SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 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)
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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 March 13, 2000) held by non-affiliates was
approximately $35,082,567.
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 March 13, 2000
$0.50 Par Value 1,525,329
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to shareholders for the fiscal
year ended December 31, 1999.
(2) Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on April 25, 2000.
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JEFFERSONVILLE BANCORP
INDEX TO FORM 10-K
PART I
PAGE
Item 1. Business 3-9
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners
and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 11
Signatures 12
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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 was organized in 1913 and became a subsidiary of the Company on
June 30, 1982.The Bank is an independently owned bank based in Sullivan
County, New York. In addition to its main office and operations center in
Jeffersonville, the Bank has eight additional branch office locations in
Eldred, Liberty, Loch Sheldrake, Monticello, Livingston Manor, Narrowsburg,
Callicoon and Wal*Mart (Monticello). The Bank is a full service institution
employing approximately 116 people and serves 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 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 industry.
Commercial Loans and Commercial Real Estate Loans. The Bank 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.
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.
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A borrower's ability to repay consumer debt is generally dependent upon
the stability of the income stream necessary to service the debt. Adverse
changes in economic conditions resulting in higher levels of unemployment
increase the risk of consumer defaults. Risk of default is also impacted by a
customer's total debt obligation. While the Bank can analyze a borrower's
capacity to repay at the time a credit decision is made, subsequent
extensions of credit by other financial institutions may cause the customer
to become over-extended, thereby increasing the risk of default.
Residential Real Estate Loans. The Company offers mortgage 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.
Supervision and Regulation
Holding Company Regulation. The Company is a bank holding company,
registered with Governors of the Federal Reserve System (the "Federal
Reserve") under the BHC Act. As such, the Company and its subsidiaries are
subject to the supervision, examination, and reporting requirements of the
BHC Act and the regulations of the Federal Reserve.
The BHC Act 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, after June 1, 1997,
national and state-chartered banks may branch interstate through acquisitions
of banks in other states. By adopting legislation prior to that date, a state
has the ability to either "opt in" or to prohibit interstate branching
altogether.
The Company is also subject to the provisions of Article III-A of the
New York State Banking Law. Among other things, Article III-A requires the
approval of the New York Banking Department prior to the acquisition by a
bank holding company of direct or indirect ownership or control of 10% or
more of the voting stock of a banking institution, or the acquisition by a
bank holding company directly or indirectly through a subsidiary of all or
substantially all of the assets of a banking institution, or a merger or
consolidation with another bank holding company.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of
any company engaged in any activities other than those activities determined
by the Federal Reserve to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In determining whether
a particular activity is permissible, the Federal Reserve must consider
whether the performance of such an activity reasonably can be expected to
produce benefits to the public, such as greater convenience, increased
competition, or 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 bank-related
activities of bank holding companies. Despite prior approval, the Federal
Reserve has the power to order a holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that continuation of such
activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
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Bank Regulation. The Bank, the single subsidiary bank of the Company, is
a member of the FDIC, and as such, its deposits are insured by the FDIC to
the extent provided by law. The Bank is also subject to numerous state and
federal statutes and regulations that affect its business, activities, and
operations, and it is supervised and examined by one or more federal bank
regulatory agencies.
Because the Bank is a national bank, it is subject to supervision and
regulation by the OCC. The OCC regularly examines the operations of the
subsidiary bank and has authority to approve or disapprove mergers,
consolidations, the establishment of branches, and similar corporate actions.
The OCC also has the power to prevent the continuance or development of
unsafe or unsound banking practices or other violations of law.
Community Reinvestment Act. The Bank is subject to the provisions of the
Community Reinvestment Act of 1997 (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. There are also other statutory and regulatory limitations on the
payment of dividends by the Bank to the Company as well as the Company to its
stockholders. 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" below. Moreover, the Federal Reserve, the OCC, and the FDIC have
issued policy statements which provide that bank holding companies and
insured banks should generally only pay dividends out of current operating
earnings.
At December 31,1998 under dividend restrictions imposed under federal
and state laws, the Bank, without obtaining governmental approvals, could
declare aggregate dividends to the Holding Company of approximately
$4,026,000 provided that the Bank would then be in compliance with one or
more minimum capital requirements. Moreover, federal bank regulatory
authorities also have the general authority to limit the dividends paid by
insured banks if such payments may be deemed to constitute an unsafe and
sound practice.
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Transactions With Affiliates. There-are various regulatory restrictions
on the extent to which the can borrow or otherwise obtain credit from the
subsidiary bank. The Bank is limited in engaging in borrowing and other
"covered transactions" with non-bank affiliates to the following amounts: (i)
in the case of any such affiliate, the aggregate amount of covered
transactions of the subsidiary bank and its subsidiaries may not exceed 10%
of the capital stock and surplus of such subsidiary bank; and (ii) in the
case of all affiliates the aggregate amount of covered transactions of the
subsidiary bank and its subsidiaries may not exceed 20% of the capital stock
and surplus of such subsidiary bank. "Covered transactions" are defined by
statute to include a loan or extension of credit, as well as a purchase of
securities issued by an affiliate, a purchase of assets (unless otherwise
exempted by the Federal Reserve), the acceptance of securities issued by the
affiliate as collateral for a loan and the issuance of a guarantee,
acceptance, or letter of credit on behalf of an affiliate. Covered
transactions are also subject to certain collateralization requirements.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain 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 a 17.0% and 18.2%,
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, 1999 was 9.6%. The
guidelines also provide that bank holding companies experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve
has indicated that it will consider a banking institutions "tangible Tier 1
Capital leverage ratio" (deducting all intangibles) and other indications of
capital strength in evaluating proposals for expansion or new activities.
The Bank is subject to risk-based and leverage capital requirements
adopted by the OCC which substantially mirror the requirements 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" below.
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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 and to take certain mandatory supervisory actions,
and are authorized to take other discretionary actions, with respect to
institutions in the three undercapitalized categories, the severity of which
will depend upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, 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, 1999, the
Bank had the requisite capital levels to qualify as well capitalized.
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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 BIF to assist in the repayment of FICO bonds. 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.
For most of the services which the Bank performs, there is increasing
competition from financial institutions other than commercial banks due to
the relaxation of regulatory restrictions. Money market funds actively
compete with banks for deposits. Savings banks, savings and loan associations
and credit institutions, as well as consumer finance companies, insurance
companies and pension trusts are important competitors. Competition for loans
is also a factor the Bank faces in maintaining profitability.
Number of Personnel
At December 31, 1999, there were 116 persons employed by the Company and
the Bank.
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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.
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.
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.
Supermarket Branches
The Bank leases space in Pecks Supermarkets in Livingston Manor, Narrowsburg
and Callicoon, New York. The branch facilities occupy between 650 and 800
square feet each and the leases payments from approximately $7,500 to $10,500
per year. The Bank leases space in Wal*Mart in Monticello occupying 643
square feet with lease payments of $2,650 monthly.
ITEM 3. Legal Proceedings
Community Bank of Sullivan County v. The First National Bank of
Jeffersonville, John D. Hawke, Jr., in his official capacity as
Comptroller of the Currency, (99 CIV 10933 (S.D.N.Y.))
On October 29, 1999, Community Bank of Sullivan County ("Community Bank")
filed a suit against the Client and John D. Hawke, Jr., in his official
capacity as Comptroller of the Currency, in the United States District Court
for the Southern District of New York seeking declaratory relief, injunctive
relief, and compensatory damages relating to the Client's operation of a
branch at a Wal-Mart store in Monticello, New York. No discovery has taken
place in the matter. The court has set a schedule for the parties to file
summary judgment papers. The Client denies all of the allegations made by
Community Bank and intends to vigorously defend its interests in this matter.
The Company and the Bank do not believe that the above proceedings will
have an adverse or material effect on consolidated results of operations or
Financial Condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
9
<PAGE>
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Market for the registrant's common equity and related stockholders
matters are found on page to page of this report.
ITEM 6. Selected Financial Data
Selected financial data information is located on pages to of this
report
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 operation are located on pages to of this report.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
The Required Information Is Provided In Schedule Titled Interest Rate
Risk.
ITEM 8. Financial Statements and Supplementary Data
Financial statements and supplementary data are found on pages to of
this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There has been no change in accountants within the 24 months prior to
December 31, 1999, and there has not been any reported disagreements on any
matter of accounting principles and practices or financial statement
disclosure which would have led to a change in accountants.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
See "Nomination of Directors and Election of Directors" on pages and 2
of the proxy statement, which are incorporated herein by reference.
ITEM 11. Executive Compensation
See "Remuneration of Management and Others" on page of 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 of Management"
on page of the proxy statement, which is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
See "Director and Executive Officer Information", "Transactions with
Management", and "Remuneration of Management and Others" on pages of the
proxy statement, which are incorporated herein by reference.
10
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Consolidated financial statements and schedules of the Company
and Bank.
The following consolidated financial statements herein:
Consolidated Balance Sheets -- December 31, 1999 and 1998
Consolidated Statements of Income
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
(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)
11.1 Computation of Income Per Share
(Reference is made to the Annual Report of the
Company included elsewhere in this report.)
13.1 The Annual Report of the Company is filed herewith.
21.1 Subsidiaries of the Company -- as Discussed
in Section I, Item I, Description of Business;
The Company owns 100% of the Equity Securities of the Bank.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1998.
11
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 17, 2000 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 17, 2000
Arthur E. Keesler President-Director
/s/ John M. Riley
_______________________ Treasurer March 17, 2000
John M. Riley
/s/ John K. Gempler
_______________________ Director March 17, 2000
John K. Gempler
/s/ Edward T. Sykes
_______________________ Director March 17, 2000
Edward T. Sykes
/s/ Raymond Walter
_______________________ Vice President-Director March 17, 2000
Raymond Walter
/s/ Earle A. Wilde
_______________________ Director March 17, 2000
Earle A. Wilde
/s/ James F. Roche
_______________________ Director March 17, 2000
James F. Roche
/s/ John W. Galligan
_______________________ Director March 17, 2000
John W. Galligan
12
Jeffersonville Bancorp
1999 Annual Report and Form 10k
We're in and around Sullivan County
<PAGE>
TO OUR STOCKHOLDERS AND CUSTOMERS
We are very pleased to report that the improved earnings of 1998 continued in
1999. The earnings increases of the past two years of 31.5% and 23.9% in 1998
and 1999, respectively, represent lofty goals for the coming year. With
rising interest rates and increasing competition from non-banking sectors,
for both loans and deposits, we certainly have our work cut out for us. We
feel we are up to the challenge and will strive to achieve record earnings
for the year 2000.
We experienced many successes over the past year. In addition to a 23.9%
increase over the prior years earnings, we also increased our market share of
deposits within Sullivan County to 25.98%. Our ROA (return on average assets)
improved from 1.0% in 1998 to 1.13% in 1999 while our ROE, (return on average
equity) improved from 10.19% in 1998 to 12.59% in 1999. We declared a 10%
stock dividend to shareholders of record on April 27, 1999 and we also
increased our dividends from $.55 paid in 1998 to $.62 paid in 1999 an
increase of almost 13%. We upgraded our overall computer system and installed
a new mainframe. We converted to check imaging, successfully launched our new
Wal*Mart Branch in Monticello and survived the dreaded Y2K without a problem.
We also experienced a significant loss during the year, the passing of
our director, bank counsel, colleague and friend Fredrick W.V. Schadt. Fred
joined our Board of Directors in 1992 replacing his father Frederick W.V.
Schadt Sr. Fred served the bank well and will be greatly missed for his wise
counsel and ever present sense of humor.
The expanded powers made available to financial institutions as a result
of the passage of the Gramm-Leach-Bliley Financial Services Modernization Act
of 1999 provides many opportunities for banks to offer new products and
services. We have been investigating several areas, which we believe would be
compatible with our current operation. We are also monitoring interest in
Internet banking in our service area, and intend to provide the service when
demand justifies the investment.
If you have any questions regarding this report or if we can be of any
service to you please don't hesitate to contact us. We appreciate your
continued confidence.
/s/ Arthur E. Keesler
Arthur E. Keesler, President
Jeffersonville Bancorp
/s/ Raymond Walter
Raymond Walter, President
The First National Bank of Jeffersonville
[PHOTOS]
Arthur E. Keesler
Raymond Walter
1
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Five-Year Summary
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Results of Operations
Net interest income $ 10,733,000 $ 9,610,000 $ 8,904,000 $ 8,666,000 $ 8,581,000
Provision for loan losses 300,000 600,000 1,150,000 290,000 160,000
Net income 2,873,000 2,318,000 1,763,000 2,145,000 2,424,000
Financial Condition
Total assets $256,960,000 $243,853,000 $213,659,000 $196,113,000 $188,469,000
Deposits 201,603,000 198,114,000 179,160,000 172,930,000 164,184,000
Loans, net 137,925,000 130,031,000 125,793,000 115,605,000 109,288,000
Stockholders' equity 22,001,000 23,017,000 22,176,000 20,975,000 20,928,000
Average Balances
Total assets $254,777,000 $230,955,000 $211,034,000 $198,134,000 $193,568,000
Deposits 207,018,000 191,322,000 180,635,000 173,139,000 169,209,000
Gross loans 137,696,000 129,754,000 122,567,000 113,981,000 107,567,000
Stockholders' equity 22,816,000 22,752,000 21,539,000 20,751,000 19,871,000
Financial Ratios
Net income to
average total assets 1.13% 1.00% 0.84% 1.08% 1.25%
Net income to average
stockholders' equity 12.59% 10.19% 8.19% 10.34% 12.20%
Average stockholders'
equity to average
total assets 8.96% 9.85% 10.21% 10.47% 10.27%
Per Share Data<F1>
Income per share $ 1.87 $ 1.49 $ 1.13 $ 1.35 $ 1.46
Dividends per share 0.62 0.55 0.51 0.49 0.45
Dividend payout ratio 33.41% 36.66% 44.92% 36.13% 31.15%
Book value at year end $ 14.40 $ 14.88 $ 14.20 $ 13.43 $ 12.87
Total dividends paid 960,000 850,000 792,000 775,000 755,000
Average number of
shares outstanding 1,534,288 1,556,500 1,561,228 1,584,685 1,653,828
Shares outstanding
at year end 1,528,359 1,546,485 1,561,225 1,561,288 1,625,646
<FN>
<F1> All share and per share amounts have been adjusted for the effect of the 20% stock dividend distributed
in February 1998 and the 10% stock dividend in April 1999.
</FN>
</TABLE>
2
<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.
This document contains forward-looking statements which are based on
assumptions and describe future plans, strategies and expectations of the
Company. These forward-looking statements are generally identified by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar words. The Company's ability to predict results and the actual
effect of future plans or strategies is uncertain. Factors which could have a
material adverse effect on operations include, but are not limited to,
changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and Federal Reserve
Board, the quality or composition of the loan or investment portfolios,
demand for loan products, deposit flows, competition, demand for financial
services in the Company's market areas and accounting principles and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements. Actual results could differ materially from
forward-looking statements.
General
The Parent Company is a one-bank holding company founded in 1982 and
headquartered in Jeffersonville, New York. The Parent Company owns 100% of
the outstanding shares of the Bank's common stock and derives substantially
all of its income from the Bank's operations. The Bank is a commercial bank
chartered in 1913 serving Sullivan County, New York with offices in
Jeffersonville, Eldred, Liberty, Loch Sheldrake, Monticello (2), Livingston
Manor, Narrowsburg, 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 believes it understands its
local customer needs and provides quality service with a personal touch. This
discussion and analysis of financial results should be reviewed in
conjunction with the Company's audited financial statements.
Local Economy
Despite some promising developments in select economic sectors, the economy
in Sullivan County has not grown at the same pace as other areas of New York
State. The Company continues to seek opportunities to invest in the local
economy, without compromising asset quality. In the past two years, the
Company has been successful in these endeavors as overall asset quality
continued to show improvement. Non-performing asset, charge-off, and
delinquency statistics continued to show the positive trends we reported last
year. At the same time, the Company was able to increase loans outstanding by
$7.9 million during 1999.
The improved asset quality statistics are a direct result of the
Company's collection efforts. Because of the economic weaknesses in the local
economy, it is critical that problem loans be identified early and that the
Company maintain a strong collection and workout staff. Future improvement in
the local economy will be heavily dependent on the Sullivan County tourism
and real estate markets. Throughout 1998 and 1999 several large hotel and
resort properties in Sullivan County were purchased by investors and are
currently being renovated. The success of these projects, and their ability
to draw businesses and tourists back to Sullivan County is critical to the
economy and the Company.
3
<PAGE>
Financial Condition
Total assets increased by $13.1 million or 5.3% to $257.0 million at December
31, 1999 from $243.9 million at December 31, 1998. The increase was primarily
due to a $7.9 million or 5.9% increase in gross loans outstanding from $132.3
million at December 31, 1998 to $140.3 million at December 31, 1999.
Securities held to maturity increased $1.1 million from $3.6 million at
December 31, 1998 to $4.7 million at December 31, 1999. Other assets also
increased due to an increase in deferred tax assets caused by the tax impacts
of unrealized investment losses on the Company securities available for sale
portfolio. These asset increases were funded by $11.9 million in short term
borrowings from the Federal Home Loan Bank, and a $2.5 million increase in
total deposits from $199.2 million at December 31, 1998 to $201.6 million at
December 31, 1999.
Securities available for sale showed little change, at approximately
$88.9 million at December 31, 1999 and 1998. Securities held to maturity
increased $1.1 million from purchases of municipal securities. The minor
increases in securities reflects the Company's practice to meet loan demand
in advance of investing in securities. Much of the securities portfolio
remains funded with long term borrowings from the Federal Home Loan Bank, a
leveraging strategy implemented in 1997, in which the Company funds security
purchases with FHLB borrowings at a positive interest rate spread.
In 1999, total gross loans increased $7.9 million or 5.9% from 132.3
million to $140.3 million. These increases were promising considering the
ongoing struggles of the local economy. Within the loan portfolio, commercial
real estate loans increased $6.2 million to $29.2 million at December 31,
1999, consumer loans increased $1.5 million to $19.9 million and residential
mortgages decreased by $600,000. The commercial real estate growth reflects
the Company's strategy to provide loans for local real estate projects where
there is strong loan to values and solid principals. The installment lending
increases are primarily in the auto portfolio. The lack of growth in
residential mortgages reflects the highly competitive nature of this market
and the impacts of increased lending rates in the latter half of 1999.
Additional growth is anticipated in residential and commercial real estate
loans during 2000. 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.
Other real estate owned at December 31, 1999 was $693,000 compared to
$535,000 at December 31, 1998, and consisted primarily of residential
properties. During 1999, the Company continued to reduce the level of
non-performing loan amounts. Total non-performing loans decreased from $3.0
million at December 31, 1998 to $1.9 million at December 31, 1999. Net loan
charge-offs increased from $152,000 in 1998 to $274,000 in 1999. At December
31, 1999, the allowance for loan losses equaled $2.3 million representing
1.60% of total gross loans outstanding and 123% of total non-performing
loans.
Total deposits increased $2.5 million to $201.6 million at December 31,
1999 from $199.2 million at December 31, 1998. Within the deposit mix, lower
costing demand and savings deposits increased while higher costing time
deposits decreased slightly. Much of the increase in savings deposits was
caused by the continued success of the Escalator Account which had total
balances of $23.9 million at December 31, 1999 versus $25.4 million at
December 31, 1998. The Company continues to be successful in retaining demand
deposit balances which provides a pool of low cost funds for reinvestment in
the community.
Total equity was $22.0 million at December 31, 1999, a decrease of $1.0
million from December 31, 1998. The decrease was due primarily to the
decrease in accumulated other comprehensive income of $2.5 million and cash
dividends of $960,000 and stock retirements of $343,000, which combined
exceeded the Company's net income of $2.9 million in 1999.
4
<PAGE>
Results of Operations 1999 versus 1998
Net Income
Net income for 1999 of $2.9 million was up 23.9% from the 1998 net income of
$2.3 million. The higher level of earnings in 1999 reflects the interaction
of a number of factors including increases in net interest income and
non-interest income and a lower loan loss provision, offset by several higher
non-interest expenses categories. The most significant factor which increased
1999 net income was the increase in net interest income to $10.7 million from
$9.6 million in 1998, an increase of $1.1 million or 11.7%. The provision for
loan losses was $300,000 in 1999, compared to $600,000 in 1998, a decrease of
$300,000 or 50.0%, which reflects the continued improvement in the Company's
asset quality. Salary expense increased $406,000 or 13.5% in 1999, primarily
due to the addition of new employees, a new branch and normal salary
increases. Employee benefit expenses increased by $280,000 or 28.11% due to
the costs incurred for directors insurance plans. Other non-interest expense
increased by $485,000 or 25.69% in 1999, primarily due to increases in
equipment, telephone, stationery, courier costs and ATM expenses.
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 $11.4 million for 1999 represented an
increase of 11.4% compared to $10.2 million for 1998. Net interest margin
increased to 4.79% in 1999 compared to 4.74% in 1998. 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 2000.
Total interest income for 1999 was $19.0 million, compared to $17.7
million in 1998. The increase in 1999 is the result of an increase in the
average balance of interest earning assets from $215.4 million in 1998 to
$237.3 million in 1999, an increase of 10.2%. The increase in earning assets
was partially offset by an overall decrease in average yield on earning
assets of eighteen basis points in 1999. Total average securities (securities
available for sale and securities held to maturity) increased $16.4 million
or 19.9% in 1999 to $98.7 million. The increase in 1999 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.
The benefits of increased average security balances was reduced by a
decreasing yield on total securities which declined from 6.88% in 1998 to
6.71% in 1999. The 1999 yield decreases reflects the low rate environment
that existed throughout the first part of 1999.
In 1999, average loans increased $7.9 million to $137.7 million from
$129.8 million in 1998. The income benefits of these average volume increases
was somewhat mitigated by the average loan yield which declined from 9.14% in
1998 to 9.01 in 1999. The 1999 yield decreases reflects the low rate
environment that existed throughout the first part of 1999, and the increased
competition in the marketplace. Average residential and commercial real
estate loans continued to make up a major portion of the loan portfolio at
69.8% of total loans in 1999. In 2000, 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 1999 decreased $178,000 or 2.7% over 1998. The
average balance of interest bearing liabilities increased from $163.3 million
in 1998 to $175.2 million in 1999, an increase of 7.3%. The Company's ongoing
leveraging strategy is the main reason for the increase in average interest
bearing liabilities. Like rates on earning assets, the cost of funding is
also closely tied to market rates. During 1999, the average deposit rate and
the average cost of total interest bearing liabilities decreased by
twenty-nine basis points, reflecting the lower market interest during the
year.
5
<PAGE>
Average interest bearing deposits increased $11.0 million to reach
$175.2 million in 1999, an increase of 6.8%. The higher interest rates paid
on time savings certificates resulted in an increase in these deposits in
both 1999 and 1998, 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 4.06% in 1998 to 3.69% in
1999. 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 stabilized at
$23.9 million at December 31, 1999 from year end balance of $25.4 million in
1998. In 1999, average demand deposit balances increased 17.5% over 1998.
Provision for Loan Losses
The provision for loan losses was $300,000 in 1999 compared to $600,000 in
1998. Provisions for loan losses are recorded to maintain the allowance for
loan losses at an amount management considers adequate to cover loan losses
which are deemed probable and can be estimated. These provisions were based
upon a number of factors, including asset classifications, management's
assessment of the credit risk inherent in the portfolio, historical loan loss
experience, economic trends, industry experience and trends, estimated
collateral values and underwriting policies. Total non-performing loans
decreased from $3.0 million at December 31, 1998 to $1.9 million at December
31, 1999. Net loan charge-offs increased from $152,000 in 1998 to $274,000 in
1999. At December 31, 1999, the allowance for loan losses equaled $2.3
million representing 1.60% of total gross loans outstanding and 123% of total
non-performing loans.
Summary of Loan Loss Experience
The following table indicates the amount of charge-offs and recoveries in the
loan portfolio by category.
<TABLE>
Analysis of the Changes in Allowance for Loan Losses for 1999 and 1998
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of year $2,310,000 $1,862,000 $1,711,000
Charge-offs:
Commercial, financial and agriculture (29,000) (58,000) (371,000)
Real estate -- mortgage (73,000) (57,000) (580,000)
Installment loans to individuals (343,000) (228,000) (304,000)
Total charge-offs (445,000) (343,000) (1,255,000)
Recoveries:
Commercial, financial and agricultural 15,000 64,000 91,000
Real estate -- mortgage 59,000 42,000 4,000
Installment loans to individuals 97,000 85,000 81,000
Total recoveries 171,000 191,000 256,000
Net charge-offs (274,000) (152,000) (999,000)
Provision charged to operations 300,000 600,000 1,150,000
Balance at end of year $2,336,000 $2,310,000 $1,862,000
Ratio of net charge-offs to average
outstanding loans .18% .12% .82%
</TABLE>
6
<PAGE>
Net (Charge-offs) Recoveries by Loan Category For Years Ended December 31,
<TABLE>
<CAPTION>
Loan Category 1999 1998 1997
<S> <C> <C> <C> <C>
Residential Mortgages Charge-off $ (58,000) $ (57,000) $(155,000)
Recovery 30,000 39,000 8,000
Commercial Mortgages Charge-off (15,000) -- (425,000)
Recovery 29,000 3,000 76,000
Commercial Loans Charge-off (29,000) (58,000) (371,000)
Recovery 15,000 64,000 91,000
Consumer Loans Charge-off (247,000) (136,000) (223,000)
Recovery 82,000 78,000 68,000
Other Loans Charge-off (96,000) (92,000) (81,000)
Recovery 15,000 7,000 13,000
Net Charge-Offs $(274,000) $(152,000) $(999,000)
</TABLE>
Net charge-offs were 0.20% of average outstanding loans in 1999 compared
to 0.12% in 1998 and 0.82% in 1997, reflecting an apparent stabilizing of
loan losses. Continuation of this 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 $1,000 from
$15,000 in 1998 to $14,000 in 1999. 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 charge-offs on commercial loans were $14,000 in 1999 or 0.13% of
average commercial loans outstanding, a substantial decrease compared to a
0.05% net recovery percentage in 1998. Net charge-offs on consumer loans
increased to $165,000 in 1999 from $58,000 in 1998.
Other loan and credit card net charge-offs of $81,000 in 1999
represented 3.8% of average outstanding loans in this category, reflecting
the higher credit risk inherent in these types of loans. Higher interest
rates on these loans help compensate for this risk.
The Company manages asset quality with an intensive review process that
includes careful analysis of credit applications and both internal and
external loan review of existing outstanding loans and delinquencies.
Management strives to identify potential non-performing loans early; take
charge-offs promptly based on a realistic assessment of probable losses; and
maintain an adequate allowance for loan losses based on the inherent risk of
loss in the existing portfolio.
The allowance for loan losses was $2.3 million at December 31, 1999
compared to $2.3 million and $1.9 million at December 31, 1998 and 1997,
respectively. The allowance as a percentage of total loans was 1.62% at
December 31, 1999, compared to 1.70% and 1.45% at December 31, 1998 and 1997,
respectively. The allowance's coverage of non-performing loans was 123.6% and
77.3% at December 31, 1999 and 1998 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.
7
<PAGE>
<TABLE>
Distribution of Allowance for Loan Losses at December 31, 1999
<CAPTION>
Allowance Percentage of Loan Balance by
Balance Total Allowance Type to Total Loans<F1>
<S> <C> <C> <C>
Loan Category
Residential Mortgages $ 816,000 34.9% 55.0%
Commercial Mortgages 275,000 11.8 22.3
Commercial Loans 545,000 23.3 9.4
Consumer Loans 514,000 22.0 12.0
Other Loans 186,000 8.0 1.3
$2,336,000 100.0% 100.0%
<FN>
<F1> Percentage relationship between average loans outstanding by type
compared to total average loans outstanding.
</FN>
</TABLE>
<TABLE>
Distribution of Allowance for Loan Losses at December 31, 1998
<CAPTION>
Allowance Percentage of Loan Balance by
Balance Total Allowance Type to Total Loans<F1>
<S> <C> <C> <C>
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%
<FN>
<F1> Percentage relationship between average loans outstanding by type
compared to total average loans outstanding.
</FN>
</TABLE>
The total allowance for loan losses at December 31, 1999 includes a
specific allocation of $363,000, or 15.5% of the total allowance, to
classified commercial mortgages and commercial loans; the remainder is a
general allocation. The comparable specific allocation at December 31, 1998
was $280,000 or 12.1% 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.
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.
8
<PAGE>
<TABLE>
December 31, 1999
<CAPTION>
90 Days
Or More,
Nonaccrual Still Accruing Total Percentage<F1> Percentage<F2>
<S> <C> <C> <C> <C> <C>
Loan Category
Residential Mortgages $ 727,000 $ 699,000 $1,426,000 1.9% 75.5%
Commercial Mortgages 42,000 346,000 388,000 1.3 20.5
Commercial Loans -- -- -- 0.0 0.0
Consumer Loans 21,000 55,000 76,000 0.3 4.0
Total $ 790,000 $1,100,000 $1,890,000 1.3% 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>
December 31, 1998
<CAPTION>
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>
The decrease in total nonaccrual and 90 day past due loans is primarily
due to decreases in nonaccrual residential mortgages and commercial
mortgages. Total nonaccrual and 90 day past due residential and commercial
mortgage loans represent 1.9% and 1.3% of the respective portfolio totals, an
improvement over last year. 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, 1999, management believes all significant 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, 1999 and
1998.
9
<PAGE>
Loan Portfolio
The following table indicates the amount of loan in portfolio categories
according to their period to maturity. The table also indicates the dollar
amount of these loans have predetermined or fixed rates vs. variable or
adjustable rates.
Maturities and Sensitivities of Loans to Changes in Interest Rates at
December 31, 1999
<TABLE>
<CAPTION>
One Year
One Year Through After After
or Less Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $6,015 $5,169 $1,094 $12,278
Real estate construction 1,758 353 127 2,238
Total $7,773 $5,552 $1,221 $14,516
Interest sensitivity of loans:
Predetermined rate $5,426 $5,522 $1,221 $12,169
Variable rate 2,347 -- -- 2,347
Total $7,773 $5,522 $1,221 $14,516
</TABLE>
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,
1999 1998
Beginning balance $ 535,000 $ 301,000
Additions 643,000 960,000
Sales (474,000) (600,000)
Write downs (11,000) (126,000)
Ending balance $ 693,000 $ 535,000
10
<PAGE>
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 1999 increased 44.2% or $702,000 over 1998. The
increase is attributable to ATM debit card revenue, income from ATM fees
charged to nonbank customers, increases in fees for NSF checks, higher
monthly service charges for checking accounts, and income recorded for the
increase in cash surrender value of bank-owned life insurance.
Non-interest expense increased by $1.3 million or 17.9% in 1999. Salary
and wage expense combined with employee benefit expense increased 17.1% to
$4.5 million in 1999. This increase was caused by costs incurred for
director's insurance plans. Occupancy and equipment expense increased 28.1%
to reach $1.5 million in 1999, up from $1.3 million in 1998. This increase
reflects the Company's commitment to provide new branches and to upgrade and
expand computer network technology. Net other real estate owned expense
decreased $88,000 to $244,000 in 1999 from $332,000 in 1998. 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 $205,000 or
10.8% in 1999 to $2.1 million from $1.9 million in 1998.
Income Tax Expense
Income tax expense totaled $992,000 in 1999 versus $768,000 in 1998. The
effective tax rate approximated 25% in 1999 and 1998. This relatively low tax
rate reflects the favorable tax treatment received on municipal security
interest.
Results of Operations 1998 versus 1997
Net Income
Net income for 1998 of $2.3 million was up 31.5% from the 1997 net
income of $1.8 million. 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
$9.6 million from $8.9 million in 1997, an increase of $706,000 or 7.9%. The
provision for loan losses was $600,000 in 1998, compared to $1.2 million 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
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.
11
<PAGE>
Interest Income and Interest Expense
Net interest income of $10.2 million for 1998 represented an increase of
5.7%, compared to $9.7 million for 1997. Total interest income for 1998 was
$17.7 million, compared to $16.6 million in 1997. The increase in 1998 is the
result of an increase in the average balance of interest earning assets from
$199.8 million in 1997 to $215.4 million 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.
Total interest expense in 1998 increased $549,000 or 7.9% over 1997. The
average balance of interest bearing liabilities increased from $162.4 million
in 1997 to $163.1 million in 1998, an increase of 0.6%. 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.
Provision for Loan Losses
The provision for loan losses was $600,000 in 1998 compared to $1.2 million
in 1997. Provisions for loan losses are recorded to maintain the allowance
for loan losses at an amount management considers adequate to cover loan
losses which are deemed probable and can be estimated. These provisions were
based upon a number of factors, including asset classifications, management's
assessment of the credit risk inherent in the portfolio, historical loan loss
experience, economic trends, industry experience and trends, estimated
collateral values and underwriting policies. Total non-performing loans
decreased from $3.7 million at December 31, 1997 to $3.0 million at December
31, 1998. Net loan charge-offs decreased from $999,000 in 1997 to $152,000 in
1998. At December 31, 1998, the allowance for loan losses equaled $2.3
million representing 1.70% of total gross loans outstanding and 77% of total
non-performing loans
Non-Interest Income and Expense
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 expense increased by $653,000 or 9.5% in 1998, compared to
increases of 2.0% in 1997. Salary and wage expense, combined with employee
benefit expense, increased 7.7% to $4.0 million in 1998, compared to $3.7
million in 1997. Occupancy and equipment expense increased 3.1% to reach $1.3
million in 1998, up from $1.2 million in 1997. 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. Other non-interest expense increased by $174,000 or 10.2%
in 1998 to $1.9 million from $1.7 million.
Income Tax Expense
Income tax expense increased to $768,000 from $383,000, primarily as a result
of the increase in income before taxes. The effective tax rate increased to
25% as a result of a decrease in tax exempt interest income.
12
<PAGE>
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 $25.0 million, which may be used to meet unforeseen liquidity
demands. Overnight borrowings totaling $11.4 million were being used at
December 31, 1999. Four separate FHLB term advances totaling $20.0 million at
December 31, 1999 were being used to fund securities leverage transactions.
In 1999, cash generated from operating activities amounted to $3.3
million and cash generated from financing activities amounted to $12.8
million. These amounts were offset by a use of cash in investing activities
of $15.2 million, resulting in a net increase in cash and cash equivalents of
$901,000. See the Consolidated Statements of Cash Flows for additional
information.
Maturity Schedule of Time Deposits of $100,000 or More at December 31, 1999
Deposits Due three months or less $ 6,019,000
Over three months through six months 3,588,000
Over six months through twelve months 2,392,000
Over twelve months 2,249,000
$14,248,000
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
decreased $1.0 million or 4.4% in 1999 following an increase of 3.8% in 1998.
In 1999, the Board of Directors authorized that $1.0 million be made
available to purchase shares on the open market and retire them. Through
December 31, 1999, a total of 15,420 common shares were purchased and
retired, reducing stockholders' equity by $344,000. Management believes that
the repurchase of Company stock represents a prudent use of excess capital.
The Company retained $1.9 million from 1999 earnings, while the
after-tax adjustment for the change in the net unrealized loss on securities
available for sale decreased stockholders equity by $2.6 million. In
accordance with regulatory capital rules, the adjustment for securities
available for sale is not considered in the computation of regulatory capital
ratios.
13
<PAGE>
Under the Federal Reserve Bank's risk-based capital rules, the Company's
Tier I risk-based capital was 17.0% and total risk-based capital was 18.2% 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
9.6% 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. As of December 31,
<TABLE>
<CAPTION>
1999 1998
Tier I capital:
<S> <C> <C>
Stockholders' equity, excluding the after-tax net
unrealized gain on debt securities available for sale $ 24,324,000 $ 22,754,000
Tier II capital:
Allowance for loan losses<F1> 1,801,000 1,654,000
Total risk-based capital $ 26,125,000 $ 24,408,000
Risk-weighted assets<F2> $143,526,000 $131,703,000
Average assets $254,777,000 $230,955,000
Ratios:
Tier I risk-based capital (minimum 4.0%) 17.0% 17.3%
Total risk-based capital (minimum 8.0%) 18.2% 18.5%
Leverage ( minimum 4.0%) 9.6% 9.9%
<FN>
<F1> The allowance for loan losses is limited to 1.25% of risk-weighted assets
for the purpose of this calculation.
<F2> Risk-weighted assets have been reduced for the portion allowance for
loan losses excluded from total risk-based capital.
</FN>
</TABLE>
Year 2000 Planning and Implementation
Year 2000 or "Y2K" issue continues to be a top priority for the Company.
The Company has met its Y2K goals to date and believes it will continue
to meet the goals of the plan. By March 15, 2000, the Company's efforts had
resulted in no known Y2K problems with any of its applications.
The Company total expense in connection with Y2K was approximately
$50,000, excluding costs of Company employees, involved in Y2K compliance
activities. Management presently believes, however, that the Company has
accomplished its Y2K goals and that the Company will continue to provide
financial services for its customers into the 21st century.
Recent Accounting Standards
There are no new accounting standards that are expected to have a material
impact on the Company's consolidated financial statements.
14
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY: INTEREST RATES &
INTEREST DIFFERENTIAL
The following schedule presents the condensed average consolidated balance
sheets for 1999, 1998 and 1997. 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, are also presented.
Consolidated Average Balance Sheet 1999
<TABLE>
<CAPTION>
Average Percentage of Interest Average
Balance Total Assets Earned/Paid Yield/Rate
<S> <C> <C> <C> <C>
Assets
Interest bearing deposits with banks
investment securities<F3>:
Taxable securities $ 75,354,000 29.58% $ 4,755,000 6.31%
Tax exempt securities 23,339,000 9.16 1,870,000 8.01
TOTAL SECURITIES 98,693,000 38.74 6,625,000 6.71
Short-term investments 937,000 0.37 45,000 4.80
Loans (net of unearned discount):
Real estate mortgages 96,112,000 37.72 8,258,000 8.59
Home equity loans 9,969,000 3.91 874,000 8.77
Time and demand loans 10,645,000 4.18 995,000 9.35
Installment loans 18,812,000 7.38 1,986,000 10.56
Other loans 2,158,000 0.85 297,000 13.76
TOTAL LOANS<F1> 137,696,000 54.05 12,410,000 9.01
TOTAL INTEREST-EARNING ASSETS 237,326,000 93.15 19,080,000 8.04
Reserve for loan losses (2,379,000) (0.93)
Unrealized gains and losses on portfolio (1,313,000) (0.52)
Cash and due from banks (demand) 7,833,000 3.07
Fixed assets (net) 2,781,000 1.09
Bank owned life insurance 6,258,000 2.46
Other assets 4,271,000 1.68
TOTAL ASSETS $254,777,000 100.00%
Liabilities and Stockholders' Equity
NOW and Super NOW deposits $28,911,000 11.35% $ 642,000 2.22%
Savings and insured money
market deposits 59,716,000 23.44 1,615,000 2.70
Time deposits 86,550,000 33.97 4,201,000 4.85
TOTAL INTEREST-BEARING DEPOSITS 175,177,000 68.76 6,458,000 3.69
Federal funds purchased and
other short-term debt 2,260,000 0.89 94,000 4.16
Long-term debt 20,000,000 7.85 1,159,000 5.80
TOTAL INTEREST-BEARING LIABILITIES 197,437,000 77.49 7,711,000 3.91
Demand deposits 32,880,000 12.91
Other liabilities 1,644,000 0.65
TOTAL LIABILITIES 231,961,000 91.04
Stockholders' liability 22,816,000 8.96
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $254,777,000 100.00%
Net interest income $11,369,000
Net interest spread 4.13%
Net interest margin<F2> 4.79%
<FN>
<F1> For purpose of this schedule, interest in 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.
<F2> Computed by dividing net interest income by total interest earning assets.
<F3> Yields on securities available for sale are based on amortized cost.
</FN>
</TABLE>
15
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY: INTEREST RATES &
INTEREST DIFFERENTIAL
Consolidated Average Balance Sheet 1998
<TABLE>
<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>
16
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY: INTEREST RATES &
INTEREST DIFFERENTIAL
Consolidated Average Balance Sheet 1997
<TABLE>
<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>
17
<PAGE>
SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
Summary of Quarterly Results of Operations for 1999 and 1998
<TABLE>
1999
<CAPTION>
March 31 June 30 September 30 December 31 Total
<S> <C> <C> <C> <C> <C>
Interest income $ 4,491,000 $ 4,551,000 $ 4,608,000 $ 4,794,000 $18,444,000
Interest expense (1,920,000) (1,897,000) (1,871,000) (2,023,000) (7,711,000)
Net interest income 2,571,000 2,654,000 2,737,000 2,771,000 10,733,000
Provision for loan losses (75,000) (75,000) (75,000) (75,000) (300,000)
Non-interest income 427,000 544,000 683,000 635,000 2,289,000
Non-interest expenses (1,890,000) (2,026,000) (2,318,000) (2,623,000) (8,857,000)
Income before taxes 1,033,000 1,097,000 1,027,000 708,000 3,865,000
Income taxes (285,000) (334,000) (297,000) (76,000) (992,000)
Net income $ 748,000 $ 763,000 $ 730,000 $ 632,000 $ 2,873,000
Basic earnings per share<F1> $ 0.48 $ 0.50 $ 0.48 $ 0.41 $ 1.87
<FN>
<F1> All per share amounts have been adjusted for the effect of the 10% stock dividend in April 1999.
</FN>
</TABLE>
<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<F1> $ 0.33 $ 0.41 $ 0.37 $ 0.38 $ 1.49
<FN>
<F1> All per share amounts have been adjusted for the effect of the 10% stock dividend in April 1999.
</FN>
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 1999
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 thextent 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, Vice President
Jeffersonville Bancorp
/s/ John M. Riley
John M. Riley, Treasurer
Jeffersonville Bancorp
19
<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 1999 as compared to 1998, and 1998 as compared to
1997.
The changes in interest income and expense attributable to both rate and
volume have been allocated to rate on a consistent basis.
Volume and Rate Analysis
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
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
Investment securities
and securities
available for sale $1,125,000 $ (162,000) $ 963,000 $ 532,000 $ (225,000) $ 307,000
Federal funds sold (127,000) (5,000) (132,000) 51,000 (3,000) 48,000
Loans 726,000 (177,000) 549,000 652,000 97,000 749,000
TOTAL INTEREST
INCOME 1,725,000 (345,000) 1,380,000 1,235,000 (131,000) 1,104,000
Interest Expense
NOW and Super
NOW deposits 9,000 (133,000) (124,000) 25,000 (102,000) (77,000)
Savings and insured
money market deposits 112,000 (185,000) (73,000) 74,000 (112,000) (38,000)
Time deposits 370,000 (351,000) 19,000 247,000 (36,000) 211,000
Federal funds sold and
other short-term debt 89,000 (19,000) 70,000 (13,000) 1,000 (12,000)
Long-term debt 830,000 (503,000) 327,000 466,000 (1,000) 465,000
TOTAL INTEREST
EXPENSE 1,410,000 (1,191,000) 219,000 799,000 (250,000) 549,000
NET INTEREST INCOME $ 315,000 $ 846,000 $1,161,000 $ 436,000 $ 119,000 $ 555,000
</TABLE>
20
<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, 1999
and 1998, 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, 1999. 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Albany, New York
February 20, 2000
21
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
Assets
<S> <C> <C>
Cash and due from banks (note 2) $ 9,104,000 $ 8,203,000
Securities available for sale, at fair value (note 3) 88,847,000 88,891,000
Securities held to maturity (estimated fair value of
$4,768,000 in 1999 and $3,755,000 in 1998) (note 4) 4,730,000 3,602,000
Loans, net of allowance for loan losses of $2,336,000
in 1999 and $2,310,000 in 1998 (note 5) 137,925,000 130,031,000
Accrued interest receivable 1,695,000 1,392,000
Premises and equipment, net (note 6) 2,984,000 2,681,000
Federal Home Loan Bank stock 1,628,000 1,160,000
Other real estate owned 693,000 535,000
Cash surrender value of bank-owned life insurance 6,265,000 6,183,000
Other assets 3,089,000 1,175,000
TOTAL ASSETS $256,960,000 $243,853,000
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand deposits $ 33,278,000 $ 31,287,000
Now and Super NOW accounts 28,092,000 28,726,000
Savings and money market deposits 58,382,000 57,128,000
Time deposits (note 7) 81,851,000 82,012,000
TOTAL DEPOSITS 201,603,000 199,153,000
Federal Home Loan Bank borrowings (note 8) 20,000,000 20,000,000
Short-term debt (note 9) 11,981,000 334,000
Accrued expenses and other liabilities 1,375,000 1,349,000
TOTAL LIABILITIES 234,959,000 220,836,000
Commitments and contingent liabilities (note 16)
Stockholders' equity (notes 12, 13 and 14):
Series A preferred stock, no par value;
2,000,000 shares authorized; none issued -- --
Common stock, $0.50 par value; 2,225,000
shares authorized; 1,596,978 shares and 1,468,276
shares issued in 1999 and 1998, respectively 798,000 734,000
Paid-in capital 8,232,000 5,431,000
Treasury stock, at cost; 68,619 shares and
62,381 shares held in 1999 and 1998, respectively (206,000) (206,000)
Retained earnings 15,500,000 16,795,000
Accumulated other comprehensive (loss) income, net of
taxes of $(1,603,000) in 1999 and $183,000 in 1998 (2,323,000) 263,000
TOTAL STOCKHOLDERS' EQUITY 22,001,000 23,017,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $256,960,000 $243,853,000
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest Income
Loan interest and fees $12,410,000 $11,861,000 $11,112,000
Securities:
Taxable 4,755,000 3,904,000 3,153,000
Non-taxable 1,234,000 1,160,000 1,453,000
Federal funds sold 45,000 177,000 129,000
TOTAL INTEREST INCOME 18,444,000 17,102,000 15,847,000
Interest Expense
Deposits 6,458,000 6,636,000 6,540,000
Federal Home Loan Bank borrowings 1,159,000 817,000 367,000
Other 94,000 39,000 36,000
TOTAL INTEREST EXPENSE 7,711,000 7,492,000 6,943,000
NET INTEREST INCOME 10,733,000 9,610,000 8,904,000
Provision for loan losses (note 5) 300,000 600,000 1,150,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,433,000 9,010,000 7,754,000
Non-interest Income
Service charges 1,112,000 839,000 728,000
Earnings from cash surrender value
of bank-owned life insurance 350,000 202,000 --
Net security gains (note 3) 30,000 17,000 91,000
Other non-interest income 711,000 529,000 431,000
TOTAL NON-INTEREST INCOME 2,203,000 1,587,000 1,250,000
Non-interest Expenses
Salaries and wages 3,425,000 3,019,000 2,786,000
Employee benefits (note 15) 1,556,000 996,000 942,000
Occupancy and equipment expenses 1,453,000 1,276,000 1,238,000
Other real estate owned expenses, net 244,000 332,000 178,000
Other non-interest expenses (note 10) 2,093,000 1,888,000 1,714,000
TOTAL NON-INTEREST EXPENSES 8,771,000 7,511,000 6,858,000
Income before income taxes expense 3,865,000 3,086,000 2,146,000
Income tax expense (note 9) 992,000 768,000 383,000
NET INCOME $ 2,873,000 $ 2,318,000 $ 1,763,000
Basic earnings per common share $ 1.87 $ 1.49 $ 1.13
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Paid-in Treasury Retained Comprehensive Stockholders'
Stock Capital Stock Earnings Income (Loss) Equity
<S> <C> <C> <C> <C> <C> <C>
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
Other comprehensive income -- -- -- -- 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
Other comprehensive (loss) -- -- -- -- (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 23,017,000
Net income -- -- -- 2,873,000 -- 2,873,000
Other comprehensive (loss) -- -- -- -- (2,586,000) (2,586,000)
Comprehensive income 287,000
Cash dividends ($0.62 per share) -- -- -- (960,000) -- (960,000)
Purchases and retirements
of common stock (6,000) (337,000) -- -- -- (343,000)
Stock dividend (note 12) 70,000 3,138,000 -- (3,208,000) -- --
Balance at December 31, 1999 $ 798,000 $8,232,000 $(206,000) $15,500,000 $(2,323,000) $22,001,000
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net income $ 2,873,000 $ 2,318,000 $ 1,763,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 300,000 600,000 1,150,000
Write down of other real estate owned 12,000 126,000 119,000
Gain on sales of other real estate owned (47,000) (83,000) (137,000)
Depreciation and amortization 636,000 559,000 516,000
Net earnings from cash surrender
value of bank-owned life insurance (273,000) (175,000) --
Deferred income tax benefit (29,000) (192,000) (199,000)
Net security gains (30,000) (17,000) (91,000)
(Increase) decrease in accrued interest receivable (303,000) (101,000) (123,000)
Decrease (increase) in other assets 91,000 434,000 (251,000)
Increase in accrued expenses and other liabilities 26,000 469,000 240,000
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,256,000 3,938,000 2,987,000
Investing Activities Proceeds from maturities and calls:
Securities available for sale 10,276,000 42,978,000 10,443,000
Securities held to maturity 685,000 858,000 770,000
Proceeds from sales of securities available for sale 7,163,000 11,586,000 17,345,000
Purchases:
Securities available for sale (21,736,000) (73,136,000) (33,261,000)
Securities held to maturity (1,813,000) (720,000) (1,107,000)
Disbursements for loan originations,
net of principal collections (8,790,000) (5,798,000) (11,690,000)
Purchase of Federal Home Loan Bank stock (468,000) (407,000) (36,000)
Purchase of bank-owned life insurance -- (6,008,000) --
Net purchases of premises and equipment (939,000) (631,000) (523,000)
Proceeds from sales of other real estate owned 473,000 683,000 900,000
NET CASH USED IN INVESTING ACTIVITIES (15,149,000) (30,595,000) (17,159,000)
Financing Activities
Net increase in deposits 2,450,000 18,954,000 6,230,000
Proceeds from Federal Home Loan Bank borrowings 10,000,000 20,000,000 10,000,000
Repayments of Federal Home Loan Bank borrowings (10,000,000) (10,000,000) --
Net (decrease) increase in short-term debt 11,647,000 (70,000) (125,000)
Cash dividends paid (960,000) (850,000) (792,000)
Purchases and retirements of common stock (343,000) (337,000) (1,000)
Proceeds from sales of treasury stock -- -- --
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,794,000 27,697,000 15,312,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 901,000 1,040,000 1,140,000
Cash and cash equivalents at beginning of year 8,203,000 7,163,000 6,023,000
Cash and cash equivalents at end of year $ 9,104,000 $ 8,203,000 $ 7,163,000
Supplemental Information
Cash paid for:
Interest $ 7,741,000 $ 7,508,000 $ 6,934,000
Income taxes 1,250,000 903,000 700,000
Transfer of loans to other real estate owned 596,000 960,000 352,000
</TABLE>
See accompanying notes to consolidated financial statements.
25
<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, 1999 and 1998, 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.
26
<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.
27
<PAGE>
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.
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 1,534,000 in 1999, 1,557,000 in 1998 and
1,561,000 in 1997, all of which have been adjusted for the effect of the 20%
stock dividend distributed in February 1998 and 10% stock dividend in May
1999 (see note 12). Income available to common stockholders equaled net
income for each of these years.
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 designed 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. In June 1999 the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of Effective Date of FASB No 133", which deferred the
effective date of FASB No.133 by one year, from fiscal years beginning after
June 15, 1999 to fiscal years beginning after June 15, 2000. 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.
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, 1999 and 1998.
28
<PAGE>
3. Securities Available for Sale
The amortized cost and estimated fair value of securities available for sale
are as follows:
<TABLE>
December 31, 1999
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government agency securities $40,443,000 $ 7,000 $(2,573,000) $37,877,000
Obligations of states and
political subdivisions 19,811,000 322,000 (233,000) 19,900,000
Mortgage-backed securities
and collateralized
mortgage obligations 30,103,000 -- (1,153,000) 28,950,000
Corporate debt securities 694,000 -- (25,000) 669,000
Total debt securities 91,051,000 329,000 (3,984,000) 87,396,000
Equity securities 1,722,000 -- (271,000) 1,451,000
TOTAL SECURITIES
AVAILABLE FOR SALE $92,773,000 $ 329,000 $(4,255,000) $88,847,000
</TABLE>
<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 (422,000) 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>
29
<PAGE>
Proceeds from sales of securities available for sale during 1999, 1998 and
1997 were $7,163,000, $11,586,000, and $17,345,000, respectively. Gross gains
and gross losses realized on these transactions were as follows:
Years ended December 31,
1999 1998 1997
Gross realized gains $35,000 $18,000 $155,000
Gross realized losses (5,000) (1,000) (64,000)
Net security gains $30,000 $17,000 $ 91,000
The amortized cost and estimated fair value of debt securities available
for sale at December 31, 1999, 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, 1999
Amortized Estimated
Cost Fair Value
Within one year $24,383,000 $23,127,000
One to five years 40,576,000 39,293,000
Five to ten years 19,777,000 18,873,000
Over ten years 6,315,000 6,103,000
TOTAL $91,051,000 $87,396,000
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
$42,961,000 at December 31, 1999 were pledged to secure public funds on
deposit and for other purposes.
30
<PAGE>
4. Securities Held to Maturity
The amortized cost and estimated fair value of securities held to
maturity are as follows:
<TABLE>
December 31, 1999
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $4,730,000 $ 50,000 $(12,000) $4,768,000
</TABLE>
<TABLE>
December 31, 1998
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $3,602,000 $153,000 $ -- $3,755,000
</TABLE>
The amortized cost and estimated fair value of these securities at December
31, 1999, 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, 1999
Amortized Estimated
Cost Fair Value
Within one year $1,465,000 $1,467,000
One to five years 1,031,000 1,042,000
Five to ten years 2,234,000 2,259,000
Over ten years -- --
TOTAL $4,730,000 $4,768,000
There were no sales of securities held to maturity in 1999, 1998 or 1997.
31
<PAGE>
5. Loans
The major classifications of loans are as follows:
At December 31,
1999 1998
Real estate loans:
Residential $ 65,676,000 $ 66,029,000
Commercial 29,211,000 22,961,000
Home equity 10,359,000 9,320,000
Farm land 1,388,000 1,488,000
Construction 1,915,000 1,171,000
108,549,000 100,969,000
Other loans:
Commercial loans 13,498,000 14,391,000
Consumer installment loans 19,922,000 18,394,000
Other consumer loans 1,876,000 1,795,000
Agricultural loans 370,000 412,000
35,666,000 34,992,000
Total loans 144,215,000 135,961,000
Unearned discounts (3,954,000) (3,620,000)
Allowance for loan losses (2,336,000) (2,310,000)
TOTAL LOANS, NET $137,925,000 $130,031,000
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.
32
<PAGE>
Non-performing loans are summarized as follows:
At December 31,
1999 1998 1997
Non-accrual loans $ 790,000 $1,842,000 $3,324,000
Loans past due 90 days or more
and still accruing interest 1,100,000 1,146,000 368,000
Total non-performing loans $1,890,000 $2,988,000 $3,692,000
Non-performing loans
as a percentage of total loans 1.3% 2.2% 2.8%
Non-accrual and restructured loans had the following effect on interest
income:
Years ended December 31,
1999 1998 1997
Interest contractually due at
original rates $ 73,000 $ 199,000 $ 285,000
Interest income recognized (31,000) (118,000) (124,000)
Interest income not recognized $ 42,000 $ 81,000 $ 161,000
Changes in the allowance for loan losses are summarized as follows:
Years ended December 31,
1999 1998 1997
Balance at beginning of the year $2,310,000 $1,862,000 $ 1,711,000
Provision for loan losses 300,000 600,000 1,150,000
Loans charged-off (445,000) (343,000) (1,255,000)
Recoveries 171,000 191,000 256,000
Balance at end of the year $2,336,000 $2,310,000 $ 1,862,000
33
<PAGE>
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, 1999 and 1998, the recorded investment in loans that were
considered to be impaired under SFAS No. 114 totaled $689,000 and $965,000,
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 1999, 1998 and 1997, the average
recorded investment in impaired loans was $694,000, $978,000, and $1,564,000,
respectively. Interest income of $22,000, $87,000, and $124,000 was
recognized on impaired loans during 1999, 1998 and 1997, 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,
1999 1998
Land $ 392,000 $ 392,000
Buildings 2,219,000 2,203,000
Furniture and fixtures 428,000 421,000
Equipment 4,866,000 4,050,000
Building and leasehold improvements 611,000 568,000
Construction in progress 57,000 --
8,573,000 7,634,000
Less accumulated depreciation
and amortization (5,589,000) (4,953,000)
TOTAL PREMISES AND EQUIPMENT, NET $ 2,984,000 $ 2,681,000
Depreciation and amortization expense was $636,000, $559,000, and $516,000 in
1999, 1998 and 1997, respectively.
34
<PAGE>
7. Time Deposits
The following is a summary of time deposits by remaining period to
contractual maturity:
At December 31, 1999
Within one year $61,173,000
One to two years 14,423,000
Two to three years 2,326,000
Three to four years 3,929,000
TOTAL TIME DEPOSITS $81,851,000
Time deposits of $100,000 or more totaled $14,248,000 at December 31, 1999
and $14,920,000 at December 31, 1998. Interest expense related to time
deposits over $100,000 was $786,000, $761,000, and $659,000 for 1999, 1998
and 1997, respectively.
8. Federal Home Loan Bank Borrowings
The following is a summary of FHLB advances outstanding:
<TABLE>
At December 31,
<CAPTION>
1999 1998
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Variable rate advances maturing
within one year $ 5,000,000 5.38% $10,000,000 5.61%
Fixed rate advances maturing
in 2008 15,000,000 5.16% 10,000,000 5.02%
TOTAL FHLB ADVANCES $20,000,000 5.22% $20,000,000 5.31%
</TABLE>
35
<PAGE>
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, 1999 and 1998.
9. Short-term Borrowings
Short-term borrowings at December 31, 1999 and 1998 are primarily comprised
of overnight FHLB borrowings. The Bank, as a member of the FHLB, has access
to a line of credit program with a maximum borrowing capacity of $25.0
million and $22.0 million as of December 31, 1999 and 1998, respectively.
Borrowings under the overnight program at December 31, 1999 and 1998, were
$11.4 million, at a rate of 5.88% and $0 million, respectively. The Bank has
pledged mortgage loans and FHLB stock as collateral on these borrowings.
During 1999 the maximum month-end balance was $11.4 million, the average
balance was $1.8 million, and the average interest rate was 5.28%.
10. Income Taxes
The components of income tax expense are as follows:
Years ended December 31,
1999 1998 1997
Current tax expense:
Federal $ 733,000 $ 690,000 $ 439,000
State 288,000 270,000 143,000
Deferred tax benefit (29,000) (192,000) (199,000)
TOTAL INCOME TAX EXPENSE $ 992,000 $ 768,000 $ 383,000
36
<PAGE>
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>
Years ended December 31,
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Tax at statutory rate $1,314,000 $1,049,000 $ 730,000
State taxes, net of Federal tax benefit 190,000 134,000 81,000
Tax-exempt interest (420,000) (394,000) (494,000)
Interest expense allocated
to tax-exempt securities 48,000 47,000 62,000
Net earnings from cash surrender value
of bank-owned life insurance (119,000) (69,000) --
Other adjustments (21,000) 1,000 4,000
Income tax expense $ 992,000 $ 768,000 $ 383,000
</TABLE>
The tax effects of temporary differences and tax credits that give rise to
deferred tax assets and liabilities are presented below:
<TABLE>
At December 31,
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses in excess of tax bad debt reserve $ 681,000 $ 687,000
Interest on non-accrual loans 126,000 136,000
Alternative minimum tax credit -- 95,000
Postretirement benefits 258,000 149,000
Deferred compensation 109,000 --
Net unrealized loss on available for sale securities 1,603,000 --
Other -- 3,000
Total deferred tax assets 2,777,000 1,070,000
Deferred tax liabilities:
Prepaid expenses (296,000) (227,000)
Net unrealized gain on available for sale securities -- (183,000)
Other taxable temporary differences (6,000) --
Total deferred tax liabilities (302,000) (410,000)
Net deferred tax asset $2,475,000 $ 660,000
</TABLE>
37
<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, 1999 and 1998.
11. Other Non-Interest Expenses
The major components of other non-interest expenses are as follows:
Years ended December 31,
1999 1998 1997
Stationery and supplies $ 272,000 $ 224,000 $ 215,000
Director expenses 227,000 228,000 230,0000
ATM and credit card processing fees 400,000 323,000 222,000
Other expenses 1,194,000 1,113,000 1,047,000
Total non-interest expenses $2,093,000 $1,888,000 $1,714,000
12. 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, 1999 and 1998, 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.
38
<PAGE>
The following is a summary of the actual capital amounts and ratios as
of December 31, 1999 and 1998 for the Bank and the Parent Company
(consolidated), compared to the required ratios for minimum capital adequacy
and for classification as well-capitalized:
December 31, 1999
<TABLE>
<CAPTION>
Required Ratios
Actual Minimum Classification as
Amount Ratio Capital Adequacy Well Capitalized
<S> <C> <C> <C> <C>
Bank
Leverage (Tier I) capital $21,533,000 8.5% 4.0% 5.0%
Risk-based capital:
Tier I 21,533,000 15.3 4.0 6.0
Total 23,305,000 16.5 8.0 10.0
Consolidated
Leverage (Tier I) capital $24,324,000 9.6% 4.0%
Risk-based capital:
Tier I 24,324,000 17.0 4.0
Total 26,125,000 18.2 8.0
</TABLE>
December 31, 1998
<TABLE>
<CAPTION>
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>
39
<PAGE>
13. Stockholders' Equity
Stock Dividend
On April 13, 1999, the Parent Company announced a 10% stock dividend which
was distributed on May 11, 1999 to common stockholders of record as of April
27, 1999. Under the terms of the dividend, stockholders received a dividend
of one share of common stock for every 10 shares owned as of the record date,
plus cash in lieu of any fractional shares. A total of 140,890 common shares
were issued in connection with the stock dividend. Retained earnings was
reduced by $3,208,000, 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.
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 1999 and 1998 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.
40
<PAGE>
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.
14. 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 1999, 1998 and 1997 in the
consolidated statements of changes in stockholders' equity.
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>
Years ended December 31,
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net unrealized holding gains (losses) arising during
the year, net of taxes of $1,772,000 in 1999,
$192,000 in 1998 and ($193,000) in 1997 $(2,568,000) $(280,000) $285,000
Reclassification adjustment for net realized gains
included in income, net of taxes of $12,000 in 1999,
$7,000 in 1998 and $37,000 in 1997 (18,000) (10,000) (54,000)
Other comprehensive income (loss) $(2,586,000) $(290,000) $231,000
</TABLE>
41
<PAGE>
15. 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,
1999 1998
Directors $1,299,000 $1,636,000
Executive officers (non-director) 244,000 139,000
$1,543,000 $1,775,000
Total advances to these directors and officers during the years 1999 and 1998
were $1,094,000 and $2,013,000, respectively. Total payments made on these
loans were $1,200,000 in 1999 and $1,587,000 in 1998. These directors and
officers had unused lines of credit with the Company of $1,822,000 at
December 31, 1999.
16. 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.
42
<PAGE>
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
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Change in benefit obligation:
Beginning of year $3,290,000 $2,862,000 $ 1,315,000 $ 989,000
Service cost 189,000 124,000 95,000 78,000
Interest cost 252,000 203,000 88,000 79,000
Amendments 417,000 -- -- --
Actuarial (gain) loss (204,000) 231,000 (209,000) 202,000
Benefits paid (135,000) (130,000) (34,000) (33,000)
End of year 3,809,000 3,290,000 1,255,000 1,315,000
Change in fair value of plan assets:
Beginning of year 2,769,000 2,660,000 -- --
Actual return on plan assets 240,000 71,000 -- --
Employer contributions 184,000 186,000 34,000 33,000
Benefits and plan expenses (155,000) (148,000) (34,000) (33,000)
End of year 3,038,000 2,769,000 -- --
Funded status at end of year (771,000) (521,000) (1,255,000) (1,315,000)
Unamortized net transition
(asset) obligation (27,000) (31,000) 239,000 257,000
Unrecognized net loss subsequent
to transition 724,000 954,000 128,000 348,000
Unamortized prior service liability 362,000 388,000 -- --
Prepaid (accrued) benefit cost $ 288,000 $ 790,000 $ (888,000) $ (710,000)
</TABLE>
43
<PAGE>
The components of the net periodic benefit cost for these plans were as follows:
Pension Benefits
1999 1998 1997
Service cost $ 189,000 $ 124,000 $ 118,000
Interest cost 252,000 203,000 181,000
Expected return on plan assets (237,000) (228,000) (184,000)
Amortization of prior service cost 25,000 (3,000) (3,000)
Amortization of transition asset (4,000) (4,000) (4,000)
Recognized net actuarial loss 44,000 19,000 33,000
Net periodic benefit expense $ 269,000 $ 110,000 $ 141,000
Other Postretirement Benefits
1999 1998 1997
Service cost $ 95,000 $ 78,000 $ 52,000
Interest cost 88,000 79,000 60,000
Amortization of transition obligation 18,000 18,000 18,000
Recognized net actuarial loss (gain) 11,000 11,000 1,000
Net periodic benefit expense $212,000 $186,000 $131,000
The discount rates used to determine the benefit obligations in 1999, 1998
and 1997 were 7.25%, 6.75%, and 7.25%, respectively, for the pension plan;
7.25%, and 6.75%, and 7.00%, 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 1999, 1998 and 1997. The assumed health care cost trend
rate used to determine the benefit obligation for the other postretirement
benefits plan at December 31, 1999 was 6.0%, 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, 1999 by approximately $203,000 and the net
periodic benefit cost for the year by approximately $39,000; a one percentage
point decrease would decrease the benefit obligation and benefit cost by
approximately $161,000 and $30,000, respectively.
44
<PAGE>
Tax-Deferred Savings Plan
The Company maintains a qualified 401(k) plan for all employees, which
permits tax-deferred employee contributions up to 15% of salary and provides
for matching contributions by the Company. 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
$114,000 in 1999, $111,000 in 1998 and $117,000 in 1997.
17. 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,
1999 1998
Loan origination commitments and
unused lines of credit:
Mortgage loans $ 1,868,000 $ 2,924,000
Commercial loans 4,380,000 3,231,000
Credit card lines 2,934,000 5,152,000
Home equity lines 3,727,000 3,062,000
Other revolving credit 3,541,000 3,067,000
16,450,000 17,436,000
Standby letters of credit 222,000 307,000
$16,672,000 $17,743,000
45
<PAGE>
These agreements to extend credit have been granted to customers within
the Company's lending area described in note 5 and relate primarily to
fixed-rate loans.
Loan origination commitments and lines of credit are agreements to lend
to a customer as long as there is no violation of any condition established
in the contract. These agreements generally have fixed expiration dates or
other termination clauses and may require payment of a fee by the customer.
Since commitments and lines of credit may expire without being fully drawn
upon, the total contract amounts do not necessarily represent future cash
requirements.
The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral, if any, required by the Company upon the
extension of credit is based on management's credit evaluation of the
customer. Mortgage commitments are secured by a first lien on real estate.
Collateral on extensions of credit for commercial loans varies but may
include accounts receivable, equipment, inventory, livestock and
income-producing commercial property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support borrowing arrangements. The credit
risk involved in issuing standby letters of credit is essentially the same as
that involved in extending loan facilities to customers.
18. 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.
46
<PAGE>
The following is a summary of the net carrying values and estimated fair
values of the Company's financial assets and liabilities (none of which were
held for trading purposes):
At December 31,
<TABLE>
<CAPTION>
1999 1998
Net Carrying Estimated Net Carrying Estimated
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 9,104,000 $ 9,104,000 $ 8,203,000 $ 8,203,0000
Securities available for sale 88,847,000 88,847,000 88,891,000 88,891,000
Securities held to maturity 4,730,000 4,768,000 3,602,000 3,755,000
Loans 137,925,000 138,149,000 130,031,000 132,958,0000
Accrued interest receivable 1,695,000 1,695,000 1,392,000 1,392,000
FHLB stock 1,628,000 1,628,000 1,160,000 1,160,000
Financial Liabilities
Demand deposits
(non-interest bearing) 33,278,000 33,278,000 31,287,000 31,287,000
Interest-bearing deposits 168,325,000 168,375,000 167,866,000 168,137,0000
FHLB advances 20,000,000 20,412,000 20,000,000 20,214,0000
Short-term debt 11,981,000 11,981,000 334,000 334,0000
Accrued interest payable -- 640,000 640,000 640,000
</TABLE>
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.
47
<PAGE>
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 judgementally determined using available market
information and specific borrower information.
Deposit Liabilities
The fair values of deposits with no stated maturity (such as checking,
savings and money market deposits) equal the carrying amounts payable on
demand. The fair values of time deposits are based on the discounted value of
contractual cash flows (but are not less than the net amount at which
depositors could settle their accounts). The discount rates are estimated
based on the rates currently offered for time deposits with similar remaining
maturities.
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, 1999 and 1998.
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, 1999
and 1998, the fair values of these financial instruments approximated the
related carrying values which were not significant.
48
<PAGE>
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,
1999 1998
Assets
Cash $ 237,000 $ 106,000
Securities available for sale 1,411,000 1,531,000
Investment in subsidiary 19,370,000 20,347,000
Premises and equipment 1,148,000 1,210,000
Other assets 142,000 28,000
TOTAL ASSETS $22,308,000 $23,222,000
Liabilities and Stockholders' Equity
Liabilities $ 307,000 $ 205,000
Stockholders' equity 22,001,000 23,017,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,308,000 $23,222,000
<TABLE>
Statements of Income (Parent Company Only)
Years ended December 31,
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Dividend income from subsidiary $1,275,000 $1,125,000 $1,375,000
Dividend income on securities available for sale 140,000 125,000 72,000
Rental income from subsidiary 258,000 246,000 245,000
1,673,000 1,496,000 1,692,000
Occupancy and equipment expenses 92,000 62,000 62,000
Other non-interest expenses 58,000 49,000 34,000
150,000 111,000 96,000
Income before income taxes and
undistributed income of subsidiary 1,523,000 1,385,000 1,596,000
Income tax expense 99,000 109,000 93,000
Income before undistributed income of subsidiary 1,424,000 1,276,000 1,503,000
Equity in undistributed income of subsidiary 1,449,000 1,042,000 260,000
NET INCOME $2,873,000 $2,318,000 $1,763,000
</TABLE>
49
<PAGE>
<TABLE>
Statements of Cash Flows (Parent Company Only)
Years ended December 31,
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net income $ 2,873,000 $ 2,318,000 $ 1,763,000
Equity in undistributed income of subsidiary (1,449,000) (1,042,000) (260,000)
Depreciation and amortization 92,000 62,000 62,000
Other adjustments, net (70,000) 110,000 (72,000)
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,446,000 1,448,000 1,493,000
Investing Activities
Purchases of securities available for sale (150,000) (250,000) (750,000)
Purchases of premises and equipment -- -- (10,000)
CASH USED IN INVESTING ACTIVITIES (150,000) (250,000) (760,000)
Financing Activities
Cash dividends paid (959,000) (850,000) (792,000)
Purchases and retirements of common stock (206,000) (337,000) (1,000)
Proceeds from sales of treasury stock -- -- --
NET CASH USED IN FINANCING ACTIVITIES (1,165,000) (1,187,000) (793,000)
NET INCREASE (DECREASE) IN CASH 131,000 11,000 (60,000)
Cash at beginning of year 106,000 95,000 155,000
Cash at end of year $ 237,000 $ 106,000 $ 95,000
</TABLE>
50
<PAGE>
THE FIRST NATIONAL BANK OF JEFFERSONVILLE
Officers
Arthur E. Keesler
Chairman of the Board
Raymond Walter
President and
Chief Executive Officer
John M. Riley
Executive Vice President/
Chief Lending Officer
Charles E. Burnett
Senior Vice President/
Chief Financial Officer
Wayne V. Zanetti
Senior Vice President/
Chief Operating Officer
June B. Tegeler
Vice President/
Branch Coordinator
Claire A. Pecsi
Vice President/
Human Resources
Tatiana Hahn
Vice President/
Senior Loan Officer
Loreen Gebelein
Assistant Vice President/
Mortgage Administrator
Andrew McKean
Assistant Vice President/
Commercial Loans
Martha Huebsch
Assistant Vice President/
Installment Loans
Theodore Bertot
Auditor
Jacqueline M. Gieger
Operations Manager
Stacey Stephenson
Compliance Officer
Pearl L. Gain
Assistant Cashier/Accounting
Barbara Hahl
Marketing Manager
Sandee Sipple
Community Office Manager
Raymond Browne
Branch Manager -- Monticello
Rhonda Decker
Branch Manager -- Liberty
Tanja McKerrell
Branch Manager -- Eldred
Kathleen Beseth
Branch Manager --
Loch Sheldrake
Lorraine Lilholt
Assistant Branch Manager -- Monticello
Lisa Dreher
Assistant Branch Manager -- Liberty
JoAnne Girardi
Assistant Branch Manager -- Eldred
Edie Houghtaling
Assistant Branch Manager --
Loch Sheldrake
Linda Fisk
Sales Manager -- Livingston Manor
Florence Horecky
Sales Manager -- Callicoon
Jayne Wartell
Sales Manager -- Narrowsburg
Janet R. Siano
Sales Manager -- Wal*Mart
Christina Bendi-Manna
Sales Manager -- Wurtsboro
Staff
Dianne Banks
Amy Bernhardt
Eleida Black
Jerilynn Brock
Michelle Brockner
Nancy Brown
Shauna A. Buchholz
Christina Carlson
Alana Conklin
Mary Ellen Connors
Nancy Crumley
Lydia D'Antoni
Susan DeVito
Denise Diehl
Melanie Dirie
Barbara Donnelly
Kelly Ellsworth
Tara Everett
Rosemarie Finkle
Susan Fippinger
Deborah Forsblom
Helen Forster
Dawn Gandy
Eugene Hahn
Kerline Harman
Amy Hiller
Alisa Horan
Cathy Horan
Carolyn Hubert
Vivian A. Huggler
Heidi Hulse
Betty Johaneman
Helen Karkkainen
Jean Kelly
Jessica Kenyon
Lauren Kickuth
Trishia Kinney
Rebekah Lee-Cahill
Brandy Leonardo
Patricia Leonardo
Shirley Lindsley
Margaret Linzer
Michele Lupardo
Merrily Lynch
Martha Lyons
Linda Mall
JoAnn Malley
Charlotte A. Mattice
Jamie McAteer
Diane McGrath
Jonathan McGruder
Toni McKay
Denise Minckler
Jennifer Murphy
Deborah Muzuruk
Gale Myers
Lorraine Niemann
Kelli Pagan
George Lewis Palmer
Kimberly Peck
Bruce Pecsi
Kimberly Pecsi
Jenny O. Peters
Barbara Pietrucha
Jimmy Porter
Margaret Porter
Alice Reisen
Muriel Rembe
Sherri Rhyne
Andrew Richardson
Damaris Rios
Alison Roberge
Mandy Roberts
Silvia Robinson
Sandra Ross
John Rudy
Crystal Smith
Theresa Specht
Jon Speed
Kristie Stauch
Christina Strong
Barbara Walter
Janet Warden
Jayne Wartell
Carol Welton
Everett Williams
Jean Wood
Heather Worzel
Barry Yoder
<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
<PAGE>
JEFFERSONVILLE BANCORP BOARD OF DIRECTORS
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
Edward T. Sykes
President
Mike Preis Inc.
Callicoon, New York
Insurance Agency
Earl A. Wilde
Retired
Sullivan County Cooperative Extension
Liberty, New York
Officers
Arthur E. Keesler
President
Raymond Walter
Vice President
John K. Gempler
Secretary
John M. Riley
Treasurer
<PAGE>
CORPORATE INFORMATION
Corporate Headquarters
Jeffersonville Bancorp
4866 State Rt. 52
Box 398
Jeffersonville, New York 12748
Tel. (914) 482-4000
www.jeffbank.com
EMAIL [email protected]
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 nine 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 25,
2000 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) 791-6600, Boenning & Scattergood Inc.,
Conshohocken, PA (610) 832-1212 and Ryan, Beck & Co., Livingston, NJ (800)
342-2325. On April 13, 1999, Jeffersonville Bancorp announced a 10% stock
dividend payable on May 11, 1999 to common stockholders of record as of April
27, 1999. Stockholders received a dividend of one share of common stock for
every ten 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. Prices have been adjusted for the
10% stock dividend, for periods prior to the payment date.
Bid Price
Low High
Quarter Ended
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
March 31, 1999 $22.00 $ 25.50
June 30, 1999 $20.25 $ 28.00
September 30, 1999 $22.00 $24.875
December 31, 1999 $20.31 $ 22.25
Cash dividends of $0.16, $0.15 $0.15 and $0.18 per share were declared
quarterly in 1999. 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
Wal*Mart Office
33 Anawana Lake Road
Monticello, New York 12701
(914) 794-3988
Stock Transfer Agent
American Stock Transfer Company
40 Wall Street
46 Floor
New York, New York 10005
(212) 936-5100
Cover photography by:
(C) NYS Department of Economic Development
and Sullivan County Visitors Association, Inc.
<PAGE>
Jeffersonville Bancorp
P.O. Box 398
Jeffersonville, New York 12748
http://www.jeffbank.com
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000874495
<NAME> Jeffersoville Bancorp
<MULTIPLIER> 1000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 9104
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88847
<INVESTMENTS-CARRYING> 4730
<INVESTMENTS-MARKET> 4768
<LOANS> 137925
<ALLOWANCE> 2336
<TOTAL-ASSETS> 256960
<DEPOSITS> 201603
<SHORT-TERM> 11981
<LIABILITIES-OTHER> 1375
<LONG-TERM> 20000
0
0
<COMMON> 798
<OTHER-SE> 21203
<TOTAL-LIABILITIES-AND-EQUITY> 256960
<INTEREST-LOAN> 12410
<INTEREST-INVEST> 5989
<INTEREST-OTHER> 45
<INTEREST-TOTAL> 18444
<INTEREST-DEPOSIT> 6458
<INTEREST-EXPENSE> 7711
<INTEREST-INCOME-NET> 10733
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 30
<EXPENSE-OTHER> 8771
<INCOME-PRETAX> 3865
<INCOME-PRE-EXTRAORDINARY> 3865
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2873
<EPS-BASIC> 1.87
<EPS-DILUTED> 1.87
<YIELD-ACTUAL> 7.77
<LOANS-NON> 790
<LOANS-PAST> 1100
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2310
<CHARGE-OFFS> 445
<RECOVERIES> 171
<ALLOWANCE-CLOSE> 2336
<ALLOWANCE-DOMESTIC> 2336
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2336
</TABLE>
