption of Statement 141 to have a material
impact on the Company's consolidated financial statements.
The Company is required to adopt the provisions of Statement 142 effective
January 1, 2002. Since the Company does not have any recorded goodwill or
intangible assets, management does not expect the adoption of Statement 142
to have a material impact on the Company's consolidated financial statements.
7
Item 2: Management's Discussion and Analysis of Financial Condition 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, 2000 to June 30, 2001, total assets
increased $11,048,000 or 4.0%. Short-term debt decreased $2,181,000 from
$2,807,000 at December 31, 2000. The funds were originally borrowed to
enhance liquidity, eliminating the need to sell higher yielding securities.
Securities available for sale decreased by $1,795,000 or 1.9% primarily due
to maturities. Net loans increased from $145,021,000 at year end 2000 to
$154,716,000 at June 30, 2001, an increase of $9695,000 or 6.7%.
8
Deposits increased from $223,278,000 at December 31, 2000 to $234,745,000 at
June 30, 2001, an increase of $11,467,000 or 5.1%. Growth occurred in all
deposit categories except NOW and super NOW accounts. Demand deposits
increased from $39,715,000 at December 31, 2000 to $42,667,000 at June 30,
2001, an increase of $2,952,000 or 7.4%. These lower cost deposits are an
important offset to the cost of higher priced funds, and allowed the
repayment of short term borrowings. Time deposits increased from $92,282,000
at December 31, 2000 to $99,587,000, an increase of $7,305,000 or 7.9%
Total stockholders' equity increased $1,368,000 or 5.4% from $25,109,000 at
December 31, 2000 to $26,477,000 at June 30, 2001. This increase was the
result of net income of $1,446,000, plus an increase of $726,000 in
accumulated other comprehensive income, less cash dividends of $540,000, and
purchases of treasury stock of $264,000.
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, 2001 and 2000. Total charge offs for the 2001 six month
period were $179,000 compared to $160,000 for the same period in the prior
year, while recoveries increased from $102,000 for the 2000 period to
$152,000 for the 2001 period. The amounts represent a net charge-off of
$27,000 in the first six months of 2001 versus a net charge-off of $58,000
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.
9
Changes in the allowance for loan losses are summarized as follows for the
periods ended June 30:
2001 2000
Balance at beginning of period $2,435,000 $2,336,000
Provision for loan losses 150,000 150,000
Loans charged off (179,000) (160,000)
Recoveries 152,000 102,000
---------- ----------
Balance at end of period $2,558,000 $2,428,000
========== ==========
Net charge-offs as a percentage
of average outstanding loans (0.02%) 0.04%
Allowance for loan losses to:
Total loans 1.63% 1.65%
Total non-performing loans 98.1% 96.2%
10
C. Non Accrual and Past Due Loans
Non-performing loans are summarized as follows at June 30:
Non-accrual loans $ 738,000 $ 689,000
Loans past due 90 days or more and
still accruing interest 1,869,000 1,835,000
---------- ----------
Total non-performing loans $2,607,000 $2,524,000
---------- ----------
Non-performing loans as a percentage
of total loans 1.7% 1.7%
---- ----
The effects of non-accrual and restructured loans on interest income were as
follows for the six months ended June 30:
2001 2000
---- ----
Interest contractually due at original rates 33,000 17,000
Interest income recognized 12,000 7,000
Interest income not recognized 21,000 10,000
As of June 30, 2001 and 2000, the recorded investment in loans considered to
be impaired under Statement of Financial Accounting Standards ("SFAS") No.114
totaled $410,000 and $670,000, respectively. There was no allowance for loan
impairment under Statement No.114 at either date, primarily due to prior
charge offs and the adequacy of collateral values on these loans.
D. Capital
In January 2001, the Board of Directors allocated $1,000,000 for the
repurchase of common stock on the open market. During the six months ended
June 30, 2001, a total of 12,487 shares have been purchased and transferred
to treasury stock at a cost of $243,000.
Under the Federal Reserve Bank's risk-based capital rules, the Company's
Tier I risk-based capital was 16.1% and total risk-based capital was 17.3% of
risk-weighted assets at June 30, 2001. 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 9.4% at June 30, 2001 is well above the 4.0% minimum
regulatory requirement.
11
The following table shows the Company's actual capital measurements
compared to the minimum regulatory requirements at June 30, 2001.
TIER I CAPITAL
Stockholders' equity, excluding the after-tax net
unrealized gain on securities available for sale $ 26,185,000
TIER II CAPITAL
Allowance for loan losses(1) 2,034,000
------------
Total risk-based capital $ 28,219,000
------------
Risk-weighted assets(2) $162,683,000
------------
Average assets $279,844,000
------------
RATIOS
Tier I risk-based capital (minimum 4.0%) 16.1%
Total risk-based capital (minimum 8.0%) 17.3%
Leverage (minimum 4.0%) 9.4%
(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
12
E. Result of Operations
Most Recent Quarter and Same Quarter in Preceding Year:
Net income for the quarter ended June 30, 2001 decreased by $136,000 to
$743,000 compared to $879,000 for the corresponding period in 2000. Increases
in net interest income and non-interest income were offset by an increase in
non-interest expenses. The Company's annualized return on average assets was
1.1% for the quarter ended June 30, 2001 compared to 1.3% for the same
quarter in 2000. The return on average stockholders' equity was 11.3% and
15.3% for the second quarter of 2001 and 2000, respectively.
Total interest income for the second quarter of 2001 increased $142,000 or
2.9% from the corresponding period in 2000, while total interest expense
decreased $29,000 or 1.4% from the corresponding period in 2000. Net interest
income increased $171,000 or 6.1% from the prior year period.
Total interest income increased as a result of an increase in interest
earning assets partially offset by a decrease in the overall yield on
interest earning assets. The total average balance for interest earning
assets was $260,989,000 for the three month period ended June 30, 2001
compared to $247,858,000 for the corresponding period in 2000, an increase of
$13,131,000 or 5.3%. An increase in short term investments of $5,075,000
accounted for 38.7% of this increase and an increase in loans of $4,772,000
accounted for 36.3% of this increase. The yield on interest earning assets
decreased by 25 basis points from 8.13% for the three month period ended June
30, 2000 to 7.88% for the three month period ended June 30, 2001. This
decrease was primarily due to a 17 basis point increase in the yield on
investment securities from 6.81% for the quarter ended June 30, 2000 to 6.64%
for the quarter ended June 30, 2001 and a 18 basis point decrease in the
yield on real estate mortgage loans from 8.61% for the quarter ended June 30,
2000 to 8.43% for the quarter ended June 30, 2001.
Total interest expense decreased as a result of a decrease in the
overall yield on interest bearing liabilities. The total average balance for
interest bearing liabilities was $216,724,000 for the three month period
ended June 30, 2001 compared to $206,420,000 for the corresponding period in
2000, an increase of $10,304,000 or 5.0%. The yield on interest bearing
liabilities decreased by 25 basis points from 4.01% for the three month
period ended June 30, 2000 to 3.76% for the three month period ended June 30,
2001.
Non-interest income was $674,000 for the three month period ended June
30, 2001 compared to $600,000 for the corresponding period in 2000, an
increase of $74,000 or 12.3%. This increase was primarily due to an increase
in deposit account service charges and other miscellaneous income.
13
Non-interest expenses were $2,585,000 for the three month period ended
June 30, 2001 compared to $2,408,000 for the corresponding period in 2000, an
increase of $177,000 or 7.4%. This increase reflects a $60,000 increase in
compensation and benefit costs, primarily due to normal salary adjustments.
Occupancy and equipment expense remained unchanged from last year. Net other
real estate owned expenses increased by $120,000 as a result of carrying
costs incurred for Grandview Palace. Grandview Palace is a 81 unit
condominium project which the Company took possession of in the third quarter
of 2000. The bank currently owns 74 units of which 38 are in contract to be
sold. The average selling price of units to date has been $55,000.
Net income for the first six months of 2001 decreased by $185,000 to
$1,446,000 compared to $1,631,000 for the same period in 2000. Increases of
$288,000 in net interest income and $160,000 in non-interest income were
offset by an increase of $455,000 in non-interest expenses. Income tax
expense also increased. The Company's annualized return on average assets was
1.0% in the six month period compared to 1.2% in the same period last year.
The return on average stockholders' equity was 11.3% and 14.6% for the first
six months of 2001 and 2000, respectively.
Tax interest income increased $469,000 or 4.9% in the first six months
of 2001 compared to the same period in 2000. The yield on investment
securities decreased 6 basis points from 6.83% in 2000 to 6.77% in 2001. The
yield on the total loan portfolio decreased by 5 basis points in the six
months ended June 30, 2001 compared to the first six months of 2000.
Commercial, home equity and real estate loan yields decreased during the six
months ended June 30, 2001 compared to the first six months of 2000. The
average yield on real estate mortgage loans, the major portion of the loan
portfolio, decreased 8 basis points to 8.51% from 8.59% during the six months
ended June 30, 2001 compared to the first six months of 2000. The overall
yield on interest earning assets decreased 12 basis points from 8.12% for the
six months ended June 30, 2000 to 8.00% for the same period in 2001. In
addition, the increase in interest income on earning assets for the first six
months of 2001 resulted from an increase in average earning assets. The total
average balance for earning assets was $257,056,000 for the six month period
ended June 30, 2001 compared to $243,444,000 for the same six month period in
2000, an increase of $13,612,000 or 5.6%. An increase in loans of $5,438,000
accounted for 40.0% of this increase and a increase in short term investments
of $5,584,000 accounted for 41.0% of this increase.
The yield on interest bearing liabilities decreased by 3 basis points
for the six month period from 4.00% in 2000 to 3.97% in 2001. The overall net
interest margin decreased 8 basis points from 4.79% in the first half of 2000
to 4.71% in the first half of 2001.
Non-interest expenses were $5,024,000 for the first six months of 2001
compared to $4,569,000 for the same period in 2000, an increase of $455,000
or 10.0%. This increase reflects expenses associated with other real estate,
which increased by $219,000 as the result of expenses incurred with Grandview
Palace. Similarly, occupancy and equipment expense increased by $115,000 for
the six months ended June 30, 2001 as a result of implementing new
technology. A $97,000 increase in compensation and benefits costs, primarily
due to higher employee benefit costs and normal salary adjustments.
14
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 theresponsibility
of the Asset/Liability Management Committee (ALCO), which reports to the
Board of Directors. The ALCO, comprised of senior management, has developed
policies to measure, 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.
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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,
2001, the Company had a negative one year cumulative gap position.
The cumulative gap analysis is merely a snapshot at 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, 2001 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 positive interest
rate sensitivity gap as of June 30, 2001 was 1.0% of total assets.
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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
August 11, 2000
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