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, 2002 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 13, 2002
- ------------------------------------- -------------------------------
$0.50 par value 1,478,107
INDEX TO FORM 10-Q
Page
Part 1
Item 1 Consolidated Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 2002 and December 31, 2001 1
Consolidated Statements of Income for the Three
Months Ended June 30, 2002 and 2001 2
Consolidated Statements of Income for the Six
Months Ended June 30, 2002 and 2001 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2002 and 2001 4
Notes to Consolidated Interim Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-11
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 12
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 13
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350 14
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350 15
Jeffersonville Bancorp and Subsidiary
Consolidated Balance Sheets
June 30, December 31,
2002 2001
------------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 11,670,000 $ 10,844,000
Federal funds sold $ 2,700,000 $ --
------------ ------------
Total cash and cash equivalents $ 14,370,000 $ 10,844,000
Securities available for sale, at fair value 114,851,000 104,104,000
Securities held to maturity, estimated fair value of $5,210,000
at June 30, 2002 and $5,920,000 at December 31, 2001 5,077,000 5,786,000
Loans, net of allowance for loan losses of $2,433,000
at June 30, 2002 and $2,614,000 at December 31, 2001 160,735,000 160,097,000
Accrued interest receivable 1,889,000 2,033,000
Premises and equipment, net 3,088,000 2,765,000
Federal Home Loan Bank stock 1,625,000 1,650,000
Other real estate owned 51,000 1,237,000
Cash surrender value of bank-owned life insurance 7,546,000 7,355,000
Other assets 1,897,000 2,239,000
------------ ------------
TOTAL ASSETS $311,129,000 $298,110,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposits (non-interest bearing) $ 48,508,000 $ 45,658,000
NOW and super NOW accounts 29,211,000 30,673,000
Savings and insured money market deposits 76,140,000 66,022,000
Time deposits 93,971,000 95,676,000
------------ ------------
TOTAL DEPOSITS 247,830,000 238,029,000
Federal Home Loan Bank borrowings 30,000,000 30,000,000
Short-term debt 400,000 38,000
Accrued expenses and other liabilities 2,615,000 2,730,000
------------ ------------
TOTAL LIABILITIES 280,845,000 270,797,000
------------ ------------
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 issued at June 30, 2002 and
and December 31, 2001 795,000 795,000
Paid-in capital 8,072,000 8,072,000
Treasury stock, at cost; 111,155 shares at June 30, 2002 and
December 31, 2001 (1,108,000) (1,108,000)
Retained earnings 21,717,000 19,753,000
Accumulated other comprehensive income(loss) 808,000 (199,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 30,284,000 27,313,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $311,129,000 $298,110,000
============ ============
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,
2002 2001
---------- ----------
INTEREST INCOME
Loan interest and fees $3,385,000 $3,365,000
Securities:
Taxable 1,479,000 1,316,000
Non-taxable 255,000 259,000
Federal funds sold 16,000 70,000
---------- ---------
TOTAL INTEREST INCOME 5,135,000 5,010,000
---------- ---------
INTEREST EXPENSE
Deposits 1,024,000 1,749,000
Federal Home Loan Bank borrowings 329,000 286,000
Other 12,000 4,000
---------- ---------
TOTAL INTEREST EXPENSE 1,365,000 2,039,000
---------- ---------
NET INTEREST INCOME 3,770,000 2,971,000
Provision for loan losses 200,000 75,000
---------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,570,000 2,896,000
---------- ---------
NON-INTEREST INCOME
Service charges 420,000 359,000
Increase in cash surrender value
of bank-owned life insurance 93,000 62,000
Net security gains -- --
Other non-interest income 219,000 253,000
---------- ---------
TOTAL NON-INTEREST INCOME 732,000 674,000
---------- ---------
NON-INTEREST EXPENSES
Salaries and wages 1,003,000 906,000
Employee benefits 689,000 506,000
Occupancy and equipment expenses 319,000 369,000
Other real estate owned (income) expenses, net (183,000) 160,000
Other non-interest expenses 549,000 644,000
---------- ---------
TOTAL NON-INTEREST EXPENSES 2,377,000 2,585,000
---------- ---------
Income before income taxes 1,925,000 985,000
Income taxes (617,000) (242,000)
---------- ---------
NET INCOME $1,308,000 $ 743,000
========== ==========
Basic earnings per common share $ 0.88 $ 0.50
========== ==========
Weighted average common shares outstanding 1,478,000 1,493,000
========== ==========
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,
2002 2001
----------- -----------
INTEREST INCOME
Loan interest and fees $ 6,765,000 $ 6,682,000
Securities:
Taxable 2,848,000 2,637,000
Non-taxable 497,000 528,000
Federal funds sold 35,000 168,000
----------- -----------
TOTAL INTEREST INCOME 10,145,000 10,015,000
----------- -----------
INTEREST EXPENSE
Deposits 2,140,000 3,653,000
Federal Home Loan Bank borrowings 649,000 569,000
Other 20,000 10,000
----------- -----------
TOTAL INTEREST EXPENSE 2,809,000 4,232,000
----------- -----------
NET INTEREST INCOME 7,336,000 5,783,000
Provision for loan losses 300,000 150,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,036,000 5,633,000
----------- -----------
NON-INTEREST INCOME
Service charges 863,000 701,000
Increase in cash surrender value
of bank-owned life insurance 191,000 160,000
Net security gains 4,000 --
Other non-interest income 427,000 439,000
----------- -----------
TOTAL NON-INTEREST INCOME 1,485,000 1,300,000
----------- -----------
NON-INTEREST EXPENSES
Salaries and wages 1,813,000 1,662,000
Employee benefits 1,137,000 992,000
Occupancy and equipment expenses 722,000 829,000
Other real estate owned (income) expenses, net (151,000) 320,000
Other non-interest expenses 1,297,000 1,221,000
----------- -----------
TOTAL NON-INTEREST EXPENSES 4,818,000 5,024,000
----------- -----------
Income before income taxes 3,703,000 1,909,000
Income taxes (1,147,000) (463,000)
----------- -----------
NET INCOME $ 2,556,000 $ 1,446,000
=========== ===========
Basic earnings per common share $ 1.73 $ 0.97
=========== ===========
Weighted average common shares outstanding 1,478,000 1,498,000
=========== ===========
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,
2002 2001
------------ ------------
OPERATING ACTIVITIES
Net income $ 2,556,000 $ 1,446,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses 300,000 150,000
Write down of other real estate owned 70,000 29,000
Gain on sales of other real estate owned (411,000) (90,000)
Gain on disposal of premises and equipment -- (5,000)
Depreciation and amortization 374,000 282,000
Net increase in cash surrender value
of bank-owned life insurance (191,000) (159,000)
Net security gains (4,000) --
Decrease in accrued interest receivable 144,000 139,000
(Increase) decrease in other assets (332,000) 263,000
Decrease in accrued
expenses and other liabilities (115,000) (34,000)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,391,000 2,021,000
------------ ------------
INVESTING ACTIVITIES
Proceeds from maturities and calls:
Securities available for sale 15,356,000 24,033,000
Securities held to maturity 2,122,000 1,792,000
Proceeds from sales of securities available for sale 5,336,000 --
Purchases:
Securities available for sale (29,729,000) (21,005,000)
Securities held to maturity (1,413,000) (1,315,000)
Disbursements for loan originations, net of
principal collections (938,000) (10,182,000)
Net purchases of premises and equipment (697,000) (191,000)
Proceeds from sales of other real estate owned 1,527,000 341,000
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (8,436,000) (6,527,000)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 9,801,000 11,467,000
Increase (decrease) in short-term debt 362,000 (2,181,000)
Cash dividends paid (592,000) (540,000)
Treasury stock purchased -- (264,000)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,571,000 8,482,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,526,000 3,976,000
Cash and cash equivalents at beginning of period 10,844,000 10,362,000
------------ ------------
Cash and cash equivalents at end of period $ 14,370,000 $ 14,338,000
============ ============
(Continued)
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows, Continued
(Unaudited)
For the Six Months
Ended June 30,
2002 2001
------------ ------------
Supplemental imformation:
Cash paid for:
Interest $ 2,874,000 $ 4,324,000
Income taxes 907,192 360,000
Transfer of loans to other real estate owned 59,000 337,000
See accompanying notes to unaudited consolidated interim financial
statements.
4
JEFFERSONVILLE BANCORP
AND SUBSIDIARY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2002
(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, 2002
and December 31, 2001, the results of operations for the three and six month
periods ended June 30, 2002 and 2001, and the cash flows for the six month
periods ended June 30, 2002 and 2001. All adjustments are normal and
recurring. The accompanying unaudited consolidated interim financial
statements should be read in conjunction with the 2001 consolidated year-end
financial statements, including notes thereto, which are included in the
Company's 2001 Annual Report.
B. Earnings per Share
Basic earnings per share amounts were calculated for the three month periods
ended June 30, 2002 and 2001 based on weighted average common shares
outstanding of 1,478,000 and 1,493,000, respectively. Basic earnings per
share amounts were calculated for the six month periods ended June 30, 2002
and 2001 based on weighted average common shares outstanding of 1,478,000 and
1,498,000, respectively. There were no dilutive securities during either
period.
C. Comprehensive Income
Comprehensive income for the three-month periods ended June 30, 2002 and 2001
was $2,804,000 and $745,000, respectively. Comprehensive income for the
six-month periods ended June 30, 2002 and 2001 was $3,563,000 and $2,172,000,
respectively. The following summarizes the components of the Company's other
comprehensive income for the six-month periods:
Six Months Ended June 30, 2002:
Net unrealized holding gains arising
during the period, net of tax
(pre-tax amount of $1,708,000) $1,010,000
Reclassification adjustment for net gains
realized in net income during the period,
net of tax (pre-tax amount of $4,000) $ (3,000)
----------
Other comprehensive income $1,007,000
==========
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
income during the period,
net of tax (pre-tax amount of $0) $ --
----------
Other comprehensive income (pre-tax
amount of $1,233,000) $ 726,000
==========
D. New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," which
requires that all business combinations be accounted for under the purchase
method. Use of the pooling-of-interests method is no longer permitted. SFAS
No. 141 requires that the purchase method be used for business combinations
initiated after June 30, 2001. The adoption of this pronouncement did not
have any effect on the Company's consolidated financial statements.
In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The Company adopted this
statement effective January 1, 2002. The adoption of this pronouncement did
not have any effect on the Company's consolidated financial statements.
5
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, 2001 to June 30, 2002, total assets
increased $13,019,000 or 4.4%. Securities available for sale increased by
$10,747,000 or 10.3% primarily due to diminished loan demand. Net loans
increased from $160,097,000 at year end 2001 to $160,735,000 at June 30,
2002, an increase of $638,000 or 0.4%.
Deposits increased from $238,029,000 at December 31, 2001 to $247,830,000 at
June 30, 2002, an increase of $9,801,000 or 4.1%. Growth occurred in all
deposit categories except NOW, super NOW accounts and time deposits. Demand
deposits increased from $45,658,000 at December 31, 2001 to $48,508,000 at
June 30, 2002, an increase of $2,850,000 or 6.2%. Savings deposits increased
from $66,022,000 at December 31, 2001 to $76,140,000, an increase of
$10,118,000 or 15.3%
Total stockholders' equity increased $2,971,000 or 10.9% from $27,313,000 at
December 31, 2001 to $30,284 ,000 at June 30, 2002. This increase was the
result of net income of $2,556,000, plus an increase of $1,007,000 in
accumulated other comprehensive income, less cash dividends of $592,000.
B. Allowance for Loan Losses
The allowance 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 $300,000 for the six
months ended June 30, 2002 and $150,000 for the six months ended June 30,
2001. Total charge offs for the 2002 six month period were $574,000 compared
to $179,000 for the same period in the prior year, while recoveries decreased
from $152,000 for the 2001 period to $93,000 for the 2002 period. A
non-recurring charge-off of $402,000 resulted from a fraudulent loan
involving leases. The amounts represent a net charge-off of $481,000 in the
first six months of 2002 versus a net charge-off of $27,000 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.
6
Changes in the allowance for loan losses are summarized as follows for the
periods ended June 30:
2002 2001
---------- ----------
Balance at beginning of period $2,614,000 $2,435,000
Provision for loan losses 300,000 150,000
Loans charged off (574,000) (179,000)
Recoveries 93,000 152,000
---------- ----------
Balance at end of period $2,433,000 $2,558,000
========== ==========
Net charge-offs as a percentage
of outstanding loans 0.29% 0.02%
Allowance for loan losses to:
Total loans 1.49% 1.63%
Total non-performing loans 95.3% 98.1%
C. Non Accrual and Past Due Loans
Non-performing loans are summarized as follows at June 30:
Non-accrual loans $1,874,000 $ 738,000
Loans past due 90 days
or more and still accruing interest 678,000 1,869,000
---------- ----------
Total non-performing loans $2,552,000 $2,607,000
---------- ----------
Non-performing loans
as a percentage of total loans 1.6% 1.7%
---------- ----------
The effects of non-accrual and restructured loans on interest
income were as follows for the six months ended June 30:
2002 2001
------- -------
Interest contractually due at original rates $85,000 $33,000
Interest income recognized 26,000 12,000
Interest income not recognized 59,000 21,000
As of June 30, 2002 and 2001, the recorded investment in loans
considered to be impaired under Statement of Financial Accounting
Standards ("SFAS") No.114 totaled $1,544,000 and $410,000,
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.
7
D. Capital
In January 2002, 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, 2002, no shares have been purchased under this repurchase plan.
Under the Federal Reserve Bank's risk-based capital rules, the Company's Tier
I risk-based capital was 15.6% and total risk-based capital was 16.8% of
risk-weighted assets at June 30, 2002. 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 9.7% at June 30, 2002 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, 2002.
TIER I CAPITAL
Stockholders' equity, excluding accumulated other
comprehensive income $ 29,476,000
TIER II CAPITAL
Allowance for loan losses1 2,336,000
------------
Total risk-based capital $ 31,812,000
------------
Risk-weighted assets2 $189,164,000
------------
Average assets $305,365,000
------------
RATIOS
Tier I risk-based capital (minimum 4.0%) 15.6%
Total risk-based capital (minimum 8.0%) 16.8%
Leverage (minimum 4.0%) 9.7%
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
8
E. Result of Operations
Most Recent Quarter and Same Quarter in Preceding Year:
Net income for the quarter ended June 30, 2002 increased by $565,000 to
$1,308,000 compared to $743,000 for the corresponding period in 2001. This
increase was primarily due to increases in net interest income and
non-interest income combined with a decrease in non-interest expenses. The
Company's annualized return on average assets was 1.7% for the quarter ended
June 30, 2002 compared to 1.1% for the same quarter in 2001. The return on
average stockholders' equity was 17.8% and 11.3% for the second quarter of
2002 and 2001, respectively.
Total interest income for the second quarter of 2002 increased $125,000 or
2.5% from the corresponding period in 2001, while total interest expense
decreased $674,000 or 33.1% from the corresponding period in 2001. Net
interest income increased $799,000 or 26.9% from the prior year period.
Non-interest income for the second quarter of 2002 increased $58,000 or 8.6%
from the corresponding period in 2001, while total non-interest expense
decreased $208,000 or 8.0% from the second quarter of 2001.
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 $285,422,000 for the three month period ended June 30, 2002
compared to $260,989,000 for the corresponding period in 2001, an increase of
$24,433,000 or 9.4%. An increase in average investments of $12,720,000 and an
increase in loans of $13,685,000 offset by a $1,972,000 decrease in average
short term investments accounted for this increase. The yield on interest
earning assets decreased by 50 basis points from 7.88% for the three month
period ended June 30, 2001 to 7.38% for the three month period ended June 30,
2002. This decrease was primarily due to a 19 basis point decrease in the
yield on investment securities from 6.64% for the quarter ended June 30, 2001
to 6.45% for the quarter ended June 30, 2002 and a 40 basis point decrease in
the yield on real estate mortgage loans from 8.43% for the quarter ended
June 30, 2001 to 8.03% for the quarter ended June 30, 2002.
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 $229,084,000 for the three month period ended June
30, 2002 compared to $216,724,000 for the corresponding period in 2001, an
increase of $12,360,000 or 5.7%. The yield on interest bearing liabilities
decreased by 138 basis points from 3.76% for the three month period ended
June 30, 2001 to 2.38% for the three month period ended June 30, 2002.
Non-interest income was $732,000 for the three month period ended June 30,
2002 compared to $674,000 for the corresponding period in 2001, an increase
of $58,000 or 8.6%. This increase was primarily due to an increase in deposit
account service charges.
Non-interest expenses were $2,377,000 for the three month period ended June
30, 2002 compared to $2,585,000 for the corresponding period in 2001, a
decrease of $208,000 or 8.0%. Occupancy and equipment expense decreased
$50,000 from last year. Net other real estate owned expenses decreased by
$343,000 primarily as a result of gains on sales of units at Grandview
Palace. Grandview Palace is a 81 unit condominium project which the Company
took possession of in the third quarter of 2000. As of June 30, 2002 the
Company owns 15 units of which 8 are in contract to be sold. The average
selling price of units to date has been $55,000. Off setting these decreases
was a $280,000 increase in compensation and benefit costs, primarily due to
normal salary adjustments.
9
Most Recent Year to Date and Corresponding Year to Date Period:
Net income for the first six months of 2002 increased by $1,110,000 to
$2,556,000 compared to $1,446,000 for the same period in 2001. This increase
was primarily due to increases in net interest income and non-interest income
combined with a decrease in non-interest expenses. The Company's annualized
return on average assets was 1.7% in the six month period compared to 1.0% in
the same period last year. The return on average stockholders' equity was
17.7% and 11.3% for the first six months of 2002 and 2001, respectively.
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 $280,696,000 for the six month period ended June 30, 2002 compared
to $257,056,000 for the same six month period in 2001, an increase of
$23,640,000 or 9.2%. An increase in average loans of $14,759,000 and an
increase in average investments of $11,205,000 offset by a $2,324,000
decrease in average short term investments accounted for this increase. The
yield on investment securities decreased 38 basis points from 6.77% in 2001
to 6.39% in 2002. The yield on the total loan portfolio decreased by 70 basis
points in the six months ended June 30, 2002 compared to the first six months
of 2001. Commercial, home equity and real estate mortgage loan yields
decreased during the six months ended June 30, 2002 compared to the first six
months of 2001. The average yield on real estate mortgage loans, the major
portion of the loan portfolio, decreased 42 basis points to 8.09% from 8.51%
during the six months ended June 30, 2002 compared to the first six months of
2001. The overall yield on interest earning assets decreased 59 basis points
from 8.00% for the six months ended June 30, 2001 to 7.41% for the same
period in 2002.
The yield on interest bearing liabilities decreased by 149 basis points for
the six month period from 3.97% in 2001 to 2.48% in 2002. The overall net
interest margin increased 70 basis points from 4.71% in the first half of
2001 to 5.41% in the first half of 2002.
Non-interest income was $863,000 for the six month period ended June 30, 2002
compared to $701,000 for the corresponding period in 2001, an increase of
$162,000 or 23.1%. This increase was primarily due to an increase in deposit
account service charges and other miscellaneous income.
Non-interest expenses were $4,818,000 for the first six months of 2002
compared to $5,024,000 for the same period in 2001, a decrease of $206,000 or
4.1%. Net other real estate owned expenses decreased by $471,000 primarily as
a result of gains on sales of units at Grandview Palace. Occupancy and
equipment expense decreased by $107,000 for the six months ended June 30,
2002 as a result of implementing new technology. Offsetting these decreases
was a $296,000 increase in compensation and benefits costs, primarily due to
higher employee benefit costs and normal salary adjustments.
10
F. Critical Accounting Policies
Pursuant to recent SEC guidance, management of public companies are
encouraged to evaluate and disclose those accounting policies that are judged
to be critical policies, or those most important to the portrayal of the
Company's financial condition and results, and that require management's most
difficult subjective or complex judgments. Management of the Company
considers the accounting policy relating to the allowance for loan losses to
be a critical accounting policy given the inherent uncertainty in evaluating
the levels of the allowance required to cover credit losses in the portfolio
and the material effect that such judgments can have on the results of
operations. The allowance for loan losses is maintained at a level deemed
adequate by management based on an evaluation of such factors as economic
conditions in the Company's market area, pas loan loss experience, the
financial condition of individual borrowers, and underlying collateral values
based on independent appraisals. While management uses available information
to recognized losses on loans, future additions to the allowance for loan
losses may be necessary based on changes in economic conditions, particularly
in Sullivan County. In addition, Federal regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses and my require the Company to recognize additions
to the allowance based on their judgments about information available to them
at the time of their examination, which may not be currently available to
management.
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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 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.
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,
2002, the Company had a positive 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, 2002 the subsidiary Bank was in a asset sensitive position,
which means that more assets are scheduled to mature or reprice within the
next year than liabilities. The cumulative positive interest rate sensitivity
gap as of June 30, 2002 was 1.3% 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
John M. Riley
Treasurer
August 13, 2002
13
EXHIBIT 99.1
Certification
Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 Of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Jeffersonville Bancorp
(the "Company") on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned hereby certify pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of
section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly
presents, in all material respects, the financial
condition and result of operations of the Company.
/s/ Raymond Walter
Raymond Walter
Vice President
14
EXHIBIT 99.2
Certification
Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 Of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Jeffersonville Bancorp
(the "Company") on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned hereby certify pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of
section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly
presents, in all material respects, the financial
condition and result of operations of the Company.
/s/ John M. Riley
John M. Riley
Treasurer
15