<PAGE>
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, 1998 Commission File Number: 0-19212
JEFFERSONVILLE BANCORP
(Exact name of Registrant as specified in its charter)
New York 22-2385448
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 398, Jeffersonville, New York 12748
(Address of principal executive offices)
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 preceding 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 amendment to this Form 10-K. [X]
The aggregate market value of the registrant's common stock (based upon the
average bid and asked prices on February 9, 1999) held by non-affiliates was
approximately $32,101,169.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock:
Number of Shares Outstanding
Class of Common Stock as of February 9, 1999
$0.50 Par Value 1,395,703
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to shareholders for the fiscal
year ended December 31, 1998.
(2) Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on April 27, 1999.
<PAGE>
Jeffersonville Bancorp
1998 Annual Report
and Form 10K
<PAGE>
To Our Stockholders and Customers
What a difference a year makes! Last year we were reporting disappointing
earnings resulting from the "adverse economic climate of Sullivan County". This
year we are very pleased to report net income of $2,318,000, a 31.5% increase
over 1997's net income of $1,763,000.
Several factors contributed to this improvement in earnings, including the
reduction in our provision for loan losses from $1,150,000 in 1997 to $600,000
in 1998. We believe our allowance for loan loss balance of $2,310,000 (1.78% of
outstanding loans) at the end of 1998 will be adequate to absorb anticipated
loan charge-offs. An improvement in the local economy should be reflected in a
decline in our loan delinquency ratios which should result in a continuing
improvement in earnings.
Although the local economy displayed lackluster performance in 1998, recent
events indicate a dawning of economic optimism in the county. The Concord Hotel
was purchased at foreclosure sale with plans for massive refurbishing and
Sheraton Hotel affiliation. The Grossinger Hotel was purchased at foreclosure
sale, the former Laurels Hotel is back on the tax rolls, the Swan Lake Hotel
(formerly Stevensville) continues to be resurrected and the Pines Hotel is in
transition to condos, similar to the highly successful conversion of the Browns
Hotel (Grandview Palace). It appears as though investors have rediscovered the
recreational beauty of our area and the potential for tapping the huge New York
City market only 11/2 hours away.
We have continued to seek areas of expansion to increase and improve our
level of service to our growing customer base. Our success has been reflected in
our widening market share percentage over our competitors. In order to better
serve our many customers in the Wurtsboro area, we have filed an application for
a new branch location in a proposed I.G.A. supermarket to be located on Route
209 near Route 17. Not only will this branch provide service to the fastest
growing area of Sullivan County, but it will also put us closer to the Orange
County market. We have also been approved by Wal-Mart Inc. to open a branch
office in their new Superstore near Monticello. We are very excited about the
potential for this location, however, due to archaic banking laws, State banking
department approval could present a problem. A "home office" protection statute
may prevent an approval of our application. In an age of internet banking, this
law seems outdated and unnecessary. We will continue our efforts to secure the
regulatory approvals.
Quality, convenience and service are the elements that differentiate
financial service providers. The dedicated staff of The First National Bank of
Jeffersonville makes the difference. In addition to providing superior personal
service to our customers, many of our staff have also been busy testing and
upgrading all of our computer systems to make sure that we will be ready to
serve you in the new millennium.
Thank you for your continued confidence and support. Our commitment to you
is another successful and profitable year in 1999.
/s/ Arthur E. Keesler /s/ Raymond Walter
Arthur E. Keesler, President Raymond Walter, President
Jeffersonville Bancorp First National Bank of Jeffersonville
Arthur E. Keesler Raymond Walter
<PAGE>
Selected Financial Information
<TABLE>
Five-Year Summary
<CAPTION>
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Results of Operations
Net interest income $ 8,904,000 $ 8,666,000 $ 8,581,000 $ 9,245,000
Provision for loan losses 1,150,000 290,000 160,000 427,000
Net income 1,763,000 2,145,000 2,424,000 2,460,000
Financial Condition
Total assets $213,659,000 $196,113,000 $188,469,000 $188,118,000
Deposits 179,160,000 172,930,000 164,184,000 165,531,000
Loans, net 125,793,000 115,605,000 109,288,000 101,414,000
Stockholders' equity 22,176,000 20,975,000 20,928,000 17,782,000
Average Balances
Total assets $211,034,000 $198,134,000 $193,568,000 $194,114,000
Deposits 180,635,000 173,139,000 169,209,000 165,368,000
Gross loans 122,567,000 113,981,000 107,567,000 100,517,000
Stockholders' equity 21,539,000 20,751,000 19,871,000 18,483,000
Financial Ratios
Net income to
average total assets 0.84% 1.08% 1.25% 1.27%
Net income to average
stockholders' equity 8.19% 10.34% 12.20% 13.31%
Average stockholders'
equity to average
total assets 10.21% 10.47% 10.27% 9.52%
Per Share Data<F1>
Earnings per share $ 1.24 $ 1.49 $ 1.61 $ 1.59
Dividends per share 0.56 0.54 0.50 0.46
Dividends per share to
earnings per share 45.20% 36.20% 31.10% 28.90%
Book value at year end $ 15.62 $ 14.78 $ 14.16 $ 11.50
Total dividends paid 792,000 775,000 755,000 709,000
Average number of
shares outstanding 1,419,000 1,441,000 1,503,000 1,546,000
Shares outstanding
at year end 1,419,000 1,419,000 1,478,000 1,546,000
<FN>
<F1> All share and per share amounts have been adjusted for the effect of the
20% stock dividend distributed in February 1998.
</FN>
</TABLE>
<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.
In addition to historical information, this report includes certain
forward-looking statements with respect to the financial condition, results of
operations and business of the Parent Company and the Bank based on current
management expectations. The Company's ability to predict results or the effect
of future plans and strategies is inherently uncertain and actual results,
performance or achievements could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations, changes
in interest rates, deposit flows, the cost of funds, demand for loan products,
demand for financial services, competition, changes in the quality or
composition of the Bank's loan and securities portfolios, changes in accounting
principles, and other economic, competitive, governmental, and technological
factors affecting the Company's operations, markets, products, services and
prices.
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 1998. Some of
the Company's borrowers continued to struggle with their loan and tax payments
due to the local economy's poor performance, although there was modest growth in
most sectors of the Company's loan portfolio. 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 anticipate
some improvement in the local economy in 1999. If efforts by the county
government and private enterprise to stimulate economic activity begin to bear
fruit in 1999, conditions in the local economy should begin to improve.
<PAGE>
Financial Condition
Total average assets in 1998 increased $19,921,000 over 1997 to $230,955,000, an
increase of 9.4% compared to a 6.5% increase in 1997 when average assets were
$211,034,000 compared to $198,134,000 in 1996. Average assets increased in both
1998 and 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. Asset growth in 1998 also included a purchase of
bank-owned life insurance which amounted to $6,183,000 at year end.
Total average securities (securities available for sale and securities held
to maturity) increased $7,436,000 or 9.9% in 1998 to $82,336,000, compared to a
4.6% increase in 1997. Total average securities were $74,900,000 in 1997 and
$71,604,000 in 1996. The increase in 1998 reflects continued use of a leveraging
strategy implemented in 1997, in which the Company funds security purchases with
FHLB borrowings at a positive interest rate spread. See notes 3 and 4 to the
consolidated financial statements for period-end balances of securities
available for sale and securities held to maturity.
Average interest bearing deposits increased $7,767,000 to reach
$163,335,000 in 1998, an increase of 5.0% compared to $155,568,000 in 1997 when
average interest bearing deposits increased 3.7% compared to $150,071,000 in
1996. The higher interest rates paid on time savings certificates resulted in an
increase in these deposits in both 1998 and 1997, as funds flowed from other
types of accounts paying lower rates. However, on an overall basis, interest
rates on interest bearing deposits decreased from an average rate paid of 4.20%
in 1997 to 4.06% in 1998. The Escalator Account, which is a savings certificate
product introduced in 1995, has an 18 month term but gives the depositor an
option during that term to increase the interest rate one time to match market
rates. The Escalator Account has proven to be very popular, growing to
$25,389,000 at December 31, 1998 from year end balances of $22,471,000 in 1997
and $15,800,000 in 1996.
In 1998, average demand deposit balances increased 11.6% over 1997, after
increasing 8.7% in 1997 above the 1996 level. The Company offers these accounts
on a highly competitive basis and continues to attract a pool of low cost funds
for reinvestment in the community.
Loans
In 1998, average loans increased $7,187,000 to $129,754,000 from $122,567,000 in
1997, after increasing $8,586,000 from $113,981,000 in 1996. These increases
were acceptable considering the condition of the local economy during the past
few years and the large volume of mortgage refinancing in 1998. Average
residential and commercial real estate loans continued to make up a major
portion of the loan portfolio at 69.6% of total loans in 1998, compared to 71.0%
in 1997. Home equity loans, which were introduced in 1996, increased from
$7,677,000 at year end 1997 to $9,320,000 at year end 1998, an increase of
21.4%. Additional growth is anticipated in residential and commercial real
estate loans during 1999. Average commercial time and demand loans and average
consumer loans showed combined net growth of 4.3% in 1998 and 9.7% in 1997. The
overall loan 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 $600,000 in 1998 compared to $1,150,000 in
1997 and $290,000 in 1996. The substantial decrease in 1998 primarily reflects
lower net charge-offs in each loan category and, to a lesser extent, a slower
portfolio growth rate and an overall decrease in nonaccrual loans.
<PAGE>
Summary of Loan Loss Experience
The following table indicates the amount of charge-offs and recoveries in the
loan portfolio by category.
Analysis of the Changes in Allowance for Loan Losses
1998 1997
Balance at beginning of year $1,862,000 $1,711,000
Charge-offs:
Commercial, financial and agricultural (58,000) (371,000)
Real estate -- mortgage (57,000) (580,000)
Installment loans to individuals (228,000) (304,000)
Total charge-offs (343,000) (1,255,000)
Recoveries:
Commercial, financial and agricultural 64,000 91,000
Real estate -- mortgage 42,000 84,000
Installment loans to individuals 85,000 81,000
Total recoveries 191,000 256,000
Net charge-offs (152,000) (999,000)
Provisions charged to operations 600,000 1,150,000
Balance at end of year $2,310,000 $1,862,000
Ratio of net charge-offs to
average outstanding loans 0.12% 0.82%
Net charge-offs were 0.12% of average outstanding loans in 1998 compared to
0.82% in 1997 and 0.18% in 1996, reflecting a lower level of loan losses.
Continuation of this favorable trend in net charge-offs will depend
significantly on improvement in the local economy. On a combined basis, net
charge-offs on residential and commercial mortgages decreased by $481,000 from
$496,000 in 1997 to $15,000 in 1998. Management instituted new tax escrow
policies on renewing mortgages and upgraded the Bank's loan collection practices
in 1998, which has helped to mitigate the problem of rising delinquencies and
loan losses.
The net recovery on commercial loans was $6,000 in 1998 or 0.05% of average
commercial loans outstanding, a substantial improvement compared to a 2.65% net
charge-off percentage in 1997. The significantly higher commercial loan losses
in 1997 were concentrated in a few large loans that defaulted during the year.
Efforts continue to recover a portion of these losses. Net charge-offs on
consumer loans declined to $143,000 in 1998 from $223,000 in 1997.
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.
<PAGE>
The allowance for loan losses was $2,310,000 at December 31, 1998 compared
to $1,862,000 and $1,711,000 at December 31, 1997 and 1996, respectively. The
allowance as a percentage of total loans was 1.70% at December 31, 1998,
compared to 1.45% and 1.46% at December 31, 1997 and 1996, respectively. The
allowance's coverage of non-performing loans was 77.3%, 50.4% and 38.2% at
December 31, 1998, 1997 and 1996, respectively.
No portion of the allowance for loan losses 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 and will depend on local economic
conditions. The following table shows the allocation of the allowance for loan
losses to major portfolio categories, and the percentage of each loan category
to total loans outstanding.
Distribution of Allowance for Loan Losses at December 31, 1998
Allowance Percentage of Loan Balance by
Balance Total Allowance Type to Total Loans1
Loan Category
Residential Mortgages $ 681,000 29.5% 57.3%
Commercial Mortgages 400,000 17.3 19.1
Commercial Loans 544,000 23.5 10.4
Consumer Loans 508,000 22.0 12.1
Other Loans 177,000 7.7 1.1
$2,310,000 100.0% 100.0%
1 Percentage relationship between average loans outstanding by type compared to
total average loans outstanding.
Distribution of Allowance for Loan Losses at December 31, 1997
Allowance Percentage of Loan Balance by
Balance Total Allowance Type to Total Loans1
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%
1 Percentage relationship between average loans outstanding by type compared to
total average loans outstanding.
The total allowance for loan losses at December 31, 1998 includes an
allocation of $280,000, or 12.1% of the total allowance, to classified
commercial mortgages and commercial loans. The comparable allocation at December
31, 1997 was $408,000 or 21.9% of the total allowance.
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.
<PAGE>
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.
<TABLE>
<CAPTION>
December 31, 1998
90 Days
or More
Nonaccrual Still Accruing Total Percentage<F1> Percentage<F2>
<S> <C> <C> <C> <C> <C>
Loan Category
Residential Mortgages $1,342,000 $ 738,000 $2,080,000 2.7% 69.6%
Commercial Mortgages 500,000 383,000 883,000 3.6 29.6
Consumer Loans -- 25,000 25,000 0.1 0.8
Total $1,842,000 $1,146,000 $2,988,000 2.2% 100.0%
<FN>
<F1> Percentage of gross loans outstanding for each loan category.
<F2> Percentage of total nonaccrual and 90 day past due loans.
</FN>
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
90 Days
or More
Nonaccrual Still Accruing Total Percentage<F1> Percentage<F2>
<S> <C> <C> <C> <C> <C>
Loan Category
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%
<FN>
<F1> Percentage of gross loans outstanding for each loan category.
<F2> Percentage of total nonaccrual and 90 day past due loans.
</FN>
</TABLE>
The decrease in total nonaccrual and 90 day past due loans is primarily due
to decreases in nonaccrual residential mortgages and commercial mortgages,
partially offset by increases in 90 day past due residential mortgages and
commercial mortgages. Total nonaccrual and 90 day past due residential and
commercial mortgage loans represent 2.7% and 3.6% of the respective portfolio
totals, despite the borrowers doing their utmost to repay their loans to protect
their homes and businesses in a difficult economic environment. The majority of
the Company's total 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, 1998, management believes all
significant potential problem loans have been identified in the table above.
From time to time, loans may be 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. There were no restructured loans as of December 31, 1998 and 1997.
<PAGE>
Other Real Estate Owned
Other real estate owned represents properties acquired through foreclosure and
is recorded on an individual-asset basis at the lower of (1) fair value less
estimated costs to sell or (2) cost, which represents the fair value at initial
foreclosure. When a property is acquired, 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
non-interest expense.
The following are the changes in other real estate owned during the last
two years:
Years Ended December 31, 1998 and 1997
1998 1997
Beginning Balance $ 301,000 $ 831,000
Additions 960,000 352,000
Sales (600,000) (763,000)
Write downs (126,000) (119,000)
Ending Balance $ 535,000 $ 301,000
Liquidity
Liquidity is the ability to provide sufficient cash flow to meet financial
commitments such as additional loan demand and withdrawals 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 overnight and 30 day lines of credit of approximately $22,000,000
which may be used to meet unforeseen liquidity demands. None of this available
credit was being used at December 31, 1998. Four separate FHLB term advances
totaling $20,000,000 at December 31, 1998 were being used to fund securities
leverage transactions.
In 1998, cash generated from operating activities amounted to $3,938,000
and cash generated from financing activities amounted to $27,697,000. These
amounts were substantially offset by a use of cash in investing activities of
$30,595,000, resulting in a net increase in cash and cash equivalents of
$1,040,000. See the Consolidated Statements of Cash Flows for additional
information.
Interest Rate Risk
Management of interest rate risk involves continual monitoring of the relative
sensitivity of asset and liability portfolios to changes in rates 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 of interest rate risk management 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 the repricing of assets and liabilities 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
table below as of December 31, 1998. This table measures the incremental and
cumulative gap, or difference between assets and liabilities subject to
repricing during the periods indicated. The dollar amounts presented are stated
on the basis of "contractual gap" which measures
<PAGE>
the stated repricing and maturity of assets and liabilities. The data presented
indicates that rate sensitive liabilities are generally subject to repricing
sooner than rate sensitive assets. 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. The
following is one of several different analysis tools management utilizes in
managing interest rate risk.
December 31, 1998 (Dollars in thousands)
Period to Repricing
0-3 3-12 1-5 Over
Months Months Years 5 Years Total
Loans, Net1 $ 17,147 $ 18,013 $ 85,205 $ 9,666 $130,031
Taxable Securities 212,915 23,024 29,277 6,227 71,443
Non Taxable Securities2 255 1,284 12,829 6,054 20,422
Total Interest
Earning Assets $ 30,317 $ 42,321 $127,311 $ 21,947 $221,896
NOW and Super NOW Accounts $ 12,617 $ -- $ 16,109 $ -- $ 28,726
Savings and Insured
Money Market Deposits3 31,711 -- 24,378 -- 56,089
Time Deposits3 22,168 38,426 21,418 -- 82,012
Long Term Debt1 -- -- 10,000 -- 10,000
Short Term Debt1 334 10,000 -- -- 10,334
Total Interest Bearing
Liabilities $ 66,830 $ 48,426 $ 71,905 $ -- $187,161
Gap $(36,513) $ (6,105) $ 55,406 $ 21,947 $ 34,735
Cumulative Gap (36,513) (42,618) 12,788 34,735
Cumulative Gap as
a Percentage of Total
Interest Earning Assets (16.46%) (19.21%) 5.76% 15.65%
1 Based on contractual maturity or period to repricing.
2 Based on anticipated maturity. Includes Securities Available for Sale and
Securities Held to Maturity, at their historical amortized cost.
3 Fixed rate deposits and deposits with fixed pricing intervals are included
in the period of contractual maturity. Deposits withdrawable on demand or
within short notice periods (such as NOW and savings accounts) are shown in
repricing periods based on management's estimate of the interest rate
sensitivity of these accounts, based in part on the Company's favorable
historical experience of retaining a substantial portion of these balances
during periods of changing interest rates.
Maturity Schedule of Time Deposits of $100,000 or More at December 31, 1998
Deposits
Due three months or less $ 6,570,000
Over three months through six months 3,676,000
Over six months through twelve months 2,451,000
Over twelve months 2,223,000
$14,920,000
<PAGE>
<TABLE>
Analysis of Securities by Type and by Period to Maturity at December 31, 1998 (Dollars in thousands)<F1>
<CAPTION>
Under 1 Year 1 to 5 Years 5 to10 Years After 10 Years Total
Balance Rate Balance Rate Balance Rate Balance Rate Balance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Agency $33,318 6.43% $27,072 6.29% $ 1,021 6.08% $ 5,006 6.16% $66,417
Municipal Securities --
Tax Exempt<F2> 1,539 5.24 12,826 5.55 5,622 5.39 245 5.66 20,232
Municipal Securities --
Taxable -- -- 190 6.00 -- -- -- -- 190
Mortgage Backed Securities
and Collateralized Mortgage 320 6.49 2,015 6.61 698 6.19 -- -- 3,033
Obligations other than U.S.
Government Agencies
Other Securities 1,977 7.98 -- -- 199 6.63 -- -- 2,176
$37,154 6.44% $42,103 6.08% $ 7,540 5.59% $ 5,251 6.14% $92,048
<FN>
<F1> The analysis shown above combines the Company's Securities Available for
Sale portfolio and the Securities Held to Maturity portfolio. All
securities are included above at their historical amortized cost.
<F2> Yields on tax exempt securities have not been stated on tax equivalent basis.
</FN>
</TABLE>
The following table indicates the amount of loans in selected portfolio
categories according to their period to maturity. The table also indicates the
dollar amount of these loans that have predetermined or fixed rates vs.
variable or adjustable rates.
<TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates at December 31, 1998
<CAPTION>
Under 1 Year 1 to 5 Years After 5 Years Total
<S> <C> <C> <C> <C>
Loan Portfolio
Commercial, financial
and agricultural $ 7,972,000 $ 4,862,000 $ 891,000 $13,725,000
Real estate construction 953,000 81,000 137,000 1,171,000
Total $ 8,925,000 $ 4,943,000 $ 1,028,000 $14,896,000
Interest sensitivity
of loans:
Predetermined rate $ 4,994,000 $ 4,943,000 $ 1,028,000 $10,965,000
Variable rate 3,931,000 -- -- 3,931,000
Total $ 8,925,000 $ 4,943,000 $ 1,028,000 $14,896,000
</TABLE>
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 $841,000 or 3.8%
in 1998 following an increase of 5.7% in 1997.
In 1996, the Company offered to repurchase and retire 50,000 common shares
through 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.
<PAGE>
In 1998, the Board of Directors authorized that $1,000,000 be made
available to purchase and retire additional shares on the open market. Through
December 31, 1998, a total of 14,863 common shares were purchased and retired,
reducing stockholders' equity by $337,000. Management believes that the
repurchase of Company stock represents a prudent use of excess capital.
The Company retained $1,468,000 from 1998 earnings, while the after-tax
adjustment for the change in the net unrealized gain on securities available for
sale decreased stockholders equity by $290,000. In accordance with regulatory
capital rules, the adjustment for debt 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 17.3% and total risk-based capital was 18.5% 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 9.9% 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, 1998 and 1997
1998 1997
Tier I capital
Stockholders' equity, excluding
the after-tax net unrealized gain
on securities available for sale $ 22,754,000 $ 21,623,000
Tier II capital
Allowance for loan losses1 1,654,000 1,528,000
Total risk-based capital $ 24,408,000 $ 23,151,000
Risk-weighted assets2 $131,703,000 $121,885,000
Average assets $230,955,000 $211,034,000
Ratios
Tier I risk-based capital (minimum 4.0%) 17.3% 17.7%
Total risk-based capital (minimum 8.0%) 18.5% 19.0%
Leverage (minimum 4.0%) 9.9% 10.0%
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 the portion of the allowance for
loan losses excluded from total risk-based capital.
Results of Operations
Net Income
Net income for 1998 of $2,318,000 was up 31.5% from the 1997 net income of
$1,763,000, following a 17.8% decrease in 1997 compared to 1996 net income of
$2,145,000. The higher level of earnings in 1998 reflects the interaction of a
number of factors including increases in net interest income and non-interest
income and a decrease in the loan loss provision, partially offset by higher
non-interest expenses including costs associated with problem loans and other
real estate owned. The most significant factor which increased 1998 net income
was the increase in net interest income to $9,610,000 from $8,904,000 in 1997,
an increase of $706,000 or 7.9%. The provision for loan losses was $600,000 in
1998, compared to $1,150,000 in 1997, a decrease of $550,000 or 47.8%. Salary
expense increased $233,000 or 8.4% in 1998, primarily due to the addition of new
employees and normal <PAGE>
salary increases. Other real estate owned expenses increased by $154,000 or
86.5% due to an increase in the number of properties foreclosed upon by the
Company. Other non-interest expense increased by $174,000 or 10.2% in 1998,
primarily due to increases in postage, telephone and stationery costs.
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 $10,208,000 for 1998 represented an increase of 5.7% compared to
$9,653,000 for 1997. Net interest income in 1997 represented a $148,000, or
1.6%, increase over 1996.
Total interest income for 1998 was $17,700,000 compared to $16,596,000 in
1997 and $15,783,000 in 1996. The increase in 1998 is the result of an increase
in the average balance of interest earning assets from $199,829,000 in 1997 to
$215,382,000 in 1998, an increase of 7.8%. The increase in earning assets was
partially offset by an overall decrease in average yield on earning assets of
nine basis points in 1998. In the current declining rate environment, average
yields will decline as loans are made and securities are acquired at yields
below existing portfolio rates. Securities increased more than loans in 1998,
due to a general decline in loan demand. In 1999, increases in funding will
continue to be allocated first to meet loan demand, as necessary, and then to
the securities portfolios.
Total interest expense in 1998 increased $549,000 or 7.9% over 1997,
contrasted to a 10.6% increase in 1997 compared to 1996. The average balance of
interest bearing liabilities increased from $162,414,000 in 1997 to $163,335,000
in 1998, an increase of 0.6%. Like rates on earning assets, the cost of funding
is also closely tied to market rates. During 1998, the average deposit rate and
the average cost of total interest bearing liabilities decreased by fourteen
basis points and five basis points, respectively, reflecting the lower market
interest rates during the year. Net interest margin declined to 4.74% in 1998
compared to 4.83% in 1997 and 5.07% in 1996. 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 continue efforts to stabilize
the margin in 1999.
Non-Interest Income and Expense
Non-interest income primarily consists of service charges, commissions and fees
for various banking services, and securities gains and losses. Total
non-interest income in 1998 increased 27.0% or $337,000 over 1997. 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, higher
monthly service charges for commercial checking accounts, and income recorded
for the increase in cash surrender value of bank-owned life insurance.
Non-interest income in 1997 increased $191,000 over the prior year, primarily
from increased fee income.
Non-interest expense increased by $653,000 or 9.5% in 1998, compared to
increases of 2.0% in 1997 and 9.9% in 1996. Salary and wage expense combined
with employee benefit expense increased 7.7% to $4,015,000 in 1998 compared to
$3,728,000 in 1997, which represented an increase of 2.8% over $3,628,000 in
1996. Occupancy and equipment expense increased 3.1% to reach $1,276,000 in
1998, up from $1,238,000 in 1997 and $1,049,000 in 1996. This increase reflects
the Company's commitment to upgrade and expand computer network technology. Net
other real estate owned expense increased 86.5% to $332,000 in 1998 from
$178,000 in 1997, after decreasing from $283,000 in 1996. 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 minimize future losses, and will continue to make
every effort to liquidate foreclosed property in a fashion that will minimize
loss. Other non-interest expense increased by $174,000 or 10.2% in 1998 to
$1,888,000 from $1,714,000 in 1997, which represented a 2.7% decrease from
$1,761,000 in 1996.
<PAGE>
Year 2000 Planning and Implementation
Year 2000 or "Y2K" issue continues to be a top priority for the Company. The
year 2000 issue refers to uncertainties regarding the ability of various
software and hardware systems to interpret dates correctly after the beginning
of the Year 2000. The Company utilizes and is dependent upon data processing
systems and software in its normal course of business.
In 1997, management of the Company created a Y2K task force. This task
force consists of senior management and representatives of all processing areas.
A Y2K written plan was established. Goals of the Y2K Plan include identifying
risks, testing data processing and other systems used by the Company, informing
customers of the Y2K issues and risks, establishing a Contingency Plan for
operations if Y2K issues cause important systems or equipment to fail,
implementing changes necessary to achieve Y2K compliance, and verifying that
these changes are effective. The Board of Directors approved the Plan and
reviews progress under the Plan at its regular meetings.
The Company has met its Y2K goals to date and believes it will continue to
meet the goals of the Plan. By December 31, 1998, the Company had performed risk
assessments, assessed the Y2K preparedness of major vendors and suppliers as
well as large customers, started its customer awareness program and begun
development of the Y2K Contingency Plan. Testing of mission critical
applications is substantially complete with completion of final testing
scheduled for June 30, 1999.
The Y2K Contingency Plan calls for the Company to manually process banking
transactions and to use other data processing methods in the event that Y2K
efforts of the Company or its service providers are not successful. Delays in
processing banking transactions would result if the Company were required to use
manual processing or other methods instead of its normal computer processes.
These delays could disrupt the normal business activities of the Company and its
customers. The Company must assure that the computer systems it uses to process
transactions are Y2K ready to avoid these disruptions.
Management believes that the cost of resolving Y2K issues related to the
Company's hardware and software will not be material to the Company's business,
operations, liquidity, capital resources or financial condition based on
information developed to date. At this time, the Company estimates that its
total cash outlays in connection with Y2K compliance will not exceed $50,000,
excluding costs of Company employees involved in Y2K compliance activities.
Approximately $28,000 has been expended as of December 31, 1998.
Although the Company has completed an assessment of the Y2K effects on its
current commercial lending and other customers, the actual effect on individual,
corporate and governmental customers of the Company and on governmental
authorities that regulate the Company and its subsidiary, and any resulting
consequences to the Company, cannot be determined with any assurance. The
Company's belief that it, and its primary vendors, will achieve Y2K compliance
is based on a number of assumptions and on statements made by third parties
which are subject to uncertainty. The Company is not able to predict the
effects, if any, on the Company, financial markets or society in general of the
public reaction to Y2K. Because of this uncertainty and reliance on assumptions
and statements of third parties, the Company cannot be assured that the results
of its Y2K Plan will be achieved. Management presently believes, however, that
the Company will be able to accomplish its Y2K goals and that the Company will
be able to continue providing financial services for its customers into the 21st
century.
Recent Accounting Standards
See note 18 to the consolidated financial statements for a discussion of
recently issued accounting standards concerning derivative instruments and
hedging activities, and certain loan securitization transactions. These
standards are not expected to have a material impact on the Company's
consolidated financial statements.
<PAGE>
Inflation
The Company's operating results are affected by inflation to the extent that
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.
Management's Statement of Responsibility
The consolidated financial statements and related information in the 1998 Annual
Report were prepared by management 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 effectiveness of internal controls
and the extent of ongoing compliance with the Company's adopted policies and
procedures.
The responsibility of the Company's independent auditors, KPMG 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 auditors 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 auditors. The internal
auditor and independent auditors 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
<PAGE>
Distribution of Assets, Liabilities & Stockholders' Equity: Interest Rates &
Interest Differential
The following schedules present the consolidated average balance sheets for
1998, 1997 and 1996. The total dollar amount of interest income from earning
assets and the resultant yields are calculated on a tax equivalent basis. The
interest paid on interest-bearing liabilities, expressed in dollars and rates,
is also presented.
<TABLE>
Consolidated Average Balance Sheet 1998
<CAPTION>
Average Percentage of Interest Average
Balance Total Assets Earned/Paid Yield/Rate
<S> <C> <C> <C> <C>
Assets
Securities available for sale
and held to maturity:<F1>
Taxable securities $ 61,290,000 26.54% $ 3,904,000 6.37%
Tax-exempt securities 21,046,000 9.11 1,758,000 8.35
TOTAL SECURITIES 82,336,000 35.65 5,662,000 6.88
Short-term investments 3,292,000 1.43 177,000 5.38
Loans, net of unearned discount:
Real estate mortgages 90,308,000 39.10 7,859,000 8.70
Home equity loans 8,627,000 3.74 757,000 8.77
Time and demand loans 11,217,000 4.86 1,080,000 9.63
Installment loans 17,551,000 7.60 1,907,000 10.87
Other loans 2,051,000 0.89 258,000 12.58
TOTAL LOANS<F2> 129,754,000 56.18 11,861,000 9.14
TOTAL INTEREST-EARNING ASSETS 215,382,000 93.26 17,700,000 8.22
Allowance for loan losses (2,095,000) (0.91)
Cash and due from banks 6,973,000 3.02
Premises and equipment, net 2,624,000 1.14
Other assets 7,166,000 3.10
Net unrealized gain on
securities available for sale 905,000 0.39
TOTAL ASSETS $230,955,000 100.00%
Liabilities and Stockholders'
Equity
NOW and Super NOW deposits $ 28,591,000 12.38% $ 766,000 2.68%
Savings and insured money
market deposits 55,222,000 23.91 1,688,000 3.06
Time deposits 79,522,000 34.43 4,182,000 5.26
TOTAL INTEREST-BEARING DEPOSITS 163,335,000 70.72 6,636,000 4.06
Federal funds purchased
and other short-term debt 478,000 0.21 24,000 5.02
Federal Home Loan Bank advances 13,837,000 5.99 832,000 6.01
TOTAL INTEREST-BEARING LIABILITIES 177,650,000 76.92 7,492,000 4.22
Demand deposits 27,987,000 12.12
Other liabilities 2,566,000 1.11
TOTAL LIABILITIES 208,203,000 90.15
Stockholders' equity 22,752,000 9.85
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $230,955,000 100.00%
Net interest income $ 10,208,000
Net interest spread 4.00%
Net interest margin<F3> 4.74%
<FN>
<F1> Yields on securities available for sale are based on amortized cost.
<F2> For the 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.
<F3> Computed by dividing net interest income by total interest earning assets.
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Average Balance Sheet 1997
<CAPTION>
Average Percentage of Interest Average
Balance Total Assets Earned/Paid Yield/Rate
<S> <C> <C> <C> <C>
Assets
Securities available for sale
and held to maturity:<F1>
Taxable securities $ 47,726,000 22.62% $ 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 LOANS<F2> 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 margin<F3> 4.83%
<FN>
<F1> Yields on securities available for sale are based on amortized cost.
<F2> For the 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.
<F3> Computed by dividing net interest income by total interest earning assets.
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Average Balance Sheet 1996
<CAPTION>
Average Percentage of Interest Average
Balance Total Assets Earned/Paid Yield/Rate
<S> <C> <C> <C> <C>
Assets
Securities available for sale
and held to maturity:<F1>
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 42.91 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 LOANS<F2> 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 margin<F3> 5.07%
<FN>
<F1> Yields on securities available for sale are based on amortized cost.
<F2> For the 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.
<F3> Computed by dividing net interest income by total interest earning assets.
</FN>
</TABLE>
<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 1998 as compared to 1997, and 1997 as compared to 1996.
The changes in interest income and expense attributable to both rate and
volume have been allocated to rate on a consistent basis.
<TABLE>
Volume and Rate Analysis
<CAPTION>
1998 Compared to 1997 1997 Compared to 1996
Increase (Decrease) Due to Change In Increase (Decrease) Due to Change In
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Securities available
for sale and held
to maturity $ 532,000 $ (225,000) $ 307,000 $ 238,000 $ (50,000) $ 188,000
Federal Funds Sold 51,000 (3,000) 48,000 30,000 (5,000) 25,000
Loans 652,000 97,000 749,000 792,000 (192,000) 600,000
TOTAL INTEREST
INCOME 1,235,000 (131,000) 1,104,000 1,060,000 (247,000) 813,000
Interest Expense
NOW and Super
NOW deposits 25,000 (102,000) (77,000) (19,000) -- (19,000)
Savings and insured
money market deposits 74,000 (112,000) (38,000) (88,000) 4,000 (84,000)
Time deposits 247,000 (36,000) 211,000 468,000 18,000 486,000
Federal funds sold and
other short-term debt (13,000) 1,000 (12,000) (20,000) (7,000) (27,000)
Long-term debt 466,000 (1,000) 465,000 254,000 55,000 309,000
TOTAL INTEREST
EXPENSE 799,000 (250,000) 549,000 595,000 70,000 665,000
NET INTEREST INCOME $ 436,000 $ 119,000 $ 555,000 $ 465,000 $ (317,000) $ 148,000
</TABLE>
<PAGE>
Independent Auditors' Report
(LOGO)
KPMG
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, 1998
and 1997, 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, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Albany, New York
February 12, 1999
<PAGE>
Consolidated Balance Sheets
<TABLE>
December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Cash and due from banks (note 2) $ 8,203,000 $ 5,563,000
Federal funds sold -- 1,600,000
Cash and cash equivalents 8,203,000 7,163,000
Securities available for sale, at fair value (note 3) 88,891,000 70,793,000
Securities held to maturity (estimated fair value of
$3,755,000 in 1998 and $3,821,000 in 1997) (note 4) 3,602,000 3,738,000
Loans, net of allowance for loan losses of $2,310,000
in 1998 and $1,862,000 in 1997 (note 5) 130,031,000 125,793,000
Accrued interest receivable 1,392,000 1,291,000
Premises and equipment, net (note 6) 2,681,000 2,609,000
Federal Home Loan Bank stock 1,160,000 753,000
Other real estate owned 535,000 301,000
Cash surrender value of bank-owned life insurance 6,183,000 --
Other assets 1,175,000 1,218,000
TOTAL ASSETS $243,853,000 $213,659,000
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand deposits (non-interest bearing) $ 31,287,000 $ 23,545,000
Now and Super NOW accounts 28,726,000 27,973,000
Savings and insured money market deposits 56,089,000 54,513,000
Time deposits (note 7) 82,012,000 73,129,000
TOTAL DEPOSITS 198,114,000 179,160,000
Federal Home Loan Bank borrowings (note 8) 20,000,000 10,000,000
Short-term debt 334,000 404,000
Accrued expenses and other liabilities 2,388,000 1,919,000
TOTAL LIABILITIES 220,836,000 191,483,000
Commitments and contingent liabilities (note 14) Stockholders' equity (notes 11,
12 and 13):
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; 1,468,276 shares and 1,234,711
shares issued in 1998 and 1997, respectively 734,000 617,000
Paid-in capital 5,431,000 446,000
Treasury stock, at cost; 62,381 shares and
51,965 shares held in 1998 and 1997, respectively (206,000) (206,000)
Retained earnings 16,795,000 20,766,000
Accumulated other comprehensive income, net of
taxes of $183,000 in 1998 and $382,000 in 1997 263,000 553,000
TOTAL STOCKHOLDERS' EQUITY 23,017,000 22,176,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $243,853,000 $213,659,000
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Income
<TABLE>
Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Interest Income
Loan interest and fees $11,861,000 $11,112,000 $10,512,000
Securities:
Taxable 3,904,000 3,153,000 2,699,000
Non-taxable 1,160,000 1,453,000 1,629,000
Federal funds sold 177,000 129,000 104,000
TOTAL INTEREST INCOME 17,102,000 15,847,000 14,944,000
Interest Expense
Deposits 6,636,000 6,540,000 6,157,000
Federal Home Loan Bank borrowings 817,000 367,000 58,000
Other 39,000 36,000 63,000
TOTAL INTEREST EXPENSE 7,492,000 6,943,000 6,278,000
NET INTEREST INCOME 9,610,000 8,904,000 8,666,000
Provision for loan losses (note 5) 600,000 1,150,000 290,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,010,000 7,754,000 8,376,000
Non-interest Income
Service charges 839,000 728,000 651,000
Increase in cash surrender value
of bank-owned life insurance 202,000 -- --
Net security gains (note 3) 17,000 91,000 95,000
Other non-interest income 529,000 431,000 313,000
TOTAL NON-INTEREST INCOME 1,587,000 1,250,000 1,059,000
Non-interest Expenses
Salaries and wages 3,019,000 2,786,000 2,794,000
Employee benefits (note 15) 996,000 942,000 834,000
Occupancy and equipment expenses 1,276,000 1,238,000 1,049,000
Other real estate owned expenses, net 332,000 178,000 283,000
Other non-interest expenses (note 10) 1,888,000 1,714,000 1,761,000
TOTAL NON-INTEREST EXPENSES 7,511,000 6,858,000 6,721,000
Income before income taxes expense 3,086,000 2,146,000 2,714,000
Income tax expense (note 9) 768,000 383,000 569,000
NET INCOME $ 2,318,000 $ 1,763,000 $ 2,145,000
Basic earnings per common share $ 1.64 $ 1.24 $ 1.49
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
Accumulated
Other Total
Common Paid-in Treasury Retained Comprehensive Stockholders'
Stock Capital Stock Earnings Income Equity
<S> <C> <C> <C> <C> <C> <C>
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 (note 13) -- -- -- -- (299,000) (299,000)
Comprehensive income 1,846,000
Cash dividends ($0.54 per share) -- -- -- (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 (note 13) -- -- -- -- 231,000 231,000
Comprehensive income 1,994,000
Cash dividends ($0.56 per share) -- -- -- (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
Net income -- -- -- 2,318,000 -- 2,318,000
Change in net unrealized gain
on securities available for sale,
net of tax (note 13 -- -- -- -- (290,000) (290,000)
Comprehensive income 2,028,000
Cash dividends ($0.60 per share) -- -- -- (850,000) -- (850,000)
Purchases and retirements
of common stock (7,000) (330,000) -- -- -- (337,000)
Stock dividend (note 12) 124,000 5,315,000 -- (5,439,000) -- --
Balance at December 31, 1998 $ 734,000 $ 5,431,000 $ (206,000) $16,795,000 $ 263,000 $25,045,000
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating Activities
Net income $ 2,318,000 $ 1,763,000 $ 2,145,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 600,000 1,150,000 290,000
Write down of other real estate owned 126,000 119,000 31,000
Gain on sales of other real estate owned (83,000) (137,000) (52,000)
Depreciation and amortization 559,000 516,000 423,000
Net increase in cash surrender value of bank-owned
life insurance (175,000) -- --
Deferred income tax benefit (192,000) (199,000) (102,000)
Net security gains (17,000) (91,000) (95,000)
(Increase) decrease in accrued interest receivable (101,000) (123,000) 12,000
Decrease (increase) in other assets 434,000 (251,000) 461,000
Increase in accrued expenses and other liabilities 469,000 240,000 219,000
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,938,000 2,987,000 3,332,000
Investing Activities Proceeds from maturities and calls:
Securities available for sale 42,978,000 10,443,000 10,873,000
Securities held to maturity 858,000 770,000 983,000
Proceeds from sales of securities available for sale 11,586,000 17,345,000 3,812,000
Purchases:
Securities available for sale (73,136,000) (33,261,000) (18,323,000)
Securities held to maturity (720,000) (1,107,000) (2,602,000)
Disbursements for loan originations, net
of principal collections (5,798,000) (11,690,000) (7,421,000)
(Purchase) redemption of Federal Home Loan Bank stock (407,000) (36,000) 19,000
Purchase of bank-owned life insurance (6,008,000) -- --
Net purchases of premises and equipment (631,000) (523,000) (820,000)
Proceeds from sales of other real estate owned 683,000 900,000 553,000
NET CASH USED IN INVESTING ACTIVITIES (30,595,000) (17,159,000) (12,926,000)
Financing Activities
Net increase in deposits 18,954,000 6,230,000 8,746,000
Proceeds from Federal Home Loan Bank borrowings 20,000,000 10,000,000 --
Repayments of Federal Home Loan Bank borrowings (10,000,000) -- (1,700,000)
Net (decrease) increase in short-term debt (70,000) 125,000) 332,000
Cash dividends paid (850,000) (792,000) (775,000)
Purchases and retirements of common stock (337,000) (1,000) (1,043,000)
Proceeds from sales of treasury stock -- -- 19,000
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,697,000 15,312,000 5,579,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,040,000 1,140,000 (4,015,000)
Cash and cash equivalents at beginning of year 7,163,000 6,023,000 10,038,000
Cash and cash equivalents at end of year $ 8,203,000 $ 7,163,000 $ 6,023,000
Supplemental Information
Cash paid for:
Interest $ 7,508,000 $ 6,934,000 $ 6,153,000
Income taxes 903,000 700,000 728,000
Transfer of loans to other real estate owned 960,000 352,000 814,000
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
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.
Management makes operating decisions and assesses performance based on an
ongoing review of the Bank's community banking operations, which constitute the
Company's only operating segment for financial reporting purposes.
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 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. Net unrealized
gains or losses on securities available for sale are reported (net of income
taxes) in stockholders' equity as accumulated other comprehensive income.
Non-marketable equity securities are carried at cost. At December 31, 1998 and
1997, 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.
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. <PAGE>
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.
Other Real Estate Owned
Other real estate owned consists of properties acquired through foreclosure and
is stated on an individual-asset basis at the lower of (i) fair value less
estimated costs to sell or (ii) cost which represents the fair value at initial
foreclosure. When a property is acquired, 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 losses on
other real estate owned 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.
Bank-Owned Life Insurance
The investment in bank-owned life insurance, which covers certain officers of
the Bank, is carried at the policies' cash surrender value. Increases in the
cash surrender value are recognized in non-interest income.
<PAGE>
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
Basic earnings per share ("EPS") is computed by dividing income available to
common stockholders (net income less dividends on preferred stock, if any) 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.
Basic earnings per common share was computed based on average outstanding
common shares of 1,415,000 in 1998, 1,419,000 in 1997 and 1,441,000 in 1996, all
of which have been adjusted for the effect of the 20% stock dividend distributed
in February 1998 (see note 12). Income available to common stockholders equaled
net income for each of these years.
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, 1998 and 1997.
3. Securities Available for Sale
The amortized cost and estimated fair value of securities available for sale are
as follows:
<TABLE>
December 31, 1998
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government agency securities $31,451,000 $ 107,000 $ (272,000) $31,286,000
Obligations of states and
political subdivisions 16,820,000 978,000 (2,000) 17,796,000
Mortgage-backed securities
and collateralized
mortgage obligations 37,999,000 58,000 (442,000) 37,635,000
Corporate debt securities 603,000 2,000 (3,000) 602,000
Total debt securities 86,873,000 1,145,000 (699,000) 87,319,000
Equity securities 1,573,000 15,000 (16,000) 1,572,000
TOTAL SECURITIES
AVAILABLE FOR SALE $88,446,000 $ 1,160,000 $ (715,000) $88,891,000
</TABLE>
<PAGE>
<TABLE>
December 31, 1997
<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
TOTAL SECURITIES
AVAILABLE FOR SALE $69,858,000 $ 1,079,000 $ (144,000) $70,793,000
</TABLE>
Proceeds from sales of securities available for sale during 1998, 1997 and 1996
were $11,586,000, $17,345,000 and $3,812,000, respectively. Gross gains and
gross losses realized on these transactions were as follows:
Years ended December 31, 1998 1997 1996
Gross realized gains $ 18,000 $155,000 $ 96,000
Gross realized losses (1,000) (64,000) (1,000)
Net security gains $ 17,000 $ 91,000 $ 95,000
The amortized cost and estimated fair value of debt securities available for
sale at December 31, 1998, 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.
December 31, 1998 Amortized Estimated
Cost Fair Value
Within one year $35,451,000 $35,238,000
One to five years 40,707,000 41,240,000
Five to ten years 5,481,000 5,775,000
Over ten years 5,234,000 5,066,000
TOTAL $86,873,000 $87,319,000
<PAGE>
Substantially all mortgage-backed securities and collateralized mortgage
obligations are securities guaranteed by Freddie Mac or Fannie Mae, which are
U.S. government-sponsored entities.
Securities available for sale with an estimated fair value of $32,302,000
at December 31, 1998 were pledged to secure public funds on deposit and for
other purposes.
4. Securities Held to Maturity
The amortized cost and estimated fair value of securities held to maturity are
as follows:
December 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Obligations of states and
political subdivisions $3,602,000 $ 153,000 $ -- $3,755,000
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
The amortized cost and estimated fair value of these securities at December 31,
1998, 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.
December 31, 1998 Amortized Estimated
Cost Fair Value
Within one year $ 130,000 $ 130,000
One to five years 1,396,000 1,436,000
Five to ten years 2,059,000 2,169,000
Over ten years 17,000 20,000
TOTAL $3,602,000 $3,755,000
There were no sales of securities held to maturity in 1998, 1997 or 1996.
<PAGE>
5. Loans
The major classifications of loans are as follows:
At December 31, 1998 1997
Real estate loans:
Residential $ 66,029,000 $ 65,599,000
Commercial 22,961,000 21,921,000
Home equity 9,320,000 7,677,000
Farm land 1,488,000 1,550,000
Construction 1,171,000 1,348,000
100,969,000 98,095,000
Other loans:
Commercial loans 14,391,000 12,314,000
Consumer installment loans 18,394,000 18,907,000
Other consumer loans 1,795,000 1,437,000
Agricultural loans 412,000 446,000
34,992,000 33,104,000
Total loans 135,961,000 131,199,000
Unearned discounts (3,620,000) (3,544,000)
Allowance for loan losses (2,310,000) (1,862,000)
TOTAL LOANS, NET $130,031,000 $125,793,000
The Company originates residential and commercial real estate loans, as well as
commercial, consumer and agricultural 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.
Non-performing loans are summarized as follows:
At December 31, 1998 1997 1996
Non-accrual loans $1,842,000 $3,324,000 $2,572,000
Loans past due 90 days or more
and still accruing interest 1,146,000 368,000 1,423,000
Restructured loans -- -- 481,000
Total non-performing loans $2,988,000 $3,692,000 $4,476,000
Non-performing loans
as a percentage of total loans 2.2% 2.8% 3.7%
<PAGE>
Non-accrual and restructured loans had the following effect on interest income:
Years ended December 31, 1998 1997 1996
Interest contractually due at
original rates $ 199,000 $ 285,000 $ 280,000
Interest income recognized (118,000) (124,000) (200,000)
Interest income not recognized $ 81,000 $ 161,000 $ 80,000
Changes in the allowance for loan losses are summarized as follows:
Years ended December 31, 1998 1997 1996
Balance at beginning of the year $1,862,000 $ 1,711,000 $ 1,629,000
Provision for loan losses 600,000 1,150,000 290,000
Loans charged-off (343,000) (1,255,000) (346,000)
Recoveries 191,000 256,000 138,000
Balance at end of the year $2,310,000 $ 1,862,000 $ 1,711,000
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, 1998 and
1997, the recorded investment in loans that were considered to be impaired under
SFAS No. 114 totaled $965,000 and $1,550,000, 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 1998, 1997 and 1996, the average recorded investment in impaired loans
was $978,000, $1,564,000 and $1,668,000, respectively. Interest income of
$87,000, $124,000 and $146,000 was recognized on impaired loans during 1998,
1997 and 1996, respectively, using a cash-basis method of accounting.
6. Premises and Equipment
The major classifications of premises and equipment were as follows:
At December 31, 1998 1997
Land $ 392,000 $ 392,000
Buildings 2,203,000 2,122,000
Furniture and fixtures 421,000 414,000
Equipment 4,050,000 3,588,000
Building and leasehold improvements 568,000 500,000
7,634,000 7,016,000
Less accumulated depreciation and
amortization 4,953,000 4,407,000
TOTAL PREMISES AND EQUIPMENT, NET $2,681,000 $2,609,000
Depreciation and amortization expense was $559,000, $516,000 and $423,000 in
1998, 1997 and 1996, respectively.
<PAGE>
7. Time Deposits
The following is a summary of time deposits by remaining period to contractual
maturity:
At December 31, 1998
Within one year $60,594,000
One to two years 15,218,000
Two to three years 3,357,000
Three to four years 2,843,000
TOTAL TIME DEPOSITS $82,012,000
Time deposits of $100,000 or more totaled $14,920,000 at December 31, 1998 and
$9,109,000 at December 31, 1997. Interest expense related to time deposits over
$100,000 was $761,000, $659,000 and $422,000 for 1998, 1997 and 1996,
respectively.
8. Federal Home Loan Bank Borrowings
The following is a summary of FHLB advances outstanding:
At December 31, 1998 1997
Amount Rate Amount Rate
Variable rate advances maturing
within one year $10,000,000 5.61% $10,000,000 5.70%
Fixed rate advances maturing
in 2008 10,000,000 5.02% -- --
TOTAL FHLB ADVANCES $20,000,000 5.31% $10,000,000 5.70%
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, 1998 and 1997. In addition to advances, the Bank may have
outstanding FHLB overnight and 30 day borrowings of up to approximately
$22,000,000. The Bank had no borrowings under these lines of credit at December
31, 1998. <PAGE>
9. Income Taxes
The components of income tax expense are as follows:
Years ended December 31, 1998 1997 1996
Current tax expense:
Federal $ 690,000 $ 439,000 $ 470,000
State 270,000 143,000 201,000
Deferred tax benefit (192,000) (199,000) (102,000)
TOTAL INCOME TAX EXPENSE $ 768,000 $ 383,000 $ 569,000
The reasons for the differences between income tax expense and taxes computed by
applying the statutory Federal tax rate of 34% to income before income taxes are
as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Tax at statutory rate $1,049,000 $ 730,000 $ 923,000
State taxes, net of Federal tax benefit 134,000 81,000 123,000
Tax-exempt interest (394,000) (494,000) (554,000)
Interest expense allocated to tax-exempt securities 47,000 62,000 63,000
Increase in cash surrender value of bank-owned
life insurance (69,000) -- --
Other adjustments 1,000 4,000 14,000
Income tax expense $ 768,000 $ 383,000 $ 569,000
</TABLE>
The tax effects of temporary differences and tax credits that give rise to
deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
At December 31, 1998 1997
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses in excess of tax bad debt reserve $ 687,000 $ 487,000
Interest on non-accrual loans 136,000 174,000
Alternative minimum tax credit 95,000 183,000
Postretirement benefits 149,000 56,000
Other deductible temporary differences 3,000 --
Total deferred tax assets 1,070,000 900,000
Deferred tax liabilities:
Prepaid expenses (227,000) (186,000)
Net unrealized gain on available for sale securities (183,000) (382,000)
Other taxable temporary differences -- (63,000)
Total deferred tax liabilities (410,000) (631,000)
Net deferred tax asset $ 660,000 $ 269,000
</TABLE>
<PAGE>
In assessing the realizability of the Company's total deferred tax assets,
management considers whether it is more likely than not that some portion or all
of those 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 and liabilities, a
valuation allowance for deferred tax assets was not considered necessary at
December 31, 1998 and 1997.
10. Other Non-Interest Expenses
The major components of other non-interest expenses are as follows:
Years ended December 31, 1998 1997 1996
Stationery and supplies $ 224,000 $ 215,000 $ 206,000
Director expenses 228,000 230,000 254,000
ATM and credit card processing fees 323,000 222,000 178,000
Postage and freight 159,000 148,000 145,000
Advertising expense 122,000 137,000 136,000
Other expenses 832,000 762,000 842,000
Total non-interest expenses $1,888,000 $1,714,000 $1,761,000
11. 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, 1998 and 1997, 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.
<PAGE>
The following is a summary of the actual capital amounts and ratios as of
December 31, 1998 and 1997 for the Bank and the Parent Company (consolidated),
compared to the required ratios for minimum capital adequacy and for
classification as well-capitalized:
<TABLE>
<CAPTION>
December 31, 1998 Required Ratios
Actual
Minimum Classification as
Amount Ratio Capital Adequacy Well Capitalized
<S> <C> <C> <C> <C>
Bank
Leverage (Tier I) capital $19,984,000 8.2% 4.0% 5.0%
Risk-based capital:
Tier I 19,984,000 15.7 4.0 6.0
Total 21,589,000 16.9 8.0 10.0
Consolidated
Leverage (Tier I) capital $22,754,000 9.9% 4.0%
Risk-based capital:
Tier I 22,754,000 17.3 4.0
Total 24,408,000 18.5 8.0
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997 Required Ratios
Actual
Minimum Classification as
Amount Ratio Capital Adequacy Well Capitalized
<S> <C> <C> <C> <C>
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
</TABLE>
12. Stockholders' Equity
Stock Dividend
On January 14, 1998, the Parent Company announced a 20% stock dividend which was
distributed 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 246,406 common shares
were issued in connection with the stock dividend. Retained earnings was reduced
by $5,439,000, with a corresponding combined increase in common stock and
paid-in capital, representing the fair value of the additional shares
outstanding after the stock dividend. <PAGE>
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. The Bank's retained net profits (after dividend payments to the
Parent Company) for 1998 and 1997 totaled approximately $1,300,000.
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 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. Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for the reporting and display of comprehensive income (and
its components) in financial statements. Comprehensive income represents the sum
of net income and items of "other comprehensive income" which are reported
directly in stockholders' equity, such as the net unrealized gain or loss on
securities available for sale. While SFAS No. 130 does not require a specific
reporting format, it does require that an enterprise display an amount
representing total comprehensive income for each period for which an income
statement is presented. In accordance with SFAS No. 130, the Company has
reported its comprehensive income for 1998, 1997 and 1996 in the consolidated
statements of changes in stockholders' equity. <PAGE>
The Company's accumulated other comprehensive income, which is included in
stockholders' equity, represents the after-tax net unrealized gain on securities
available for sale at the balance sheet date. The Company's other comprehensive
income, which is attributable to gains and losses on securities available for
sale, consisted of the following components:
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net unrealized holding gains (losses) arising during
the year, net of taxes of $192,000 in 1998,
($193,000) in 1997 and $167,000 in 1996 $(280,000) $ 285,000 $(243,000)
Reclassification adjustment for net realized gains
included in income, net of taxes of $7,000 in 1998,
$37,000 in 1997 and $39,000 in 1996 (10,000) (54,000) (56,000)
Other comprehensive income (loss), net of taxes
of $199,000 in 1998, ($156,000) in 1997 and
$206,000 in 1996 $(290,000) $ 231,000 $(299,000)
</TABLE>
14. 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, 1998 1997
Directors $1,636,000 $1,214,000
Executive officers (non-director) 139,000 135,000
$1,775,000 $1,349,000
Total advances to these directors and officers during the years 1998 and 1997
were $2,013,000 and $926,000, respectively. Total payments made on these loans
were $1,587,000 in 1998 and $433,000 in 1997. These directors and officers had
unused lines of credit with the Company of $846,000 at December 31, 1998. <PAGE>
15. Employee Benefit Plans
Pension and Other Postretirement Benefits
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.
The Company also sponsors postretirement medical and life insurance benefit
plans for retirees in the pension plan. Effective in 1993, employees must retire
after age 60 with at least 10 years of service to be eligible for medical
benefits. The plans are non-contributory, except that the retiree must pay the
full cost of spouse medical coverage. Both of the plans are unfunded. 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 summary of changes in the benefit obligations and plan
assets for the pension plan and the other postretirement benefits plan, together
with a reconciliation of each plan's funded status to the amounts recognized in
the consolidated balance sheets:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Change in benefit obligation:
Beginning of year $ 2,732,000 $2,567,000 $ 989,000 $ 843,000
Service cost 124,000 118,000 78,000 52,000
Interest cost 203,000 181,000 79,000 60,000
Actuarial loss 361,000 -- 202,000 63,000
Benefits paid (130,000) (134,000) (33,000) (29,000)
End of year 3,290,000 2,732,000 1,315,000 989,000
Change in fair value of plan assets:
Beginning of year 2,660,000 2,139,000 -- --
Actual return on plan assets 71,000 460,000 -- --
Employer contributions 186,000 195,000 33,000 29,000
Benefits and plan expenses (148,000) (134,000) (33,000) (29,000)
End of year 2,769,000 2,660,000 -- --
Funded status at end of year (521,000) (72,000) (1,315,000) (989,000)
Unamortized net transition
(asset) obligation (31,000) (35,000) 257,000 276,000
Unrecognized net loss subsequent
to transition 954,000 435,000 348,000 156,000
Unamortized prior service liability (29,000) (32,000) -- --
Prepaid (accrued) benefit cost $ 373,000 $ 296,000 $ (710,000) $ (557,000)
</TABLE>
<PAGE>
The components of the net periodic benefit cost for these plans were as
follows:
Pension Benefits 1998 1997 1996
Service cost $ 123,000 $ 118,000 $ 112,000
Interest cost 203,000 181,000 172,000
Expected return on plan assets (228,000) (184,000) (168,000)
Amortization of prior service cost (3,000) (3,000) (4,000)
Amortization of transition asset (4,000) (4,000) (4,000)
Recognized net actuarial loss 19,000 33,000 41,000
Net periodic benefit expense $ 110,000 $ 141,000 $ 149,000
Other Postretirement Benefits 1998 1997 1996
Service cost $ 78,000 $ 52,000 $ 34,000
Interest cost 79,000 60,000 39,000
Amortization of transition obligation 18,000 18,000 18,000
Recognized net actuarial loss (gain) 11,000 1,000 (4,000)
Net periodic benefit expense $186,000 $131,000 $ 87,000
The discount rates used to determine the benefit obligations in 1998, 1997 and
1996 were 6.75%, 7.25% and 7.25%, respectively, for the pension plan; and 6.75%,
7.00% and 7.25%, respectively, for the other postretirement benefits plan. For
the pension plan, the expected rate of return on plan assets was 8.50% and the
rate of increase in future compensation was 5.0% for each of the years 1998,
1997 and 1996. The assumed health care cost trend rate used to determine the
benefit obligation for the other postretirement benefits plan at December 31,
1998 was 7.0%, declining gradually to 4.0% in 2001 and remaining at that level
thereafter. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the benefit obligation at December
31, 1998 by approximately $229,000 and the net periodic benefit cost for the
year by approximately $32,000; a one percentage point decrease would decrease
the benefit obligation and benefit cost by approximately $180,000 and $25,000,
respectively.
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. 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%. The Company contributed approximately $111,000 in 1998, $117,000
in 1997 and $93,000 in 1996.
<PAGE>
16. 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, 1998 1997
Loan origination commitments and unused lines of credit:
Mortgage loans $ 2,924,000 $ 1,475,000
Commercial loans 7,518,000 6,544,000
Credit card lines 5,152,000 2,606,000
Home equity lines 414,000 1,902,000
Other revolving credit 1,428,000 1,294,000
17,436,000 13,821,000
Standby letters of credit 307,000 453,000
$17,743,000 $14,274,000
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. <PAGE>
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.
17. 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 a financial instrument could be exchanged in a current
transaction between parties other than in a forced sale or liquidation.
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. 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.
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):
<TABLE>
<CAPTION>
At December 31, 1998 1997
Net Carrying Estimated Net Carrying Estimated
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 8,203,000 $ 8,203,000 $ 7,163,000 $ 7,163,000
Securities available for sale 88,891,000 88,891,000 70,793,000 70,793,000
Securities held to maturity 3,602,000 3,755,000 3,738,000 3,821,000
Loans 130,031,000 132,958,000 125,793,000 127,054,000
Accrued interest receivable 1,392,000 1,392,000 1,291,000 1,291,000
FHLB stock 1,160,000 1,160,000 753,000 753,000
Financial Liabilities
Demand deposits
(non-interest bearing) 31,287,000 31,287,000 23,545,000 23,545,000
Interest-bearing deposits 166,827,000 167,098,000 155,615,000 155,678,000
FHLB advances 20,000,000 20,214,000 10,000,000 10,000,000
Short-term debt 334,000 334,000 404,000 404,000
Accrued interest payable 640,000 640,000 610,000 610,000
</TABLE>
<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 analyses. 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
judgmentally 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.
FHLB 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 short-term debt approximated their
carrying values at December 31, 1998 and 1997.
The fair values of the agreements to extend credit described in note 16 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, 1998 and 1997, the fair values of
these financial instruments approximated the related carrying values which were
not significant. <PAGE>
18. Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires entities to recognize all derivatives as either assets or liabilities
in the balance sheet at fair value. If certain conditions are met, a derivative
may be specifically designated as a fair value hedge, a cash flow hedge, or a
foreign currency hedge. A specific accounting treatment applies to each type of
hedge. Entities may reclassify securities from the held-to-maturity category to
the available-for-sale category at the time of adopting SFAS No. 133. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999, although early
adoption is permitted. The Company is not presently engaged in derivatives and
hedging activities covered by the new standard and, accordingly, SFAS No. 133 is
not expected to have a material impact on the Company's consolidated financial
statements.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". SFAS No. 134 provides for the
classification of such retained securities as held to maturity, available for
sale, or trading in accordance with SFAS No. 115. Prior accounting standards
limited the classification of these securities to the trading category. SFAS No.
134 is effective for the fiscal quarter beginning after December 15, 1998 and is
not expected to affect the Company's consolidated financial statements.
19. 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, 1998 1997
Assets
Cash $ 106,000 $ 95,000
Securities available for sale 1,531,000 1,296,000
Investment in subsidiary 20,347,000 19,586,000
Premises and equipment 1,210,000 1,272,000
Other assets 28,000 21,000
TOTAL ASSETS $23,222,000 $22,270,000
Liabilities and Stockholders' Equity
Liabilities $ 205,000 $ 94,000
Stockholders' equity 23,017,000 22,176,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,222,000 $22,270,000
<PAGE>
<TABLE>
Statements of Income (Parent Company Only)
<CAPTION>
Years ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Dividend income from subsidiary $1,125,000 $1,375,000 $2,253,000
Dividend income on securities available for sale 125,000 72,000 --
Rental income from subsidiary 246,000 245,000 246,000
1,496,000 1,692,000 2,499,000
Occupancy and equipment expenses 62,000 62,000 63,000
Other non-interest expenses 49,000 34,000 100,000
111,000 96,000 163,000
Income before income taxes and
undistributed income of subsidiary 1,385,000 1,596,000 2,336,000
Income tax expense 109,000 93,000 34,000
Income before undistributed income of subsidiary 1,276,000 1,503,000 2,302,000
Equity in undistributed income of subsidiary 1,042,000 260,000 (157,000)
NET INCOME $2,318,000 $1,763,000 $2,145,000
</TABLE>
<TABLE>
Statements of Cash Flows (Parent Company Only)
<CAPTION>
Years ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Operating Activities
Net income $ 2,318,000 $ 1,763,000 $ 2,145,000
Equity in undistributed income of subsidiary (1,042,000) (260,000) 157,000
Depreciation and amortization 62,000 62,000 63,000
Other adjustments, net 110,000 (72,000) 27,000
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,448,000 1,493,000 2,392,000
Investing Activities
Purchases of securities available for sale (250,000) (750,000) (500,000)
Purchases of premises and equipment -- (10,000) (90,000)
CASH USED IN INVESTING ACTIVITIES (250,000) (760,000) (590,000)
Financing Activities
Cash dividends paid (850,000) (792,000) (775,000)
Purchases and retirements of common stock (337,000) (1,000) (1,043,000)
Proceeds from sales of treasury stock -- -- 19,000
NET CASH USED IN FINANCING ACTIVITIES (1,187,000) (793,000) (1,799,000)
NET INCREASE (DECREASE) IN CASH 11,000 (60,000) 3,000
Cash at beginning of year 95,000 155,000 152,000
Cash at end of year $ 106,000 $ 95,000 $ 155,000
</TABLE>
<PAGE>
20. Summary of Unaudited Quarterly Financial Information
The following is a condensed summary of quarterly results of operations for 1998
and 1997:
<TABLE>
1998
<CAPTION>
March 31 June 30 September 30 December 31 Total
<S> <C> <C> <C> <C> <C>
Interest income $ 4,102,000 $ 4,269,000 $ 4,326,000 $ 4,405,000 $17,102,000
Interest expense (1,793,000) (1,910,000) (1,861,000) (1,928,000) (7,492,000)
Net interest income 2,309,000 2,359,000 2,465,000 2,477,000 9,610,000
Provision for loan losses (150,000) (125,000) (175,000) (150,000) (600,000)
Non-interest income 302,000 405,000 446,000 434,000 1,587,000
Non-interest expenses (1,774,000) (1,721,000) (1,902,000) (2,114,000) (7,511,000)
Income before taxes 687,000 918,000 834,000 647,000 3,086,000
Income taxes (177,000) (284,000) (255,000) (52,000) (768,000)
Net income $ 510,000 $ 634,000 $ 579,000 $ 595,000 $ 2,318,000
Basic earnings per share $ 0.36 $ 0.45 $ 0.41 $ 0.42 $ 1.64
</TABLE>
<TABLE>
1997
<CAPTION>
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 share $ 0.35 $ 0.33 $ 0.36 $ 0.20 $ 1.24
</TABLE>
<PAGE>
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, 1998 Commission File Number: 0-19212
JEFFERSONVILLE BANCORP
(Exact name of Registrant as specified in its charter)
New York 22-2385448
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 398, Jeffersonville, New York 12748
(Address of principal executive offices)
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 preceding 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 amendment to this Form 10-K. [X]
The aggregate market value of the registrant's common stock (based upon the
average bid and asked prices on February 9, 1999) held by non-affiliates was
approximately $32,101,169.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock:
Number of Shares Outstanding
Class of Common Stock as of February 9, 1999
$0.50 Par Value 1,395,703
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to shareholders for the fiscal
year ended December 31, 1998.
(2) Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on April 27, 1999.
<PAGE>
JEFFERSONVILLE BANCORP
INDEX TO FORM 10-K
PART I
PAGE
Item 1. Business 47-53
Item 2. Properties 53
Item 3. Legal Proceedings 53
Item 4. Submission of Matters to a Vote of Security Holders 53
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 54
Item 6. Selected Financial Data 54
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 54
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 54
Item 8. Financial Statements and Supplementary Data 54
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 54
PART III
Item 10. Directors and Executive Officers of the Registrant 54
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial
Owners and Management 54
Item 13. Certain Relationships and Related Transactions 54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 55
Signatures 56
<PAGE>
PART I
ITEM 1. Business
General
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").
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
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 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 serving all of Sullivan
County, New York as well as some areas of adjacent counties in New York and
Pennsylvania.
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.
Loan Products. The Bank offers a broad range of residential mortgage,
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. The Bank does not have a major loan
concentration in any individual borrower or industry.
Residential Real Estate Loans. The Company offers mortgage loan services,
originating a variety 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.
Commercial and Commercial Real Estate Loans. The Bank also offers a variety
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
basis. 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 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 also offers a variety of consumer loan products.
These products include both open-end credit (credit cards, home equity lines of
credit, unsecured revolving lines of credit) and closed-end credit (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.
<PAGE>
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.
Supervision and Regulation
Holding Company Regulation. The Company is a bank holding company,
registered with the Board Governors of the Federal Reserve System (the "Federal
Reserve") under the BHC Act. As such, the Company and its subsidiary bank are
subject to the supervision, examination, and reporting requirements of the BHC
Act and the regulations of the Federal Reserve. 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.
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 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 national
and state-chartered banks may branch interstate through acquisitions of banks in
other states.
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 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. The BHC Act does not place territorial limitations on
permissible non-banking 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.
<PAGE>
Bank Regulation. The Bank, the single subsidiary bank of the Company, is a
member of the Federal Deposit Insurance Corporation (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 Office of the Comptroller of the Currency (the "OCC"). The OCC
regularly examines the operations of the 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.
Community Reinvestment Act. The Bank is subject to the provisions of the
Community Reinvestment Act (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 Bank
is required by the OCC to obtain prior approval for the payment of dividends to
the Company if the total of all dividends declared the Bank in any year would
exceed the total of the Bank's net profits (as 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. The Bank's retained
net profits (after payment of dividends to the Company) for 1998 and 1997
totaled approximately $1,300,000. There are also other statutory and regulatory
limitations on the payment of dividends by the Bank to the Company, as well as
by the Company to its stockholders. Federal bank regulatory authorities 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. Without receiving
dividends from the Bank, the Company 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.
<PAGE>
Transactions With Affiliates. There are various regulatory restrictions on
the extent to which the Company can borrow or otherwise obtain credit from the
subsidiary bank. The Bank's ability to engage in borrowing and other "covered
transactions" with non-bank affiliates is limited 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 tie-in arrangements in
connection with any extension of credit, lease, or sale of property or
furnishing of services.
Capital Adequacy. The Company and the Bank are required to comply with the
capital adequacy standards established by the Federal Reserve and the OCC,
respectively. 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.
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, 1998, the Company's consolidated Tier 1
Capital and Total Capital ratios were 17.3% and 18.5%, 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, 1998 was 9.9%. 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 institution's "tangible Tier 1 Capital leverage ratio" (deducting all
intangible assets) 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 applicable to the
holding company. The Bank's capital ratios are substantially similar to those of
the Company and, as such, the Bank is also in compliance with all applicable
minimum capital requirements.
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".
<PAGE>
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 Bank. This support may be required at times when, absent such
Federal Reserve policy, the Company 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 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 established a system of prompt corrective
action to resolve the problems of undercapitalized institutions. Under this
system, the federal banking regulators established five capital categories
("well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized"). The
regulators are required 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, 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, 1998, the Bank had the requisite capital levels to
qualify as well capitalized.
<PAGE>
FDIC Insurance. Under the FDIC's risk related insurance assessment system,
insured depository institutions may be 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 same 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.
On September 30, 1996, legislation was passed recapitalizing the Savings
Association Insurance Fund. Included in that legislation were provisions
requiring members of the Bank Insurance Fund (such as the Bank) to assist in the
repayment of Financing Corporation bonds issued in the 1980s to resolve failed
savings and loans. The cost to the Bank as a result of this legislation was
$22,000 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.
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 and other
financial services companies. Among such bills are proposals to 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.
Monetary Policy and Economic Conditions
The earnings of the Company and the Bank 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 and the Bank.
Competition
The Bank faces strong competition for local business in the communities it
serves from other financial institutions. Throughout Sullivan County there are
31 branches of commercial banks, savings banks, savings and loan associations
and other financial organizations. <PAGE>
For most of the services which the Bank provides, 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.
Employees
At December 31, 1998, there were 109 persons employed by the Company and
the Bank.
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 below 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.
The premises occupied by the Bank consists of approximately 6,700 total square
feet of office space in a two-story office building. The Bank owns the building
and underlying land.
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. The Company 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. 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. The Company owns the
building and underlying land.
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. The Company owns the building and underlying land.
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. The Company owns the building and underlying land.
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.
ITEM 3. Legal Proceedings
The Company and the Bank are not parties to any material legal proceedings
which may have a material adverse effect on consolidated results of operations
or financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information required by this item is furnished under the heading "Stock
Information," included in the 1998 Annual Report to shareholders.
ITEM 6. Selected Financial Data
The information required by this item is furnished under the heading
"Selected Financial Information -- Five-Year Summary," included in the 1998
Annual Report to shareholders.
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in the 1998 Annual Report to shareholders.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is furnished under the heading
"Interest Rate Risk," included in the 1998 Annual Report to shareholders.
ITEM 8. Financial Statements and Supplementary Data
The required financial statements are furnished in the 1998 Annual Report
to shareholders.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
See "Nomination of Directors" and "Election of Directors" in the proxy
statement, which is incorporated herein by reference.
ITEM 11. Executive Compensation
See "Remuneration of Management and Others" in the proxy statement, which is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
See "Security Ownership of Certain Beneficial Owners and Management" in the
proxy statement, which is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
<PAGE>
See "Director and Executive Officer Information", "Transactions with
Management", and "Remuneration of Management and Others" in the proxy statement,
which is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. The following are the financial statements referenced in Item 8 of
this Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(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)
21.1 Subsidiaries of the Company. The Company owns 100% of the outstanding
common stock of the Bank, which is its sole subsidiary.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 19, 1999 By: /s/ Arthur E. Keesler
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/ Arthur E. Keesler Chairman of the Board and March 19, 1999
Arthur E. Keesler President-Director
/s/ K. Dwayne Rhodes Principal Accounting Officer March 19, 1999
K. Dwayne Rhodes and Principal Financial Officer
/s/ John K. Gempler Director March 19, 1999
John K. Gempler
/s/ Edward T. Sykes Director March 19, 1999
Edward T. Sykes
/s/ Raymond Walter Director March 19, 1999
Raymond Walter
/s/ Earle A. Wilde Director March 19, 1999
Earle A. Wilde
/s/ James F. Roche Director March 19, 1999
James F. Roche
/s/ Frederick W.V. Schadt Director March 19, 1999
Frederick W.V. Schadt
/s/ John W. Galligan Director March 19, 1999
John W. Galligan
<PAGE>
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
Wayne V. Zanetti
Vice President--Operations Division Manager
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 R. Siano
Assistant Branch Manager
Stacey Stephenson
Assistant Branch Manager
JoAnn Girardi
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
Terri Bagailuk
Dianne Banks
Geri Bennett
Amy Bernhardt
Dawn Berst
Eleida Black
Jerilynn Brock
Michelle Brockner
Nancy Brown
Christine Carlson
Alana Conklin
Mary Ellen Connors
Nancy Crumley
Lydia D'Antoni
Charles DelGenovese, Sr. Susan DeVito Denise Diehl Barbara Donnelly Lisa Dreher
Kelly Ellsworth Rosemarie Finkle Deborah Forsblom Helen Forster Lorraine Gabriel
Karen Gabriel Susan Gabriel Dawn Gandy Vivian Grabek Cynthia Gregson Justine
Hageman Eugene Hahn Kerline Harman Alisa Horan Cathy Horan Carolyn Hubert Martha
Huebsch Heidi Hulse Betty Johaneman Marilyn Kaempfe Helen Karkkainen Jean Kelly
Carol Kennedy Jessica Kenyon Lauren Kickuth Trishia Kinney Brandy Leonardo
Patricia Leonardo Dana LeRoy Shirley Lindsley Michele Lupardo Merrily Lynch
Linda Mall JoAnn Malley Gladys Manzolillo Jamie McAteer Diane McGrath Jonathan
McGruder Mariann McKay Toni McKay Tina Millis Deborah Muzuruk Gale Myers
Lorraine Niemann Kelli Pagan George Lewis Palmer Kimberly Peck Kimberly Pecsi
Barbara Pietrucha Jimmy Porter Margaret Porter Denice Price Alice Reisen Sherri
Rhyne Andrew Richardson Damaris Rios Mandy Roberts Sandra Ross John Rudy Helen
Sherman Crystal Smith Theresa Specht Jon Speed Kristie Stauch Barbara Walter
Janet Warden Jayne Wartell Carol Welton Everett Williams Jean Wood Heather
Worzel Luz Young <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
Douglas A. Heinle
Postmaster Cochecton Center
Cochecton Center, New York
Honorable Lawrence H. Cooke
Chief Judge of the State of New York
Retired
Solomon Katzoff
President
Katzoff Realty, Inc.
Jeffersonville, New York
Real Estate Sales
John W. Galligan
Owner
John Galligan, Land Surveyor
Monticello, New York
Surveyor
Gibson McKean
President
McKean Real Estate, Inc.
Barryville, New York
Real Estate Sales
John K. Gempler
Secretary/Treasurer
Callicoon Co-op
Insurance Company
Jeffersonville, New York
Insurance Company
<PAGE>
Raymond Walter
President
First National Bank of Jeffersonville
Jeffersonville, New York
James F. Roche
President
Roche's Garage Inc.
Callicoon, New York
Automobile Dealer
Gilbert E. Weiss
Retired Chief Executive Officer
First National Bank of Jeffersonville
Jeffersonville, New York
Frederick W. V. Schadt, Jr.
Schadt and Schadt
Jeffersonville, New York
Attorneys
Earl A. Wilde
Retired
Sullivan County Cooperative Extension
Liberty, New York
Edward T. Sykes
President
Mike Preis Inc.
Callicoon, New York
Insurance Agency
Officers
Arthur E. Keesler
President
Raymond Walter
Vice President
John K. Gempler
Secretary
K. Dwayne Rhodes
Treasurer
<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 customers in 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 and mortgage, consumer and commercial loans.
Annual Meeting
The Annual Meeting of stockholders will be held on Tuesday, April 27, 1999 at
3:00 p.m., in the Company's Board Room at Jeffersonville, New York.
Stock Information
The Company's common stock has traded in the Over-the-Counter market under the
symbol JFBC since January 1997. The following investment firms are known to
handle Jeffersonville Bancorp stock transactions: Barriger & Barriger Inc.,
Monticello, NY (914) 794-6600, Monroe Securities, Rochester, NY (716) 546-5560
and Ryan, Beck & Co., Livingston, NJ (800) 342-8985. 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. 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 were credited for the fractional
shares.
The following table shows the range of high and low bid prices for the
Company's stock for the quarters indicated. Data for the quarter ended March 31,
1997 is from January 20, 1997 when the Company's stock began to trade in the
Over-the-Counter market. Prices have been adjusted for the 20% stock dividend,
for periods prior to the payment date.
Bid Price
Low High
Quarter Ended
March 31, 1997 $21.50 $22.50
June 30, 1997 $22.00 $23.25
September 30, 1997 $25.25 $25.50
December 31, 1997 $24.50 $24.75
March 31, 1998 $25.20 $25.50
June 30, 1998 $24.00 $24.75
September 30, 1998 $22.50 $22.50
December 31, 1998 $21.50 $23.00
Cash dividends of $0.32 and $0.35 per share were declared in June 1997 and
December 1997, respectively (or $0.267 and $0.292, respectively, after
adjustment for the stock dividend). During 1998, the Company paid three cash
dividends: $0.30 in June; $0.15 in September; and $0.15 in December. The Board
of Directors intends to continue the payment of dividends on a quarterly basis,
subject to its ongoing consideration of the Company's financial condition and
operating results; market and economic conditions; and other factors. <PAGE>
Jeffersonville Bancorp
Subsidiary:
The First National Bank of Jeffersonville
Offices
Main Office
300 Main Street
Jeffersonville, New York 12748
(914) 482-4000
Callicoon Office
45 Main Street
Callicoon, New York 12723
(914) 887-4866
Eldred Office
561 Route 55
Eldred, New York 12732
(914) 557-8513
Liberty Office
Church & Darbee Lane
Liberty, New York 12754
(914) 292-6300
Livingston Manor
Office 45 Main Street
Livingston Manor, New York 12758
(914) 439-8123
Loch Sheldrake Office
Route 52
Loch Sheldrake, New York 12759
(914) 434-1180
Monticello Office
15 Forestburgh Road
Monticello, New York 12701
(914) 791-4000
Narrowsburg Office
122 Kirk Road
Narrowsburg, New York 12764
(914) 252-6570
Stock Transfer Agent
American Stock Transfer Company
40 Wall Street
46 Floor
New York, New York 10005
(212) 936-5100
<PAGE>
(LOGO)
Jeffersonville Bancorp
P.O. Box 398
Jeffersonville, New York 12748
http://www.jeffbank.com
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