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, 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 October 29, 2002
- ------------------------------------- -------------------------------
$0.50 par value 1,478,107
INDEX TO FORM 10-Q
Page
PART I FINANCIAL INFORMATION
Item 1 Consolidated Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at
September 30, 2002 and December 31, 2001 1
Consolidated Statements of Income for the Three
Months Ended September 30, 2002 and 2001 2
Consolidated Statements of Income for the Nine
Months Ended September 30, 2002 and 2001 3
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2002 and 2001 4-5
Notes to Consolidated Interim Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Item 3 Quantitative and Qualitative Disclosures about Market Risk 14-15
Item 4 Controls and Procedures 16
PART II OTHER INFORMATION
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
Exhibit 99.1 Certification
Item 6 Exhibits and Reports on Form 8-K NONE
Certifications 17-20
Signatures 21
Jeffersonville Bancorp and Subsidiary
Consolidated Balance Sheets
September 30 December 31,
2002 2001
------------------- -------------------
(Unaudited)
ASSETS
Cash and due from banks $ 14,456,000 $ 10,844,000
Securities available for sale, at fair value 121,421,000 104,104,000
Securities held to maturity, estimated fair value of $4,939,000
at September 30, 2002 and $5,920,000 at December 31, 2001 4,761,000 5,786,000
Loans, net of allowance for loan losses of $2,745,000
at September 30, 2002 and $2,614,000 at December 31, 2001 165,436,000 160,097,000
Accrued interest receivable 1,967,000 2,033,000
Premises and equipment, net 3,289,000 2,765,000
Federal Home Loan Bank stock 1,650,000 1,650,000
Other real estate owned - 1,237,000
Cash surrender value of bank-owned life insurance 7,633,000 7,355,000
Other assets 1,742,000 2,239,000
------------------- -------------------
TOTAL ASSETS $322,355,000 $298,110,000
------------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand deposits (non-interest bearing) $ 50,657,000 $ 45,658,000
NOW and super NOW accounts 34,928,000 30,673,000
Savings and insured money market deposits 78,326,000 66,022,000
Time deposits 90,099,000 95,676,000
------------------- -------------------
TOTAL DEPOSITS 254,010,000 238,029,000
Federal Home Loan Bank borrowings 30,000,000 30,000,000
Short-term debt 3,437,000 38,000
Accrued expenses and other liabilities 2,814,000 2,730,000
------------------- -------------------
TOTAL LIABILITIES 290,261,000 270,797,000
------------------- -------------------
Stockholders' equity:
Series A preferred stock, no par value:
2,000,000 shares authorized, none issued - -
Common stock, $0.50 par value; 2,250,000 shares
authorized ; 1,589,262 shares issued at September 30, 2002
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 September 30, 2002
and December 31, 2001 (1,108,000) (1,108,000)
Retained earnings 22,833,000 19,753,000
Accumulated other comprehensive income(loss) 1,502,000 (199,000)
------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 32,094,000 27,313,000
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $322,355,000 $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 September 30,
2002 2001
------------------- -------------------
INTEREST INCOME
Loan interest and fees $ 3,481,000 $ 3,511,000
Securities:
Taxable 1,427,000 1,257,000
Non-taxable 348,000 285,000
Federal funds sold 20,000 73,000
------------------- -------------------
TOTAL INTEREST INCOME 5,276,000 5,126,000
-------------------- --------------------
INTEREST EXPENSE
Deposits 974,000 1,547,000
Federal Home Loan Bank borrowings 322,000 290,000
Other 12,000 27,000
------------------- -------------------
TOTAL INTEREST EXPENSE 1,308,000 1,864,000
------------------- -------------------
NET INTEREST INCOME 3,968,000 3,262,000
Provision for loan losses (300,000) (75,000)
------------------- -------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,668,000 3,187,000
-------------------- --------------------
NON-INTEREST INCOME
Service charges 441,000 391,000
Increase in cash surrender value
of bank-owned life insurance 87,000 134,000
Net security gains(losses) (3,000) 6,000
Other non-interest income 299,000 226,000
-------------------- --------------------
TOTAL NON-INTEREST INCOME 824,000 757,000
-------------------- --------------------
NON-INTEREST EXPENSES
Salaries and wages 848,000 785,000
Employee benefits 536,000 462,000
Occupancy and equipment expenses 482,000 375,000
Other real estate owned (income) expenses, net (70,000) 256,000
Other non-interest expenses 668,000 581,000
------------------- -------------------
TOTAL NON-INTEREST EXPENSES 2,464,000 2,459,000
------------------- -------------------
Income before income taxes 2,028,000 1,485,000
Income taxes (615,000) (421,000)
------------------- -------------------
NET INCOME $ 1,413,000 $ 1,064,000
------------------- -------------------
Basic earnings per common share $ 0.96 $ 0.72
-------------------- --------------------
Weighted average common shares outstanding 1,478,000 1,488,000
-------------------- --------------------
See accompanying notes to unaudited consolidated interim financial
statements.
2
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Income
(Unaudited)
For the Nine Months
Ended September 30,
2002 2001
------------------- -------------------
INTEREST INCOME
Loan interest and fees $ 10,246,000 $ 10,193,000
Securities:
Taxable 4,275,000 3,894,000
Non-taxable 845,000 813,000
Federal funds sold 55,000 241,000
------------------- -------------------
TOTAL INTEREST INCOME 15,421,000 15,141,000
-------------------- --------------------
INTEREST EXPENSE
Deposits 3,114,000 5,200,000
Federal Home Loan Bank borrowings 971,000 859,000
Other 32,000 37,000
------------------- -------------------
TOTAL INTEREST EXPENSE 4,117,000 6,096,000
------------------- -------------------
NET INTEREST INCOME 11,304,000 9,045,000
Provision for loan losses (600,000) (225,000)
------------------- -------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,704,000 8,820,000
-------------------- --------------------
NON-INTEREST INCOME
Service charges 1,304,000 1,092,000
Increase in cash surrender value
of bank-owned life insurance 278,000 294,000
Net security gains 1,000 6,000
Other non-interest income 726,000 665,000
-------------------- --------------------
TOTAL NON-INTEREST INCOME 2,309,000 2,057,000
-------------------- --------------------
NON-INTEREST EXPENSES
Salaries and wages 2,661,000 2,447,000
Employee benefits 1,673,000 1,454,000
Occupancy and equipment expenses 1,204,000 1,204,000
Other real estate owned (income) expenses, net (221,000) 576,000
Other non-interest expenses 1,965,000 1,802,000
------------------- -------------------
TOTAL NON-INTEREST EXPENSES 7,282,000 7,483,000
------------------- -------------------
Income before income taxes 5,731,000 3,394,000
Income taxes (1,762,000) (884,000)
------------------- -------------------
NET INCOME $ 3,969,000 $ 2,510,000
------------------- -------------------
Basic earnings per common share $ 2.69 $ 1.68
-------------------- --------------------
Weighted average common shares outstanding 1,478,000 1,494,000
-------------------- --------------------
See accompanying notes to unaudited consolidated interim financial
statements.
3
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months
Ended September 30,
2002 2001
---------------- -----------------
OPERATING ACTIVITIES
Net income $ 3,969,000 $ 2,510,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses 600,000 225,000
Write down of other real estate owned 70,000 35,000
Gain on sales of other real estate owned (613,000) (63,000)
Depreciation and amortization 539,000 420,000
Net increase in cash surrender value
of bank-owned life insurance (278,000) (239,000)
Net security gains (1,000) (6,000)
Decrease (increase) in accrued interest receivable 66,000 (105,000)
Decrease (increase) in other assets (708,000) 166,000
Increase in accrued
expenses and other liabilities 84,000 372,000
------------------ -------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,728,000 3,315,000
------------------ -------------------
INVESTING ACTIVITIES
Proceeds from maturities and calls:
Securities available for sale 42,094,000 36,221,000
Securities held to maturity 2,568,000 2,151,000
Proceeds from sales of securities
available for sale 10,336,000 11,097,000
Purchases :
Securities available for sale (66,842,000) (51,102,000)
Securities held to maturity (1,543,000) (2,227,000)
Disbursements for loan originations, net of
principal collections (5,939,000) (12,740,000)
Purchase of bank owned life insurance - (73,000)
Net purchases of premises and equipment (1,063,000) (358,000)
Proceeds from sales of other real estate owned 1,780,000 804,000
------------------ -------------------
NET CASH USED IN
INVESTING ACTIVITIES (18,609,000) (16,227,000)
------------------ -------------------
FINANCING ACTIVITIES
Net increase in deposits 15,981,000 15,184,000
Increase (decrease) in short-term debt 3,399,000 (568,000)
Cash dividends paid (887,000) (808,000)
Treasury stock purchased - (362,000)
------------------ -------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 18,493,000 13,446,000
------------------ -------------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 3,612,000 534,000
Cash and cash equivalents at beginning of period 10,844,000 10,362,000
------------------ -------------------
Cash and cash equivalents at end of period $ 14,456,000 $ 10,896,000
------------------ -------------------
(Continued)
4
Jeffersonville Bancorp and Subsidiary
Consolidated Statements of Cash Flows, Continued
(Unaudited)
For the Nine Months
Ended September 30,
2002 2001
------------------- -----------------
Supplemental imformation:
Cash paid for:
Interest $ 4,219,000 $ 6,150,000
Income taxes 1,620,000 762,000
Transfer of loans to other real estate owned 59,000 566,000
See accompanying notes to unaudited consolidated interim financial
statements.
5
JEFFERSONVILLE BANCORP
AND SUBSIDIARY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 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 September 30, 2002 and December 31, 2001, the results of
operations for the three and nine month periods ended September 30, 2002
and 2001, and the cash flows for nine month periods ended September 30,
2002 and 2001. All adjustments are normal and recurring. The
consolidated interim financial statements and notes thereto have been
prepared in conformity with accounting principles generally accepted in
the United States of America for interim financial information and with
the instructions to Form 10Q and Rule 10-01 of Regulation S-X 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 September 30, 2002 and 2001 based on weighted
average common shares outstanding of 1,478,000 and 1,488,000,
respectively. Basic earnings per share amounts were calculated for the
nine month periods ended September 30, 2002 and 2001 based on weighted
average common shares outstanding of 1,478,000 and 1,494,000,
respectively. There were no dilutive securities during either period.
C. Comprehensive Income
Comprehensive income for the three-month periods ended September
30, 2002 and 2001 was $2,107,000 and $2,016,000, respectively.
Comprehensive income for the nine-month periods ended September 30, 2002
and 2001 was $5,670,000 and $4,188,000, respectively. The following
summarizes the components of the Company's other comprehensive income
for the nine-month periods:
Nine Months Ended September 30, 2002:
Net unrealized holding gains arising during the period, net of tax
(pre-tax amount of $2,875,000) $1,702,000
Reclassification adjustment for net gains realized in net income
during the peroid, net of tax (pre-tax amount of $1,000) $ (1,000)
Other comprehensive income $1,701,000
Nine Months Ended September 30, 2001:
Net unrealized holding gains arising during the period, net of tax
(pre-tax amount of $2,869,000) $1,682,000
Reclassification adjustment for net gains realized in net income
during the peroid, net of tax (pre-tax amount of $6,000) $ (4,000)
Other comprehensive income $1,678,000
6
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 accounting method. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141
requires that the purchase accounting 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.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and
reporting for obligations associated with retirement of tangible
long-lived assets and the associated asset retirement costs. This
statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Earlier application is permitted. The
Company does not expect the adoption of this pronouncement to have a
material effect on its consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement also supersedes the accounting and reporting
provisions of APB Opinion No. 30 "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." This statement is effective for financial statements
issued for fiscal years beginning after December 15, 2001. The Company
adopted the provisions of SFAS No. 144 effective January 1, 2002. The
adoption of this pronouncement did not have any effect on the Company's
consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt," which required gains and
losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect.
Upon adoption of SFAS No. 145, companies will be required to apply the
criteria in Accounting Principles Board (APB) Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" in determining the classification of
gains and losses resulting from the extinguishment of debt.
Additionally, SFAS No. 145 amends SFAS No. 13, "Accounting for Leases,"
to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same
manner as sale-leaseback transactions. The provisions of SFAS No. 145
related to the rescission of SFAS No. 4 are effective for fiscal years
beginning after May 15, 2002. All other provisions of SFAS No. 145 are
effective for transactions occurring and/or financial statements issued
on or after May 15, 2002. The implementation of the SFAS No. 145
provisions which were effective May 15, 2002 did not have any effect on
the Company's consolidated financial statements. The implementation of
the remaining provisions is not expected to have a material impact on
the Company's consolidated financial statements.
7
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in
a Restructuring)". This statement is effective for exit or disposal
activities initiated after December 31, 2002. The Company does not
expect the adoption of this pronouncement to have a material effect on
its consolidated financial statements.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of
Certain Financial Institutions." This statement amends SFAS No. 72,
"Accounting for Certain Acquisitions of Banking or Thrift Institutions,"
SFAS No. 144, and FASB Interpretation No. 9. Except for transactions
between two or more mutual enterprises, this statement removes
acquisitions of financial institutions from the scope of both SFAS No.
72 and FASB Interpretation No. 9 and requires that those transactions be
accounted for in accordance with SFAS No. 141 and SFAS No. 142. In
addition, this statement amends SFAS No. 144 to include in its scope
long-term customer-relationship intangible assets of financial
institutions. The provisions of this statement are to be applied
retroactively to January 1, 2002 and are effective after September 30,
2002. The Company does not expect the adoption of this pronouncement to
have a material effect on its consolidated financial statements.
8
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
A. General
The Parent Company is a one-bank holding company founded in 1982
and headquartered in Jeffersonville, New York. The Parent Company owns
100% of the outstanding shares of the Bank's common stock and derives
substantially all of its income from the Bank's operations. The Bank is
a commercial bank chartered in 1913 serving Sullivan County, New York
with offices in Jeffersonville, Eldred, Liberty, Loch Sheldrake,
Monticello (2), Livingston Manor, Narrowsburg, Callicoon and Wurtsboro.
The Company's mission is to serve the community banking needs of
its borrowers and depositors, who predominantly are individuals, small
businesses and local municipal governments. The Company believes it
understands its local customer needs and provides quality service with a
personal touch.
B. Forward - Looking Statements
In addition to historical information, this report includes certain
forward-looking statements with respect to the financial condition,
results of operations and business of the 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.
C. Overview - Financial Condition
During the period from December 31, 2001 to September 30, 2002,
total assets increased $24,245,000 or 8.1%. Securities available for
sale increased by $17,317,000 or 16.6% primarily due to deposit growth.
Net loans increased from $160,097,000 at year end 2001 to $165,436,000
at September 30, 2002, an increase of $5,339,000 or 3.3%. This increase
was the result of mortgage loans in both the residential and commercial
categories.
Deposits increased from $238,029,000 at December 31, 2001 to
$254,010,000 at September 30, 2002, an increase of $15,981,000 or 6.7%.
Growth occurred in all deposit categories except time deposits. Time
deposits decreased from $95,676,000 at December 31, 2001 to $90,099,000
at September 30, 2002, a decrease of $5,577,000 or 5.8%. Demand deposits
increased from $45,658,000 at December 31, 2001 to $50,657,000 at
September 30, 2002, an increase of $4,999,000 or 10.9%. NOW and super
NOW deposits increased from $30,673,000 at December 31, 2001 to
$34,928,000 at September 30, 2002, an increase of $4,255,000 or 13.9%.
Savings deposits increased from $66,022,000 at December 31, 2001, to
$78,326,000 at September 30, 2002, an increase of $12,304,000 or 18.6%
Total stockholders' equity increased $4,781,000 or 17.5% from
$27,313,000 at December 31, 2001 to $32,094,000 at September 30, 2002.
This increase was the result of net income of $3,969,000, plus an
increase of $1,701,000 in accumulated other comprehensive income, less
cash dividends of $887,000.
9
D. Provision for Loan Losses
The provision for loan losses reflects management's assessment of
the risk inherent in the loan portfolio, giving consideration to various
items including the general state of the economy and past loan
experience. The provision for loan losses was $600,000 for the nine
months ended September 30, 2002 and $225,000 for the nine months ended
September 30, 2001. The provision was increased to provide for the
charge-off of one commercial loan in the amount of $402,000. Total
charge-offs for the 2002 nine month period were $585,000 compared to
$228,000 for the same period in the prior year, while recoveries
decreased from $174,000 for the 2001 period to $116,000 for the 2002
period. The amounts represent a net charge-off of $469,000 in the first
nine months of 2002 versus a net charge-off of $54,000 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:
2002 2001
Balance at beginning of period $2,614,000 $2,435,000
Provision for loan losses 600,000 225,000
Loans charged off (585,000) (228,000)
Recoveries 116,000 174,000
-------------- --------------
Balance at end of period $2,745,000 $2,606,000
-------------- --------------
Annualized net charge-offs
as a percentage of average
outstanding loans 0.38% 0.05%
Allowance for loan losses to:
Total loans 1.63% 1.63%
Total non-performing loans 120.0% 209.0%
E. Non Accrual and Past Due Loans
Non-performing loans are summarized as follows at September 30:
2002 2001
Non-accrual loans $ 1,644,000 $ 737,000
Loans past due 90 days or more
and still accruing interest 643,000 510,000
-------------- --------------
Total non-performing loans $ 2,287,000 $1,247,000
-------------- --------------
Non-performing loans as a
percentage of total loans 1.4% 0.8%
-------------- --------------
The effects of non-accrual and restructured loans on interest income
were as follows for the nine months ended September 30:
2002 2001
Interest contractually due at original rates $110,000 $50,000
Interest income recognized 13,000 22,000
-------------- --------------
Interest income not recognized $ 97,000 $28,000
-------------- --------------
10
As of September 30, 2002 and 2001, the recorded investment in loans
considered to be impaired under Statement of Financial Accounting
Standards ("SFAS") No.114 totaled $1,059,000 and $384,000, 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.
F. Capital
In January 2002, the Board of Directors allocated $1,000,000 for
the repurchase of common stock on the open market for the year 2002.
During the nine months ended September 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 17.2% and total risk-based
capital was 18.5% of risk-weighted assets at September 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 9.9% at
September 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
September 30, 2002.
TIER I CAPITAL
Stockholders' equity, excluding accumulated
other comprehensive income $ 30,592,000
TIER II CAPITAL
Allowance for loan losses(1) 2,223,000
--------------
Total risk-based capital $ 32,815,000
--------------
Risk-weighted assets(2) $177,819,000
--------------
Average assets $308,952,000
--------------
RATIOS
Tier I risk-based capital (minimum 4.0%) 17.2%
Total risk-based capital (minimum 8.0%) 18.5%
Leverage (minimum 4.0%) 9.9%
(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
11
G. Result of Operations
Most Recent Quarter and Same Quarter in Preceding Year for the Three
Months ended September 30, 2002 and September 30, 2001:
Net income for the quarter ended September 30, 2002 increased by
$349,000 to $1,413,000 compared to $1,064,000 for the corresponding
period in 2001. Increases in interest income, non-interest income, and a
decrease in interest expense were offset by an increase in non-interest
expenses. The Company's annualized return on average assets was 1.8% for
the quarter ended September 30, 2002 compared to 1.5% for the same
quarter in 2001. The return on average stockholders' equity was 18.1%
and 15.6% for the third quarter of 2002 and 2001, respectively.
Total interest income for the third quarter of 2002 increased
$150,000 or 2.9% from the corresponding period in 2001 while total
interest expense decreased $556,000 or 29.8% from the corresponding
period in 2001. Net interest income increased $706,000 or 21.6% from the
prior year period. Non-interest income for the third quarter of 2002
increased $67,000 or 8.9% from the corresponding period in 2001, while
total non-interest expense increased $5,000 or 0.2% from the third
quarter of 2001. The increase in total non-interest expense is only
$5,000 as a result of the 2002 period including significant gains on
sales of other real estate owned while the prior period had net other
real estate owned expenses.
Non-accrual loans increased $907,000 to $1,644,000 for the quarter
ended September 30, 2002 as compared to the corresponding period last
year. This increase is the result of one commercial loan totaling
$957,000.
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 $298,676,000 for the three month period ended
September 30, 2002 compared to $267,756,000 for the corresponding period
in 2001, an increase of $30,920,000 or 11.5%. An increase in investment
securities of $26,178,000 accounted for 84.7% of this increase. The
yield on interest earning assets decreased by 57 basis points from 7.88%
for the three month period ended September 30, 2001 to 7.31% for the
three month period ended September 30, 2002. This decrease was primarily
due to a 56 basis point decrease in the yield on investment securities
from 6.74% for the quarter ended September 30, 2001 to 6.18% for the
quarter ended September 30, 2002 and a 18 basis point decrease in the
yield on real estate mortgage loans from 8.37% for the quarter ended
September 30, 2001 to 8.19% for the quarter ended September 30, 2002.
The decrease in the yield on loans and securities was primarily
attributed to further declines in market interest rates.
Total interest expense decreased despite an increase in interest
bearing liabilities due to a decrease in the overall yield on interest
bearing liabilities. The total average balance for interest bearing
liabilities was $234,572,000 for the three month period ended September
30, 2002 compared to $216,997,000 for the corresponding period in 2001,
an increase of $17,575,000 or 8.1%. The yield on interest bearing
liabilities decreased by 121 basis points from 3.44% for the three month
period ended September 30, 2001 to 2.23% for the three month period
ended September 30, 2002.
Non-interest income was $824,000 for the three month period ended
September 30, 2002 compared to $757,000 for the corresponding period in
2001, an increase of $67,000 or 8.9%. This increase was primarily due to
increases in service charges.
12
Non-interest expenses were $2,464,000 for the three month period
ended September 30, 2002 compared to $2,459,000 for the corresponding
period in 2001, an increase of $5,000 or 0.2%. Occupancy and equipment
expense increased $107,000 from last year. Net other real estate owned
expenses decreased by $326,000 primarily as a result of gains on sales
of units at Grandview Palace. Grandview Palace is an 81 unit condominium
project which the Company took possession of in the third quarter of
2000. As of September 30, 2002 the Company owns 11 units of which 4 are
in contract to be sold. The average selling price of units to date has
been $55,000, which does not include the costs incurred to complete the
units prior to their sale. Compensation and benefit costs increased
$137,000, primarily due to normal salary adjustments.
Most Recent Year to Date and Corresponding Year to Date Period for
the Nine Months ended September 30, 2002 and September 30, 2001:
Net income for the first nine months of 2002 increased by
$1,459,000 to $3,969,000 compared to $2,510,000 for the same period in
2001. Increases of $280,000 in interest income, $252,000 in non-interest
income and decreases of $1,979,000 in interest expense and $201,000 in
non-interest expenses were offset by increases in provision for loan
loss expense of $375,000 and income tax expense of $878,000. The
Company's annualized return on average assets was 1.7% in the nine month
period compared to 1.2% in the same period last year. The return on
average stockholder's equity was 17.9% and 12.8% for the first nine
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 $285,661,000 for the nine month period ended
September 30, 2002 compared to $259,681,000 for the same nine month
period in 2001, an increase of $25,980,000 or 10.0%. An increase in
average loans of $11,895,000 and an increase in average investments of
$16,155,000 offset by a $2,070,000 decrease in average short term
investments accounted for this increase. The yield on investment
securities decreased 45 basis points from 6.78% in 2001 to 6.33% in
2002. The yield on the total loan portfolio decreased by 60 basis points
in the nine months ended September 30, 2002 compared to the first nine
months of 2001. Commercial, home equity and real estate mortgage loan
yields decreased during the nine months ended September 30, 2002
compared to the first nine months of 2001. The average yield on real
estate mortgage loans, the major portion of the loan portfolio,
decreased 33 basis points to 8.16% from 8.49% during the nine months
ended September 30, 2002 compared to the first nine months of 2001. The
overall yield on interest earning assets decreased 59 basis points from
7.99% for the nine months ended September 30, 2001 to 7.40% for the same
period in 2002.
The yield on interest bearing liabilities decreased by 140 basis
points for the nine month period from 3.80% in 2001 to 2.40% in 2002.
The overall net interest margin increased 62 basis points from 4.86% in
the nine months of 2001 to 5.48% in the corresponding period of 2002.
Non-interest income was $2,309,000 for the nine month period ended
September 30, 2002 compared to $2,057,000 for the corresponding period
in 2001, an increase of $252,000 or 12.3%. This increase was primarily
due to an increase in deposit account service charges and other
miscellaneous income.
Non-interest expenses were $7,282,000 for the first nine months of
2002 compared to $7,483,000 for the same period in 2001, a decrease of
$201,000 or 2.7%. Net other real estate owned expenses decreased by
$797,000 primarily as a result of gains on sales of condominium units
the Bank took possession of. Occupancy and equipment expense remained
unchanged for the nine months ended September 30, 2002 compared to the
corresponding period in 2001. Offsetting these decreases was a $433,000
increase in compensation and benefits costs, primarily due to higher
employee benefit costs and normal salary adjustments. Other non-interest
expenses increased by $163,000 and income tax expense increased by
$878,000 for the nine months ended September 30, 2002.
13
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 Bank's [The First National Bank of
Jeffersonville] market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. Although the 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 Bank's financial condition and results of
operation. The Bank does not currently have a trading portfolio or use
derivatives to manage market and interest rate risk.
The 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 Bank's assets and liabilities. For example, the 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 Bank uses interest rate sensitivity
models that measure both net gap exposure, the economic value of equity
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 200 basis point rise or fall in interest rates over
a twenty-four 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, 2002, the Company had a positive
one year cumulative gap position.
14
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 September 30, 2002, the Bank was in an 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 September 30, 2002 was 20.8% of
total assets.
15
Item 4: Controls and Procedures
(a) The Company's management, including the Vice President (Principal
Executive Officer) and Treasurer (Principal Financial Officer) evaluated
the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rule 13a-14(c) under the
Securities Exchange Act of 1934, as amended) (the "Exchange Act") as of
a date (the "Evaluation Date") within 90 days prior to the filing date
of this report. Based upon that evaluation, the Company's management,
including the Vice President (Principal Executive Officer) and Treasurer
(Principal Financial Officer) concluded that, as of the Evaluation Date,
the Company's disclosure controls and procedures were effective in timely
alerting them to any material information relating to the Company and
its subsidiaries required to be included in the Company's Exchange Act
filings.
(b) There were no significant changes made in the Company's
internal controls or in other factors that could significantly affect
these internal controls subsequent to the date of the evaluation
performed by the Company's Vice President (Principal Executive Officer)
and Treasurer (Principal Financial Officer).
16
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
(Principal Executive Officer)
17
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/ John M. Riley
---------------------
John M. Riley
Treasurer
(Principal Financial Officer)
18
CERTIFICATIONS
I, Raymond Walter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of September 30,
2002.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 12, 2002
By: /s/ Raymond Walter
------------------
Vice President
(Principal Executive Officer)
19
I, John M. Riley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of September 30,
2002.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 12, 2002
By: /s/ John M. Riley
------------------
Treasurer
(Principal Financial Officer)
20
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
(Principal Financial Officer)
November 12, 2002
21