SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File Number: 0-19212
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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)
Registrant's telephone number, including area code: (914) 482-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
NONE NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $0.50 Par Value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendement to
this Form 10-K. [x]
Indicate the number of shares outstanding in each of the issuer's classes of
common stock:
Class of Common Stock Number of Shares Outstanding as of March 27, 1998
- --------------------- -------------------------------------------------
$0.50 Par Value 1,419,295
The aggregate market value of the Registrant's common stock (based upon the
average bid and asked prices on March 27, 1998) held by non-affiliates was
approximately $29,569,850.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to shareholders for the fiscal
year ended December 31, 1997.
(2) Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on April 28, 1998
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JEFFERSONVILLE BANCORP
INDEX TO FORM 10-K
PART I
PAGE
Item 1. Business:
a) General development of business........................3
b) Financial information about segments...................3
c) Narrative description of business...................3-12
d) Statistical information............................13-17
Item 2. Properties..................................................18-19
Item 3. Legal Proceedings..............................................19
Item 4. Submission of Matters to a Vote of Security Holders............19
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................19
Item 6. Selected Financial Data.....................................19-20
Item 7A Quantitative & Qualitative Disclosures about Market Risk....16-17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................20
Item 8. Financial Statements and Supplementary Data....................20
Item 9. Changes in and Disagreements with Accountants
Accounting and Financial Disclosure............................20
PART III
Item 10. Directors and Executive Officers of the Registrant.............20
Item 11. Executive Compensation.........................................20
Item 12. Security Ownership of Certain Beneficial
Owners and Management..........................................20
Item 13. Certain Relationships and Related Transactions..............20-21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.......................................................21
Signatures.....................................................21
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Part I
Item 1. BUSINESS
(a) General Development of Business
Jeffersonville Bancorp (the "Company") was organized as a New York
Corporation on January 12, 1982, for the purpose of becoming a
registered bank holding company under the Bank Holding Company Act of
1956, as amended (the "BHC" Act"). Effective June 30, 1982, the Company
became the registered bank holding company for The First National Bank
of Jeffersonville, a bank chartered in 1913 and organized under the
national banking laws of the United States (the "Bank").
(b) Financial Information About Segments
The Company is engaged in the business of managing or controlling its
subsidiary bank and such other business related to banking as may be
authorized under the BHC Act. See consolidated financial statements and
notes to the consolidated financial statements contained in the Annual
Report to the Stockholders for 1997, which are incorporated herein by
reference.
(c) 1. Narrative Description of Business
The First National Bank of Jeffersonville
The Bank was organized in 1913 and became a subsidiary of the Company
on June 30, 1982.The Bank is an independently owned bank based in
Sullivan County, New York. In addition to its main office and
operations center in Jeffersonville, the Bank has seven additional
branch office locations in Eldred, Liberty, Loch Sheldrake, Monticello,
Livingston Manor, Narrowsburg and Callicoon. The Bank is a full service
institution employing approximately 100 people and serves all of
Sullivan County, New York as well as some areas of adjacent counties in
New York and Pennsylvania.
Throughout Sullivan County there are 31 branches of commercial banks,
savings banks, savings and loan associations and other financial
organizations.
Deposit and Loan Products
Deposit Products. The bank offers a variety of deposit products typical
of commercial banks and has designed product offerings responsive to
the needs of both individuals and businesses. Traditional demand
deposit accounts, interest-bearing transaction accounts (NOW accounts )
and savings accounts are offered on a competitive basis to meet
customers' basic banking needs. Money market accounts, time deposits in
the form of certificates of deposit and IRA/KEOGH accounts provide
customers with price competitive and flexible investment alternatives.
The Bank does not have a single depositor or a small group of related
depositors whose loss would have a material adverse effect upon the
business of the Bank. The Bank does not have a major loan concentration
in any individual industry.
The Bank offers a broad range of commercial and consumer loan products
designed to meet the banking needs of individual customers, businesses
and municipalities. Additional information is set forth below relating
to the Bank's loan products, including major loan categories, general
loan terms, credit underwriting criteria, and risks particular to each
category of loans.
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Commercial Financial and Agricultural Loans; Commercial Real Estate
Loans. The Bank offers a wide range of commercial credit products and
services to its customers. These include secured and unsecured loan
products specifically tailored to the credit needs of the customers,
underwritten with terms and conditions reflective of risk profile
objectives and corporate earnings requirements. These products are
offered at all branch locations. Credit decisions are generally made on
a decentralized All loans are
governed by a commercial loan policy which was developed to provide a
clear framework for determining acceptable levels of credit risk,
underwriting criteria, monitoring existing credits, and managing
problem credit relationships. Credit risk control mechanisms have been
established and are monitored closely for compliance by the internal
auditor and an external loan review company.
Risks particular to commercial, financial and agricultural loans
include borrowers' capacities to perform according to contractual terms
of loan agreements during periods of unfavorable economic conditions
and changing competitive environments. Management expertise and
competency are critical factors affecting the customers' performance
and ultimate ability to repay their debt obligations. Commercial real
estate loans create exposure to market value risk where the value of
the underlying collateral decreases primarily as the result of regional
economic trends.
Consumer Loans; The Bank offers a range of consumer loan products.
These products include both open-end (credit cards, home equity lines
of credit, unsecured revolving lines of credit) and closed-end (secured
and unsecured direct and indirect installment loans). Most of these
loans are originated at the branch level. This delivery mechanism is
supported by an automated loan platform delivery system and a
decentralized underwriting process. The lending process is designed to
ensure not only the efficient delivery of credit products, but also
compliance with applicable consumer regulations while minimizing credit
risk exposure.
Credit decisions are made under the guidance of a standard consumer
loan policy, with the assistance of senior credit managers. The loan
policy was developed to provide definitive guidance encompassing credit
underwriting, monitoring and management. The quality and condition of
the consumer loan portfolio, as well as compliance with established
standards, is also monitored closely.
A borrower's ability to repay consumer debt is generally dependent upon
the stability of the income stream necessary to service the debt.
Adverse changes in economic conditions resulting in higher levels of
unemployment increase the risk of consumer defaults. Risk of default is
also impacted by a customer's total debt obligation. While the Bank can
analyze a borrower's capacity to repay at the time a credit decision is
made, subsequent extensions of credit by other financial institutions
may cause the customer to become over-extended, thereby increasing the
risk of default.
Residential Real Estate Loans; The Company offers mortgage lending
services, originating an array of mortgage loan products All mortgage
loans originated are held in the bank's portfolio. Residential real
estate loans possess risk characteristics much the same as consumer
loans. Stability of the borrower's employment is a critical factor in
determining the likelihood of repayment. Market value risk, where the
value of the underlying collateral declines due to economic
conditions, is also a factor.
Compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of materials into the
environment, is not expected to have any material effect upon the
capital expenditures, earnings and competitive positions of the Bank.
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Supervision and Regulation
The company is a bank holding company, registered with Governors of the
Federal Reserve System (the "Federal Reserve") under the BHC Act. As
such, the Registrant and its subsidiaries are subject to the
supervision, examination, and reporting requirements of the BHC Act and
the regulations of the Federal Reserve.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt
to monopolize the business of banking in any section of the United
States, or the effect of which may be to substantially lessen
competition in any section of the country, or that in any other manner
would be in restraint of trade, unless the anticompetitive effects of
the proposed transaction are clearly outweighed by the public interest
in meeting the convenience and needs of the community to be served. The
Federal Reserve is also required to consider the financial and
managerial resources and future prospects of the bank holding companies
and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on
capital adequacy, and consideration of convenience and needs issues
including the parties' performance under the Community Reinvestment Act
of 1977 (the "CRA"), both of which are discussed below.
The BHC Act prohibits the Federal Reserve from approving a bank
holding company's application to acquire a bank or bank holding
company located outside the state in which the deposits of its banking
subsidiaries were greatest on the date the company became a bank
holding company (New York in the case of the company), unless such
acquisition is specifically authorized by statute of the state in
which the bank or bank holding company to be acquired is located. New
York has adopted national reciprocal interstate banking legislation
permitting New York based bank holding companies to acquire banks and
bank holding companies in other states and allowing bank holding
companies located in states with reciprocal legislation to acquire New
York banks and bank holding companies. Under the provisions of the
Riegle-Neal Interstate Banking and Branching and Efficiency Act of
1994 (the "Interstate Banking Act"), the existing restrictions on
interstate acquisitions of banks by bank holding companies, including
the reciprocal interstate banking legislation adopted by the state of
New York, have been repealed. This allows the holding company and any
other bank holding company located in New York to acquire a bank
located in any other state, and a bank holding located outside New
York is able to acquire any New York-based bank, in either case
subject to certain deposit percentage and other restrictions. The
Interstate Banking Act also generally provides that, after June 1,
1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states. By adopting legislation prior
to that date, a state has the ability to either "opt in" or to
prohibit interstate branching altogether.
The Company is also subject to the provisions of Article III-A of the
New York State Banking Law. Among other things, Article III-A requires
the approval of the New York Banking Department prior to the
acquisition by a bank holding company of direct or indirect ownership
or control of 10% or more of the voting stock of a banking institution,
or the acquisition by a bank holding company directly or indirectly
through a subsidiary of all or substantially all of the assets of a
banking institution, or a merger or consolidation with another bank
holding company.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or
indirect control of any company engaged in any activities other than
those activities determined by the Federal Reserve to be so closely
related to banking or managing or controlling banks as to be a proper
incident thereto. In determining whether a particular activity is
permissible, the Federal Reserve must consider whether the performance
of such an activity reasonably can be expected to produce benefits to
the public, such as greater convenience, increased competition, or
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gains in efficiency, that outweigh possible adverse effects, such as
undue concentration of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices. For example,
factoring accounts receivable, acquiring or servicing loans, leasing
personal property, conducting discount securities brokerage activities,
performing certain data processing services, acting as agent or broker
in selling credit life insurance and certain other types of insurance
in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the
Federal Reserve to be permissible activities of bank holding companies.
The BHC Act does not place territorial limitations on permissible
non-banking bank-related activities of bank holding companies. Despite
prior approval, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity or to terminate
its ownership or control of any subsidiary when it has reasonable cause
to believe that continuation of such activity or such ownership or
control constitutes a serious risk to the financial safety, soundness,
or stability of any bank subsidiary of that bank holding company.
The Bank, the single subsidiary bank of the Company, is a member of the
FDIC, and as such, its deposits are insured by the FDIC to the extent
provided by law. The Bank is also subject to numerous state and federal
statutes and regulations that affect its business, activities, and
operations, and it is supervised and examined by one or more federal
bank regulatory agencies. Because the Bank is a national bank, it is
subject to supervision and regulation by the OCC. The OCC regularly
examines the operations of the subsidiary bank and has authority to
approve or disapprove mergers, consolidations, the establishment of
branches, and similar corporate actions. The OCC also has the power to
prevent the continuance or development of unsafe or unsound banking
practices or other violations of law.
The Bank is subject to the provisions of the CRA. Under the terms of
the CRA, the appropriate federal bank regulatory agency is required, in
connection with its examination of a subsidiary institution, to assess
such institution's record in meeting the credit needs of the community
served by that institution, including those of low and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's
record is made available to the public. Further, such assessment is
required of any institution which has applied to: (i) charter a
national bank; (ii) obtain deposit insurance coverage for a newly
chartered institution; (iii) establish a new branch office that will
accept deposits; (iv) relocate an office; or (v) merge or consolidate
with, or acquire the assets or assume the liabilities of, a federally
regulated financial institution. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company,
the Federal Reserve will assess the records of each subsidiary
institution of the applicant bank holding company, and such records may
be the basis for denying the application.
An institution's CRA rating will continue to be taken into account by
its regulator in considering various types of applications. In
addition, an institution receiving a rating of "substantial
noncompliance" is subject to civil money penalties or a cease and
desist order under Section 8 of the Federal Deposit Insurance Act (the
"FDIA"). CRA remains a critical component of the regulatory examination
process. CRA examination results and related concerns have been cited
as a reason to reject and or modify branching and merger applications
by various federal and state banking agencies.
Payment of Dividends. The Company is a legal entity separate and
distinct from the Bank. The principal source of cash flow of the
Company, including cash flow to pay dividends to its stockholders, is
dividends from the Bank . The subsidiary bank is required by the OCC
to obtain prior approval for the payment of dividends to the holding
company if the total of all dividends declared by such subsidiary bank
in any year would exceed the total of such bank's net profits (as
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defined and interpreted by regulation) for that year and the retained
net profits (as defined) for the preceding two years, less any
required transfers to surplus. There are also other statutory and
regulatory limitations on the payment of dividends by the Bank to the
Registrant as well as the Registrant to its stockholders. Without
receiving dividends from the Bank the Registrant would not be in a
position to pay dividends to its
stockholders.
If, in the opinion of a federal regulatory agency, an institution under
its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends), such agency may
require, after notice and a hearing, that such institution cease and
desist from such practice. The Federal Reserve, the OCC, and the FDIC,
have indicated that paying dividends that deplete an institution's
capital base to an inadequate level would be an unsafe and unsound
banking practice. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), an insured institution may not pay
any dividend if it is undercapitalized, or if such payment would cause
it to become undercapitalized. See "Prompt Corrective Action."
Moreover, the Federal Reserve, the OCC, and the FDIC have issued policy
statements which provide that bank holding companies and insured banks
should generally only pay dividends out of current operating earnings.
At December 31,1997 under dividend restrictions imposed under federal
and state laws, the Bank, without obtaining governmental approvals,
could declare aggregate dividends to the Holding Company of
approximately $370,000 provided that the Bank would then be in
compliance with one or more minimum capital requirements. Moreover,
federal bank regulatory authorities also have the general authority to
limit the dividends paid by insured banks if such payments may be
deemed to constitute an unsafe and sound practice.
Transactions With Affiliates; There-are various regulatory
restrictions on the extent to which the can borrow or otherwise obtain
credit from the subsidiary bank. The Bank is limited in engaging in
borrowing and other "covered transactions" with non-bank affiliates to
the following amounts: (i) in the case of any such affiliate, the
aggregate amount of covered transactions of the subsidiary bank and
its subsidiaries may not exceed 10% of the capital stock and surplus
of such subsidiary bank; and (ii) in the case of all affiliates the
aggregate amount of covered transactions of the subsidiary bank and
its subsidiaries may not exceed 20% of the capital stock and surplus
of such subsidiary bank. "Covered transactions" are defined by statute
to include a loan or extension of credit, as well as a purchase of
securities issued by an affiliate, a purchase of assets (unless
otherwise exempted by the Federal Reserve), the acceptance of
securities issued by the affiliate as collateral for a loan and the
issuance of a guarantee, acceptance, or letter of credit on behalf of
an affiliate. Covered transactions are also subject to certain
collateralization requirements. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tiein
arrangements in connection with any extension of credit, lease, or
sale of property or furnishing of services.
Capital Adequacy; The Registrant and the Bank are required to comply
with the capital adequacy standards established by the Federal Reserve
in the case of the holding company and the OCC in the case of the
subsidiary bank. There are two basic measures of capital adequacy for
bank holding companies that have been promulgated by the Federal
Reserve: a risk-based measure and a leverage measure. All applicable
capital standards must be satisfied for a bank holding company to be
considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, to account for off-balance
sheet exposure, and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and
off-balance sheet items.
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As to the holding company, the minimum guideline for the ratio of
total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is
8.0%. At least half of the Total Capital must be composed of common
stock, minority interests in the equity accounts of consolidated
subsidiaries, noncumulative perpetual preferred stock, and a limited
amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may
be subordinated debt, other preferred stock, and a limited amount of
loss reserves. At December 31, 1997, the Company's consolidated Tier 1
Capital and Total Capital ratios were a17.7% and 19.0% respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier 1 Capital to average assets, less goodwill and
certain other intangible assets (the "leverage ratio"), of 3.0% for
bank holding companies that meet certain specified criteria, including
having the highest regulatory rating. All other bank holding companies
generally are required to maintain a leverage ratio of at least-3.0%
plus an additional cushion of 100 to 200 basis points. The Company's
leverage ratio at December 31, 1997 was 10.0%. The guidelines also
provide that bank holding companies experiencing internal growth or
making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal
Reserve has indicated that it will consider a banking institutions
"tangible Tier 1 Capital leverage ratio" (deducting all intangibles)
and other indications of capital strength in evaluating proposals for
expansion or new activities.
The Bank is subject to risk-based and leverage capital requirements
adopted by the OCC which substantially mirror the requirements of the
holding company. The Bank's capital ratios are substantially similar to
those of the Registrant and as such is also in compliance with all
applicable ratios.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by
the FDIC, and to certain restrictions on its business. See "Prompt
Corrective Action."
The Federal Reserve and the OCC have, pursuant to FDICIA, adopted an
amendment to the risk-based capital standards which would calculate
the change in an institution's net economic value attributable to
increases and decreases in market interest rates and would require
banks with excessive interest rate risk exposure to hold additional
amounts of capital against such exposures.
Support of Subsidiary Bank; Under Federal Reserve policy, the Company
is expected to act as a source of financial strength to, and to commit
resources to support, the subsidiary bank. This support may be required
at times when, absent such Federal Reserve policy, the Registrant may
not be inclined to provide it. In addition, any capital loans by a bank
holding company to the subsidiary bank are subordinate in right of
payment to deposits and to certain other indebtedness of such
subsidiary bank. In the event of a bank holding company's bankruptcy,
any commitment by the bank holding company to a federal bank regulatory
agency to maintain the capital of a subsidiary bank will be assumed by
the bankruptcy trustee and entitled to a priority of payment.
Under the FDIA, a depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC after August 9, 1989 in connection with: (i) the
default of a commonly controlled FDIC-insured depository institution;
or (ii) any assistance provided by the FDIC to any commonly controlled
FDIC insured depository institution "in danger of default." The FDIC's
claim for damages is superior to claims of stockholders of the insured
depository institution or its holding company, but is subordinate to
claims of depositors, secured creditors, and holders of subordinated
debt (other than affiliates) of the commonly controlled insured
depository institution. The Bank is subject to these cross-guarantee
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provisions. As a result, any loss suffered by the FDIC in respect of
the Bank would likely result in assertion of the cross-guarantee
provisions superior to the claims of the parent holding company.
Prompt Corrective Action; FDICIA establishes a system of prompt
corrective action to resolve the problems of undercapitalized
institutions. Under this system, which became effective on December 19,
1992, the federal banking regulators are required to establish five
capital categories ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized") and to take certain mandatory supervisory actions,
and are authorized to take other discretionary actions, with respect to
institutions in the three undercapitalized categories, the severity of
which will depend upon the capital category in which the institution is
placed. Generally, subject to a narrow exception, the FDICIA requires
the banking regulator to appoint a receiver or conservator for an
institution that is critically undercapitalized. The federal banking
agencies have specified by regulation the relevant capital level for
each category.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized, is required to submit
an acceptable capital restoration plan to its appropriate federal
banking agency. Under FDICIA, a bank holding company must guarantee
that a subsidiary depository institution meet its capital restoration
plan, subject to certain limitations. The obligation of a controlling
bank holding company under FDICIA to fund a capital restoration plan is
limited to the lesser of 5.0% of an undercapitalized subsidiary's
assets or the amount required to meet regulatory capital requirements.
The severity of the actions required to be taken by the appropriate
federal banking authorities increases as an institution's capital
position deteriorates. Among other actions, the mandates could include,
under certain circumstances, requiring recapitalization of or a capital
restoration plan by a depository institution, such as requiring the
sale of new shares, a merger with (or sale to) another institution (or
holding company), restricting certain transactions with banking
affiliates, otherwise restricting transactions with bank or non-bank
affiliates, restricting interest rates that the institution pays on
deposits, restricting asset growth or reducing total assets, altering,
reducing, or terminating activities, holding a new election of
directors, dismissing any director or senior executive officer who held
office for more than 180 days immediately before the institution became
undercapitalized, employing qualified senior executive officers, or
ceasing to accept deposits from correspondent depository institutions.
Not later than 90 days after an institution becomes critically
undercapitalized, the appropriate federal banking agency for the
institution must appoint a receiver or, with the concurrence of the
FDIC, a conservator, unless the agency, with the concurrence of the
FDIC, determines that the purpose of the prompt corrective action
provisions would be better served by another course of action.
Thereafter, an institution's regulator must periodically reassess its
determination to permit a particular critically undercapitalized
institution to continue to operate and must appoint a conservator or
receiver for the institution at the end of an approximately one year
period following the institution's initial classification as critically
undercapitalized unless a number of stringent conditions are met,
including a determination by the regulator and the FDIC that the
institution has positive net worth and a certification by such agencies
that the institution is viable and not expected to fail. At December
31, 1997, the Bank had the requisite capital levels to qualify as well
capitalized.
Brokered Deposits; The FDIC has adopted regulations governing the
receipt of brokered deposits. Under the regulations, a depository
institution cannot accept, rollover, or renew brokered deposits unless
(i) it is well capitalized or (ii) it is adequately capitalized and
receives a waiver from the FDIC. A depository institution that cannot
receive brokered deposits also cannot offer "pass-through" insurance on
certain employee benefit accounts. Whether or not it has obtained such
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a waiver an adequately capitalized depository institution may not pay
an interest rate on any deposits in excess of 75 basis points over
certain prevailing market rates specified by regulation. There are no
such restrictions on a depository institution that is well capitalized.
Since the Bank had the requisite capital levels to qualify as well
capitalized as of December 31, 1997 the company believes the brokered
deposits regulation has had no material effect on the funding or
liquidity of the bank.
FDIC Insurance; Under the FDIC's risk related insurance assessment
system, insured depository institutions maybe required to pay annual
assessments to the FDIC. An institution's risk classification is based
on assignment of the institution by the FDIC to one of three capital
groups and to one of three supervisory subgroups. The three supervisory
subgroups are group "A", financially solid institutions with only a few
minor weaknesses, Group "B", institutions with weaknesses which, if
uncorrected, could cause substantial deterioration of the institution
and increased risk to the insurance fund and Group "C", institutions
with a substantial probability of loss to the fund absent effective
corrective action. The three capital categories are well capitalized;
adequately capitalized; and undercapitalized. These three categories
are substantially the as the prompt corrective action categories
previously described, with the undercapitalized category including
institutions that are undercapitalized, significantly undercapitalized,
and critically undercapitalized for prompt corrective action purposes.
As of May 31, 1995 the FDIC was able to determine that the Bank
Insurance Fund ("BIF) obtained the desired reserve ratio (i.e., ratio
of reserves to insured deposits) of 1.25%. As a result, FDIC Insurance
premiums were reduced in early 1996 to the point where the Bank was
required to pay only the minimum of $500 per quarter. On September 30
1996, legislation was passed recapitalizing the Savings Association
Insurance Fund. Included in that legislation were provisions requiring
members of the BIF to assist in the repayment of FICO bonds. The cost
to mandated by this legislation is anticipated to be at least in
$24,000 in 1998
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations,
or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC.
Safety and Soundness Standards; Federal banking agencies promulgate
safety and soundness standards relating to internal controls,
information systems and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth,
compensation, fees, and benefits. With respect to internal controls,
information systems, and internal audit systems, the standards describe
the functions that adequate internal controls and information systems
must be able to perform, including: (i) monitoring adherence to
prescribed policies; (ii) effective risk management; (iii) timely and
accurate financial, operational, and regulatory reporting; (iv)
safeguarding and managing assets; and (v) compliance with applicable
laws and regulations. The standards also include requirements that: (i)
those performing internal audits be qualified and independent; (ii)
internal controls and information systems be tested and reviewed; (iii)
corrective actions be adequately documented; and (iv) that results of
an audit be made available for review of management actions.
Depositor Preference; The Omnibus Budget Reconciliation Act of 1993
provides that deposits and certain claims for administrative expenses
and employee compensation against an insured depository institution
would be afforded a priority over other general unsecured claims
against such an institution in the "liquidation or other resolution" of
such an institution by any receiver.
Legislative Proposals; Because of concerns relating to the
competitiveness and the safety and soundness of the industry, Congress
continues to consider a number of wide-ranging proposals for altering
the structure, regulation, and competitive relationships of the
nation's financial institutions. Among such bills are proposals to
10
<PAGE>
prohibit depository institutions and bank holding companies from
conducting certain types of activities, to subject depository
institutions to increased disclosure and reporting requirements, to
alter the statutory separation of commercial and investment banking,
and to further expand the powers of depository institutions, bank
holding companies, and competitors of depository institutions. It
cannot be predicted whether or in what form any of these proposals will
be adopted or the extent to which the business of the company may be
affected thereby.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or
indirect ownership or control of any voting shares of any bank if,
after such acquisition, the bank holding company will directly or
indirectly own or control more than 5.0% of the voting shares of the
bank; (ii) it or any of its subsidiaries, other than a bank, may
acquire all or substantially all of the assets of the bank; or (iii) it
may merge or consolidate with any other bank holding company.
Monetary Policy and Economic Conditions
The earnings of the Company and its subsidiary are affected by the
policies of regulatory authorities, including the Federal Reserve
System. Federal Reserve System monetary policies have had a significant
effect on the operating results of commercial banks in the past and are
expected to continue to do so in the future. Because of the changing
conditions in the national economy and in the money markets, as a
result of actions by monetary and fiscal authorities, interest rates,
credit availability and deposit levels may change due to circumstances
beyond the control of the Company or its subsidiary.
(c)(1)(I) Principal products and services rendered by segments.
Banking.
(c)(1)(II) Description of new products or segments.
Not applicable.
(c)(1)(III) Source and availability of raw materials
Not applicable.
(c)(1)(IV) Importance of patents, trademarks, licenses, etc.
Not applicable.
(c)(1)(V) Seasonality of business.
Not applicable.
(c)(1)(VI) Working capital requirements related to inventory.
Not applicable.
(c)(1)(VII) Concentration of customers.
The business of the Company and its subsidiary is not
dependent on a single customer, nor on a small group of customers
in a specialized industry.
(c)(1)(VIII) Backlog of customers.
Not applicable.
11
<PAGE>
(c)(1)(IX) Government contracts.
Not applicable.
(c)(1)(X) Competition
The Bank faces strong competition for local business in the
communities it serves from other financial institutions.
For most of the services which the Bank performs, there is
increasing competition from financial institutions other than
commercial banks due to the relaxation of regulatory
restrictions. Money market funds actively compete with banks
for deposits. Savings banks, savings and loan associations and
credit institutions, as well as consumer finance companies,
insurance companies and pension trusts are important
competitors. Competition for loans is also a factor the Bank
faces in maintaining profitability.
(c)(1)(XI) Research and development.
Not applicable.
(c)(1)(XII) Cost of compliance with environmental regulations.
Not applicable.
(c)(1)(XIII) Number of persons employed.
At December 31, 1997, there were 109 persons employed by the
Company and its subsidiary.
(d) Statistical Information.
The following tables set forth, on a consolidated basis,
certain statistical information concerning the Company and its
subsidiary. The tables should be read in conjunction with the
consolidated financial statements and notes thereto, contained
in the 1996 Annual Report to Stockholders and incorporated
herein by reference.
12
<PAGE>
LOAN PORTFOLIO
DECEMBER 31, 1997
Maturities and Sensitivities of Loans to Changes in Interest Rates
<TABLE>
<CAPTION>
After One Year
One Year or Less Through Five Years After Five Years Total
--------------- ------------------ ---------------- -----
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 6,962,000 $ 4,788,000 $ 1,010,000 $12,760,000
Real estate - construction ........... 1,240,000 108,000 -- 1,348,000
--------- ------- ---------
Total ......................... $ 8,202,000 $ 4,896,000 $ 1,010,000 $14,108,000
=========== =========== =========== ===========
Interest sensitivity of loans:
Predetermined rate ................ $ 4,144,000 $ 4,896,000 $ 1,010,000 $10,050,000
Variable rate ..................... 4,058,000 -- -- 458,000
--------- -------
Total ......................... $ 8,202,000 $ 4,896,000 $ 1,010,000 $14,108,000
=========== =========== =========== ===========
</TABLE>
13
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
Analysis of the Allowance for Loan Losses, 1997 and 1996
1997 1996
---- ----
Balance at beginning of period ............ $1,711,000 $1,629,000
Charge-offs:
Commercial, financial and agriculture 371,000 58,000
Real estate - construction ........... -- --
Real estate - mortgage ............... 580,000 71,000
Installment loans to individuals ..... 304,000 217,000
------- -------
Total charge-offs ............... 1,255,000 346,000
========= =======
Recoveries:
Commercial, financial and agricultural 91,000 23,000
Real estate - construction ........... -- --
Real estate - mortgage ............... 84,000 32,000
Installment loans to individuals ..... 81,000 83,000
------ ------
Total recoveries ................ 256,000 138,000
------- -------
Net charge offs ........................... 999,000 208,000
------- -------
Additions charged to operations ........... 1,150,000 290,000
--------- -------
Balance at end of period .................. $1,862,000 $1,711,000
========== ==========
Ratio of net charge-offs during the period
to average loans outstanding during the period .82% .18%
=== ===
DEPOSITS
Maturity Schedule of Time Deposits $100,000 or More, December 31, 1997
Due three months or less $ 3,352,000
Over three months through six months 2,291,000
Over six months through twelve months 1,418,000
Over twelve months 2,048,000
------------------
$ 9,109,000
==============
14
<PAGE>
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES ANALYSIS*
ANALYSIS BY TYPE AND BY PERIOD TO MATURITY
DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNDER 1 YEAR 1-5 YEARS 5-10 YEARS AFTER 10 YEARS
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE TOTAL
------- ---- ------- ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Goverment Agency ........ $20,100,000 6.5 $18,965,000 6.5 $ 2,738,000 6.6 $ 6,036,000 6.9 $47,839,000
Municipal Securities - Tax ... 2,689,000 5.6 11,134,000 5.7 7,413,000 5.4 815,000 5.4 22,050,000
Exempt (1)
Municipal Securities - Taxable 82,000 6.72 -- -- -- -- -- -- 82,000
Mortgage Backed Securities and
Collateralized Mortgage . 594,000 8.0 1,097,000 7.15 -- -- -- -- 1,692,000
Obligations other than US
Government Agencies
Other Securities ............. 1,733,000 8.0 200,000 6.63 -- -- -- -- 1,933,000
--------- --- ------- ---- ---------
$25,198,000 6.6 $31,396,000 6.2 $10,151,000 5.7 $ 6,851,000 6.7 $73,596,000
=========== === =========== === =========== === =========== === ===========
</TABLE>
(*) The analysis shown above combines the Company's Securities Available for
Sale portfolio and the Investment Securities portfolio. All securities are
included above at their historical amortized cost.
(1) Yields on tax exempt securities have not been stated on tax equivalent
basis.
15
<PAGE>
INTEREST RATE RISK
Management of interest rate risk involves continual monitoring of the
relative sensitivity of asset and liability portfolios to changes in rate due to
maturities or repricing. Interest rate sensitivity is a function of the
repricing of assets and liabilities through maturity and interest rate changes.
The objective is to maintain an appropriate balance between income growth and
the risks associated with maximizing income through the mismatch of the timing
of interest rate changes between assets and liabilities. Perfectly matching this
funding can eliminate interest rate risk, but net interest income is not always
enhanced. One measure of interest rate risk, the so-called "gap", is illustrated
in the report below as of December 31, 1997. This table measures the incremental
and cumulative gap, or difference, between assets and liabilities subject to
repricing during the periods indicated. The figures presented are stated on the
basis of "contractual gap" which measures the stated repricing and maturity of
assets and liabilities. The data presented indicates that rate sensitive assets
are generally subject to repricing sooner than rate sensitive liabilities.
Management retains the ability to change, or not change, interest rates on
certain deposit products as general market rates change in the future, and is
also in the position to liquidate a portion of its securities available for sale
should conditions warrant such action.
16
<PAGE>
<TABLE>
<CAPTION>
MATURITY 0-3 MONTHS 3-12 MONTHS 1-5 YEARS OVER 5 YEARS TOTAL
<S> <C> <C> <C> <C> <C>
Loans, Net (3) ................... $ 16,902,000 $ 19,778,000 $ 76,329 ,000 $ 12,784,000 $ 125,793,000
Federal Funds Sold ............... 1,600,000 -- -- -- 1,600,000
Taxable Securities (1) .......... 5,829,000 15,358,000 20,262,000 10,015,000 51,464,000
Non Taxable Securities (1) ....... 782,000 1,906,000 11,134,000 8,310,000 22,132,000
-- ------- --------- ---------- --------- ----------
Total Interest Earning Assets .... $ 25,113,000 $ 37,042,000 $ 107,725,000 $ 31,109,000 $ 200,989,000
============= ============= ============= ============= =============
NOW and Super Now Accounts ....... 27,973,000 -- -- -- 27,973,000
Savings and Insured Money Markets 54,513,000 -- -- -- 54,513,000
Time Deposits (2) ................ 18,232,000 32,734,000 22,163,000 -- 73,129,000
Long Term Debt ................... 5,000,000 5,000,000 -- -- 10,000,000
Short Term Debt (1) .............. 404,000 404,000
-- ------- -------
Total Interest Bearing Liabilities 106,122,000 37,734,000 22,163,000 166,019,000
=========== ========== ========== =========== ===========
Gap .............................. (81,009,000) (692,000) 85,562,000 31,109,000 34,970,000
Cumulative Gap ................... (81,009,000) (81,701,000) 3,861,000 34,970,000
Cumulative Gap as a Percentage of
Total Interest Earning Assets (40.31%) (40.65%) 1.92% 17.40%
</TABLE>
(1) Based on anticipated maturity. Includes Securities Available for Sale and
Investment Securities, both shown at their historical amortized cost.
(2) Fixed rate deposits and deposits with fixed pricing intervals are included
in the period of contractual maturity.
(3) Based on contractual maturity.
17
<PAGE>
Item 2. PROPERTIES
In addition to the main office of the Company and the Bank in
Jeffersonville, New York, the Bank has seven branch locations and an
operations center. Set forth is a description of the offices of the
Company and the Bank.
Main Office
The main office of the Bank is located at Main Street, Jeffersonville,
New York, 12748. The premises occupied by the Bank consists of
approximately 6,700 total square feet of office space in a two-story
office building, and parking is provided for approximately 30 cars. The
Bank owns the building and underlying land.
Eldred Branch
The Eldred Branch of the Bank is located at 561 Route 55, Eldred, New
York. The premises consists of approximately 2,016 total square feet of
office space in a 1-story office building, and parking is provided for
approximately 17 cars. The Bank owns the building and underlying land.
Liberty Branch
The Liberty Branch of the Bank is located at Church Street and Darby
Lane, Liberty, New York. The premises consists of approximately 4,320
total square feet of office space in a two-story office building, and
parking is provided for approximately 30 cars. The Bank leases the
space from the Company. The lease commenced on January 1, 1989, and
terminates on December 1, 2003. The lease payments are $9,500 per
month.
Loch Sheldrake Branch
The Loch Sheldrake Branch of the Bank is located on Route 52, Loch
Sheldrake, New York. The premises consists of approximately 1,440 total
square feet of office space, and parking is provided for approximately
11 cars. The Bank leases the space from the Company. The lease
commenced on September 7, 1994 and terminates on August 7, 2009. The
lease payments are $9,600 per month.
Monticello Branch
The Monticello Branch of the Bank is located at 15 Forestburgh Road,
Monticello, New York. The premises consists of approximately 2,500
square feet of office space and parking is provided for approximately
25 cars. The Bank leases the space from the Company. The lease
commenced on October 1, 1992 and terminates September 1, 2007. The
lease payments are $2,550 per month.
Operations Center
The Operations Center is located on Main Street, Jeffersonville, New
York. The premises consists of approximately 10,788 square feet in a
two-story office building, and parking is provided for approximately 30
cars. The Bank leases the space from the Company. The lease commenced
on May 1, 1984 and terminates on April 30, 1999. The lease payments are
$4,950 per month.
18
<PAGE>
Supermarket Branches
The Bank leases space in Pecks Supermarkets in Livingston Manor,
Narrowsburg and Callicoon, New York. The branch facilities occupy
between 650 and 800 square feet each and the leases payments from
approximately $7,500 to $10,500 per year.
Item 3. LEGAL PROCEEDINGS
The Company and its subsidiary are not parties to any material
legal proceedings which may have a material adverse effect on its
results of operations or financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Part II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock was inactively traded on a local
basis, during 1996 and 1995. In January 1997, the Company
announced that trading in its common stock commenced on the
Over-The -Counter market. The following table shows the range of
sales prices known to management for each quarter during the two
most recent years and dividends declared per share:
1997
High* Low* Dividends Per Share*
First Quarter $ 19.17 $ 17.71 $ .00
Second Quarter $ 20.00 $ 17.91 $ .27
Third Quarter $ 20.21 $ 17.08 $ .00
Fourth Quarter $ 21.98 $ 19.17 $ .29
1996
High* Low* Dividends Per Share*
First Quarter $ 17.50 $ 17.50 $ .00
Second Quarter $ 17.50 $ 17.50 $ .27
Third Quarter $ 17.50 $ 17.50 $ .00
Fourth Quarter $ 17.71 $ 17.50 $ .27
The approximate number of stockholders of the Company's common stock at March
28, 1998 is 674.
* Per share information adjusted for twenty percent stock dividend declared in
January 1998.
Item 6. SELECTED FINANCIAL DATA
This item is omitted pursuant to paragraph (2) of General
Instruction "G" - Information to be Incorporated by Reference.
19
<PAGE>
See "Selected Financial Information" included in the Annual
Report to Stockholders for 1997, which is incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This item is omitted pursuant to paragraph (2) of General
Instruction "G" - Information to be Incorporated by Reference.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in the Annual Report to the
Stockholders for 1997, which is incorporated herein by reference.
Item 7A THE REQUIRED INFORMATION IS PROVIDED IN SCHEDULE TITLED INTEREST
RATE RISK
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This item is omitted pursuant to paragraph (2) of General
Instruction "G" - Information to be Incorporated by Reference.
See consolidated financial statements and notes to the
consolidated financial statements, included in the Annual Report
to Stockholders for 1997, which are incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in accountants within the 24 months
prior to December 31, 1997, and there has not been any reported
disagreements on any matter of accounting principles and
practices or financial statement disclosure which would have led
to a change in accountants.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This item is omitted pursuant to paragraph (3) of General
Instruction "G" - Information to be Incorporated by Reference.
See Nomination of Directors and Election of Directors on pages 1
and 2 of the proxy statement, which are incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION
This item is omitted pursuant to paragraph (3) of General Instruction
"G" - Information to be Incorporated by Reference. See Remuneration of
Management and Others on page 6-7 of the proxy statement, which is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF MANAGEMENT
This item is omitted pursuant to paragraph (3) of General
Instruction "G" - Information to be Incorporated by Reference.
See Security Ownership of Certain Beneficial Owners and of
Management on page 3-4 of the proxy statement, which is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This item is omitted pursuant to paragraph (3) of General
Instruction "G" - Information to be Incorporated by Reference.
20
<PAGE>
See Director and Executive Officer information, transactions with
Management, and Remuneration of Management and Others on pages
8-9 of the proxy statement, which are incorporated herein by
reference.
Part IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated financial statements and schedules of the Company and
Subsidiary
The following consolidated financial statements of the Registrant and
its subsidiary are incorporated herein by reference from the 1997
Annual Report to Stockholders of the Company; page number references
are to the Annual Report.
Consolidated Balance Sheets - December 31, 1997 and 1996......................17
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995..................................18
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995..................................19
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995..................................20
Notes to Consolidated Financial Statements.................................21-44
Independent Auditors' Report..................................................45
(a) 2. All schedules are omitted since the required information is either
not applicable, not required or contained in the respective
consolidated financial statements or in the notes thereto.
(a) 3. Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibits not indicated below are omitted because the information is not
applicable or is contained elsewhere within this report.
3.1 Certificate of Incorporation of the Company
(Incorporation by Reference to Exhibit 3.1, 3.2, 3.3 and
3.4 to Form 8 Registration Statement, effective June 29,
1991)
3.2 The Bylaws of the Company
(Incorporated by Reference to Exhibit 3.5 and 3.6 to Form
8 Registration Statement, effective June 29, 1991)
4.1 Instruments defining the Rights of Security Holders.
(Incorporated by Reference to Exhibit 4 to Form 8
Registration Statement, effective June 29, 1991)
21
<PAGE>
11.1 Computation of Income Per Share (Reference is made to the
Annual Report of the Company included elsewhere in this
report.)
13.1 The Annual Report of the Company is filed herewith.
21.1 Subsidiaries of the Registrant - as Discussed in Section
I, Item I, Description of Business; The Company owns 100%
of the Equity Securities of the Bank.
b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the
quarter ended December 31, 1997.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: 3-27-98 By:
Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/
----------------- Chairman of the
Arthur E. Keesler Board and 3-27-98
President-Director
/s/
----------------- Principal Accounting
K. Dwayne Rhodes Officer and Principal 3-27-98
Financial Officer
/s/
----------------- Director 3-27-98
John K. Gempler
/s/
----------------- Director 3-27-98
Edward T. Sykes
/s/
----------------- Director 3-27-98
Raymond Walter
/s/
----------------- Director 3-28-98
Earle A. Wilde
/s/
----------------- Director 3-28-98
James F. Roche
/s/
----------------- Director 3-28-98
Frederick W.V. Schadt
/s/
----------------- Director 3-28-98
John W. Galligan
23
<PAGE>
LOGO
Jeffersonville Bancorp
Annual Report
1997
To Our Stockholders and Customers:
The year 1997 was a disappointment, from an earnings perspective, for
Jeffersonville Bancorp. Operating in the adverse economic climate of Sullivan
County, we incurred a much higher level of loan losses compared to the recent
past. Net income for 1997 was $1,763,000, a decrease of 17.8% from 1996 net
income of $2,145,000. The first quarter saw the overwhelming defeat of the
casino gambling proposal by the New York State Senate. This was a severe blow to
many people who were relying on the expected economic upturn to improve their
financial situation. A short time later, the announcement of the Chapter 11
bankruptcy by the Concord Hotel raised more questions with regard to the
viability of our tourism industry. During the second quarter, Alan Gerry, former
CEO of Liberty-based Cablevision Industries, announced that he had purchased the
Woodstock site plus over 1,000 surrounding acres and was planning a major
tourist destination. This announcement had a positive impact on the area and
speculators began purchasing properties in the vicinity of the site as well as
the Route 17B corridor. The third quarter saw renewed efforts by the Sullivan
County Partnership, the Industrial Development Agency and the Department of
Economic Development to attract businesses to the area. Initial contacts for
several major projects occurred over the summer and continue to show promise.
The highlight of the fourth quarter of 1997 was the personal visit from Governor
Pataki to the County. His meeting with local officials resulted in a pledge of
$2,000,000 in economic development aid. Jeffersonville Bancorp's financial
performance is directly affected by the local economy, as approximately 98% of
our outstanding loans are to Sullivan County residents and businesses. As a
community bank, we have made a commitment to customers to provide loans and
other services to meet their banking needs. We intend to continue this
commitment. Sullivan County has the unenviable status of having the lowest
economic rating in New York State as reported by Roosevelt & Cross, Inc., a
highly regarded municipal bond dealer. Their report did go on to state, however,
that initiatives are being taken to try to improve the depressed local economy.
Our disappointing 1997 earnings were primarily a result of loan losses. Loan
losses aside, the underlying strength of the bank is evident. We have continued
to increase our leadership in market share in the County and feel we are well
positioned to reap the rewards of an economic revival. As always, your comments,
questions and suggestions are welcome. Thank you for your patience during these
trying times.
/s/ Arthur E. Keesler
Arthur E. Keesler, President
Jeffersonville Bancorp
/s/ Raymond Walter
Raymond Walter, President
First National Bank of Jeffersonville
1
<PAGE>
Arthur E. Keesler
Raymond Walter
Jeffersonville Bancorp Board of Directors
Arthur E. Keesler
Gibson McKean
Lawrence H. Cooke
John K. Gempler
Edward T. Sykes
Frederick W. V. Schadt, Jr.
Raymond Walter
John W. Galligan
James F. Roche
Gilbert E. Weiss
Earl A. Wilde
Douglas A. Heinle
Solomon Katzoff
Selected Financial Information
Five-Year Summary
<TABLE>
<CAPTION>
2
<PAGE>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Results of Operations
<S> <C> <C> <C> <C> <C>
Net interest income ........ $ 8,904,000 $ 8,666,000 $ 8,581,000 $ 9,245,000 $ 9,340,000
Provision for loan losses .. 1,150,000 290,000 160,000 427,000 405,000
Net income ................. 1,763,000 2,145,000 2,424,000 2,460,000 2,983,000
Financial Condition
Total assets ............... $213,659,000 $196,113,000 $188,469,000 $188,118,000 $175,245,000
Deposits ................... 179,160,000 172,930,000 164,184,000 165,531,000 155,251,000
Loans, net ................. 125,793,000 115,605,000 109,288,000 101,414,000 97,076,000
Stockholders' equity ....... 22,176,000 20,975,000 20,928,000 17,782,000 18,023,000
Average Balances
Total assets ............... $211,034,000 $198,134,000 $193,568,000 $194,114,000 $177,896,000
Deposits ................... 180,635,000 173,139,000 169,209,000 165,368,000 158,766,000
Gross loans ................ 122,567,000 113,981,000 107,567,000 100,517,000 96,680,000
Stockholders' equity ....... 21,539,000 20,751,000 19,871,000 18,483,000 16,973,000
Financial Ratios
Net income to
average total assets ..... 0.84% 1.08% 1.25% 1.27% 1.68%
Net income to average
stockholders' equity ...... 8.19% 10.34% 12.20% 13.31% 17.57%
Average stockholders'
equity to average
total assets ............... 10.21% 10.47% 10.27% 9.52% 9.54%
Per Share Data*
Income per share ..... $ 1.24 $ 1.49 $ 1.61 $ 1.59 $ 1.93
Dividends per share .. 0.56 0.54 0.50 0.46 0.42
Dividend payout ratio 44.92% 36.13% 31.15% 28.82% 21.59%
Book value at year end $ 15.62 $ 14.78 $ 14.16 $ 11.50 $ 11.66
Total dividends paid . 792,000 775,000 755,000 709,000 644,000
Average number of
shares outstanding .. 1,419,298 1,440,623 1,503,480 1,545,996 1,545,996
Shares outstanding
at year end ......... 1,419,295 1,419,353 1,477,860 1,545,996 1,545,996
</TABLE>
* All share and per share amounts have been adjusted for the affect of the
twenty percent stock dividend distributed in February 1998.
3
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following is a discussion of the factors which significantly affected the
consolidated results of operations and financial condition of Jeffersonville
Bancorp ("the Parent Company") and its wholly-owned subsidiary, The First
National Bank of Jeffersonville ("the Bank"). For purposes of this discussion,
references to the Company include both the Bank and Parent Company, as the Bank
is the Parent Company's only subsidiary. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto, and
the other financial information appearing elsewhere in this annual report
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, Livingston Manor, Narrowsburg and
Callicoon. 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 is in tune with local customer
needs and provides quality service with a personal touch. This discussion and
analysis of financial results should be reviewed with the Company's philosophy
in mind.
Local Economy
The local economy displayed continued lackluster performance in 1997. The
Company's borrowers continued to struggle with their loan payments due to the
local economy's poor performance, although we did see some growth in commercial
and home equity loan demand. The Company will continue to seek opportunities to
provide fresh capital for the local economy, while adhering to prudent loan
underwriting standards. Management of the Company does not anticipate any
improvement in the local economy in 1998. However, the groundwork has been put
in place by county government and private enterprise for several initiatives
which could bolster the local economy at some point in the future.
Financial Condition
Total average assets in 1997 increased $12,900,000 over 1996 to
$211,034,000, an increase of 6.5% compared to a 2.4% increase in 1996 to
$198,134,000 from $193,568,000 in 1995. Average assets increased in 1997 as
deposit growth and Federal Home Loan Bank ("FHLB") borrowings were invested
primarily into loans that met our underwriting criteria and securities available
for sale.
Total average securities (including securities available for sale and investment
securities held to maturity) increased $3,296,000 or 4.6% in 1997 to
$74,900,000, compared to a 1.0% decrease in the prior year. Total average
securities were $71,604,000 and $72,335,000 for 1996 and 1995, respectively. The
increase in 1997 reflects a leveraging strategy in which the Company funded
security purchases with FHLB borrowings. The purchases were partially offset by
sales of tax exempt securities in order to minimize the impact of the
alternative minimum tax. See notes 3 and 4 to the consolidated financial
statements for period-end balances of securities available for sale and
investment securities. Average interest bearing deposits in 1997 increased
$5,497,000 to reach $155,568,000, an increase of 3.7% compared to a 1.0%
increase in 1996 to $150,071,000 from $148,568,000 in 1995. The higher interest
rates paid on time savings certificates in 1997 resulted in an increase in these
deposits, as funds flowed from other types of accounts paying lower rates.
During 1995 a new savings certificate product, the Escalator Account, was
introduced. This account is written with an 18 month term, but gives the
depositor an option during the deposit term to increase the interest rate one
4
<PAGE>
time to match market rates. The Escalator Account has proven to be a very
popular product, growing to $22,471,000 at year end 1997 from $15,800,000 in
1996 and from $6,000,000 in 1995. In 1997, average demand accounts increased
8.7% over 1996, after increasing 11.8% in 1996 above the 1995 level. The Company
offers these accounts on an extremely competitive basis and continues to attract
a pool of low cost funds for reinvestment in the community.
Loans
In 1997, average loans increased $8,586,000 to $122,567,000, up from
$113,981,000 in 1996 and $107,567,000 in 1995. This increase was acceptable
considering the current condition of the local economy. As in prior years,
average residential and commercial real estate loans made up a major portion of
the loan portfolio at 71.0% of total loans in 1997, compared to 74.6% in 1996.
Home equity loans were introduced in 1996 and increased from $4,331,000 at year
end 1996, to $7,677,000 at year end 1997, an increase of 77.3%. Additional
growth is anticipated in home equity loans during 1998. Average commercial time
and demand loans and average consumer loans showed combined net growth of 9.6%
in 1997. The overall portfolio is structured in accordance with management's
belief that loans secured by residential and commercial real estate generally
result in lower loan loss levels compared to other types of loans, because of
the value of the underlying collateral.
Provision for Loan Losses
The provision for loan losses was $1,150,000 in 1997 compared to $290,000 in
1996 and $160,000 in 1995. The substantial increase in 1997 primarily reflects
higher net charge-offs in each loan category and, to a lesser extent, portfolio
growth and an overall increase in nonaccrual loans. Net (Charge-offs) Recoveries
by Loan Category for Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Loan Category
Residential Mortgages Charge-off $(155,000) $ (71,000) $ (34,000)
Recovery 8,000 32,000 70,000
Commercial Mortgages Charge-off (425,000) -- --
Recovery 76,000 -- 28,000
Commercial Loans Charge-off (371,000) (58,000) (182,000)
Recovery 91,000 23,000 34,000
Consumer Loans Charge-off (223,000) (167,000) (120,000)
Recovery 68,000 65,000 118,000
Other Loans Charge-off (81,000) (50,000) (48,000)
Recovery 13,000 18,000 11,000
------ ------ ------
$(999,000) $(208,000) $(123,000)
========= ========= =========
Net charge-offs were 0.82% of average outstanding loans in 1997 compared to
0.18% in 1996 and 0.11% in 1995, reflecting a much higher level of loan losses.
This unfavorable net trend may
continue until the local economy improves. On a combined basis, net charge-offs
on residential and commercial mortgages increased by $457,000 from $39,000 in
1996 to $496,000 in 1997. This increase was due in part to Sullivan County's new
policy of accelerated tax sales for properties with real estate tax arrears.
Management has instituted new tax escrow policies on renewing mortgages and is
upgrading the Bank's loan collection practices, in an effort to mitigate the
problem of rising delinquencies and loan losses. The net charge-off on
5
<PAGE>
commercial loans was $280,000 in 1997 or 2.65% of average commercial loans
outstanding, a substantial increase compared to 0.38% for 1996. The increase in
commercial loan losses was concentrated in a few large loans that defaulted in
1997. Efforts continue to recover a portion of these losses. Consumer loan
charge-offs also increased in 1997, as borrowers struggled with their loan
payments in a unfavorable local economy.
Other loan and credit card net charge-offs of $68,000 in 1997 represented
3.37% of average outstanding loans in this category, an increase of $36,000 from
1996, reflecting the higher credit risk inherent in these types of loans. Higher
interest rates on these loans help compensate for this risk.
The Company manages asset quality with an intensive review process that includes
careful analysis of credit applications and both internal and external loan
review of existing outstanding loans and delinquencies. Management strives to:
identify potential non-performing loans early; take charge-offs promptly based
on a realistic assessment of probable losses; and maintain an adequate allowance
for loan losses based on the inherent risk of loss in the existing portfolio. No
portion of the allowance is restricted to any loan or group of loans, as the
entire allowance is available to absorb charge-offs in any loan category. The
amount and timing of future charge-offs and allowance allocations may vary from
current estimates. The following table shows the distribution of the allowance
for loan losses and the percentage of each loan type to total loans outstanding.
Distribution of Allowance for Loan Losses at December 31, 1997
Loan Balance by
Allowance Percentage of Type to
Balance Total Allowance Total Loans 1
Loan Category
Residential Mortgages $ 606,000 32.5% 59.7%
Commercial Mortgages 400,000 21.5 16.5
Commercial Loans .... 476,000 25.6 10.3
Consumer Loans ...... 304,000 16.3 12.2
Other Loans ......... 76,000 4.1 1.3
------ --- ---
$1,862,000 100.0% 100.0%
========== ===== =====
Distribution of
Allowance for
Loan Losses at
December 31, 1996
Loan Balance by
Allowance Percentage of Type to
Balance Total Allowance Total Loans 1
------- --------------- -------------
Loan Category
Residential Mortgages $ 610,000 35.7% 61.0%
Commercial Mortgages 250,000 14.6 16.1
Commercial Loans .... 384,000 22.4 8.1
Consumer Loans ...... 319,000 18.6 13.5
Other Loans ......... 148,000 8.7 1.3
------- --- ---
$1,711,000 100.0% 100.0%
========== ===== =====
1 Percentage relationship between average loans outstanding by type compared to
total average loans outstanding.
6
<PAGE>
The allowance for loan losses was $1,862,000 at December 31, 1997 compared
to $1,711,000 and $1,629,000 at December 31, 1996 and 1995, respectively. The
allowance as a percentage of total loans was 1.45% at December 31, 1997,
compared to 1.46% and 1.47% at December 31, 1996 and 1995, respectively. The
allowance's coverage of non-performing loans was 50.4%, 38.2% and 39.0% at
December 31, 1997, 1996 and 1995, respectively.
The total allowance for loan losses at December 31, 1997 includes an allocation
of $408,000, or 21.9%, to classified commercial mortgages and commercial loans;
the remainder is a general
allocation. The allocation to classified loans at December 31, 1996 was $573,000
or 33.5%. Future charge-offs will continue to be dependent on the local economy.
Management believes that the allowance for loan losses is adequate; however,
certain regulatory agencies, as an integral part of their examination process,
periodically review the adequacy of the Company's allowance for loan losses.
Such agencies may 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
Nonaccrual and Past Due Loans
The Company places a loan on nonaccrual status when collectability of principal
or interest is doubtful, or when either principal or interest is 90 days or more
past due and the loan is not well secured and in the process of collection.
Interest payments received on nonaccrual loans are applied as a reduction of the
principal balance when concern exists as to the ultimate collection of
principal. A distribution of nonaccrual loans and loans 90 days or more past due
and still accruing interest is shown in the following table. December 31, 1997
<TABLE>
<CAPTION>
90 Days
or More
Nonaccrual Still Accruing Total Percentage1 Percentage2
---------- -------------- ----- ----------- -----------
Loan Category
<S> <C> <C> <C> <C> <C>
Residential Mortgages $2,012,000 $ 330,000 $2,342,000 3.1% 63.4%
Commercial Mortgages 1,258,000 -- 1,258,000 5.4 34.1
Commercial Loans .... 54,000 -- 54,000 0.4 1.5
Consumer Loans ...... -- 38,000 38,000 0.2 1.0
------ ------ --- ---
Total ............... $3,324,000 $ 368,000 $3,692,000 2.8% 100.0%
========== ========== ========== === =====
December 31, 1996
90 Days
or More
Nonaccrual Still Accruing Total Percentage1 Percentage2
Loan Category
Residential Mortgages $ 856,000 $1,047,000 $1,903,000 2.8% 47.7%
Commercial Mortgages 1,021,000 299,000 1,320,000 8.4 33.0
Commercial Loans .... 695,000 4,000 699,000 7.0 17.5
Consumer Loans ...... -- 73,000 73,000 0.4 1.8
------ ------ --- ---
Total ............... $2,572,000 $1,423,000 $3,995,000 3.3% 100.0%
========== ========== ========== === =====
</TABLE>
1 Percentage of gross loans outstanding for each loan category. 2 Percentage of
total nonaccrual and 90 day past due loans.
7
<PAGE>
The small decrease in total nonaccrual and 90 day past due loans is
primarily due to a decrease in nonaccrual commercial loans, substantially offset
by an increase in total nonaccrual and past due residential mortgages. The lower
level of nonaccrual commercial loans reflects, in part, the higher charge-offs
during 1997. The increase in residential mortgage loans occurred despite the
borrowers doing their utmost to repay their loans to protect their homes in a
difficult economic environment. The majority of the nonaccrual and past due
loans are secured loans and, as such, management anticipates there will be
limited risk of loss in their ultimate resolution. As of December 31, 1997,
management believes all significant potential problem loans have been identified
in the table above.
Restructured Loans
Loans are renegotiated in a troubled debt restructuring when the Company
determines that it will ultimately receive greater economic value under the new
terms than through foreclosure, liquidation, or bankruptcy. Candidates for
renegotiation must meet specific guidelines. These guidelines consider factors
such as: the borrower's ability to enhance the value of the property; the
availability and value of collateral; the ability of the guarantor, if any, to
perform; and the economic value of the renegotiated loan relative to foreclosure
and other options. Restructured loans performing in accordance with their new
terms and, therefore, not included in nonaccrual loans, amounted to $481,000 at
December 31, 1996.
Other Real Estate Owned
Other real estate owned represents properties acquired through foreclosure and
loans classified as in-substance foreclosures. In accordance with SFAS No. 114,
a loan is classified as an in-substance foreclosure when the Company has taken
possession of the collateral regardless of whether formal foreclosure
proceedings have taken place. Other real estate owned is recorded on an
individual asset basis at the lower of (1) fair value less estimated costs to
sell or (2) "cost" (defined as the fair value at initial foreclosure). When a
property is acquired or classified as in-substance foreclosure, the excess of
the loan balance over the fair value of the property is charged to the allowance
for loan losses. Subsequent write downs to reflect further declines in fair
value are included in other operating expense. The following are the changes in
other real estate owned during the last two years:
Years Ended December 31, 1997
and 1996
1997 1996
---- ----
Beginning Balance $ 831,000 $ 549,000
Additions ....... 352,000 814,000
Sales ........... (763,000) (501,000)
Write downs ..... (119,000) (31,000)
-------- -------
Ending Balance .. $ 301,000 $ 831,000
========= =========
Liquidity
Liquidity is the ability to provide sufficient cash flow to meet financial
commitments and to fund additional loan demand or withdrawal of existing
deposits. The Company's primary sources of
liquidity are: its deposit base; FHLB borrowings; repayments and maturities on
loans; short-term assets such as federal funds and short-term interest bearing
deposits in banks; and maturities and sales of securities available for sale.
These sources are available in amounts sufficient to provide liquidity to meet
the Company's ongoing funding requirements. The Bank's membership in the FHLB of
New York enhances liquidity in the form of a revolving line of credit of
$20,651,000 which may be used to meet unforeseen liquidity demands and for other
purposes. At December 31, 1997, $10,000,000 of this line of credit was being
used to fund securities leverage transactions. In 1997, cash generated from
8
<PAGE>
operating activities amounted to $3,124,000 and cash generated from financing
activities amounted to $15,312,000. These amounts were substantially offset by a
use of cash in investing activities of $17,296,000, resulting in a net increase
in cash and cash equivalents of $1,140,000. See the Consolidated Statements of
Cash Flows for additional information.
Capital Adequacy
One of management's primary objectives is to maintain a strong capital position
to merit the confidence of depositors, the investing public, bank regulators and
shareholders. A strong capital position should help the Company withstand
unforeseen adverse developments and take advantage of profitable investment
opportunities when they arise. Stockholder's equity increased $1,201,000 or 5.7%
in 1997 following an increase of 0.2% in the prior year. In 1996, the Company
offered to repurchase and retire 50,000 common shares utilizing open-market and
privately-negotiated purchases. By December 31, 1996, 49,672 shares were
acquired at $21.00 per share, reducing stockholders' equity by $1,043,000.
Although the Board of Directors authorized that $1,000,000 be made available to
purchase and retire additional shares during 1997, no shares were acquired. In
1998, the Board of Directors has again authorized that $1,000,000 be made
available to purchase and retire additional shares on the open market.
Management believes that the repurchase of Company stock represents a prudent
use of excess capital. The Company retained $971,000 from 1997 earnings, while
the after-tax adjustment for the change in the net unrealized gain on securities
available for sale increased capital by $231,000. In accordance with regulatory
capital rules, the adjustment for securities available for sale is not
considered in the computation of regulatory capital ratios. Under the Federal
Reserve Bank's risk-based capital rules, the Company's Tier I risk-based capital
was 17.7% and total risk-based capital was 19.0% of risk-weighted assets. 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 10.0% 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 December 31,
1997 and 1996
1997 1996
---- ----
Tier I capital
Stockholders' equity, excluding the after-tax net
unrealized gain on securities available for sale $ 21,623,000 $ 20,653,000
Tier II capital
Allowance for loan losses1 ...................... 1,528,000 1,343,000
- --------- ---------
Total risk-based capital ........................ $ 23,151,000 $ 21,996,000
============ ============
Risk-weighted assets2 ........................... $121,885,000 $107,056,000
= ============ ============
Average assets .................................. $211,034,000 $198,134,000
============ ============
Ratios
Tier I risk-based capital (minimum 4.0%) ........ 17.7% 19.3%
Total risk-based capital (minimum 8.0%) ......... 19.0% 20.6%
Leverage (minimum 4.0%) ......................... 10.0% 10.4%
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.
9
<PAGE>
Results of Operations
Net Income
Net income for 1997 of $1,763,000 was down 17.8% from the 1996 net income of
$2,145,000, following an 11.5% decrease in 1996 compared to 1995 net income of
$2,424,000. These decreases were due to the interaction of a number of factors
including increasing pressure on net interest margin, increased loan loss
provisions and other costs associated with problem loans and other real estate
owned. The most significant factor which lowered 1997 net income was the
increase in the provision for loan losses to $1,150,000 from $290,000 in 1996,
an increase of $860,000 or 296.6%. The increase reflects higher loan charge-offs
largely attributable to Sullivan County's poor economic climate. Occupancy and
equipment expense increased $189,000, or 18.0%, in 1997 primarily due to
investments in new computer technology and an additional supermarket branch
opening. Employee benefits expense increased in 1997 by $108,000, or 13.0%.
Interest Income and Interest Expense
Throughout the following discussion, net interest income and its components are
expressed on a tax equivalent basis which means that, where appropriate, tax
exempt income is shown as if it were earned on a fully taxable basis. The
largest source of income for the Company is net interest income, which
represents interest earned on loans, securities and short-term investments, less
interest paid on deposits and other interest bearing liabilities. Net interest
income of $9,653,000 for 1997 represented in an increase of 1.6% compared to
$9,505,000 for 1996. Interest income for 1997 was $16,596,000 compared to
$15,783,000 in 1996 and $15,716,000 in 1995. The increase in 1997 is the result
of an increase in the average balance of interest earning assets from
$187,423,000 in 1996 to $199,829,000 in 1997, an increase of 6.6%. The increase
in earning assets was partially offset by an overall decrease in average yield
on earning assets of eleven basis points in 1997. In the current declining rate
environment, average yields will decline as loans are made and securities are
acquired at yields below existing portfolio rates. Loans increased slightly in
1997, primarily due to an increase in home equity loans. In 1998, increases in
funding will be allocated first to meet loan demand, as necessary, and then to
the investment portfolios. Interest expense in 1997 increased $665,000 or 10.6%
over 1996, contrasted to a 0.1% decrease from 1995 to 1996. The average balance
of interest bearing liabilities increased from $150,071,000 in 1996 to
$162,414,000 in 1997, an increase of 8.2%. Like rates on earning assets, the
cost of funding is also closely tied to market rates. During 1997, deposit rates
increased slightly. A new competitive 18 month savings certificate, with one
interest escalation during its term, continues to attract new deposits. Net
interest margin declined to 4.83% in 1997 compared to 5.07% in 1996 and 5.13% in
1995. Although the effect of a low interest rate environment will continue to be
a real challenge in maintaining the net interest margin, the Company intends to
take actions to stabilize margin in 1998.
Operating Income and Operating Expense
Operating income primarily consists of service charges, commissions and fees for
various banking services, and securities gains and losses. Operating income in
1997 increased 18.0% or $191,000 over 1996. The increase is attributable to
income earned on a new cashier's check program, income from ATM fees charged to
nonbank customers, increases in fees for NSF checks and higher monthly service
charges for commercial checking accounts. Operating income in 1996 increased
$129,000 over the prior year, primarily from net security gains of $95,000
compared to a net gain of $33,000 in 1995. Operating expense increased by
$137,000 or 2.0% in 1997, compared to increases of 9.95% in 1996 and 0.03% in
1995. Salary and wage expense combined with employee benefit expense increased
2.8% to $3,728,000 in 1997 compared to $3,628,000 in 1996, which increased 10.8%
10
<PAGE>
over $3,275,000 in 1995. Although salary expense decreased $8,000 from 1996, the
cost of group insurance benefits increased $84,000 and 401-K contributions
increased $24,000 compared to 1996 amounts. Occupancy and equipment expense
increased 18.0% to reach $1,238,000 in 1997, up from $1,049,000 in 1996 and
$936,000 in 1995. This increase reflects the Company's commitment to upgrade
facilities and services, which continued in 1997 with the addition of a third
supermarket branch and new computer network technology. Net other real estate
owned expense decreased 37.1% to $178,000 in 1997 from $283,000 in 1996, after
increasing from $184,000 in 1995. Only an upturn in the local economy will
decrease foreclosure activity and the associated costs. In the interim, however,
the Company will continue to follow its loan underwriting and appraisal
standards to decrease future losses, and will continue to make every effort to
liquidate foreclosed property in a fashion that will minimize loss. Other
operating expense at $1,714,000 in 1997 decreased by $47,000 or 2.7% from 1996.
Year 2000 Planning and Implementation
The Company has reviewed its computer systems to identify the systems that could
be affected by the "Year 2000" issue, and has developed an implementation plan
to address the issue. The Year 2000 problem is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a major system failure or miscalculations. The Company presently believes that,
with modifications to existing software and converting to new software, the Year
2000 problem will not pose significant operational problems for the Company's
computer systems as so modified and converted. However, if such modifications
and conversions are not completed timely, the Year 2000 problem may have a
material impact on the operations of the Company. In addition, there can be no
assurance that the systems of other companie s on which the Company's systems
may rely will become Year 2000 compliant in a timely fashion, or that the
Company's commercial customers will not experience Year 2000 problems which
could adversely affect the credit quality of these customer relationships.
Management does not anticipate the cost to become Year 2000 compliant will be
material to the Company's financial position or results of operations.
Recent Accounting Standards
See note 17 to the consolidated financial statements for a discussion
of recently issued accounting standards concerning comprehensive income and
segment reporting.
Inflation
The Company's operating results generally reflect the effects of inflation as
interest rates, loan demand and deposit levels adjust to inflation and impact
net interest income. Management can best counter the effect of inflation over
the long term by managing net interest income and controlling expenses. The most
significant item not reflecting the effects of inflation is depreciation
expense, as it is determined based on the historical cost of the assets
11
<PAGE>
<TABLE>
<CAPTION>
Distribution of Assets, Liabilities, & Stockholders' Equity:
Interest Rates & Interest Differential Consolidated Average Balance Sheet 1997
Average Percentage of Interest Average
Balance Total Asset Earned/Paid Yield/Rate
------- ----------- ----------- ----------
Assets
<S> <C> <C> <C> <C>
Investment securities and
securities available for sale1
Taxable securities ........... $ 47,726,000 22.61% $ 3,153,000 6.61%
Tax-exempt securities ........ 27,174,000 12.88 2,202,000 8.10
---------- ----- --------- ----
Total Securities ............... 74,900,000 35.49 5,355,000 7.15
---------- ----- --------- ----
Short-term investments ......... 2,362,000 1.12 129,000 5.46
Loans, net of unearned discount:
Real estate mortgages ........ 86,979,000 41.22 7,461,000 8.58
Home equity loans .............. 6,000,000 2.84 518,000 8.63
Time and demand loans .......... 10,582,000 5.01 997,000 9.42
Installment loans .............. 16,988,000 8.05 1,871,000 11.01
Other loans .................... 2,018,000 0.96 265,000 13.13
--------- ---- ------- -----
TOTAL LOANS2 ................... 122,567,000 58.08 11,112,000 9.07
- ----------- ----- ---------- ----
TOTAL INTEREST-
EARNING ASSETS ................ 199,829,000 94.69 16,596,000 8.31
----------- ----- ---------- ----
Allowance for loan losses ...... (1,674,000) (0.79)
Cash and due from banks ........ 6,709,000 3.18
Premises and equipment, net .... 2,668,000 1.26
Other assets ................... 3,120,000 1.48
Net unrealized gain on
securities available for sale . 382,000 0.18
------- ----
TOTAL ASSETS ................... $ 211,034,000 100.00%
============= ======
Liabilities and
Stockholders' Equity
NOW and Super NOW deposits .... $ 27,756,000 13.15%$ 843,000 3.04%
Savings and insured money
market deposits .............. 52,949,000 25.09 1,726,000 3.26
Time deposits ................. 74,863,000 35.48 3,971,000 5.30
---------- ----- --------- ----
TOTAL INTEREST-
BEARING DEPOSITS ............. 155,568,000 73.72 6,540,000 4.20
----------- ----- --------- ----
Federal funds purchased
and other short-term debt .... 747,000 0.35 36,000 4.82
Federal Home Loan Bank advances 6,099,000 2.89 367,000 6.02
--------- ---- ------- ----
TOTAL INTEREST-
BEARING LIABILITIES .......... 162,414,000 76.96 6,943,000 4.27
----------- ----- --------- ----
Demand deposits ............... 25,067,000 11.88
Other liabilities ............. 2,014,000 0.95
--------- ----
TOTAL LIABILITIES ............. 189,495,000 89.79
Stockholders' equity .......... 21,539,000 10.21
---------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ......... $211,034,000 100.00%
============ ======
Net interest income ........... $ 9,653,000
============
Net interest spread ........... 4.04%
====
Net interest margin3 .......... 4.83%
= ====
</TABLE>
1 Yields are calculated on a tax equivalent basis, based on amortized cost.
2 For purpose of this schedule, interest on nonaccruing loans has been
included only to the extent reflected in the consolidated income statement.
However, the nonaccrual loan balances are included in the average amount
outstanding.
3 Computed by dividing net interest income by total interest earning assets.
Consolidated
12
<PAGE>
Average
Balance Sheet
1996
<TABLE>
<CAPTION>
Average Percentage of Interest Average
Balance Total Assets Earned/Paid Yield/Rate
------- ------------ ----------- ----------
Assets
<S> <C> <C> <C> <C>
Investment securities and
securities available for sale1
Taxable securities ........... $ 41,732,000 21.06% $ 2,699,000 6.47%
Tax-exempt securities ........ 29,872,000 15.08 2,468,000 8.26
---------- ----- --------- ----
Total Securities ............... 71,604,000 36.14 5,167,000 7.22
---------- ----- --------- ----
Short-term investments ......... 1,838,000 0.92 104,000 5.66
Loans, net of unearned discount:
Real estate mortgages ........ 85,010,000 42.90 7,431,000 8.74
Home equity loans .............. 1,973,000 1.00 148,000 7.50
Time and demand loans .......... 9,108,000 4.60 900,000 9.88
Installment loans .............. 16,024,000 8.09 1,798,000 11.22
Other loans .................... 1,866,000 0.94 235,000 12.59
--------- ---- ------- -----
TOTAL LOANS2 ................... 113,981,000 57.53 10,512,000 9.22
- ----------- ----- ---------- ----
TOTAL INTEREST-
EARNING ASSETS ................ 187,423,000 94.59 15,783,000 8.42
----------- ----- ---------- ----
Allowance for loan losses ...... (1,619,000) (0.82)
Cash and due from banks ........ 6,017,000 3.04
Premises and equipment, net .... 2,395,000 1.21
Other assets ................... 3,637,000 1.84
Net unrealized gain on
securities available for sale . 281,000 0.14
------- ----
TOTAL ASSETS ................... $ 198,134,000 100.00%
============= ======
Liabilities and
Stockholders' Equity
NOW and Super NOW deposits ..... $ 28,395,000 14.33% $ 862,000 3.04%
Savings and insured money
market deposits ............... 55,670,000 28.10 1,810,000 3.25
Time deposits .................. 66,006,000 33.31 3,485,000 5.28
---------- ----- --------- ----
TOTAL INTEREST-
BEARING DEPOSITS .............. 150,071,000 75.74 6,157,000 4.10
----------- ----- --------- ----
Federal funds purchased
and other short-term debt ..... 1,096,000 0.55 63,000 5.75
Federal Home Loan Bank advances 1,133,000 0.57 58,000 5.12
--------- ---- ------ ----
TOTAL INTEREST-
BEARING LIABILITIES ........... 152,300,000 76.87 6,278,000 4.12
----------- ----- --------- ----
Demand deposits ................ 23,068,000 11.64
Other liabilities .............. 2,015,000 1.02
--------- ----
TOTAL LIABILITIES .............. 177,383,000 89.53
Stockholders' equity ........... 20,751,000 10.47
---------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .......... $ 198,134,000 100.00%
------------- ------
Net interest income ............ $ 9,505,000
=============
Net interest spread ............ 4.30%
====
Net interest margin3 ........... 5.07%
= ====
</TABLE>
1 Yields are calculated on a tax equivalent basis, based on amortized cost.
2 For purpose of this schedule, interest on nonaccruing loans has been
included only to the extent reflected in the consolidated income statement.
However, the nonaccrual loan balances are included in the average amount
outstanding. 3 Computed by dividing net interest income by total interest
earning assets.
13
<PAGE>
Consolidated
Average
Balance Sheet
1995
<TABLE>
<CAPTION>
Average Percentage of Interest Average
Balance Total Assets Earned/Paid Yield/Rate
------- ------------ ----------- ----------
Assets
<S> <C> <C> <C> <C>
Investment securities and
securities available for sale1
Taxable securities ........... $ 43,098,000 22.27% $ 2,847,000 6.61%
Tax-exempt securities ........ 29,237,000 15.10 2,495,000 8.53
---------- ----- --------- ----
TOTAL SECURITIES ............... 72,335,000 37.37 5,342,000 7.39
---------- ----- --------- ----
Short-term investments ......... 3,899,000 2.01 225,000 5.77
Loans, net of unearned discount:
Real estate mortgages ........ 83,176,000 42.97 7,427,000 8.93
Time and demand loans .......... 8,416,000 4.35 848,000 10.08
Installment loans .............. 14,437,000 7.46 1,668,000 11.55
Other loans .................... 1,538,000 0.79 206,000 13.39
--------- ---- ------- -----
TOTAL LOANS2 ................... 107,567,000 55.57 10,149,000 9.44
- ----------- ----- ---------- ----
TOTAL INTEREST-
EARNING ASSETS ................ 183,801,000 94.95 15,716,000 8.55
----------- ----- ---------- ----
Allowance for loan losses ...... (1,679,000) (0.87)
Cash and due from banks ........ 6,086,000 3.14
Premises and equipment, net .... 2,247,000 1.16
Other assets ................... 3,581,000 1.85
Net unrealized loss on
securities available for sale . (468,000) (0.24)
-------- -----
TOTAL ASSETS ................... $ 193,568,000 100.00%
============= ======
Liabilities and
Stockholders' Equity
NOW and Super NOW deposits ..... $ 30,081,000 15.54% $ 901,000 3.00%
Savings and insured money
market deposits ............... 52,931,000 27.34 1,646,000 3.11
Time deposits .................. 65,556,000 33.87 3,602,000 5.49
---------- ----- --------- ----
TOTAL INTEREST-
BEARING DEPOSITS .............. 148,568,000 76.75 6,149,000 4.14
----------- ----- --------- ----
Federal funds purchased
and other short-term debt ..... 370,000 0.19 19,000 5.14
Federal Home Loan Bank advances 2,718,000 1.40 119,000 4.38
--------- ---- ------- ----
TOTAL INTEREST-
BEARING LIABILITIES ........... 151,656,000 78.35 6,287,000 4.15
----------- ----- --------- ----
Demand deposits ................ 20,641,000 10.66
Other liabilities .............. 1,400,000 0.72
--------- ----
TOTAL LIABILITIES .............. 173,697,000 89.73
Stockholders' equity ........... 19,871,000 10.27
---------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .......... $ 193,568,000 100.00%
============= ======
Net interest income ............ $ 9,429,000
=============
Net interest spread ............ 4.40%
====
Net interest margin3 ........... 5.13%
====
</TABLE>
1 Yields are calculated on a tax equivalent basis, based on amortized cost.
2 For purpose of this schedule, interest on nonaccruing loans has been included
only to the extent reflected in the consolidated income statement. However, the
nonaccrual loan balances are included in the average amount outstanding. 3
Computed by dividing net interest income by total interest-earning assets.
14
<PAGE>
Volume and Rate Analysis
The following schedule sets forth, for each major category of interest-earning
assets and interest-bearing liabilities, the dollar amount of interest income
(calculated on a tax equivalent basis) and interest expense, and changes therein
for 1997 as compared to 1996, and 1996 as compared to 1995. The changes in
interest income and expense attributable to both rate and volume have been
allocated to rate on a consistent basis.
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Increase (Decrease)
Due to Change In Due to Change In
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest Income
<S> <C> <C> <C> <C> <C> <C>
Investment securities
and securities
available for sale ..... $ 238,000 $ (50,000) $ 188,000 $ (54,000) $ (121,000) $ (175,000)
Short term investments .. 30,000 (5,000) 25,000 (119,000) (2,000) (121,000)
Loans ................... 792,000 (192,000) 600,000 605,000 (242,000) 363,000
------- -------- ------- ------- -------- -------
TOTAL INTEREST
INCOME ................. 1,060,000 (247,000) 813,000 432,000 (365,000) 67,000
--------- -------- ------- ------- -------- ------
Interest Expense
NOW and Super
NOW deposits ........... (19,000) -- (19,000) (51,000) 12,000 (39,000)
Savings and insured
money market deposits .. (88,000) 4,000 (84,000) 85,000 79,000 164,000
Time deposits ........... 468,000 18,000 486,000 25,000 (142,000) (117,000)
Federal funds purchased
and other short-term debt (20,000) (7,000) (27,000) 37,000 7,000 44,000
Federal Home Loan
Bank advances .......... 254,000 55,000 309,000 (70,000) 9,000 (61,000)
------- ------ ------- ------- ----- -------
TOTAL INTEREST
EXPENSE ................ 595,000 70,000 665,000 26,000 (35,000) (9,000)
------- ------ ------- ------ ------- ------
NET INTEREST
INCOME ................. $ 465,000 $ (317,000) $ 148,000 $ 406,000 $ (330,000) $ 76,000
=========== =========== =========== =========== =========== ===========
</TABLE>
15
<PAGE>
Management's Statement of Responsibility
The consolidated financial statements and related information in the 1997 Annual
Report were prepared in conformity with generally accepted accounting
principles. Management is responsible for the integrity and objectivity of the
consolidated financial statements and related
information. Accordingly, it maintains internal controls and accounting policies
and procedures designed to provide reasonable assurance of the accountability
and safeguarding of the Company's assets and of the accuracy of reported
financial information. These controls and procedures include: management
evaluations of asset quality and the impact of economic events; organizational
arrangements that provide an appropriate division of responsibility; and a
program of internal audits to evaluate independently the extent of ongoing
compliance with the Company's adopted policies and procedures. The
responsibility of the Company's independent public accountants, KPMG Peat
Marwick LLP, is limited to the expression of an opinion as to the fair
presentation of the consolidated financial statements based on their audit
conducted in accordance with generally accepted auditing standards. The Board of
Directors, through its Examining Committee, is responsible for insuring that
both management and the independent public accountants fulfill their respective
responsibilities with regard to the consolidated financial statements. The
Examining Committee, which is comprised entirely of directors who are not
officers or employees of the Company, meets periodically with management, the
internal auditor and the independent public accountants. The internal auditor
and independent public accountants have full and free access to and meet with
the Examining Committee, without management being present, to discuss financial
reporting and other relevant matters. The consolidated financial statements have
not been reviewed or confirmed for accuracy or relevance by the Office of the
Comptroller of the Currency.
/s/ Arthur E. Keesler
Arthur E. Keesler
President--Jeffersonville Bancorp
/s/ Raymond Walter
Raymond Walter
President--First National Bank of Jeffersonville
/s/ K. Dwayne Rhodes
K. Dwayne Rhodes
Treasurer--Jeffersonville Bancorp
16
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1997 and 1996
1997 1996
---- ----
Assets
<S> <C> <C> <C>
Cash and due from banks (note 2) ....................... $ 5,563,000 $ 4,723,000
Federal funds sold ..................................... 1,600,000 1,300,000
--------- ---------
Cash and cash equivalents ............................. 7,163,000 6,023,000
Securities available for sale, at fair value (note 3) .. 70,793,000 64,842,000
Investment securities, estimated fair value of
$3,821,000 in 1997 and $3,518,000 in 1996 (note 4) .... 3,738,000 3,401,000
Loans, less allowance for loan losses of $1,862,000
in 1997 and $1,711,000 in 1996 (note 5) ............... 125,793,000 115,605,000
Accrued interest receivable ............................ 1,291,000 1,168,000
Premises and equipment, net (note 6) ................... 2,609,000 2,602,000
Federal Home Loan Bank stock ........................... 753,000 717,000
Other real estate owned (note 7) ....................... 301,000 831,000
Other assets ........................................... 1,218,000 924,000
--------- -------
Total Assets ........................................... $ 213,659,000 $ 196,113,000
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand deposits (non-interest bearing) ............... $ 23,545,000 $ 22,044,000
Now and Super NOW accounts ............................. 27,973,000 26,541,000
Savings and insured money market deposits .............. 54,513,000 53,665,000
Time deposits (note 8) ................................. 73,129,000 70,680,000
- ---------- ----------
Total deposits ......................................... 179,160,000 172,930,000
Federal Home Loan Bank advances (note 9) ............... 10,000,000 --
Short-term debt ........................................ 404,000 529,000
Accrued expenses and other liabilities ................. 1,919,000 1,679,000
--------- ---------
Total liabilities ...................................... 191,483,000 175,138,000
----------- -----------
Commitments and contingent liabilities (note 15) :
Stockholders' equity (note 12)
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; 1,234,711 shares and
1,234,778 shares issued at December 31, 1997
and 1996, respectively ................................. 617,000 617,000
Paid-in capital .................................... 446,000 447,000
Treasury stock at cost; 51,965 shares and
51,984 shares held at December 31, 1997
and 1996, respectively ............................... (206,000) (206,000)
Retained earnings .................................. 20,766,000 19,795,000
Net unrealized gain on securities
available for sale, net of tax ..................... 553,000 322,000
------- -------
Total stockholders' equity ............................. 22,176,000 20,975,000
---------- ----------
Total liabilities and stockholders' equity ............. $ 213,659,000 $ 196,113,000
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
17
<PAGE>
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Interest Income
Loan interest and fees .............. $11,112,000 $10,512,000 $10,149,000
Securities:
Taxable ............................ 3,153,000 2,699,000 2,847,000
Non-taxable ........................ 1,453,000 1,629,000 1,647,000
Federal funds sold .................. 129,000 104,000 225,000
------- ------- -------
Total interest income ............... 15,847,000 14,944,000 14,868,000
---------- ---------- ----------
Interest Expense
Deposits ............................ 6,540,000 6,157,000 6,149,000
Federal Home Loan Bank advances ..... 367,000 58,000 119,000
Other ............................... 36,000 63,000 19,000
------ ------ ------
Total interest expense .............. 6,943,000 6,278,000 6,287,000
--------- --------- ---------
Net interest income ................. 8,904,000 8,666,000 8,581,000
Provision for loan losses (note 5) .. 1,150,000 290,000 160,000
- --------- ------- -------
Net interest income after
provision for loan losses .......... 7,754,000 8,376,000 8,421,000
--------- --------- ---------
Non-interest Income
Service charges ..................... 728,000 651,000 619,000
Net security gains (note 3) ......... 91,000 95,000 33,000
Other non-interest income ........... 431,000 313,000 278,000
------- ------- -------
Total Non-interest INCOME ........... 1,250,000 1,059,000 930,000
--------- --------- -------
Non-interest Expenses
Salaries and wages .................. 2,786,000 2,794,000 2,497,000
Employee benefits (note 14) ......... 942,000 834,000 778,000
Occupancy and equipment expenses .... 1,238,000 1,049,000 936,000
Other real estate owned expenses, net 178,000 283,000 184,000
Other non-interest expenses (note 11) 1,714,000 1,761,000 1,718,000
-- --------- --------- ---------
Total Non-interest EXPENSES ......... 6,858,000 6,721,000 6,113,000
--------- --------- ---------
Income before income taxes expense .. 2,146,000 2,714,000 3,238,000
Income tax expense (note 10) ........ 383,000 569,000 814,000
-- ------- ------- -------
Net income .......................... $ 1,763,000 $ 2,145,000 $ 2,424,000
=========== =========== ===========
Basic earnings per common share1 $ 1.24 $ 1.49 $ 1.61
Average common shares outstanding1 1,419,000 1,441,000 1,503,000
1 All per share amounts and average shares outstanding have been adjusted for
the effect of the 20% stock dividend distributed in February 1998. See note 12.
See accompanying notes to consolidated financial statements.
18
<PAGE>
Consolidated Statements of Changes
in Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net
Unrealized Total
Common Paid-in Treasury Retained Gain (Loss) Stockholders'
Stock Capital Stock Earnings on Securities Equity
----- ------- ----- -------- ------------- ------
Balance at
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994 .. $ 672,000 $ 2,569,000 $ (223,000) $ 16,756,000 $ (1,992,000) $ 17,782,000
Net income .......... -- -- -- 2,424,000 -- 2,424,000
Change in net
unrealized gain
(loss) on securities
available for sale,
net of tax ......... -- -- -- -- 2,613,000 2,613,000
Cash dividends
($0.50 per share)1 . -- -- -- (755,000) -- (755,000)
Purchases and
retirements of
common stock ........ (30,000) (1,170,000) -- -- -- (1,200,000)
------- ---------- ----------
Treasury stock sold . -- 51,000 13,000 -- -- 64,000
Balance at
December 31, 1995 .. 642,000 1,450,000 (210,000) 18,425,000 621,000 20,928,000
Net income .......... -- -- -- 2,145,000 -- 2,145,000
Change in unrealized
gain on securities
available for sale,
net of tax .......... -- -- -- -- (299,000) (299,000)
Cash dividends
($0.54 per share)1 . -- -- -- (775,000) -- (775,000)
Purchases and
retirements
of common stock ..... (25,000) (1,018,000) -- -- -- (1,043,000)
------- ---------- ----------
Treasury stock sold . -- 15,000 4,000 -- -- 19,000
Balance at
December 31, 1996 .. 617,000 447,000 (206,000) 19,795,000 322,000 20,975,000
Net income .......... -- -- -- 1,763,000 -- 1,763,000
Change in unrealized
gain on securities
available for sale,
net of tax .......... -- -- -- -- 231,000 231,000
Cash dividends
($0.56 per share)1 . -- -- -- (792,000) -- (792,000)
Purchases and
retirements
of common stock ..... -- (1,000) -- -- -- (1,000)
------ ------
Balance at
December 31, 1997 .. $ 617,000 $ 446,000 $ (206,000) $ 20,766,000 $ 553,000 $ 22,176,000
=== ==== ============ ============ ============ ============ ============ ============
1All per share amounts have been adjusted for the effect of the 20% stock
dividend distributed in February 1998. See note 12. See accompanying notes to
consolidated financial statements.
</TABLE>
19
<PAGE>
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating Activities
Net income ...................................................... $ 1,763,000 $ 2,145,000 $ 2,424,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan loss s ..................................... 1,150,000 290,000 160,000
Write down of other real estate owned ........................... 119,000 31,000 58,000
Net gain on sales of other real estate owned .................... (137,000) (52,000) (149,000)
Depreciation and amortization ................................... 516,000 423,000 368,000
Deferred income tax benefit ..................................... (55,000) (102,000) (94,000)
Net security gains .............................................. (91,000) (95,000) (33,000)
(Increase) decrease in accrued interest receivable .............. (123,000) 12,000 192,000
(Increase) decrease in other assets ............................. (395,000) 461,000 (396,000)
Increase in accrued expenses and other liabilities ............ 240,000 219,000 984,000
------- ------- -------
Net cash provided by operating activities ....................... 2,987,000 3,332,000 3,514,000
--------- --------- ---------
Investing Activities Proceeds from maturities and calls:
Securities available for sale .................................. 10,443,000 10,873,000 18,412,000
Investment securities .......................................... 770,000 983,000 773,000
Proceeds from sales of securities available for sale ............ 17,345,000 3,812,000 18,496,000
Purchases:
Securities available for sale .................................. (33,261,000) (18,323,000) (24,353,000)
Investment securities .......................................... (1,107,000) (2,602,000) (644,000)
Disbursements for loan originations, net of principal collections (11,690,000) (7,421,000) (8,616,000)
(Purchase) redemption of Federal Home Loan Bank stock ........... (36,000) 19,000 (36,000)
Net purchases of premises and equipment ......................... (523,000) (820,000) (415,000)
Proceeds from sales of other real estate owned .................. 900,000 553,000 619,000
------- ------- -------
Net cash (used in) provided by
investing activities .......................................... (17,159,000) (12,926,000) 4,236,000
----------- ----------- ---------
Financing Activities
Net increase (decrease) in deposits ............................. 6,230,000 8,746,000 (1,347,000)
Proceeds from Federal Home Loan Bank advances ................... 10,000,000 -- --
Repayments of Federal Home Loan Bank advances ................... -- (1,700,000) (1,700,000)
Net (decrease) increase in short-term debt ...................... (125,000) 332,000 (298,000)
Cash dividends paid ............................................. (792,000) (775,000) (755,000)
Purchases and retirements of common stock ....................... (1,000) (1,043,000) (1,200,000)
------ ---------- ----------
Proceeds from sales of treasury stock ........................... -- 19,000 64,000
Net cash provided by (used in)
financing activities .......................................... 15,312,000 5,579,000 (5,236,000)
---------- --------- ----------
Net INCREASE (DECREASe) in cash and
cash equivalents .............................................. 1,140,000 (4,015,000) 2,514,000
Cash and cash equivalents at beginning of year .................. 6,023,000 10,038,000 7,524,000
--------- ---------- ---------
Cash and cash equivalents at end of year ........................ $ 7,163,000 $ 6,023,000 $ 10,038,000
============ ============ ============
Supplemental Information
Cash paid for:
Interest ....................................................... $ 6,934,000 $ 6,153,000 $ 6,314,000
Income taxes ................................................... 700,000 728,000 462,000
Transfer of loans to other real estate owned .................... 352,000 814,000 582,000
Change in net unrealized gain or loss
on securities available for sale, net of tax ................... 231,000 (299,000) 2,613,000
Deferred tax effect of change in net unrealized
gain or loss on securities available for sale .................. (156,000) 206,000 (1,819,000)
======== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
20
<PAGE>
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of Jeffersonville Bancorp (the "Parent
Company") include its wholly-owned subsidiary, The First National Bank of
Jeffersonville (the "Bank"). Collectively, these entities are referred to herein
as the "Company." All significant intercompany transactions have been eliminated
in consolidation. The Parent Company is a bank holding company whose principal
activity is the ownership of all outstanding shares of the Bank's stock. The
Bank is a commercial bank providing community banking services to individuals,
small businesses and local municipal governments in Sullivan County, New York.
The consolidated financial statements have been prepared, in all material
respects, in conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Material estimates that are particularly
susceptible to near-term change include the allowance for loan losses and the
valuation of other real estate owned, which are described below. Actual results
could differ from these estimates. For purposes of the consolidated statements
of cash flows, the Company considers Federal funds sold, if any, to be cash
equivalents. Reclassifications are made to prior years' consolidated financial
statements whenever necessary to conform to the current year's presentation
Securities
Management determines the appropriate classification of securities at the time
of purchase. If management has the positive intent and ability to hold debt
securities to maturity, they are classified as investment securities held to
maturity and are stated at amortized cost. If securities are purchased for the
purpose of selling them in the near term, they are classified as trading
securities and are reported at fair value with unrealized gains and losses
reflected in current earnings. All other debt and marketable equity securities
are classified as securities available for sale and are reported at fair value,
with net unrealized gains or losses reported, net of income taxes, as a separate
component of stockholders' equity. Non-marketable equity securities are carried
at cost. At December 31, 1997 and 1996, the Company had no trading securities.
Gains and losses on sales of securities are based on the net proceeds and the
amortized cost of the securities sold, using the specific identification method.
The amortization of premium and accretion of discount on debt securities is
calculated using the level-yield interest method over the period to the earlier
of the call date or maturity date. Unrealized losses on securities that reflect
a decline in value which is other than temporary, if any, are charged to income.
21
<PAGE>
Loans
Loans are stated at unpaid principal balances, less unearned discounts and the
allowance for loan losses. Unearned discounts on installment loans are accreted
into income using a method which approximates the level-yield interest method.
Interest income is recognized on the accrual basis of accounting. When, in the
opinion of management, the collection of interest is in doubt, the loan is
classified as non-accrual. Generally, loans past due more than 90 days are
classified as non-accrual. Thereafter, no interest is recognized as income until
received in cash or until such time as the borrower demonstrates the ability to
make scheduled payments of interest and principal.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged-off against the allowance when management
believes that the collectability of all or a portion of the principal is
unlikely. Recoveries of loans previously charged-off are credited to the
allowance when realized. The Company identifies impaired loans and measures loan
impairment in accordance with Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as amended
by SFAS No. 118. Under SFAS No. 114, a loan is considered to be impaired when,
based on current information and events, it is probable that the creditor will
be unable to collect all principal and interest contractually due. Creditors are
permitted to measure impaired loans based on (i) the present value of expected
future cash flows discounted at the loan's effective interest rate, (ii) the
loan's observable market price or (iii) the fair value of the collateral if the
loan is collateral dependent. If the approach used results in a measurement that
is less than an impaired loan's recorded investment, an impairment loss is
recognized as part of the allowance for loan losses. 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,
past loan loss experience, the financial condition of individual borrowers, and
underlying collateral values based on independent appraisals. While management
uses available information to recognize 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 may 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.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided over the estimated
useful lives of the assets using straight-line or accelerated methods.
Federal Home Loan Bank Stock
As a member institution of the Federal Home Loan Bank ("FHLB"), the Bank is
required to hold a certain amount of FHLB stock. This stock is considered to be
a non-marketable equity security and, accordingly, is carried at cost since
there is no readily available market value.
22
<PAGE>
Other Real Estate Owned
Other real estate owned consists of properties acquired through foreclosure and
loans classified as in-substance foreclosures. In accordance with SFAS No. 114,
a loan is classified as an in-substance foreclosure when the Company has taken
possession of the collateral regardless of whether formal foreclosure
proceedings have taken place. Other real estate owned is stated on an
individual-asset basis at the lower of (i) fair value less estimated costs to
sell or (ii) "cost" (defined as the fair value at initial foreclosure). When a
property is acquired or a loan is classified as an in-substance foreclosure, the
excess of the loan balance over the fair value of the property is charged to the
allowance for loan losses. If necessary, subsequent write downs to reflect
further declines in fair value are included in non-interest expenses. Fair value
estimates are based on independent appraisals and other available information.
While management estimates real estate owned losses using the best available
information, such as independent appraisals, future write downs may be necessary
based on changes in real estate market conditions, particularly in Sullivan
County, and the results of regulatory examinations.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to "temporary differences" between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets are reduced by a valuation allowance
when management determines that it is more likely than not that all or a portion
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Earnings Per Common Share
The Company has adopted SFAS No. 128, "Earnings per Share," which establishes
new standards for the computation and presentation of basic and diluted earnings
per share ("EPS"). Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Entities with complex capital structures must
also present diluted EPS which reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common shares. The Company does not have a complex capital
structure and, accordingly, has presented only basic EPS. The Company has
restated prior years' EPS data to reflect its adoption of SFAS No. 128 and the
20% stock dividend distributed in February 1998 (see note 12).
2. Cash and Due From Banks
The Bank is required to maintain certain reserves in the form of vault cash
and/or deposits with the Federal Reserve Bank. The amount of this reserve
requirement, which is included in cash and due from banks, was approximately
$1,000,000 at both December 31, 1997 and 1996.
23
<PAGE>
3. Securities Available for Sale
The amortized cost and estimated fair values of securities available for sale
are as follows at December 31: December 31, 1997
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agency securities $23,036,000 $ 53,000 $ (58,000) $23,031,000
Obligations of states and
political subdivisions ......... 18,394,000 937,000 (2,000) 19,329,000
Mortgage-backed
securities and collateralized
mortgage obligations ............ 26,495,000 70,000 (83,000) 26,482,000
Corporate debt securities ....... 610,000 3,000 -- 613,000
------- ----- -------
Total debt securities ........... 68,535,000 1,063,000 (143,000) 69,455,000
Equity securities ............... 1,323,000 16,000 (1,000) 1,338,000
--------- ------ ------ ---------
$69,858,000 $ 1,079,000 $ (144,000) $70,793,000
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities ............ $ 100,000 $ -- $ -- $ 100,000
U.S. Government agency securities ... 15,400,000 -- (170,000) 15,230,000
Obligations of states and
political subdivisions ............. 27,419,000 954,000 (73,000) 28,300,000
Mortgage-backed securities and
collateralized mortgage obligations 20,293,000 41,000 (187,000) 20,147,000
Corporate debt securities ........... 509,000 -- (8,000) 501,000
------- ------ -------
Total debt securities ............... 63,721,000 995,000 (438,000) 64,278,000
Equity securities ................... 573,000 -- (9,000) 564,000
------- ------ -------
$ 64,294,000 $ 995,000 $ (447,000) $ 64,842,000
============ ============ ============ ============
</TABLE>
24
<PAGE>
The net unrealized gain on available for sale securities was $935,000 ($553,000
after taxes) at December 31, 1997 and $548,000 ($322,000 after taxes) at
December 31, 1996. Changes in unrealized holding gains and losses during 1997,
1996 and 1995 resulted in pre-tax increases (decreases) in stockholders' equity
of $387,000, ($505,000) and $4,432,000, respectively. These gains and losses
will continue to fluctuate based on changes in the portfolio and market
conditions. Proceeds from sales of securities available for sale during 1997,
1996 and 1995 were $17,345,000, $3,812,000 and $18,496,000, respectively. Gross
gains and gross losses realized on these transactions were as follows:
1997 1996 1995
---- ---- ----
Gross realized gains $ 155,000 $ 96,000 $ 380,000
Gross realized losses (64,000) (1,000) (347,000)
------- ------ --------
Net security gains $ 91,000 $ 95,000 $ (33,000)
========= ========= =========
The amortized cost and estimated fair value of debt securities available for
sale at December 31, 1997, by remaining period to contractual maturity, are
shown in the following table. Actual maturities will differ from contractual
maturities because of security prepayments and the right of certain issuers to
call or prepay their obligations.
Amortized Estimated
Cost Fair Value
---- ----------
Within one year . $22,952,000 $22,895,000
One to five years 29,005,000 29,487,000
Five to ten years 9,764,000 10,132,000
Over ten years .. 6,814,000 6,941,000
--------- ---------
$68,535,000 $69,455,000
=========== ===========
Substantially all mortgage-backed securities and collateralized mortgage
obligations are securities guaranteed by Freddie Mac or Fannie Mae (U.S.
government-sponsored entities). Securities available for sale with an estimated
fair value of $36,195,000 at December 31, 1997 were pledged to secure public
funds on deposit and for other purposes required by law.
25
<PAGE>
4. Investment Securities
The amortized cost and estimated fair values of investment securities
are as follows as of December 31: December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Obligations of states and
political subdivisions . $3,738,000 $ 86,000 $ (3,000) $3,821,000
========== ========== ========== ==========
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Obligations of states and
political subdivisions . $3,401,000 $ 118,000 $ (1,000) $3,518,000
========== ========== ========== ==========
The amortized cost and estimated fair value of these securities at December 31,
1997, by remaining period to contractual maturity, are shown in the following
table. Actual maturities will differ from contractual maturities because certain
issuers have the right to call or prepay their obligations
Amortized Estimated
Cost Fair Value
---- ----------
Within one year . $ 923,000 $ 940,000
One to five years 2,391,000 2,439,000
Five to ten years 387,000 400,000
Over ten years .. 37,000 42,000
------ ------
$3,738,000 $3,821,000
========== ==========
There were no sales of investment securities in 1997, 1996 or 1995.
26
<PAGE>
5. Loans
The major classifications of loans are as follows at December 31:
1997 1996
---- ----
Real estate loans:
Residential ............. $ 65,599,000 $ 67,577,000
Commercial .............. 21,921,000 15,689,000
Farm land ............... 1,550,000 1,560,000
Construction ............ 1,348,000 1,636,000
Home equity ............. 7,677,000 4,331,000
--------- ---------
98,095,000 90,793,000
---------- ----------
Other loans:
Commercial loans ........ 12,314,000 9,960,000
Consumer installment loans 18,907,000 17,846,000
Other consumer loans ..... 1,437,000 1,567,000
Agricultural loans ....... 446,000 542,000
------- -------
33,104,000 29,915,000
---------- ----------
Total loans .............. 131,199,000 120,708,000
Unearned discounts ....... (3,544,000) (3,392,000)
Allowance for loan losses (1,862,000) (1,711,000)
---------- ----------
TOTAL LOANS, net ......... $ 125,793,000 $ 115,605,000
============= =============
The Company originates residential and commercial real estate loans, as well as
commercial, agricultural and consumer loans, to borrowers in Sullivan County,
New York. A substantial portion of the loan portfolio is secured by real estate
properties located in that area. The ability of the
Company's borrowers to make principal and interest payments is dependent upon,
among other things, the level of overall economic activity and the real estate
market conditions prevailing within the Company's concentrated lending area.
27
<PAGE>
Non-performing loans are summarized as follows at December 31:
1997 1996 1995
---- ---- ----
Non-accrual loans ............ $3,324,000 $2,572,000 $2,475,000
Restructured loans ........... -- 481,000 841,000
Loans past due 90 days or more
and still accruing interest . 368,000 1,423,000 863,000
------- --------- -------
Total non-performing loans ... $3,692,000 $4,476,000 $4,179,000
========== ========== ==========
Non-performing loans
as a percentage of total loans 2.8% 3.7% 3.6%
=== === ===
The effects of non-accrual and restructured loans on interest income were as
follows for the years ended December 31:
1997 1996 1995
---- ---- ----
Interest contractually due at original rates $ 285,000 $ 280,000 $ 402,000
Interest income recognized ................. (124,000) (200,000) (192,000)
-------- -------- --------
Interest income not recognized ............. $ 161,000 $ 80,000 $ 210,000
========= ========= =========
Changes in the allowance for loan losses are summarized as follows for the years
ended December 31:
1997 1996 1995
---- ---- ----
Balance at beginning of the year $ 1,711,000 $ 1,629,000 $ 1,592,000
Provision for loan losses ...... 1,150,000 290,000 160,000
Loans charged-off .............. (1,255,000) (346,000) (384,000)
Recoveries ..................... 256,000 138,000 261,000
------- ------- -------
Balance at end of the year $1,862,000 $1,711,000 $1,629,000
========== ========== ==========
SFAS No. 114 applies to loans that are individually evaluated for collectibility
in accordance with the Company's ongoing loan review procedures (principally
commercial mortgage loans and commercial loans). As of December 31, 1997 and
1996, the recorded investment in loans that are considered to be impaired under
SFAS No. 114 totaled $1,550,000 and $1,922,000, 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.
During 1997, 1996 and 1995, the average recorded investment in impaired loans
was $1,564,000, $1,668,000 and $1,634,000, respectively. Interest income of
$124,000, $146,000 and $83,000 was recognized on impaired loans during 1997,
1996 and 1995, respectively, using a cash-basis method of accounting
28
<PAGE>
6. Premises and Equipment
The major classifications of premises and equipment are as follows at December
31:
1997 1996
---- ----
Land ......................................... $ 392,000 $ 376,000
Buildings .................................... 2,121,000 2,112,000
Furniture and fixtures ....................... 414,000 399,000
Equipment .................................... 3,588,000 3,150,000
Building and leasehold improvements .......... 500,000 387,000
Construction in progress ..................... 1,000 69,000
----- ------
7,016,000 6,493,000
Less accumulated depreciation and amortization 4,407,000 3,891,000
--------- ---------
$2,609,000 $2,602,000
========== ==========
Depreciation and amortization expense was $516,000, $423,000 and $368,000 in
1997, 1996 and 1995, respectively.
7. Other Real Estate Owned
At December 31, 1997, real estate owned represented ten foreclosed properties.
Property distribution consisted of one commercial, two vacant land and seven
one- to four- family properties. At December 31, 1996, real estate owned
represented fifteen foreclosed properties. Property distribution consisted of
three commercial, three vacant land and nine one- to four- family properties.
8.Time Deposits
The approximate amount of contractual maturities of time deposit accounts at
December 31, 1997 are as follows:
1997
----
Within one year .... $50,966,000
One to two years ... 14,604,000
Two to three years 3,559,000
Three to four years 2,368,000
Over four years ... 1,632,000
---------
$73,129,000
===========
Individual time deposits of $100,000 or more totaled $9,109,000 at December 31,
1997 and $10,535,000 at December 31, 1996. Interest expense related to time
deposits over $100,000 was $659,000, $422,000 and $344,000 for 1997, 1996 and
1995, respectively.
29
<PAGE>
9. Federal Home Loan Bank Advances
FHLB borrowings of $10,000,000 at December 31, 1997 represented two
variable-rate advances with an average interest rate of 5.70%. These advances
are due in 1998. As a member of the FHLB of New York, the Bank may have
outstanding FHLB advances of up to approximately $20,651,000 at December 31,
1997, in a combination of term advances and overnight funds. The Bank's unused
FHLB borrowing capacity was approximately $10,651,000 at December 31, 1997.
Borrowings are secured by the Bank's investment in FHLB stock and by a blanket
security agreement. This agreement requires the Bank to maintain as collateral
certain qualifying assets (principally securities and residential mortgage
loans) not otherwise pledged. The Bank satisfied this collateral requirement at
December 31, 1997.
10. Income Taxes
The components of income tax expense are as follows for the years ended December
31:
1997 1996 1995
---- ---- ----
Current tax expense:
Federal ........... $ 439,000 $ 470,000 $ 622,000
State ............. 143,000 201,000 286,000
Deferred tax benefit (199,000) (102,000) (94,000)
-------- -------- -------
$ 383,000 $ 569,000 $ 814,000
========= ========= =========
The reasons for the differences between income tax expense and the amount
computed by applying the statutory Federal tax rate of 34% to income before
income taxes are as follows:
1997 1996 1995
---- ---- ----
Tax at statutory rate ................. $ 730,000 $ 923,000 $ 1,101,000
State taxes, net of Federal tax benefit 81,000 123,000 168,000
Tax-exempt interest ................... (494,000) (554,000) (560,000)
Interest expense allocated
to tax-exempt securities ............. 62,000 63,000 74,000
Other adjustments ..................... 4,000 14,000 31,000
----- ------ ------
Income tax expense .................... $ 383,000 $ 569,000 $ 814,000
=========== =========== ===========
30
<PAGE>
The tax effects of temporary differences and tax credits that give rise to
deferred tax assets and liabilities at December 31 are presented below
:
1997 1996
---- ----
Deferred tax assets:
Allowance for loan losses in
excess of tax bad debt reserve ........ $ 487,000 $ 467,000
Interest on non-accrual loans .......... 174,000 155,000
Alternative minimum tax credit ......... 183,000 64,000
Postretirement benefits ................ 56,000 --
------
Total deferred tax assets ............... 900,000 686,000
------- -------
Deferred tax liabilities:
Prepaid expenses ....................... (186,000) (173,000)
Other taxable temporary differences .... (63,000) (61,000)
------- -------
Total deferred tax liabilities .......... (249,000) (234,000)
Net deferred tax asset .................. 651,000 452,000
Deferred tax liability for net unrealized
gain on securities available for sale .. (382,000) (226,000)
-------- --------
Net deferred tax asset .................. $ 269,000 $ 226,000
========= =========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based upon management's consideration of historical
and anticipated future pre-tax income, as well as the reversal period for the
items giving rise to the deferred tax assets, a valuation allowance was not
considered necessary at December 31, 1997 and 1996.
11. Other Non-Interest Expenses
The major components of other non-interest expenses are as follows for the years
ended December 31:
1997 1996 1995
----------------------------
Stationery and supplies ........... $ 215,000 $ 206,000 $ 198,000
Director expenses ................. 230,000 254,000 237,000
ATM and credit card processing fees 222,000 178,000 157,000
Federal deposit insurance costs ... 21,000 2,000 190,000
Other expenses .................... 1,026,000 1,121,000 936,000
--------- --------- -------
$1,714,000 $1,761,000 $1,718,000
========== ========== ==========
31
<PAGE>
12. Stockholders' Equity
Regulatory Capital Requirements National banks are required to maintain minimum
levels of regulatory capital in accordance with regulations of the Office of the
Comptroller of the Currency ("OCC"). The Federal Reserve Board ("FRB") imposes
similar requirements for consolidated capital of bank holding companies. The OCC
and FRB regulations require a minimum leverage ratio of Tier 1 capital to total
adjusted assets of 4.0%, and minimum ratios of Tier I and total capital to
risk-weighted assets of 4.0% and 8.0%, respectively. Under its prompt corrective
action regulations, the OCC is required to take certain supervisory actions (and
may take additional discretionary actions) with respect to an undercapitalized
bank. Such actions could have a direct material effect on a bank's financial
statements. The regulations establish a framework for the classification of
banks into five categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, a bank is considered well capitalized if it has a
leverage (Tier I) capital ratio of at least 5.0%; a Tier 1 risk-based capital
ratio of at least 6.0%; and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by the regulators about capital components,
risk weightings and other factors. Management believes that, as of December 31,
1997 and 1996, the Bank and the Parent Company met all capital adequacy
requirements to which they are subject. Further, the most recent OCC
notification categorized the Bank as a well-capitalized bank under the prompt
corrective action regulations. There have been no conditions or events since
that notification that management believes have changed the Bank's capital
classification. The following is a summary of the actual capital amounts and
ratios as of December 31, 1997 and 1996 for the Bank and the Parent Company
(consolidated), compared to the required ratios for minimum capital adequacy and
for classification as well-capitalized:
1997 Required Ratios
- ---- ---------------
Actual Minimum Capital Classification as
Amount Ratio Adequacy Well Capitalized
------ ----- -------- ----------------
Bank
Leverage (Tier I) capital $19,042,000 8.8% 4.0% 5.0%
Risk-based capital:
Tier I ................. 19,042,000 16.0 4.0 6.0
Total .................. 20,506,000 17.2 8.0 10.0
Consolidated
Leverage (Tier I) capital $21,623,000 10.0% 4.0%
Risk-based capital:
Tier I ................. 21,623,000 17.7 4.0
Total .................. 23,117,000 19.0 8.0
32
<PAGE>
1996 Required Ratios
- ---- ---------------
Actual Minimum Capital Classification as
Amount Ratio Adequacy Well Capitalized
------ -------------- ----------------
Bank
Leverage (Tier I) capital $18,782,000 9.4% 4.0% 5.0%
Risk-based capital:
Tier I ................. 18,782,000 17.8 4.0 6.0
Total .................. 20,105,000 19.1 8.0 10.0
Consolidated
Leverage (Tier I) capital $20,653,000 10.4% 4.0%
Risk-based capital:
Tier I ................. 20,653,000 19.3 4.0
Total .................. 21,996,000 20.6 8.0
Basic Earnings Per Common Share
Basic earnings per common share was computed based on average outstanding common
shares of 1,419,000 in 1997, 1,441,000 in 1996 and 1,503,000 in 1995, all of
which have been adjusted for the effect of the 20% stock dividend distributed in
February 1998. For purposes of computing basic earnings per share, income
available to common stockholders equaled net income for 1997, 1996 and 1995.
Stock Dividend
On January 14, 1998, the Parent Company announced a 20% stock
dividend payable on February 10, 1998 to common stockholders of record as of
January 27, 1998. Under the terms of the dividend, stockholders received a
dividend of one share of common stock for every five shares owned as of the
record date, plus cash in lieu of any fractional shares. A total of 236,514
common shares were issued in connection with the stock dividend
.
Dividend Restrictions
Dividends paid by the Bank are the primary source of funds
available to the Parent Company for payment of dividends to its stockholders and
for other working capital needs. Applicable Federal statutes, regulations and
guidelines impose restrictions on the amount of dividends that may be declared
by the Bank. Under these restrictions, the dividends declared and paid by the
Bank to the Parent Company may not exceed the total amount of the Bank's net
profit retained in the current year plus its retained net profits, as defined,
from the two preceding years. As of December 31, 1997, this total amount was
approximately $370,000.
Preferred Stock Purchase Rights
On July 9, 1996, the Board of Directors declared a dividend distribution of one
purchase right ("Right") for each outstanding share of Parent Company common
stock ("Common Stock"), to stockholders of record at the close of business on
July 9, 1996. The Rights have a 10-year term. The Rights become exercisable (i)
10 days following a public announcement that a person or group has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of Common Stock, or (ii) 10 days following the commencement
of a tender offer or exchange offer that, if successful, would result in an
acquiring person or group beneficially owning 30% or more of the outstanding
Common Stock (unless such tender or exchange offer is predicated upon the
redemption of the Rights). When the Rights become exercisable, a holder is
33
<PAGE>
entitled to purchase one one-hundredth of a share, subject to adjustment, of
Series A Preferred Stock of the Parent Company or, upon the occurrence of
certain events described below, Common Stock of the Parent Company or common
stock of an entity that acquires the Company. The purchase price per one
one-hundredth of a share of Series A Preferred Stock ("Purchase Price") will
equal the Board of Directors' judgment as to the "long-term investment value" of
one share of Common Stock at the end of the 10-year term of the Rights. Upon the
occurrence of certain events (including certain acquisitions of more than 20% of
the Common Stock by a person or group), each holder of an unexercised Right will
be entitled to receive Common Stock having a value equal to twice the Purchase
Price of the Right. Upon the occurrence of certain other events (including
acquisition of the Parent Company in a merger or other business combination in
which the Parent Company is not the surviving corporation), each holder of an
unexercised Right will be entitled to receive common stock of the acquiring
person having a value equal to twice the Purchase Price of the Right. The Parent
Company may redeem the Rights (to the extent not exercised) at any time, in
whole but not in part, at a price of $0.01 per Right.
13. Related Party
Transactions Certain directors and executive officers of the Company, as well as
certain affiliates of these directors and officers, have engaged in loan
transactions with the Company. Such loans were made in the ordinary course of
business at the Company's normal terms, including interest rates and collateral
requirements, and do not represent more than normal risk of collection.
Outstanding loans to these related parties are summarized as follows at December
31:
1997 1996
---- ----
Directors ....................... $1,214,000 $ 720,000
Executive officers (non-director) 135,000 136,000
------- -------
$1,349,000 $ 856,000
========== ==========
Total advances to these directors and officers during the years 1997 and 1996
were $926,000 and $577,000, respectively. Total payments made on these loans
were $433,000 in 1997 and $615,000 in 1996. These directors and officers had
unused lines of credit with the Company of $252,000 at December 31, 1997.
14.Employee Benefit Plans
Pension Plan The Company has a non-contributory defined benefit pension plan
covering substantially all of its employees. The benefits are based on years of
service and the employee's
average compensation during the five consecutive years in the last ten years of
employment affording the highest such average. The Company's funding policy is
to contribute annually an amount sufficient to satisfy the minimum funding
requirements of ERISA, but not greater than the maximum amount that can be
deducted for Federal income tax purposes. Contributions are intended to provide
not only for benefits attributed to service to date, but also for benefits
expected to be earned in the future.
34
<PAGE>
The following is a reconciliation of the plan's funded status and the amounts
recognized in the consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accumulated benefit obligation, including vested benefits
of $2,066,000 in 1997 and $1,948,000 in 1996 ........... $(2,079,000) $(1,958,000)
========== ==== ========== ==== =========== ===========
Projected benefit obligation for service rendered to date $(2,732,000) $(2,605,000)
Plan assets at fair value, primarily listed stocks and
U.S. Government securities ............................. 2,660,000 2,139,000
--------- ---------
Projected benefit obligation in excess of plan assets ... (72,000) (466,000)
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions 435,000 797,000
Unrecognized prior service cost ......................... (32,000) (49,000)
Unrecognized net transition obligation .................. (35,000) (40,000)
------- -------
Prepaid pension cost .................................... $ 296,000 $ 242,000
=========== ===========
</TABLE>
Net pension expense included the following components:
1997 1996 1995
---- ---- ----
Service cost (benefits earned during the year)$ 118,000 $ 112,000 $ 90,000
Interest cost on projected benefit obligation 181,000 172,000 157,000
Return on plan assets ........................ (459,000) (195,000) (205,000)
Net amortization and deferral ................ 301,000 60,000 72,000
------- ------ ------
Net pension expense ..........................$ 141,000 $ 149,000 $ 114,000
========= ========= =========
Following are the significant assumptions used in determining the actuarial
present value of the projected benefit obligation at December 31:
1997 1996 1995
---- ---- ----
Weighted average discount rate 7.25 7.25 7.25%
Increase in future compensation 5.00 5.00 5.00%
The expected long-term rate of return on plan assets was 8.50% for 1997, 1996
and 1995.
35
<PAGE>
The Company accounts for the cost of these postretirement benefits in accordance
with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Accordingly, the cost of these benefits is recognized on an accrual
basis as employees perform services to earn the benefits. The Company adopted
SFAS No. 106 as of January 1, 1993 and elected to amortize the accumulated
benefit obligation at that date ("transition obligation") into expense over the
allowed period of 20 years. The following is a reconciliation of the plan's
unfunded benefit obligations and the amounts recognized in the consolidated
balance sheets at December 31:
1997 1996
---- ----
Accumulated postretirement benefit obligation:
Retirees .............................. $(385,000) $(207,000)
Fully-eligible active plan participants (40,000) (52,000)
Other active plan participants ........ (564,000) (341,000)
-------- --------
(989,000) (600,000)
Unrecognized transition obligation ..... 276,000 294,000
Unrecognized net loss (gain) ........... 156,000 (149,000)
------- --------
Accrued postretirement benefit cost .... $(557,000) $(455,000)
========= =========
Net postretirement benefit expense included the following components:
1997 1996 1995
---- ---- ----
Service cost (benefits earned during the year) $ 52,000 $ 34,000 $ 52,000
Interest cost on accumulated benefit obligation 60,000 39,000 59,000
Net amortization and deferral ................. 19,000 14,000 24,000
------ ------ ------
Net postretirement benefit expense ............ $131,000 $ 87,000 $135,000
======== ======== ========
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.00% at December 31, 1997, and 7.25% at both December 31, 1996
and 1995. For measurement purposes at December 31, 1997, an 8.00% annual rate of
increase in the per capita cost of covered health care benefits was assumed for
medical coverage in 1998; the rate was assumed to decrease gradually to 4.00% by
2001 and to remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. Increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1997 by approximately $155,000 and the aggregate of the service and interest
cost components of the net postretirement benefit expense by approximately
$28,000.
36
<PAGE>
Tax-Deferred Savings Plan
The Company maintains a qualified 401(k) plan for all employees, which permits
tax-deferred employee contributions up to 15% of salary and provides for
matching contributions by the Company. Beginning in 1996, the Company matches
100% of employee contributions up to 4% of the employee's salary and 25% of the
next 2% of the employee's salary. The Company continues to match 25% of employee
contributions beyond 6% of the employee's salary until the total matching
contribution reaches $1,500 or 15%. For 1995, the Company contributed a maximum
of fifty cents for each dollar contributed by each participating employee, up to
a maximum of $1,500 per employee. The Company contributed approximately $117,000
in 1997, $93,000 in 1996 and $53,000 in 1995.
15. Commitments and Contingent Liabilities
Legal Proceedings
The Parent Company and the Bank are, from time to time, defendants in legal
proceedings relating to the conduct of their business. In the best judgment of
management, the consolidated financial position of the Company will not be
affected materially by the outcome of any pending legal proceedings.
Off-Balance-Sheet Financial Instruments
The Company is a party to certain financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These are limited to commitments to extend credit and standby letters
of credit which involve, to varying degrees, elements of credit risk in excess
of the amounts recognized in the consolidated balance sheets. The contract
amounts of these instruments reflect the extent of the Company's involvement in
particular classes of financial instruments. The Company's maximum exposure to
credit loss in the event of non-performance by the other party to these
instruments represents the contract amounts, assuming that they are fully funded
at a later date and any collateral proves to be worthless. The Company uses the
same credit policies in making commitments as it does for on-balance-sheet
extensions of credit. Contract amounts of financial instruments that represent
agreements to extend credit are as follows at December 31:
1997 1996
---- ----
Loan origination commitments
and unused lines of credit:
Mortgage loans ........ $ 1,475,000 $ 1,468,000
Commercial loans ...... 6,544,000 4,512,000
Credit card lines ..... 2,606,000 2,544,000
Home equity lines ..... 1,902,000 1,730,000
Other revolving credit 1,294,000 1,265,000
--------- ---------
13,821,000 11,519,000
Standby letters of credit 453,000 140,000
------- -------
$14,274,000 $11,659,000
=========== ===========
37
<PAGE>
These agreements to extend credit have been granted to customers within the
Company's lending area described in note 5 and relate primarily to fixed-rate
loans. Loan origination commitments and lines of credit are agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. These agreements generally have fixed expiration dates or other
termination clauses and may require payment of a fee by the customer. Since
commitments and lines of credit may expire without being fully drawn upon, the
total contract amounts do not necessarily represent future cash requirements.
The Company evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral, if any, required by the Company upon the extension of
credit is based on management's credit evaluation of the customer. Mortgage
commitments are secured by a first lien on real estate. Collateral on extensions
of credit for commercial loans varies but may include accounts receivable,
equipment, inventory, livestock and income-producing commercial property.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. These guarantees are
primarily issued to support borrowing arrangements. The credit risk involved in
issuing standby letters of credit is essentially the same as that involved in
extending loan facilities to customers
16. Fair Values of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values for its on- and
off-balance-sheet financial instruments. SFAS No. 107 defines fair value as the
amount at which the financial instrument could be exchanged in a current
transaction between parties other than in a forced or liquidation sale. Fair
value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holding of a particular financial instrument, nor
do they reflect possible tax ramifications or transaction costs. Because no
market exists for a significant portion of the Company's financial instruments,
fair value estimates are based on judgments regarding future expected net cash
flows, current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment, and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. Fair value estimates are based on existing on- and
off-balance-sheet financial instruments without attempting to estimate the value
of anticipated future business or the value of non-financial assets and
liabilities such as premises and equipment. In addition, there are significant
unrecognized intangible assets that are not included in these fair value
estimates, such as the value of "core deposits" and the Company's branch
network.
38
<PAGE>
The following is a summary of the net carrying values and estimated fair values
of the Company's financial assets and liabilities (none of which were held for
trading purposes) at December 31:
December 31, 1997
Net Carryi Estimated
Value Fair Value
----- ----------
Financial Assets:
Cash and cash equivalents ..... $ 7,163,000 $ 7,163,000
Securities available for sale . 70,793,000 70,793,000
Investment securities ......... 3,738,000 3,821,000
Loans ......................... 125,793,000 127,054,000
Accrued interest receivable ... 1,291,000 1,291,000
Federal Home Loan Bank stock .. 753,000 753,000
Financial Liabilities:
Demand deposits
(non-interest bearing) ....... 23,545,000 23,545,000
Interest-bearing deposits ..... 155,615,000 155,678,000
Federal Home Loan Bank advances 10,000,000 10,000,000
Short-term debt ............... 404,000 404,000
Accrued interest payable ...... 610,000 610,000
December 31, 1996
Net Carrying Estimated
Value Fair Value
----- ----------
Financial Assets:
Cash and cash equivalents ... $ 6,023,000 $ 6,023,000
Securities available for sale 64,482,000 64,482,000
Investment securities ....... 3,401,000 3,518,000
Loans ....................... 115,605,000 116,992,000
Accrued interest receivable . 1,168,000 1,168,000
Federal Home Loan Bank stock 717,000 717,000
Financial Liabilities:
Demand deposits
(non-interest bearing) ..... 22,044,000 22,044,000
Interest-bearing deposits ... 150,886,000 151,043,000
Short-term debt ............. 529,000 529,000
Accrued interest payable .... 601,000 601,000
39
<PAGE>
The specific estimation methods and assumptions used can have a substantial
impact on the estimated fair values. The following is a summary of the
significant methods and assumptions used by the Company to estimate the fair
values shown in the preceding table:
Securities
The carrying values for securities maturing within 90 days
approximate fair values because there is little interest rate or credit risk
associated with these instruments. The fair values of longer-term securities are
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair values of certain state
and municipal securities are not readily available through market sources;
accordingly, fair value estimates are based on quoted market prices of similar
instruments, adjusted for any significant differences between the quoted
instruments and the instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, consumer, real
estate and other loans. Each loan category is further segregated into fixed and
adjustable rate interest terms and by performing and non-performing categories.
The fair values of performing loans are calculated by discounting scheduled cash
flows through estimated maturity using estimated market discount rates that
reflect the credit and interest rate risks inherent in the loans. Estimated
maturities are based on contractual terms and repricing opportunities. The fair
values of non-performing loans are based on recent external appraisals and
discounted cash flow analysis. Estimated cash flows are discounted using a rate
commensurate with the risk associated with the estimated cash flows. Assumptions
regarding credit risk, cash flows and discount rates are judgementally
determined using available market information and specific borrower information.
Deposit Liabilities
The fair values of deposits with no stated maturity (such as checking, savings
and money market deposits) equal the carrying amounts payable on demand. The
fair values of time deposits are based on the discounted value of contractual
cash flows (but are not less than the net amount at which depositors could
settle their accounts). The discount rates are estimated based on the rates
currently offered for time deposits with similar remaining maturities.
Federal Home Loan Bank
Advances The fair value was estimated by discounting scheduled cash flows
through maturity using current market rates.
Other Financial Instruments
The fair values of cash and cash equivalents, FHLB stock, accrued interest
receivable, accrued interest payable and other short-term debt approximated
their carrying values at December 31, 1997 and 1996. The fair values of the
agreements to extend credit described in note 15 are estimated based on the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value estimates also
consider the difference between current market interest rates and the committed
rates. At December 31, 1997 and 1996, the fair values of these financial
instruments approximated the related carrying values which were not significant
40
<PAGE>
17. Recent Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income", which establishes standards for reporting
and displaying comprehensive income. SFAS No. 130 states that comprehensive
income includes the reported net income of a company adjusted for items that are
currently accounted for as direct entries to equity, such as the net unrealized
gain or loss on securities available for sale. This Statement is effective for
fiscal years beginning after December 15, 1997. Management will provide the
required information for inclusion in the Company's 1998 consolidated financial
statements. In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which establishes standards
for reporting by public companies about operating segments of their business.
SFAS No. 131 also establishes standards for disclosure of entity-wide financial
information about products and services, geographic areas and major customers.
This Statement is effective for fiscal years beginning after December 15, 1997.
Management will provide the required information for inclusion in the Company's
1998 annual consolidated financial statements.
41
<PAGE>
18. Condensed Parent Company Financial Statements
The following are the condensed parent company only financial statements for
Jeffersonville Bancorp:
Balance Sheets
(Parent Company Only)
As of December 31,
1997 1996
---- ----
Assets
Cash ....................................... $ 95,000 $ 155,000
Securities available for sale, at fair value 1,296,000 523,000
Investment in subsidiary ................... 19,586,000 19,112,000
Premises and equipment, net ................ 1,272,000 1,324,000
Other assets ............................... 21,000 --
------
Total assets ............................... $22,270,000 $21,114,000
=========== ===========
Liabilities and Stockholders' Equity
Liabilities ................................ $ 94,000 $ 139,000
Stockholders' equity ....................... 22,176,000 20,975,000
---------- ----------
Total liabilities and stockholders' equity $22,270,000 $21,114,000
=========== ===========
Statements
of Income
(Parent Company Only)
For Years Ended December 31, 1997 1996 1995
- ---------------------------- ---- ---- ----
Dividend income from subsidiary ... $ 1,375,000 $ 2,253,000 $ 2,090,000
Dividend income on securities
available for sale ................ 72,000 -- --
------
1,447,000 2,253,000 2,090,000
--------- --------- ---------
Rental income from subsidiary ..... 245,000 246,000 209,000
------- ------- -------
Occupancy and equipment expenses .. 62,000 63,000 53,000
Other non-interest expense ........ 34,000 100,000 41,000
------ ------- ------
96,000 163,000 94,000
------ ------- ------
Income before income taxes and
undistributed income of subsidiary 1,596,000 2,336,000 2,205,000
Income tax expense ................ 93,000 34,000 47,000
------ ------ ------
Income before undistributed
income of subsidiary ............. 1,503,000 2,302,000 2,158,000
Equity in undistributed
income of subsidiary ............. 260,000 (157,000) 266,000
------- -------- -------
Net income ........................ $ 1,763,000 $ 2,145,000 $ 2,424,000
=========== =========== ===========
42
<PAGE>
<TABLE>
<CAPTION>
Statements
of Cash Flows
(Parent Company Only)
For Years Ended December 31, 1997 1996 1995
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income .............................. $ 1,763,000 $ 2,145,000 $ 2,424,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income
of subsidiary ............................ (260,000) 157,000 (266,000)
Depreciation and amortization ........... 62,000 63,000 53,000
Other adjustments, net .................. (72,000) 27,000 9,000
------- ------ -----
Net cash provided
by operating activities .................. 1,493,000 2,392,000 2,220,000
--------- --------- ---------
Investing Activities
Purchases of securities available for sale (750,000) (500,000) --
Purchases of premises and equipment ....... (10,000) (90,000) (245,000)
------- ------- --------
cash used in investing activities ......... (760,000) (590,000) (245,000)
-------- -------- --------
Financing Activities
Cash dividends paid ....................... (792,000) (775,000) (755,000)
Purchases and retirements of common stock . (1,000) (1,043,000) (1,200,000)
Proceeds from sales of treasury stock ..... -- 19,000 64,000
------ ------ ------
Net cash used in financing activities ..... (793,000) (1,799,000) (1,891,000)
-------- ---------- ----------
Net (decrease) increase in cash ........... (60,000) 3,000 84,000
Cash at beginning of year ................. 155,000 152,000 68,000
------- ------- ------
Cash at end of year ....................... $ 95,000 $ 155,000 $ 152,000
=========== =========== ===========
</TABLE>
43
<PAGE>
19. Summary of Unaudited Quarterly Financial Information
The following is a condensed summary of quarterly results of operations for 1997
and 1996:
<TABLE>
<CAPTION>
1997
March 31 June 30 September 30 December 31 Total
-------- ------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Interest income ......... $ 3,749,000 $ 3,881,000 $ 4,078,000 $ 4,139,000 $ 15,847,000
Interest expense ........ (1,610,000) (1,748,000) (1,729,000) (1,856,000) (6,943,000)
---------- ---------- ---------- ---------- ----------
Net interest income ..... 2,139,000 2,133,000 2,349,000 2,283,000 8,904,000
Provision for loan losses (90,000) (350,000) (256,000) (454,000) (1,150,000)
Non-interest income ..... 265,000 409,000 291,000 285,000 1,250,000
Non-interest expenses ... (1,692,000) (1,631,000) (1,728,000) (1,807,000) (6,858,000)
---------- ---------- ---------- ---------- ----------
Income before taxes ..... 622,000 561,000 656,000 307,000 2,146,000
Income taxes ............ (121,000) (90,000) (141,000) (31,000) (383,000)
-------- ------- -------- ------- --------
Net income .............. $ 501,000 $ 471,000 $ 515,000 $ 276,000 $ 1,763,000
============ ============ ============ ============ ============
Basic earnings per share1 $ 0.35 $ 0.33 $ 0.36 $ 0.20 $ 1.24
1996
March 31 June 30 September 30 December 31 Total
Interest income ......... $ 3,657,000 $ 3,752,000 $ 3,727,000 $ 3,808,000 $ 14,944,000
Interest expense ........ (1,536,000) (1,557,000) (1,573,000) (1,612,000) (6,278,000)
---------- ---------- ---------- ---------- ----------
Net interest income ..... 2,121,000 2,195,000 2,154,000 2,196,000 8,666,000
Provision for loan losses -- (60,000) (60,000) (170,000) (290,000)
Non-interest income ..... 220,000 310,000 211,000 318,000 1,059,000
Non-interest expenses ... (1,518,000) (1,737,000) (1,680,000) (1,786,000) (6,721,000)
---------- ---------- ---------- ---------- ----------
Income before taxes ..... 823,000 708,000 625,000 558,000 2,714,000
Income taxes ............ (201,000) (119,000) (130,000) (119,000) (569,000)
-------- -------- -------- -------- --------
Net income .............. $ 622,000 $ 589,000 $ 495,000 $ 439,000 $ 2,145,000
============ ============ ============ ============ ============
Basic earnings per share1 $ 0.42 $ 0.41 $ 0.35 $ 0.31 $ 1.49
= =========== =========== =========== =========== ===========
</TABLE>
1All per share amounts have been adjusted for the effect of the 20% stock
dividend distributed in February 1998. See note 12.
44
<PAGE>
Independent Auditors' Report
KPMG Peat Marwick LLP
Certified Public Accountants
The Board of Directors and Stockholders
Jeffersonville Bancorp:
We have audited the accompanying consolidated balance sheets of Jeffersonville
Bancorp and subsidiary (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Jeffersonville Bancorp and
subsidiary as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP Albany, New York February 13, 1998
45
<PAGE>
Jeffersonville Bancorp Board of Directors
Arthur E. Keesler
Chairman of the Board Retired Chief Executive Officer First National Bank of
Jeffersonville Jeffersonville, New York
Honorable Lawrence H. Cooke
Chief Judge of the State of New York Retired
John W. Galligan Owner
John Galligan, Land Surveyor Monticello, New York Surveyor
John K. Gempler
Secretary/Treasurer Callicoon Co-op Insurance Company Jeffersonville, New York
Insurance Company
Douglas A. Heinle
Postmaster Cochecton Center Cochecton Center, New York
Solomon Katzoff
President Katzoff Realty, Inc. Jeffersonville, New York Real Estate Sale
Gibson McKean
President McKean Real Estate, Inc. Barryville, New York Real Estate Sales
James F. Roche
President Roche's Garage Inc. Callicoon, New York Automobile Dealer
Frederick W. V. Schadt
Schadt and Schadt Jeffersonville, New York Attorneys
Edward T. Sykes
President Mike Preis Inc. Callicoon, New York Insurance Agency
Raymond Walter
President First National Bank of Jeffersonville Jeffersonville, New York
Gilbert E. Weiss
Retired Chief Executive Officer First National Bank of Jeffersonville
Jeffersonville, New York
Earl A. Wilde
Retired Sullivan County Cooperative Extension Liberty, New York
46
<PAGE>
Officers
Arthur E. Keesler Raymond Walter John K. Gempler K. Dwayne Rhodes
President Vice President Secretary Treasurer
The First National Bank of Jeffersonville
Officers
Arthur E. Keesler
Chairman of the Board
Raymond Walter
President and Chief Executive Officer
K. Dwayne Rhodes
Executive Vice President and Cashier
John M. Riley
Senior Vice President--Loans
Theodore Bertot
Auditor
Charles E. Burnett
Controller
June B. Tegeler
Vice President and Branch Manager
Claire Pecsi
Vice President--Human Resources
Tatiana Hahn
Vice President
Susan A. Bodenstein
Assistant Vice President--Operations
Jacqueline M. Gieger
Operations Manager
Pearl L. Gain
Assistant Cashier--Accounting
Rhonda Decker
Branch Manager
Raymond W. Browne
Branch Manager
Tanja McKerrell
Branch Manager
Kathleen Beseth
Branch Manager
Edith Houghtaling
Assistant Branch Manager
Janet Siano
Assistant Branch Manager
Stacey Stephenson
Assistant Branch Manager
Linda Fisk
Sales Manager
Sandra S. Sipple
Sales Manager
Florence Horecky
Sales Manager
Loreen Gebelein
Mortgage Administrator
Andrew McKean
Commercial Loan Officer
Barbara Hahl
Marketing Manager
Staff
Melissa Adams
Dianne Banks
Amy Bernhardt
Geri Bennett
Dawn Berst
Renae Bishop
Jerilynn Brock
Michelle Brockner
Nancy Brown
MaryPaige Lange-Clouse
Nancy Crumley
Lydia D'Antoni
Charles DelGenovese, Sr. Joan DelGenovese Jane DePaolo Susan DeVito Denise Diehl
Cathleen Doherty Barbara Donnelly Lisa Dreher Kelly Ellsworth Daniel Fenton
Linda Fisk Deborah Forsblom Lorraine Forster Dawn Gandy JoAnne Girardi Nina
Gorton Troy Gorton Vivian Grabek Cynthia Gregson Christine Gruber Justine
Hageman Eugene Hahn Kerline Harman Alisa Horan Cathy Horan Martha Huebsch Heidi
Hulse Betty Johaneman Marilyn Kaempfe Helen Karkkainen Jean Kelly Jessica Kenyon
Lauren Kickuth Trishia Kinney Brandy Leonardo Patricia Leonardo Dana LeRoy
Shirley Lindsley Michele Lupardo Merrily Lynch Linda Mall JoAnn Malley Diane
McGrath Jonathan McGruder Mariann McKay Tina Millis Ruth Mootz Rose Morell
Deborah Muzuruk Gale Myers Lorraine Niemann Kelli Pagan George Palmer Valerie
Panich Jenny Peters Denise Price Barbara Pietrucha Jimmy Porter Alice Reisen
Janet Reis Andrew Richardson Damaris Rios Sandra Ross John Rudy Beth Schumacher
Catherine Sigelakis Crystal Smith Susan TerBush Barbara Walter Jayne Wartell
Carol Welton Everett Williams Jean Wood Heather Worzel Luz Young
47
<PAGE>
Corporate Information
Corporate Headquarters Jeffersonville Bancorp 300 Main Street P.O. Box 398
Jeffersonville, New York 12748 Tel. (914) 482-4000
www.jeffbank.com EMAIL jeffbank @jeffbank.com
Description of Business
Jeffersonville Bancorp is a one-bank holding company formed in June 1982, under
the laws of the State of New York. Its subsidiary is The First National Bank of
Jeffersonville, which serves Sullivan County, New York and surrounding
communities in Southeastern, New York through eight offices. A full-service
commercial bank, it provides a broad range of financial products, including
demand and time deposits, mortgage, consumer, commercial and agricultural loans.
Annual Meeting
The Annual Meeting of stockholders will be held on Tuesday, April 28, 1998 at
3:00 p.m., in the Company's Board Room at Jeffersonville, New York. Annual
Report on Form 10-K Upon written request, Company management will provide,
without charge, a copy of the Company's annual report on Form 10-K filed with
the Securities and Exchange Commission. Requests for this information should be
submitted to the Company's Treasurer at the above address.
Stock Information
The Company's common stock has traded in the Over-the-Counter market under the
symbol JFBC since January 1997. Ryan Beck & Company of West Orange, New Jersey
is the primary market maker (contact Andrew Lieb at 800-342-2325). On January
14, 1998, Jeffersonville Bancorp announced a 20% stock dividend payable on
February 10, 1998 to common stockholders of record as of January 27, 1998. Under
the terms of the dividend, stockholders received a dividend of one share of
common stock for every five shares owned as of the record date. Cash was paid in
lieu of fractional shares. Shareholders participating in our Dividend
Reinvestment Plan have been credited for the fractional shares. In January 1998,
the Company's stock traded for $20.41 to $23.75 per share. These prices have
been adjusted to reflect the 20% stock dividend discussed above. During 1997,
the Company's Board of Directors declared two cash dividends, in June for $0.32
per share and in December for $0.35 per share (or $0.267 and $0.292,
respectively, after adjustment for the stock dividend). Cash dividends of $0.32
and $0.33 per share were declared in June 1996 and December 1996,
respectively(or $0.267 and $0.275, respectively, after adjustment for the stock
dividend)
.
Jeffersonville Bancorp
P.O. Box 398
Jeffersonville, New York 12748
http://www.jeffbank.com
49
<PAGE>
JEFFERSONVILLE BANCORP
300 Main Street
Jeffersonville, New York 12748
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 28, 1998
Dear Stockholder:
Notice is hereby given that the Annual Meeting of the Stockholders of
Jeffersonville Bancorp (the "Company") will be held in the Company's Board Room
at The First National Bank of Jeffersonville (the "Bank") 300 Main Street,
Jeffersonville, New York at 3:00 p.m., Jeffersonville, New York Time, on April
28, 1998 for the following purposes:
(1) To elect four directors to the Board of Directors; and
(2) To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the Company for its year ending December 31, 1998.
(3) To transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Only those holders of record of common stock of the Company, par value
$0.50 per share (the "Common Stock"), at the close of business on March 31, 1998
are entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
You are cordially invited and urged to attend the Annual Meeting in person,
but if you are unable to do so, please date, sign and promptly return the
enclosed proxy in the enclosed, self-addressed stamped envelope. If you attend
the Annual Meeting and desire to revoke your proxy and vote in person, you may
do so, In any event, a proxy may be revoked at any time before it is exercised.
By Order of the Board of Directors
Arthur E. Keesler, President
Jeffersonville, New York
March 31, 1998
<PAGE>
JEFFERSONVILLE BANCORP
300 Main Street
Jeffersonville, New York 12748
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 28, 1998
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Jeffersonville Bancorp, a New York corporation, for use at the
Annual Meeting of Stockholders (the "Annual Meeting"), to be held on April 28,
1998 at 3:00 p.m., Jeffersonville, New York time, at The First National Bank of
Jeffersonville, 300 Main Street, Jeffersonville, New York, and any adjournment
thereof. The purposes of the Annual meeting are (a) to elect four directors to
the Board of Directors of the Company (b) to ratify KPMG Peat Marwick LLP as
independent auditors for the Company for its year ending December 31, 1998 (c)
and to transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Solicitation of proxies may be made in person or by mail, telephone or
telegraph, by directors, officers and regular employees of the Company. The
Company may also request banking institutions, brokerage firms, custodians,
nominees and fiduciaries to forward solicitation material to the beneficial
owners of Common Stock held of record by such persons, and the Company will
reimburse the forwarding expenses. The cost of solicitation of proxies will be
paid by the Company. This Proxy Statement was first mailed to stockholders on or
about March 31,1998.
The Company has its principal executive offices at 300 Main Street,
Jeffersonville, New York 12748; telephone (914) 482-4000.
<PAGE>
TABLE OF CONTENTS
Page
New Business................................................1
Nomination of Directors.....................................1
Quorum and Voting...........................................1
Action to be Taken Under Proxy..............................2
Election of Directors.......................................2
Ratification of Appointment of Auditors.....................2
Security Ownership of Certain Beneficial
Owners and Management......................................3-4
Directors and Executive Officer Information.................5
Committees of the Board of Directors........................5
Remuneration of Management and Others......................6-7
Report of the Personnel Committee..........................7-8
Transactions with Management................................8
Comparative Stock Performance Graph........................8-9
Other Matters...............................................9
Documents Incorporated by Reference.........................9
<PAGE>
The Company was organized as a New York corporation on January 12, 1982 for
the purpose of becoming a registered bank holding company under the Bank Holding
Company Act of 1956, as amended. Effective June 30, 1982, the Company became the
registered bank holding company for the Bank which was chartered in 1913 and
organized under the National Banking Laws of the United States.
The Company does not pay any compensation to directors or officers and the
compensation payments and benefit plans described in this proxy are paid by the
Bank. The same members make up the Board of Directors of both the Company and
the Bank.
NEW BUSINESS
At an annual meeting of stockholders, only such new business shall be
conducted and only proposals with respect to such new business shall be
considered or acted upon, as shall have been brought before such meeting by or
at the direction of the Board of Directors or by any stockholder of the Company
who gives timely notice in writing to the Secretary of the Company as set forth
in Section 2.13 of the Company's Bylaws. For new business to be properly brought
before an annual meeting of stockholders by a stockholder, the stockholder must
deliver notice to, or mailed and received at, the Company's principal executive
office not less than 120 calendar days in advance of the date of the Company's
proxy statement sent to stockholders in connection with the previous year's
annual meeting of stockholders, except that, if no annual meeting was held in
the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, such notice shall be received by the Company in a
reasonable time before the solicitation is made. A stockholder's notice must be
addressed to the Secretary of the Company. A stockholder's notice to the
Secretary shall set forth, as to each matter of business the stockholder
proposes to bring before the meeting, (i) a brief description of the matter
desired to be brought before the meeting and the reasons for conducting such
business at the meeting; (ii) the name and address as they appear on the
Company's books, of the stockholder proposing such proposal; (iii) the class and
number of shares of the Company's stock that are beneficially owned by the
stockholder on the date of such stockholder notice and by any other stockholders
known by such stockholder to be supporting such proposal on the date of such
stockholder notice; and (iv) any financial interest of the stockholder in such
proposal.
NOMINATION OF DIRECTORS
Nomination of candidates for election as directors at any annual meeting of
stockholders may be made by the Board of Directors or by any stockholder
entitled to vote at such annual meeting. Only persons nominated in accordance
with the procedures set forth in Section 2.12 of the Company's Bylaws shall be
eligible for election as directors at an annual meeting.
Nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Company as set forth in Section 2.12 of the Company's Bylaws. To be
timely, a stockholder's notice shall be delivered to, or mailed and received at,
the principal executive offices of the Company no later than December 1, 1997.
QUORUM AND VOTING
At the close of business on March 31, 1998, the Company had issued and
outstanding 1,419,260 shares of Common Stock. Only holders of record of Common
Stock at the close of business on March 31, 1998, are entitled to notice of and
vote on matters to come before the Annual Meeting or any adjournment thereof.
The presence in person or by proxy of the holders of a majority of
outstanding shares of common stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum at the Annual Meeting or any adjournment
thereof. The record holders the Common Stock are entitled to one vote in person
or by proxy in respect to each such share on each matter to come before the
Annual Meeting.
1
<PAGE>
ACTION TO BE TAKEN UNDER PROXY
Each proxy unless stockholder otherwise indicates therein, will be voted
"FOR" the election of the four persons named in the Proxy Statement as the Board
of Directors' nominees for election to the Board of Directors and "FOR" the
ratification of KPMG Peat Marwick LLP as independent auditors. In each case
where the stockholder appropriately specified how the proxy is to be voted, it
will be voted in accordance with his or her specification. Stockholders may
designate a person or persons other than those named in the enclosed proxy to
vote their shares at the Annual Meeting or any adjournment thereof. As to any
other matter of business which may be brought before the Annual Meeting or any
adjournment thereof, a vote may be cast pursuant to the accompanying proxy in
accordance with the judgment of the persons voting the same, but the Board does
not know of any such other matters of business. Any stockholder has the power to
revoke his or her proxy at any time, insofar as it has not been exercised, by
written notice or subsequently dated proxy sent to K. Dwayne Rhodes at the
Company, 300 Main Street, Jeffersonville, New York 12748, or by oral revocation
given by the stockholder in person at the Annual Meeting or any adjournment
thereof.
ELECTION OF DIRECTORS
Pursuant to the Company Bylaws, the Board of Directors has, by resolution,
fixed the number of directors at 13. The Board is divided into three classes (I,
II, III), and each director typically serves a three-year term. A director will
initially serve less than three years if the term of office for the Class in
which he is elected expires prior to the director's third year in service. In
this case, the director will stand for reelection with the other Class members
for a full three-year term.
The terms of office of Class III directors expires in 1998. The four Class
III directors have been nominated to serve for three-year terms as members of
Class III. The Board of Directors has nominated to serve as directors Douglas A.
Heinle, James F. Roche, Frederick W.V. Schadt and Gilbert E. Weiss for Class III
directorship. There are no shareholder nominees for Class III directors. All
nominees are currently members of the Board. It is intended that the persons
named in the proxies solicited by the Board will vote for the election of the
named nominees. If any nominee is unable to serve, the shares represented by all
valid proxies will be voted for the election of such substitute as the Board of
Directors may recommend or the Board of Directors may determine to decrease the
size of the Board to eliminate the vacancy at any time.
The Board knows of no reason why any nominee might be unable to serve if
elected.
The Board of Directors recommends that shareholders vote "For" the approval
of the four nominees to the Board of Directors, after consideration of the
information contained herein. Your appointed proxies will vote your shares "For"
the four nominees unless you instruct otherwise in the proxy form.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP as
independent auditor of the Company for the fiscal year ending December 31, 1998,
subject to ratification of such appointment by the stockholders. Representatives
of KPMG Peat Marwick LLP are expected to be present at the Annual Meeting and
are expected to make a statement if they desire to do so and/or be available to
respond to appropriate questions.
The Board of Directors recommends that stockholders vote "For" the
ratification of KPMG Peat Marwick LLP as independent auditors.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The name and address, position, age, number of shares owned and principal
occupation of the executive officers, directors and 5% stockholders of the
Company as of March 24, 1998, are as follows:
<TABLE>
<CAPTION>
Shares of
Common Owned
Name and Address Position (class) Age Stock owned Percentage Principal Occupation
---------------- ---------------- --- ----------- ----------
<S> <C> <C> <C> <C>
Arthur E. Keesler President and 66 19,200.000 (1) 1.35 Board Chairman of
Callicoon Center Director (II) the Company
NY, 12724 Director since 1982
Raymond Walter Vice President 51 8,653.273 (7) 0.61 President of the Bank
Box 159 and Director (II)
Yulan Director since 1994
NY, 12792
John K. Gempler Secretary and 55 18,015.457 (2) 1.27 Corporate Secretary
Box 323 Director (I) Insurance Company
Kenoza Lake Director since 1982
NY 12750
K. Dwayne Rhodes Treasurer 60 844.318 0.06 Executive Vice
Box 197 President and
Cochecton Cashier of the Bank
NY, 12726
Hon. Lawrence H. Director (I) 84 6,564.000 0.46 Attorney
Cooke Director since 1985
Monticello
NY, 12701
John W. Galligan Director (II) 61 7,239.000 0.51 Land Surveyor
P.O. Box 71 Director since 1982
Monticello
NY, 12701
Douglas A. Heinle Director (III) 68 16,032.000 1.13 Postmaster
Cochecton Center Director since 1982
NY, 12727
Solomon Katzoff Director (II) 72 22,674.000 (3) 1.60 Real Estate Broker
Lake Huntington Director since 1982
NY, 12752
Gibson E. McKean Director (I) 63 28,470.654 2.01 Real Estate Broker
Highland Lake Director since 1982
NY, 12743
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Owned
Name and Address Position (class) Age Stock owned Percentage Principal Occupation
---------------- ---------------- --- ----------- ----------
<S> <C> <C> <C>
James F. Roche Director (III) 64 29,500 2.08 Automobile Dealer
Callicoon Director since 1982
NY, 12723
Frederick W.V. Director (III) 53 11,040.000 0.78 Attorney
Schadt Director since 1992
Jeffersonville
NY, 12748
Edward T. Sykes Director (I) 53 21,045.659 (4) 1.48 Insurance Broker
Callicoon Director since 1982
NY, 12723
Gilbert E. Weiss Director (III) 75 48,000.000 (5) 3.38 Retired
RD1 Box 1374 Director since 1982
Beach Lake
PA, 18405
Earle A. Wilde Director (II) 69 19,350.909 (6) 1.36 Agricultural Consultant
P.O. Box 386 Director since 1982
Jeffersonville
NY 12748
</TABLE>
(1) Included in this number are 6,000 shares owned jointly by Mr. Keesler and
his wife Jane Keesler and 3,500 shares owned by Jane Keesler.
(2) Included in this number are 1,020 shares owned jointly by Mr. Gempler and
his wife Lorraine Gempler.
(3) Included in this number is 4,170 shares owned by Mr. Katzoff's wife
Gertrude Katzoff.
(4) Included in this number is 1,185.157 shares owned by Mr. Sykes' wife Joyce
Sykes.
(5) These shares are registered in the name of Gilbert Weiss and Eleanor Weiss
Family Trust.
(6) Included in this number is 4,200 shares owned by Mr. Wilde's wife Elizabeth
J. Wilde.
(7) Included in this number are 1,048 shares owned jointly by Mr. Walter and
his wife Nancy Walter and 2,085.273 shares owned by Raymond L Walter
custodian for Janelle D. Walter.
There are no beneficial owners who own 5% or more of the outstanding common
stock.
4
<PAGE>
DIRECTOR AND EXECUTIVE OFFICER INFORMATION
Each director and executive officer has served with or been employed by the
Company and/or the Bank continuously for the past five years.
No director or executive officer sits on the board of directors of any
corporation with a class of securities registered with the Securities and
Exchanges Commission pursuant to Section 12 of the Securities Exchange Act of
1934, as amended, subject to the requirements of Section 15 (d) of such act, or
any company registered under the Investment Company Act of 1940, as amended.
There are no family relationships among or between any of the directors or
executive officers of the Company.
All reporting requirements of Section 16 (a) of the Exchange Act were met.
COMMITTEES OF THE
BOARD OF DIRECTORS
The Bank's Board Committees are described below.
The Board of Directors has a standing Examining Committee on which board
membership is rotated annually. It was composed of Messrs. Gempler (Chairman),
Galligan, Heinle and Cooke on December 31, 1997. The function of the Examining
Committee is to institute, oversee and assist the internal and external bank
auditors. The Audit Committee had four regularly scheduled meetings during 1997.
The Board of Directors does not have a standing Nominating Committee.
Nominations are made by resolution at a Board of Directors meeting.
The Board of Directors has a standing Salary and Personnel Committee on
which board membership is rotated annually. It was composed of Messrs. Wilde
(Chairman), McKean, Sykes and Roche on December 31, 1997. The function of the
Salary and Personnel Committee is to review the compensation and benefits of the
directors, officers and executive officers of the Company. The Salary and
Personnel Committee had four regularly scheduled meetings during 1997.
The Board of Directors has a standing Loan Committee on which board
membership is rotated monthly. It was composed of Messrs. Walter (Chairman),
Galligan, Heinle and Schadt on December 31, 1997. The function of this committee
is to review loan applications for new credit extensions. The Loan Committee had
24 scheduled meetings during 1997.
The Strategic Planning Committee of the Board of Directors is also rotated
annually. It was composed of Messrs. Weiss (chairman), Schadt and Katzoff on
December 31, 1997. The function of this committee is to look ahead to prepare
for future trends and changes. They also serve as the Data Processing Committee
reviewing future changes and enhancements in the Bank's data processing
applications. This committee had four meetings during 1997.
The Board of Directors has a Building Committee that meets on an ad hoc
basis. Members are appointed for specific meetings as called by the Board
Chairman or President.
The Company had 11 regularly scheduled Board meetings during 1997. Each
director has attended at least 75% of the of the Board of Directors meetings.
The Bank had 13 regularly scheduled meetings during 1997. Each director has
attended at least 75% of the of the Board of Directors meetings.
5
<PAGE>
REMUNERATION OF MANAGEMENT AND OTHERS
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted All other
Profit Other Annual Stock Options LTIP Compen-
Name and Salary Sharing Compensation Award (s) SARs Payouts sations
Principal Position Years ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Raymond Walter 1997 158,439 12,580 11,300 0 0 0 0
President 1996 151,563 29,006 13,500 0 0 0 0
1995 134,147 23,258 11,800 0 0 0 0
K. Dwayne 1997 119,852 9,180 10,500 0 0 0 0
Rhodes 1996 114,487 18,410 10,300 0 0 0 0
Exec. Vice President 1995 106,696 17,702 9,800 0 0 0 0
</TABLE>
The Bank pays members of its Board of Directors an honorarium of $500 per
meeting of the Board attended, with two absences per year also paid and $400 per
meeting attended for members who serve on each of the Examining Committee,
Personnel Committee, Strategic Planning Committee and Loan Committee. The
Chairman of the Board is paid a $60,000 annual fee in addition to regular
meeting fees. The Board Secretary is paid $500 per meeting in addition to
regular meeting and committee fees. The Company pays no honorariums to its Board
of Directors.
Employee Benefit Plans
Tax-Deferred Savings Plan
The Company maintains a qualified 401K plan for all employees, which
permits tax-deferred employee contributions up to 15% of salary and provides for
matching contributions by the Company: Beginning in 1996, the Company matches
100% of employee contributions up to 4% of the employee's salary and 25% of the
next 2% of the employee's salary. The Company continues to match 25% of employee
contributions beyond 6% of the employee's salary until the total matching
contribution reaches the lesser of $1,500 or 15%. For 1995, the Company
contributed a maximum of fifty cents for each dollar contributed by each
participating employee, up to a maximum of $1,500 per employee. The Company
contributed approximately $117,000 in 1997, $93,000 in 1996 and $53,000 in 1995.
During 1997 the Bank contributed $7,556 and $5,657 for Messrs. Walter and
Rhodes, respectively, which amounts are included in the Executive Compensation
Table.
Pension Plan
The Bank has a defined benefit pension plan (using the New York State
Bankers Retirement Plan Protoype) (the "Pension Plan") covering substantially
all of its employees. The benefits are based on years of service and the
employee's average compensation during the five consecutive years in the last 10
years of employment affording the highest such average. All W-2 compensation
paid by the Bank to its employees up to $150,000 per year is covered by the
Pension Plan, but this limitation of $150,000 may be higher due to increases in
the Consumer Price Index. Participants in the Pension Plan may choose the
following benefit option: one-sum payment, automatic joint and survivor annuity,
life annuity with 120 stipulated payments, or full cash refund annuity. The
Bank's funding policy is to contribute annually the maximum amount that can be
6
<PAGE>
deducted for Federal income tax purposes. Contributions are intended to provide
not only benefits attributed to service to date but also for those expected to
be earned in the future.
The following table sets forth the estimated annual benefits payable upon
retirement to persons who have earned the specified average annual compensation
and who have completed the specified years of creditable service:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Annual Years of Creditable Service
- ----------------------------------------------------------------------------------------------------------------------
Average
Compensation 15 20 25 30 35 40
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 25,000 $ 3,788 $ 5,050 $ 6,313 $ 7,575 $ 8,838 $ 10,088
- ----------------------------------------------------------------------------------------------------------------------
$ 50,000 9,096 12,128 15,160 18,192 21,224 23,724
- ----------------------------------------------------------------------------------------------------------------------
$ 75,000 14,721 19,628 24,535 29,442 34,349 38,099
- ----------------------------------------------------------------------------------------------------------------------
$ 100,000 20,346 27,128 33,910 40,692 47,474 52,474
- ----------------------------------------------------------------------------------------------------------------------
$ 150,000 31,596 42,128 52,660 63,192 73,724 81,224
- ----------------------------------------------------------------------------------------------------------------------
$ 200,000 42,846 57,128 71,410 85,692 99,974 107,974
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The single plan maximum benefit limit under Internal Revenue Code Section
415 as of January 1, 1997 is $125,000 ($110,880 under the Normal Form of Payment
for a Single Participant). The maximum annual compensation allowed under a
qualified plan is $160,000 for 1997. The benefits above were computed assuming
that (i) the normal form of payment to a single participant is used and (ii) the
employee turns 65 in December 1997.
The estimated creditable years of service until retirement for Messrs.
Walter and Rhodes (the two executive officers in the proceeding Executive
Compensation Table, who participate in the Pension Plan) are 36 and 31 years,
respectively.
Profit Sharing Plan
The Bank has a profit sharing plan (the "Profit Sharing Plan") in which all
employees of the Bank with one complete year of service as of November 30 may
participate for that fiscal year. Employees with less than one year of service
are eligible for 1/12 of their normal share for each month of service. A profit
sharing percentage is developed for each employee of the Bank ranging firm 7% to
17% of base salary, as determined by the Personnel Evaluation Committee of three
senior members of management. The profit sharing percentage for all senior
management is based on the performance of pre-determined goals. During 1997, the
Bank paid Messrs. Walter and Rhodes $11,300 or 7.9% and $10,500 or 8.8%,
respectively, pursuant to the Profit Sharing Plan, which amounts are included in
the preceeding Executive Cash Compensation Table.
Change of Control Severance Payment Plan
The Board of Directors of the Company decided in 1996, that it would be in the
best interest of the Company and the Bank to institute certain policies and
procedures that would have the effect of securing the continued services of
highly competent and dedicated senior officers of the Bank while discouraging
hostile or unsolicited takeover attempts. As a result, the Board of Directors
adopted through a resolution that Certain Change of Control Severance Payment
Plan (the "Plan"), on January 19, 1996.
The Plan applies to senior management officers of the Bank (the
"Executives") and becomes effective when any Executive experiences a Termination
Event (as defined below) within 18 months following the date of a Change of
Control (a defined below). The Plan defines a "Termination Event" to mean, (a) a
termination of the Executive's employment with the Company and/or the Bank; (b)
a failure to renew the Executive's employment with the Company and/or the Bank;
(c) a decrease in the Executive's total compensation; and (d) an adverse change
in the Executive's place of employment. The Plan defines "Change of Control" to
7
<PAGE>
mean, (i) a merger or consolidation of the Bank or the Company with or into
another entity, immediately after which the equity holders of the Company
immediately prior to the Change of Control (the "Historic Shareholders") own, in
the aggregate less than 50% of the outstanding equity securities of the
surviving entity; (ii) a sale of outstanding or newly issued equity securities
of either the Company or the Bank with the result that the Historic Shareholders
own, in the aggregate less than 50% of the outstanding equity securities of the
Company or the Bank; or (iii) a sale or exchange of more than 50% of the gross
assets of either the Company or the Bank.
The Plan provides that if any Executive experiences a Termination Event
within 18 months following the date of a Change of Control, then the Company,
the Bank , or any successor in interest thereof, shall pay to the Executive a
severance payment in cash equal to three times such Executive's highest yearly
aggregate salary and cash bonus during the three years immediately preceding the
year in which the Termination Event occurs.
The Plan is not the subject of a contract or an agreement entered into
between the Company and any Executive, but is merely a reflection of the Board's
policy currently in effect. The Plan may be amended, modified, or rescinded at
any item prior to a Change of Control by the affirmative vote of 80% or more of
the directors sitting on the Board of Directors. In addition, it should be noted
that the Plan specifically defines "Executive" to mean any senior management
officer of the Bank. Any executive or senior management officer of the Company,
therefore, who is not also a senior management officer of the Bank, would not be
covered by the Plan.
REPORT OF THE PERSONNEL COMMITTEE DATED FEBRUARY 6, 1997
This Committee establishes policies relating to the compensation of employees,
officers and executive officers. All decisions by the Personnel Committee are
ratified by the Board of Directors
Compensation levels for officers and executive officers from March 1, 1997
through February 28,1998 were fixed by the Board of Directors based on
recommendations of the Committee. The base compensation to be paid to the
executive officers in 1997 was, on the average, approximately 4.6% above that
paid in 1996.
The compensation recommended and approved for executive officers is intended to
further the earnings and financial strength of the Company through the focus of
attention on efficient and productive operations in an increasingly competitive
environment. To achieve this goal, the Company's Executive Compensation Policy
integrates annual base compensation with profit sharing based on corporate
performance and individual initiatives. In evaluating annual executive
compensation, the Committee examines net income, earnings per share, return on
equity, asset growth, and total return to shareholders.
The Bank's management performanace was satisfactory in 1996-97, despite the
difficult economic conditions.
In making its recommendations for executive officer compensation, including
that for the Chief Executive Officer, the Committee considers a number of
factors, including an appraisal of the officer's performance, the earnings
performance of the Company, and information supplied by a regionally recognized
compensation consulting firm.
The base compensation of the Chief Executive Officer, Raymond Walter, was
increased in 1997 by $7,018 over 1996 and following a base increase from 1995 to
1996 of $8,216 . There was a decrease in the profit sharing percentage from 20%
to 7.9% in 1997 based on attainment of predetermined growth and profitability
goals.
The Committee based its recommendation largely on Mr. Walter's performance
as President in 1994-97, as well as past performance, and the Committee believes
he has shown the ability to effectively lead the Company and respond to a
difficult and changing business environment.
Earle A. Wilde, Chairman
James F. Roche
Solomon Katzoff
Frederick W.V. Schadt
8
<PAGE>
TRANSACTIONS WITH MANAGEMENT
In the ordinary course of its banking business, the Bank has had and
anticipates it will continue to have transactions with various of its executive
officers, directors and their associates, including corporations in which such
directors own a beneficial interest. To the extent such transactions consisted
of extensions of credit of any material amount, such transactions have been made
in the ordinary course of the Bank's business, on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other Bank customers, and do not involve more than
the normal risk of collectability or other unfavorable features.
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph on the following page sets forth the cumulative total shareholder
return on the Company's Common Stock for the last five fiscal years, assuming
the investment of $100 on December 31, 1992 and the reinvestment of all
dividends since that date to December 31, 1997. The graph also contains for
comparison purposes the NASDAQ Financial Companies Index and the NASDAQ Total US
Index. The Data used was obtained from published sources and is believed to be
accurate.
GRAPH TO COME AT LATER DATE
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Annual Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Annual Meeting, it
is intended that the proxies in the accompanying form will be voted in respect
thereof in accordance with the judgment of those voting the proxies.
DOCUMENTS INCORPORATED BY REFERENCE
1. Item 7 Form 10-K, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
2. Jeffersonville Bancorp's 1997 Annual Report to Stockholders.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 will be supplied to stockholders without charge, upon written
request directed to K. Dwayne Rhodes, 300 Main Street, Jeffersonville, New York
12748.
BY THE ORDER OF THE BOARD OF DIRECTORS
Arthur E. Keesler
President
9
<PAGE>
Jeffersonville Bancorp
P.O. Box 398, Jeffersonville, New York 12748
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
JEFFERSONVILLE BANCORP
The undersigned hereby appoints, Jesse P. Brown, Salvatore Princiotta, and
Barbara Hahn with full power of substitution and resubstitution, proxies of the
undersigned, with all of the powers that the undersigned would possess if
personally present to cast all the votes which the undersigned would be entitled
to vote at the Annual Meeting of Stockholders ("Annual Meeting") of
Jeffersonville Bancorp to be held on Tuesday, April 28,1998 at The First
National Bank of Jeffersonville, 300 Main Street, Jeffersonville, New York
commencing at 3:00 p.m., Jeffersonville, New York time, and any and all
adjournments thereof, including (without limiting the generality of the
foregoing) to vote and act as indicated on the reverse side.
In their discretion, the proxies are authorized to vote upon such business
as may properly come before the Annual Meeting. This Proxy will be voted at the
Annual Meeting or any adjournment thereof in accordance with the instructions
set forth on the reverse, or in the event no instructions are set forth, this
Proxy will be voted FOR each of the nominees for director and FOR the
ratification of the appointment of KPMG Peat Marwick LLP as independent
auditors. 1. ELECTION OF DIRECTORS FOR the nominees listed below
a. Nominees to serve three-year term (Except as indicated to the contrary)
expiring at 2001 Annual Meeting
WITHHOLD AUTHORITY
to vote for the
nominees listed
below.
Douglas A. Heinle, James F. Roche, Frederick W.V. Schadt and Gilbert E. Weiss
instruction: To withhold authority for an individual nominee(s), write the
name(s) here:
(Continued, and to be completed, dated and signed on the reverse side.)
<PAGE>
2. Proposal to ratify the appointment of the firm of KPMG Peat Marwick LLP as
independent auditors of Jeffersonville Bancorp for the fiscal year ending
December 31, 1998.
FOR AGAINST ABSTAIN
3. In their discretion, the proxies to vote upon such other business as may
properly come before the Annual Meeting.
IMPORTANT: Please date this
proxy and sign exactly as
your name appears to the
left. If shares are held by
joint tenants, both should
sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give title
as such. If a corporation,
please sign in full
corporate name by president
of or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
Date: ,1998
Signed:
Please complete, sign, date and return promptly this Proxy in the enclosed
stamped, addressed return envelope
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted fron the
Jeffersonville Bancorp 1996 Annual Report and is qualified in ite
entirety by reference to such financial statements
</LEGEND>
<CIK> 0000874495
<NAME> Jeffersonville Bancorp
<MULTIPLIER> 1000
<CURRENCY> U S DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 5563
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70793
<INVESTMENTS-CARRYING> 3738
<INVESTMENTS-MARKET> 3821
<LOANS> 125793
<ALLOWANCE> 1862
<TOTAL-ASSETS> 213659
<DEPOSITS> 179160
<SHORT-TERM> 404
<LIABILITIES-OTHER> 1919
<LONG-TERM> 10000
0
0
<COMMON> 617
<OTHER-SE> 21559
<TOTAL-LIABILITIES-AND-EQUITY> 213659
<INTEREST-LOAN> 11112
<INTEREST-INVEST> 4606
<INTEREST-OTHER> 129
<INTEREST-TOTAL> 15847
<INTEREST-DEPOSIT> 6540
<INTEREST-EXPENSE> 403
<INTEREST-INCOME-NET> 8904
<LOAN-LOSSES> 1150
<SECURITIES-GAINS> 91
<EXPENSE-OTHER> 6858
<INCOME-PRETAX> 2146
<INCOME-PRE-EXTRAORDINARY> 2146
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1763
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.23
<YIELD-ACTUAL> 7.93
<LOANS-NON> 3324
<LOANS-PAST> 368
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1711
<CHARGE-OFFS> 1255
<RECOVERIES> 256
<ALLOWANCE-CLOSE> 1862
<ALLOWANCE-DOMESTIC> 1862
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
