1996 Annual Report

Jeffersonville Bancorp

To Our Stockholders and Customers

     Jeffersonville  Bancorp  enjoyed another  profitable  year in 1996,  albeit
marginally less than 1995.  There were primarily  three factors  contributing to
our decreased  earnings  during 1996. We increased our provision for loan losses
by $130,000 over the prior year. We felt this increase was warranted in order to
maintain an adequate allowance for loan losses which is necessary in our current
adverse economic climate. Salaries and wages increased by $297,000 and occupancy
and equipment  expense  increased by $113,000 mainly due to our branch expansion
into Pecks Markets.  These  expenses will  eventually be offset by revenues from
the increased deposit and loan volume we expect to generate in the new branches.
The third factor was an increase in other real estate owned  expense of $99,000.
We continue to experience  foreclosures  and related  expenses at  unprecedented
rates.  Until  there is a  recovery  from the local  economic  recession  we are
experiencing,  we can expect this expense to continue at an unacceptable  level.
The new branch offices at Pecks Markets in Narrowsburg and Livingston Manor have
met and exceeded our expectations. The supermarket branch in Callicoon opened in
mid-February.  We  anticipate  that  these  locations  will  provide  us with an
opportunity  for continued  growth in our market area.  Touch-tone  banking will
become a reality in early 1997.  This  24-hour  telephone  banking  service will
provide our customers with access to account  information at their  convenience.
This  service  will not take the place of personal  contact,  but will rather be
another way for us to serve our customers.  We still feel very strongly that our
competitive  edge is in the  personal  touch  and we  will  continue  with  that
philosophy. The Banks home page was recently launched on the world wide web. The
sites internet address is  http://www.jeffbank.com.  The site provides  visitors
with a wide range of information about the bank in an intuitive, point and click
environment.  Site visitors are provided a comprehensive  array of rates for all
lending   and   investment    instruments.    E-mail   can   be   addressed   to
jeffbank@jeffbank.com.  We are  confident  our  customers  will benefit from our
internet  presence  immediately  and will  continue  to benefit as we expand our
on-line  capabilities.  During  1996,  your Board of  Directors  authorized  the
repurchase  and  retirement of 50,000 shares of stock as a  continuation  of the
repurchase  program  initiated in 1995.  During the upcoming year, your Board of
Directors  has  authorized  up to $1 million for the  repurchase  of  additional
shares in the open  market.  As a further  effort to increase  market  price and
provide liquidity,  Jeffersonville Bancorp stock has recently been listed on the
Over-the-Counter  Bulletin  Board  under the symbol  JFBC.  We believe  that the
current market price of Jeffersonville  Bancorp stock does not fully reflect the
value of your company and we will strive to address this issue during the coming
year. If you have questions with regard to this report,  please contact us. Your
comments,  questions,  and suggestions  are always  welcome.  Thank you for your
continued support.

Arthur E. Keesler, President
Jeffersonville Bancorp
Raymond L. Walter, President
First National Bank of Jeffersonville

Jeffersonville Bancorp Board of Directors

Arthur E. Keesler
Gibson McKean
Lawrence H. Cooke
John K. Gempler
Edward T. Sykes
Frederick W. V. Schadt, Jr.
Raymond L. Walter
John W. Galligan
James F. Roche
Gilbert E. Weiss
Earl A. Wilde
Douglas A. Heinle
Solomon Katzoff
<TABLE>

Selected Financial Information

Five-Year Summary
<CAPTION>

                                                              1996            1995            1994            1993            1992

Results of Operations
<S>                                                   <C>             <C>             <C>             <C>             <C>
Net interest income ...............................   $  8,666,000    $  8,581,000    $  9,245,000    $  9,340,000    $  9,088,000
Provision for loan losses .........................        290,000         160,000         427,000         405,000       1,263,000
Net income ........................................      2,145,000       2,424,000       2,460,000       2,983,000       2,484,000

Financial Condition
Total assets ......................................   $196,113,000    $188,469,000    $188,118,000    $175,245,000    $168,589,000
Deposits ..........................................    172,930,000     164,184,000     165,531,000     155,251,000     151,147,000
Loans, net ........................................    115,605,000     109,288,000     101,414,000      97,076,000      92,353,000
Stockholders equity ...............................     20,975,000      20,928,000      17,782,000      18,023,000      15,684,000

Average Balances
Total assets ......................................   $198,134,000    $193,568,000    $194,114,000    $177,896,000    $162,038,000
Deposits ..........................................    173,139,000     169,209,000     165,368,000     158,766,000     144,657,000
Gross loans .......................................    113,981,000     107,567,000     100,517,000      96,680,000      93,430,000
Stockholders equity ...............................     20,751,000      19,871,000      18,483,000      16,973,000      14,837,000

Financial Ratios
Net income toaverage total assets .................           1.08%           1.25%           1.27%           1.68%           1.53%
Net income to averagestockholders equity ..........          10.34%          12.20%          13.31%          17.57%          16.74%
Average stockholders equity to average total assets          10.47%          10.27%           9.52%           9.54%           9.16%

Per Share Data
Income per share ..................................   $       1.79    $       1.93    $       1.91    $       2.32    $       1.93
Dividends per share ...............................            .65             .60             .55             .50             .45
Dividends per share tonet income per share ........           36.3%           31.1%           28.8%           21.6%           23.3%
Book value at year end ............................   $      17.73    $      16.99    $      13.80    $      13.99    $      12.17
Total dividends paid ..............................        775,000         755,000         709,000         644,000         581,000
Average number ofshares outstanding ...............      1,200,519       1,252,900       1,288,330       1,288,330       1,288,330
Shares outstandingat year end .....................      1,182,794       1,231,550       1,288,330       1,288,330       1,288,330
</TABLE>

Managements 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 Company) and its wholly-owned  subsidiary,  The First National Bank
of  Jeffersonville  (the Bank).  For  purposes of this  discussion,  the Company
refers to both the Bank and Company  together,  as the Bank is the Companys only
subsidiary.  This discussion should be read in conjunction with the consolidated
financial  statements  and  notes  thereto,  statistical  disclosures  and other
financial information appearing elsewhere in this annual report.

General
The Company is a one-bank  holding company founded in 1982 and  headquartered in
Jeffersonville, New York. The Company owns 100% of the outstanding shares of the
Banks  common stock and derives  substantially  all of its income from the Banks
operations.  The Bank is a commercial  bank  chartered in 1913 serving  Sullivan
County,  New  York  with  offices  in  Jeffersonville,   Eldred,  Liberty,  Loch
Sheldrake, Monticello, Livingston Manor, Narrowsburg and Callicoon. The Companys
mission is to serve the community banking needs of its borrowers and depositors,
predominantly  individual  customers,  small  businesses,  and  local  municipal
governments.  The  Company is in tune with  local  customer  needs and  provides
quality service with a personal touch. This discussion and analysis of financial
results should be reviewed with the Companys philosophy in mind.

Local Economy
Following  the trend of recent years,  the local economy  continued to falter in
1996.  Loan demand  weakened as businesses  and consumers  were either  cautious
about additional debt or already  overextended.  Residential  mortgage borrowers
tried to stay current on their loans despite unemployment,  increased tax burden
and the shut down of some county  businesses.  The Company will continue to seek
opportunities to provide fresh capital for the local economy,  while adhering to
prudent  loan  underwriting  standards.  Management  of  the  Company  does  not
anticipate any improvement in the local economy in the short term.

Financial Condition
Total average assets in 1996 increased $4,566,000 over 1995 to $198,134,000,  an
increase of 2.4%  compared to a .3% decrease  between 1995 at  $193,568,000  and
1994 at  $194,114,000.  Average  assets  increased in 1996 as deposit growth was
channeled into loans that met underwriting  criteria.  Total average  securities
(including  securities  available  for sale and  investment  securities  held to
maturity) decreased $731,000 or 1.0% in 1996 to $71,604,000 compared to an 11.2%
decrease in the prior year. The average  investment  portfolios were $72,335,000
and $81,486,000 for 1995 and 1994, respectively.  The decrease in the portfolios
was  used to  fund  growth  in the  loan  portfolio.  Investment  in tax  exempt
securities was reduced to lessen the impact of the alternative  minimum tax. See
notes 3 and 4 to the consolidated  financial  statements for period end balances
of securities  available for sale and investment  securities.  Average  interest
bearing deposits in 1996 increased $1,503,000 to reach $150,071,000, an increase
of 1.0% compared to a 1.7%  increase  between 1995 at  $148,568,000  and 1994 at
$146,014,000.  The increase in the interest rate paid on large savings  accounts
in 1996  resulted in an increase in savings  accounts as funds flowed from other
sources.  During 1995 a new savings certificate  product, the Escalator Account,
was introduced. This account is written with an 18-month term, but the depositor
has the option during the deposit term to increase the interest rate one time to
match  market  rates.  The  Escalator  Account  has proven to be a very  popular
product,  growing to  $15,800,000  at year end 1996 from  $6,000,000 in 1995. In
1996,  average demand accounts  increased 11.8% over 1995, after increasing 6.6%
in 1995 above the 1994 level.  The Company offers these accounts on an extremely
competitive  basis  and  continues  to  attract  a pool of low  cost  funds  for
reinvestment in the community.

Loans
In 1996,  average  loans  increased  $6,414,000  reaching  $113,981,000  up from
$107,567,000 and $100,517,000 in 1995 and 1994, respectively.  This increase was
acceptable  considering the current condition of the local economy.  As in prior
years,  average  residential  and  commercial  real estate loans made up a major
portion of the loan  portfolio  at 74.6% of total loans in 1996,  an increase of
2.2% over 1995. Home Equity Loans were introduced in 1996 and rapidly  increased
to $4,331,000 at year end. Additional growth is anticipated in Home Equity Loans
during 1997. Average commercial and consumer loans showed net growth of 10.1% in
1996. The overall portfolio is structured in accordance with managements  belief
that loans secured by  residential  and  commercial  real estate result in lower
loan loss levels, because of the value of the underlying collateral.

Provision for Loan Losses
The provision for loan losses for 1996 was $290,000 compared to $160,000 in 1995
and  $427,000 in 1994.  The  increase in 1996  reflects  higher net  charge-offs
(primarily on consumer loans), as well as an increase in loan delinquencies.
<TABLE>

Net  (Charge-offs)  Recoveries  by Loan  Category  for Years Ended  December 31,
1996,1995 and 1994
<CAPTION>


                                                           1996         1995         1994
Loan Category
<S>                                                   <C>          <C>          <C>
Residential Mortgages ................   Charge-off   $ (71,000)   $ (34,000)   $(163,000)
                                           Recovery     $32,000      $70,000          -
Commercial Mortgages .................   Charge-off        --           --       (175,000)
                                           Recovery        --         28,000         --
Commercial Loans .....................   Charge-off     (58,000)    (182,000)     (55,000)
                                           Recovery      23,000       34,000       14,000
Consumer Loans  ......................   Charge-off    (167,000)    (120,000)    (181,000)
                                           Recovery      65,000      118,000       75,000
Other Loans ..........................   Charge-off     (50,000)     (48,000)     (60,000)
                                           Recovery      18,000       11,000       12,000
                                                         ------       ------       ------


                                                      $(208,000)   $(123,000)   $(533,000)
                                                      =========    =========    =========
</TABLE>

The overall loan loss percentage was .18% of outstanding  loans in 1996 compared
to .11% in 1995  and .52% in  1994,  reflecting  a  manageable  pattern  of loss
attributable  to  prudent   underwriting   standards  and  effective  collection
policies.  Net  charge-offs on both  residential  and commercial  mortgages were
relatively low in 1996  considering the  significance of these categories to the
total loan portfolio. The net charge-off on commercial loans was $35,000 in 1996
or .38% of average commercial loans outstanding, a substantial decrease compared
to 1.94% for  1995.  This  favorable  trend may not  continue  unless  the local
economy  improves.  Consumer  loan  charge-offs  increased  in 1996 as borrowers
struggled to make both ends meet in a unfavorable economy.  Loan loss levels are
manageable  despite the local business  climate.  Other loan and credit card net
charge-offs of $32,000 in 1996 represents 1.70% of average  outstanding loans in
this category  which  reflects the higher credit risk inherent in these types of
loans.  Interest rates are higher for this loan category to 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. It strives
to identify  potential  non-performing  loans early,  take charge-offs  promptly
based on a realistic  assessment of probable losses,  and maintain reserves that
are  adequate  based on the  inherent  risk of loss in the loan  portfolio.  The
allowance  for loan  losses was  $1,711,000  at December  31,  1996  compared to
$1,629,000  and  $1,592,000  at December  31, 1995 and 1994,  respectively.  The
following table shows the  distribution of the allowance for loan losses and the
percentage that each loan type represents compared to total loans outstanding.

Distribution of Allowance for
Loan Losses at
December 31, 1996
                              Allowance      Percentage of   Loan Balance by
                               Balance     Total Allowance Type to Total Loans1
Loan Type
Residential Mortgages .....   $610,000          35.7%              61.0%
Commercial Mortgages ......    250,000          14.6               16.1
Commercial Loans ..........    384,000          22.4                8.1
Consumer Loans ............    319,000          18.6               13.5
Other Loans ...............    148,000           8.7                1.3
                               -------           ---                ---
                            $1,711,000         100.0%             100.0%
                            ==========         =====              =====

Distribution of Allowance for Loan Losses at December 31, 1995

                        Allowance     Percentage of        Loan Balance by
                          Balance   Total Allowance      Type to Total Loans1
Loan Type
Residential Mortgages  $608,000            37.3%              62.0%
Commercial Mortgages    322,000            19.8               16.1
Commercial Loans ....   199,000            12.2                6.6
Consumer Loans ......   330,000            20.3               13.9
Other Loans .........   170,000            10.4                1.4
                        -------            ----                ---
                      1,629,000           100.0%             100.0%
                      =========           =====              =====
1 Percentage  relationship between average loans outstanding by type compared to
total average loans outstanding.

Of the $1,711,000 total allowance for loan losses at December 31, 1996, $573,000
or 33.5% has been  specifically  allocated to classified loans and the remainder
is a general  allocation.  The  specific  allocation  at  December  31, 1995 was
$502,000 or 30.8%. Future charge-offs will continue to be dependent on the local
economy.  Management  believes  that the  allowance for loan losses is adequate;
however,  various regulatory agencies,  as an integral part of their examination
process,  periodically  review the adequacy of the Companys  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
Under the Companys nonaccrual policy, a loan is placed 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 past due and still accruing interest is shown on the following table.
<TABLE>

December 31, 1996
<CAPTION>
                       Nonaccrual      90 Days           Total              Percentage 1    Percentage 2
                                      Delinquent
                                    Still Accruing
Loan Type
<S>                     <C>          <C>          <C>                          <C>           <C>
Residential Mortgages   $  856,000   $1,047,000   $      1,903,000             2.8%          47.7%
Commercial Mortgages     1,021,000      299,000          1,320,000             8.4           33.0
Commercial Loans ....      695,000        4,000            699,000             7.0           17.5
Consumer Loans ......       73,000       73,000                                 .4            1.8
                            ------       ------          --------               --            ---
Total ...............   $2,572,000   $1,423,000   $      3,995,000             3.3%         100.0%
                        ==========   ==========   ================             ===          =====

December 31, 1995
                        Nonaccrual          90 Days            Total   Percentage1     Percentage2
                                         Delinquent
                                     Still Accruing
Loan Type
Residential Mortgages   $  973,000         $552,000   $     1,525,000       2.3%          45.7%
Commercial Mortgages     1,502,000          265,000         1,767,000      11.1           52.9
Consumer Loans ......       46,000           46,000                                        1.4
                         ---------         --------         ---------       ---          -----
Total ...............   $2,475,000         $863,000   $     3,338,000       2.9%         100.0%
                        ==========         ========   ===============       ===          =====
1 Percentage of gross loans outstanding for each loan type.
2 Percentage of total nonaccrual and 90 day past due loans.
</TABLE>

The  increase  in total  nonaccrual  and past due loans is due to  increases  in
nonaccrual and delinquent  residential  mortgage loans and commercial loans. The
increase in  residential  mortgage loans  occurred  despite the borrowers  doing
their utmost to repay their loans to protect their homes in a difficult economic
environment.  The increase in commercial  loans is also a reflection of the weak
local  economy.  The majority of the  nonaccrual  and past due loans are secured
loans and, as such, management anticipates there will be limited risk of loss in
their  ultimate  resolution.  As of December 31, 1996,  management  believes all
significant potential problem loans have been identified in the tables above.

Restructured Loans
Loans  are  renegotiated  in a  troubled  debt  restructuring  when the  Company
determines that it will ultimately  receive greater economic value under the new
terms than through  foreclosure,  liquidation,  or  bankruptcy.  Candidates  for
renegotiation must meet specific  guidelines.  Guidelines consider the borrowers
ability to enhance the value of the property, the collateral, the ability of the
guarantor,  if any, to perform,  and the economic value of the renegotiated loan
relative  to  foreclosure  and  other  options.  Restructured  loans,  which are
performing in accordance with their new terms,  and therefore,  are not included
in  nonaccrual  loans,  amounted to $481,000  at December  31, 1996  compared to
$841,000 at December 31, 1995.  This decrease is primarily the result of placing
certain restructured loans on nonaccrual during the year. All restructured loans
at December 31, 1996 and December 31, 1995 were secured by real estate.

Other Real Estate Owned
Other real estate owned represents  properties  acquired through foreclosure and
loans classified as in-substance foreclosures.  In accordance with SFAS No. 114,
a loan is classified as an in-substance  foreclosure  when the Company has taken
possession  of  the  collateral   regardless  of  whether   formal   foreclosure
proceedings  have  taken  place.  Other  real  estate  owned is  recorded  on an
individual-asset  basis at the lower of (1) fair value less  estimated  costs to
sell or (2) cost  (defined  as the fair  value at initial  foreclosure).  When a
property is acquired or classified as  in-substance  foreclosure,  the excess of
the loan balance over the fair value of the property is charged to the allowance
for loan  losses.  Subsequent  write downs to reflect  further  declines in fair
value are included in other operating expense.  The following are the changes in
other real estate owned during the last two years:

Years Ended December 31, 1996 and 1995
                       1996         1995
Beginning Balance   $ 549,000    $ 495,000
Additions .......     814,000      582,000
Sales ...........    (501,000)    (470,000)
Write downs .....     (31,000)     (58,000)
                      -------      -------
Ending Balance ..   $ 831,000    $ 549,000
                    =========    =========

Liquidity
Liquidity  is the  ability to  provide  sufficient  cash flow to meet  financial
commitments  and to fund  additional  loan  demand  or  withdrawal  of  existing
deposits.  The  Companys  primary  sources of liquidity  are: its deposit  base;
repayments  and  maturities  on loans;  short-term  assets such as federal funds
sold; and maturities and sales of securities  available for sale.  These sources
are available in amounts  sufficient  to provide  liquidity to meet the Companys
ongoing funding  requirements.  The Company is a member of the Federal Home Loan
Bank. This membership  enhances liquidity as it makes a revolving line of credit
of $19,466,000 available to meet unforeseen liquidity demands. Additionally, the
Company  maintains a correspondent  bank line of credit of $4,400,000.  In 1996,
cash  generated  from  operating  activities  amounted  to  $3,384,000  and cash
generated from financing  activities amounted to $5,579,000.  These amounts were
more  than  offset  by a use of cash in  investing  activities  of  $12,978,000,
resulting in a net decrease in cash and cash equivalents of $4,015,000.  See the
Consolidated Statements of Cash Flows for additional information.

Capital Adequacy
One of managements  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.  Stockholders  equity increased $47,000 or .2% in
1996  following  an increase of 17.7% in the prior  year.  In 1996,  the Company
offered to repurchase and retire 50,000 common shares utilizing  open-market and
privately-negotiated  purchases.  By  December  31,  1996,  49,672  shares  were
acquired at $21.00 per share,  reducing  stockholders  equity by $1,043,000.  In
1997,  the Board of Directors  authorized  that  $1,000,000 be made available to
purchase and retire  additional shares on the open market.  Management  believes
that the  repurchase  of Company  stock  represents  an excellent  use of excess
capital.  In December 1996, the Company reissued 916 shares of treasury stock at
$21.00 per share for  reinvestment  under the Dividend  Reinvestment  Plan.  The
Company retained $1,370,000 from 1996 earnings,  while the after-tax  adjustment
for the change in the net  unrealized  gain (loss) on  securities  available for
sale reduced capital by $299,000.  In accordance with regulatory  guidance,  the
capital adjustment related to the fair value of securities available for sale is
not considered as part of the computation of regulatory  capital  ratios.  Under
the  Federal  Reserve  Banks  risk-based  capital  rules,  the  Companys  Tier I
risk-based  capital  was  19.3%  and  total  risk-based  capital  was  20.6%  of
risk-weighted assets. These risk-based capital ratios are well above the minimal
requirements  of 4% for Tier I capital and 8% for total  capital.  The  Companys
leverage ratio (Tier I capital to average  assets) of 10.4% is well above the 4%
minimum  requirement.  The  following  table shows the Companys  actual  capital
measurements compared to the minimum regulatory requirements.

Years Ended December 31, 1996 and 1995
                                                          1996             1995
Tier I capital
Stockholders equity, excluding the after-tax net
unrealized gain on securities available for sale .$ 20,653,000     $ 20,307,000
Tier II capital
Allowance  for  loan  losses1 ....................   1,343,000        1,283,000
                            -                        ---------        ---------
Total  risk-based  capital                         $21,996,000      $21,590,000
                                                   ===========      ===========
Risk-weighted assets2                             $107,056,000     $102,315,000
                    =                             ============     ============
Average assets ...................................$198,134,000     $193,568,000
                                                  ============     ============

Ratios
Tier I risk-based capital (minimum 4%)                    19.3%           19.9%
Total risk-based  capital (minimum 8%)                    20.6%           21.1%
Leverage (minimum4%) .............................        10.4%           10.5%

1 The allowance for loan losses is limited to 1.25% of risk-weighted  assets for
the purpose of this  calculation.  2  Risk-weighted  assetshave been reduced for
excess allowance for loan losses excluded from total risk-based capital.

Results of Operations
Net Income
Net income for 1996 of  $2,145,000  was down  11.5%  from the 1995  earnings  of
$2,424,000,  after  a 1.5%  decrease  in  1995  compared  to  1994  earnings  of
$2,460,000.  These  decreases were due to the interaction of a number of factors
including  increasing  pressure on net  interest  margin,  the  operating  costs
associated  with  the two new  supermarket  branches  and  increased  loan  loss
provisions and other costs  associated  with problem loans and other real estate
owned.  The most  significant  impact on net income in 1996 was the  increase in
salary and wage expense of $297,000,  an increase of 11.9%.  The increase is the
result of  maintaining  a  competitive  salary  structure  and new hires for the
supermarket  branches.  Occupancy and equipment expense increased  $113,000,  or
12.1%,  in 1996  primarily due to a new computer  mainframe and the  supermarket
branch  openings.  Continued  local economic  problems  caused other real estate
owned expenses to increase in 1996 by $99,000, or 53.8%.

Interest Income and Interest Expense
Throughout this part of the  discussion,  net interest income and its components
are expressed on a tax equivalent basis which means that, where appropriate, tax
exempt  income  is shown as if it were  earned  on a fully  taxable  basis.  The
largest  source  of  income  for  the  Company  is net  interest  income,  which
represents interest earned on loans, securities and short-term investments, less
interest paid on deposits and other interest bearing  liabilities.  Net interest
income of $9,505,000 for 1996 resulted in an increase of .8% from $9,429,000 for
1995.  Interest income for 1996 was $15,783,000  compared to $15,716,000 in 1995
and  $15,645,000  in 1994.  The increase in 1996 is the result of an increase in
interest on loans  substantially  offset by decreases in interest on  securities
and federal funds sold. An overall  decrease in average yield on earning  assets
of  thirteen  basis  points  was  experienced  in  1996.  In  the  current  rate
environment,  yields should stabilize as new investments are acquired at average
portfolio rates. Loan demand weakened in 1996,  reflecting current conditions in
the local economy. In 1997, increases in funding will be allocated first to meet
loan demand,  as  necessary,  and then to the  investment  portfolios.  Interest
expense  in 1996  decreased  $9,000  or .1%  over  1995,  contrasted  to a 14.7%
increase,  amounting  to  $807,000,  from 1994 to 1995.  Like  rates on  earning
assets,  the cost of funding is also closely tied to market rates.  During 1996,
deposit rates declined slightly. A new competitive 18-month savings certificate,
with one interest escalation during its term, continues to attract new deposits.
Net interest  margin at 5.07% in 1996  declined  from 5.13% in 1995 and 5.51% in
1994.  It is the  Companys  intention  to reverse the  deterioration  in its net
interest margin in 1997. The effect of the new supermarket branches and new loan
products should help the Company improve its net interest income.

Operating Income and Operating Expense
Operating income primarily consists of service charges, commissions and fees for
various banking services,  and securities gains and losses.  Operating income in
1996  increased  13.9%  or  $129,000  over  1995,  largely  due to a net gain on
security  transactions  of $95,000 in 1996  compared to a net gain of $33,000 in
1995. Operating income in 1995 increased $275,000 over the prior year, primarily
from a net security gain of $33,000  compared to a net loss of $166,000 in 1994.
Operating expense increased by $608,000 or 9.95% in 1996,  compared to increases
of .03% in 1995 and 5.0% in 1994. Salary and wage expense combined with employee
benefit expense  increased 10.8% to $3,628,000 in 1996 compared to $3,275,000 in
1995,  which  increased  7.7% over  $3,040,000 in 1994.  Occupancy and equipment
expense  increased  12.1% to reach  $1,049,000 in 1996, up from $936,000 in 1995
and $915,000 in 1994. This increase reflects the Companys  commitment to upgrade
facilities  and  services,  which  continued  in 1996 with the  addition  of two
supermarket  branches and a new computer mainframe.  Net other real estate owned
expense  increased  53.8% to  $283,000  in 1996  from  $184,000  in 1995,  after
declining  from  $272,000  in 1994.  Only an upturn in the  local  economy  will
reverse the recent  trend of  increasing  foreclosure  activity  and  associated
costs.  In  the  interim,   however,   the  Company  will  continue  to  enforce
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  operating  expense at  $1,761,000  in 1996  increased by
$43,000 or 2.5% from 1995.  This increase is primarily due to the start-up costs
of the two new  supermarket  branches.  The federal  deposit  insurance  premium
decreased from $363,000 in 1994 to $190,000 in 1995 and to $2,000 in 1996. Based
on current assessment rates, the Company expects to incur no premium expense for
1997.
 Accounting Pronouncement
The Company will adopt Statement of Financial  Accounting  Standards  (SFAS) No.
125,   Accounting   for  Transfers   and  Servicing  of  Financial   Assets  and
Extinguishments  of Liabilities,  effective January 1, 1997. Among other things,
the statement  establishes  standards for distinguishing  transfers of financial
assets that should be accounted for as sales from those that should be accounted
for as  secured  borrowings.  SFAS  No.  125 has  limited  applicability  to the
Companys  current  activities  and,  accordingly,  management  anticipates  that
adoption of the statement will not have a material impact on financial condition
or results of operations.  See note 17 to the consolidated  financial statements
for a further discussion of SFAS No. 125.

Inflation
The Companys  operating  results  generally  reflect the effects of inflation as
interest  rates,  loan demand and deposit  levels adjust to inflation and impact
net interest  income.  Management  can best counter the effect of inflation over
the long term by managing net interest income and controlling expenses. The most
significant  item not  reflecting  the  effects  of  inflation  is  depreciation
expense, as it is determined based on the historical cost of the assets.
<TABLE>

Distribution  of Assets,  Liabilities,  & Stockholders  Equity:Interest  Rates &
Interest Differential
<CAPTION>

Consolidated Average
Balance Sheet
1996
                                        Average  Percentage of         Interest        Average
                                        Balance   Total Assets      Earned/Paid     Yield/Rate
Assets
Investment securities and
securities available for sale
<S>                                <C>                 <C>        <C>                   <C>
Taxable securities .............   $  41,732,000       21.06%     $ 2,699,000           6.47%
Tax-exempt securities ..........      29,872,000       15.08        2,468,000           8.26
                                      ----------       -----        ---------
TOTAL SECURITIES ...............      71,604,000       36.14        5,167,000           7.22
                                      ----------       -----        ---------
Short-term investments .........       1,838,000        0.92          104,000           5.66
Loans, net of unearned discount:
Real estate mortgages 85,010,000                       42.90        7,431,000           8.74
Home equity loans ..............       1,973,000        1.00          148,000           7.50
Time and demand loans ..........       9,108,000        4.60          900,000           9.88
Installment loans ..............      16,024,000        8.09        1,798,000          11.22
Other loans ....................       1,866,000        0.94          235,000          12.59
                                       ---------        ----          -------
TOTAL LOANS2 ...................     113,981,000       57.53       10,512,000           9.22
           -                         -----------       -----       ----------
TOTAL INTEREST-
EARNING ASSETS .................     187,423,000       94.59       15,783,000           8.42
                                     -----------       -----       ----------           ----
Allowance for loan losses ......      (1,619,000)      (0.82)
Cash and due from banks ........       6,017,000        3.04
Premises and equipment, net ....       2,395,000        1.21
Other assets ...................       3,637,000        1.84
Net unrealized gain on
securities available for sale ..         281,000        0.14
                                         -------        ----
TOTAL ASSETS ...................   $ 198,134,000      100.00%
                                   =============      ======
Liabilities and
 Stockholders Equity
NOW and Super NOW deposits .....   $  28,395,000       14.33% $   862,000               3.04%
Savings and insured money
market deposits ................      55,670,000       28.10    1,810,000               3.25
Time deposits ..................      66,006,000       33.31    3,485,000               5.28
TOTAL INTEREST-
BEARING DEPOSITS ...............     150,071,000       75.74    6,157,000               4.10
Federal funds purchased
and other short-term debt ......       1,096,000        0.55       63,000               5.75
Long-term debt .................       1,133,000        0.57       58,000               5.12
TOTAL INTEREST-
BEARING LIABILITIES ............     152,300,000       76.87    6,278,000               4.12
Demand deposits 23,068,000 .....                                                       11.64
Other liabilities ..............       2,015,000        1.02
TOTAL LIABILITIES ..............     177,383,000       89.53
Stockholders equity ............      20,751,000       10.47
                                      ----------       -----
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY ............   $ 198,134,000      100.00%
                                   =============      ======
Net interest income ............   $   9,505,000
Net interest spread ............                                                        4.30%
Net interest margin3 ...........                                                        5.07%
</TABLE>

1 Yields are calculated on a tax equivalent basis.
2 For purpose of this schedule,  interest on nonaccruing loans has been included
only to the extent reflected in the consolidated income statement.  However, the
nonaccrual  loan  balances are  included in the average  amount  outstanding.  3
Computed by dividing net interest income by total interest-earning assets.
<TABLE>

Consolidated Average
Balance Sheet
1995
<CAPTION>
                                                 Average     Percentage of        Interest         Average
                                                 Balance      Total Assets     Earned/Paid      Yield/Rate
Assets
Investment securities and
securities available for sale
<S>                                        <C>                       <C>       <C>                   <C>
Taxable securities .................       $  43,098,000             22.27%    $ 2,847,000            6.61%
Tax-exempt securities1                        29,237,000             15.10       2,495,000            8.53
                     -                        ----------             -----       ---------
TOTAL SECURITIES ...................          72,335,000             37.37       5,342,000            7.39
                                              ----------             -----       ---------
Short-term investments .............           3,899,000              2.01         225,000            5.77
Loans, net of unearned discount:
Real estate mortgages 83,176,000 ...                                 42.97       7,427,000            8.93
Time and demand loans ..............           8,416,000              4.35         848,000           10.08
Installment loans ..................          14,437,000              7.46       1,668,000           11.55
Other loans ........................           1,538,000              0.79         206,000           13.39
                                               ---------              ----         -------
TOTAL LOANS2 .......................         107,567,000             55.57      10,149,000            9.44
           -                                 -----------             -----      ----------
TOTAL INTEREST-
EARNING ASSETS .....................         183,801,000             94.95      15,716,000            8.55
                                             -----------             -----      ----------
Allowance for loan losses                     (1,679,000)                                            (0.87)
Cash and due from banks                        6,086,000                                              3.14
Premises and equipment, net ........           2,247,000              1.16
Other assets .......................           3,581,000              1.85
Net unrealized loss on
securities available for sale ......            (468,000)            (0.24)
                                                --------             -----
TOTAL ASSETS .......................       $ 193,568,000            100.00%
                                           =============            ======
Liabilities and
Stockholders Equity
NOW and Super NOW deposits .........       $  30,081,000             15.54%       $901,000            3.00%
Savings and insured money
market deposits ....................          52,931,000             27.34       1,646,000            3.11
Time deposits ......................          65,556,000             33.87       3,602,000            5.49
                                              ----------             -----       ---------
BEARING DEPOSITS ...................         148,568,000             76.75       6,149,000            4.14
                                             -----------             -----       ---------
Federal funds purchased
and other short-term debt ..........             370,000              0.19          19,000            5.14
Long-term debt .....................           2,718,000              1.40         119,000            4.38
                                               ---------              ----         -------
TOTAL INTEREST-
BEARING LIABILITIES ................         151,656,000             78.35       6,287,000            4.15
                                             -----------             -----       ---------
Demand deposits ....................          20,641,000             10.66
Other liabilities ..................           1,400,000              0.72
                                               ---------              ----
TOTAL LIABILITIES ..................         173,697,000             89.73
Stockholders equity ................          19,871,000             10.27
                                              ----------             -----
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY ................       $ 193,568,000            100.00%
                                           =============            ======
Net interest income ................                                           $ 9,429,000
Net interest spread ................                                                                  4.40%
Net interest margin3 ...............                                                                  5.13%
</TABLE>

1 Yields are calculated on a tax equivalent basis.
2 For purpose of this schedule,  interest on nonaccruing loans has been included
only to the extent reflected in the consolidated income statement.  However, the
nonaccrual  loan  balances are  included in the average  amount  outstanding.  3
Computed by dividing net interest income by total interest-earning assets.
<TABLE>

Consolidated Average
Balance Sheet
1994
<CAPTION>
                                              Average     Percentage of         Interest         Average
                                              Balance      Total Assets      Earned/Paid      Yield/Rate
Assets
Interest-bearing deposits
<S>                                     <C>                        <C>       <C>                  <C>
with banks ......................       $     826,000              0.43%     $    39,000           4.72%
Investment securities
and securities available for sale
Taxable securities ..............          50,527,000             26.03        3,126,000           6.19
Tax-exempt securities1 ..........          30,959,000             15.95        2,705,000           8.74
                     -                     ----------             -----        ---------
TOTAL SECURITIES ................          81,486,000             41.98        5,831,000           7.16
                                           ----------             -----        ---------
Short-term investments ..........           1,620,000              0.83           70,000           4.32
Loans, net of unearned discount:
Real estate mortgage ............          78,370,000             40.37        7,281,000           9.29
Time and demand loans ...........           7,321,000              3.77          698,000           9.53
Installment loans ...............          13,436,000              6.92        1,524,000          11.34
Other loans .....................           1,390,000               .72          202,000          14.53
                                            ---------               ---          -------
TOTAL LOANS2 ....................         100,517,000             51.78        9,705,000           9.66
           -                              -----------             -----        ---------
TOTAL INTEREST-
EARNING ASSETS ..................         184,449,000             95.02       15,645,000           8.48
Allowance for loan losses .......          (1,645,000)            (0.85)
Cash and due from banks .........           6,264,000              3.23
Premises and equipment, net .....           2,077,000              1.07
Other assets ....................           4,079,000              2.10
Net unrealized loss on
securities available for sale ...          (1,110,000)            (0.57)
                                           ----------             -----
TOTAL ASSETS ....................       $ 194,114,000            100.00%
                                        =============            ======
Liabilities and
Stockholders Equity
NOW and Super NOW deposits ......       $  32,622,000             16.80%     $   925,000           2.84%
Savings and insured money
market deposits .................          65,626,000             33.81        1,972,000           3.00
Time deposits ...................          47,766,000             24.61        2,176,000           4.56
                                           ----------             -----        ---------
TOTAL INTEREST-
BEARING DEPOSITS ................         146,014,000             75.22        5,073,000           3.47
                                          -----------             -----        ---------
Federal funds purchased
and other short-term debt .......           4,544,000              2.34          201,000           4.42
Long-term debt ..................           4,437,000              2.29          206,000           4.64
                                            ---------              ----          -------

TOTAL INTEREST-
BEARING LIABILITIES .............         154,995,000             79.85        5,480,000           3.54
                                          -----------             -----        ---------
Demand deposits .................          19,354,000              9.97
Other liabilities ...............           1,282,000              0.66
                                            ---------              ----

TOTAL LIABILITIES ...............         175,631,000             90.48
Stockholders equity .............          18,483,000              9.52
                                           ----------              ----

TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY .............       $ 194,114,000            100.00%
                                        =============            ======

Net interest income .............                                            $10,165,000
                                                                             ===========

Net interest spread .............                                                                  4.94%
                                                                                                   ====

Net interest margin3 ............
</TABLE>
                   =

1 Yields are calculated on a tax equivalent basis.
2 For purpose of this schedule,  interest on nonaccruing loans has been included
only to the extent reflected in the consolidated income statement.  However, the
nonaccrual  loan  balances are  included in the average  amount  outstanding.  3
Computed by dividing net interest income by total interest-earning assets.

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 1996 as compared to 1995, and 1995 as compared
to 1994. The changes in interest  income and expense  attributable  to both rate
and volume have been allocated to rate on a consistent basis.
<TABLE>

                                          1996 Compared to 1995                   1995 Compared to 1994
                                   Increase (Decrease) Due to Change In     Increase (Decrease) Due to Change In
                                   ------------------------------------     ------------------------------------
<CAPTION>

                                        Volume          Rate       Total       Volume         Rate        Total
Interest Income Due from



banks time deposits                  $    ---     $            $            $ (39,000)  $           $  (39,000)
Investment securities
 and securities
 available for sale ..............     (54,000)    (121,000)    (175,000)    (652,000)     163,000     (489,000)
Federal funds sold ...............    (119,000)      (2,000)    (121,000)      98,000       57,000      155,000
Loans ............................     605,000     (242,000)     363,000      729,000     (285,000)     444,000
                                       -------     --------      -------      -------      -------      -------

TOTAL INTEREST
INCOME ...........................     432,000     (365,000)      67,000      136,000       65,000       71,000
                                       -------     --------       ------      -------       ------      -------

Interest Expense
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>
NOW and Super
NOW deposits .....................     (51,000)      12,000      (39,000)     (71,000)      47,000      (24,000)
Savings and insured
money market deposits ............      85,000       79,000      164,000     (385,000)      59,000     (326,000)
Time deposits ....................      25,000     (142,000)    (117,000)     813,000      613,000    1,426,000
Federal funds sold and
other short-term debt ............      37,000        7,000       44,000     (185,000)       3,000     (182,000)
Long-term debt ...................     (70,000)       9,000      (61,000)     (80,000)      (7,000)     (87,000)
                                       -------        -----      -------      -------       ------     ---------

TOTAL INTEREST
EXPENSE ..........................      26,000      (35,000)      (9,000)      92,000       715,000     807,000
                                        ------      -------       ------       ------       -------     -------

NET INTEREST

INCOME ...........................   $ 406,000    $(330,000)   $  76,000    $  44,000    $(780,000)   $(736,000)
                                     =========    =========    =========    =========    =========    =========
</TABLE>


Managements Statement of Responsibility

The consolidated  financialstatements and related information in the 1996 Annual
Report  were  prepared  in  conformity   with  generally   accepted   accounting
principles.  Management is responsible  for the integrity and objectivity of the
consolidated  financial  statements  and related  information.  Accordingly,  it
maintains an extensive system of internal  controls and accounting  policies and
procedures  to  provide   reasonable   assurance  of  the   accountability   and
safeguarding   of  the  Companys   assets  and  of  the  accuracy  of  financial
information.  These procedures include  management  evaluations of asset quality
and the impact of economic events,  organizational  arrangements that provide an
appropriate  division of  responsibility,  and a program of  internal  audits to
evaluate  independently  the  extent of  ongoing  compliance  with the  Companys
adopted policies and procedures.  The responsibility of the Companys independent
public  accountants,  KPMG Peat Marwick LLP, is limited to the  expression of an
opinion as to the fair  presentation of the  consolidated  financial  statements
based on their audit  conducted in accordance with generally  accepted  auditing
standards.  The  Board  of  Directors,   through  its  Examining  Committee,  is
responsible  for  insuring  that  both  management  and the  independent  public
accountants  fulfill  their  respective  responsibilities  with  regard  to  the
consolidated financial statements.  The Examining Committee,  which is comprised
entirely of directors  who are not  officers or employees of the Company,  meets
periodically  with management,  the internal auditor and the independent  public
accountants.  The internal auditor and independent  public accountants have full
and free access to and meet with the  Examining  Committee,  without  management
being present,  to discuss financial  reporting and other relevant matters.  The
consolidated  financial  statements  have not been  reviewed  or  confirmed  for
accuracy or relevance by the Office of the  Comptroller of the Currency.  Arthur
E.  Keesler  PresidentJeffersonville  Bancorp  Raymond L. Walter  PresidentFirst
National Bank of Jeffersonville K. Dwayne Rhodes TreasurerJeffersonville Bancorp
<TABLE>

Consolidated Balance Sheets
December 31, 1996 and 1995
<CAPTION>
                                                                 1996            1995
                                                                 ----            ----
Assets
<S>                           <C>                       <C>              <C>
Cash and due from banks (note 2) ....................   $   4,723,000    $  5,938,000
Federal funds sold ..................................       1,300,000       4,100,000
                                                            ---------       ---------

Cash and cash equivalents ...........................       6,023,000      10,038,000
Securities available for sale, at fair value (note 3)      64,842,000      61,614,000
Investment securities, estimated fair value of
$3,518,000 in 1996 and $1,898,000 in 1995 (note 4) ..       3,401,000       1,782,000
Loans, less allowance for loan losses of $1,711,000
in 1996 and $1,629,000 in 1995 (note 5) .............     115,605,000     109,288,000
Accrued interest receivable .........................       1,168,000       1,180,000
Premises and equipment, net (note 6) ................       2,602,000       2,205,000
Federal Home Loan Bank stock ........................         717,000         736,000
Other real estate owned (note 7) ....................         831,000         549,000
Other assets ........................................         924,000       1,077,000
                                                              -------       ---------

Total Assets ........................................   $ 196,113,000    $188,469,000
                                                        =============    ============

Liabilities and Stockholders Equity
Liabilities:
Deposits:
Demand deposits (non-interest bearing) ..............   $  22,044,000    $ 20,879,000
Now and Super NOW accounts ..........................      26,541,000      28,457,000
Savings and insured money market deposits ...........      53,665,000      51,563,000
Time deposits (note 8) ..............................      70,680,000      63,285,000
                    -                                      ----------      ----------

Total deposits ......................................     172,930,000     164,184,000
Short-term debt 529,000 197,000
Federal Home Loan Bank advance (note 9) .............       1,700,000          ---
Accrued expenses and other liabilities ..............       1,679,000       1,460,000
                                                            ---------       ---------

Total liabilities ...................................     175,138,000     167,541,000
                                                          -----------     -----------

Commitments and contingent liabilities (note 15) Stockholders equity (note 12):
  Series A preferred stock, no par value;
    2,000,000 shares authorized; none issued
  Common stock; $0.50 par value;  2,250,000 shares authorized;  1,234,778 shares
issued and 1,182,794  outstanding at December 31, 1996;  1,284,450 shares issued
and 1,231,550 outstanding
at December 31, 1995 ................................         617,000         642,000
Paid-in capital                                               447,000       1,450,000
 Treasury  stock,  51,984 shares in 1996
and 52,900 shares in 1995 ...........................        (206,000)       (210,000)
Undivided profits ...................................      19,795,000      18,425,000
Net unrealized gain on securities
available for sale, net of tax ......................         322,000         621,000
                                                              -------         -------

Total stockholders equity ...........................      20,975,000      20,928,000
                                                           ----------      ----------

Total liabilities and stockholders equity ...........   $ 196,113,000    $188,469,000
                                                        =============    ============

See accompanying notes to consolidated financial statements.
</TABLE>


Consolidated Statements of Income
Years Ended December 31, 1996, 1995 and 1994

                                               1996          1995           1994
Interest Income

Loan interest and fees ..............   $10,512,000   $10,149,000   $  9,705,000
Securities:
Taxable .............................     2,699,000     2,847,000      3,165,000
Non-taxable .........................     1,629,000     1,647,000      1,785,000
Federal funds sold ..................       104,000       225,000         70,000
                                            -------       -------         ------

Total interest income ...............    14,944,000    14,868,000     14,725,000
                                         ----------    ----------     ----------

Interest Expense
Deposits ............................     6,157,000     6,149,000      5,073,000
Federal funds purchased
and other short-term debt ...........        63,000        19,000        201,000
Federal Home Loan Bank advance
and other long-term debt ............        58,000       119,000        206,000
                                             ------       -------        -------

Total interest expense ..............     6,278,000     6,287,000      5,480,000
                                          ---------     ---------      ---------

Net interest income .................     8,666,000     8,581,000      9,245,000
Provision for loan losses (note 5) ..       290,000       160,000        427,000
                                -           -------       -------        -------

Net interest income after
provision for loan losses ...........     8,376,000     8,421,000      8,818,000
                                          ---------     ---------      ---------

Operating Income
Service charges .....................      651,000       619,000        529,000
Net security gains (losses) (note 3)        95,000        33,000       (166,000)
Other non-interest income ...........      313,000       278,000        292,000
                                            -------       -------        -------

Total OPERATING INCOME ..............     1,059,000       930,000        655,000
                                          ---------       -------        -------

Operating Expenses
Salaries and wages ..................     2,794,000     2,497,000      2,308,000
Employee benefits (note 14) .........       834,000       778,000        732,000
Occupancy and equipment expenses ....     1,049,000       936,000        915,000
Other real estate owned expenses, net       283,000       184,000        272,000
Other operating expense (note 11) ...     1,761,000     1,718,000      1,884,000
                              --          ---------     ---------      ---------

Total OPERATING EXPENSES ............     6,721,000     6,113,000      6,111,000
                                          ---------     ---------      ---------

Income before income taxes ..........     2,714,000     3,238,000      3,362,000
Income taxes (note 10) ..............       569,000       814,000        902,000

Net income ..........................   $ 2,145,000   $ 2,424,000   $  2,460,000
                                        ===========   ===========   ============

Net income per common share .........   $      1.79   $      1.93   $       1.91
                                        ===========   ===========   ============

Average common shares outstanding ...     1,200,519     1,252,900      1,288,330
                                          =========     =========      =========

See accompanying notes to consolidated financial statements.
<TABLE>
Consolidated Statements of Changes

in Stockholders Equity

Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
                                 Common        Paid-in        Treasury       Undivided              Net            Total
                                  Stock        Capital           Stock         Profits       Unrealized     Stockholders
                                                                                             Gain (Loss)          Equity
                                                                                           on Securities
Balance at
<S>      <C> <C>            <C>            <C>            <C>             <C>              <C>               <C>
December 31, 1993 .......   $   672,000    $ 2,569,000    $   (223,000)   $ 15,005,000     $    --           $18,023,000
Net income ..............         --             --               --         2,460,000          --             2,460,000
Unrealized gain on
securities available
for sale, net of tax,
as of January 1, 1994 ...          --            --               --            --           1,535,000         1,535,000
Change in net
unrealized gain
(loss) during the year ..          --            --               --            --          (3,527,000)       (3,527,000)
Cash dividends
($0.55 per share) .......          --            --               --          (709,000)         --              (709,000)
------                          ------         -------          ------         -------      -----------       ------------
Balance at
December 31, 1994 .......       672,000      2,569,000        (223,000)     16,756,000      (1,992,000)       17,782,000
Net income ..............          --            --               --         2,424,000          --             2,424,000
Change in unrealized
gain (loss) on securities
available for sale,
net of tax ..............          --            --               --            --            2,613,000        2,613,000
Cash dividends
($0.60 per share) .......          --            --               --          (755,000)          --             (755,000)
Purchases and
retirements of
common stock ............       (30,000)    (1,170,000)           --            --               --           (1,200,000)
Treasury stock sold .....          --           51,000         13,000           --               --               64,000
                                 ------         ------         ------         -------          -------          --------
Balance at
December 31, 1995 .......       642,000      1,450,000        (210,000)     18,425,000         621,000        20,928,000
Net income ..............          --            --               --         2,145,000           --            2,145,000
Change in unrealized
gain on securities
available for sale,
net of tax ..............          --            --               --            --            (299,000)         (299,000)
Cash dividends
($0.65 per share) .......          --            --               --          (775,000)           --            (775,000)
Purchases and
retirements
of common stock                 (25,000)     (1,018,000)          --            --                --          (1,043,000)
Treasury stock sold .....          --            15,000          4,000          --                --              19,000
                                --------      ----------       ---------      ----------        --------       ----------
Balance at
December 31, 1996 .......   $   617,000    $   447,000    $   (206,000)   $ 19,795,000    $    322,000    $20,975,000
         === ====           ===========    ===========    ============    ============    ============    ===========

See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>

Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
                                                                        1996            1995            1994
                                                                        ----            ----            ----
Operating Activities
<S>                                                             <C>             <C>             <C>
Net income ..................................................   $  2,145,000    $  2,424,000    $  2,460,000
Adjustments   to  reconcile  net  income  to  net  cash  provided  by  operating
activities:
Provision for loan losses ...................................        290,000         160,000         427,000
Write down of other real estate owned .......................         31,000          58,000         120,000
Depreciation and amortization ...............................        423,000         368,000         341,000
Deferred income tax (benefit) expense .......................       (102,000)        (94,000)        264,000
Net security (gains) losses .................................        (95,000)        (33,000)        166,000
Decrease (increase) in accrued interest receivable ..........         12,000         192,000
Decrease (increase) in other assets .........................        461,000        (376,000)
Increase (decrease) in accrued expenses and other liabilities        219,000         984,000          (1,000)
                                                                     -------         -------          ------

Net cash provided by operating activities ...................      3,384,000       3,663,000       3,356,000
                                                                   ---------       ---------       ---------

Investing Activities Proceeds from maturities and calls:
Securities available for sale ...............................     10,873,000      18,412,000      15,615,000
Investment securities  983,000 773,000 228,000
Proceeds from sales of securities available for sale ........      3,812,000      18,496,000      16,116,000
Purchases:
Securities available for sale ...............................    (18,323,000)    (24,353,000)    (40,839,000)
Investment securities .......................................     (2,602,000)       (644,000)       (188,000)
Net increase in loans .......................................     (7,421,000)     (8,616,000)     (5,533,000)
Redemption (purchase) of Federal Home Loan Bank stock .......         19,000         (36,000)        156,000
Net purchases of premises and equipment .....................       (820,000)       (415,000)       (608,000)
Proceeds from sales of other real estate owned ..............        501,000         470,000         929,000
                                                                     -------         -------         -------

Net cash (used in) provided by investing activities .........    (12,978,000)      4,087,000     (14,124,000)
                                                                 -----------       ---------     -----------

Financing Activities
Net increase (decrease) in deposits .........................      8,746,000      (1,347,000)     10,280,000
Net increase (decrease) in short-term debt ..................        332,000          37,000
Proceeds from long-term debt ................................      5,400,000
Repayments of long-term debt ................................     (1,700,000)     (1,700,000)     (2,602,000)
Cash dividends paid .........................................       (775,000)       (755,000)       (709,000)
Purchases and retirements of common stock ...................     (1,043,000)     (1,200,000)
Proceeds from sales of treasury stock .......................         19,000          64,000
                                                                      ------          ------

Net cash provided by (used in) financing activities .........      5,579,000      (5,236,000)     12,406,000
                                                                   ---------      ----------      ----------

Net (DECREASE) INCREASE in cash and cash equivalents ........     (4,015,000)      2,514,000       1,638,000
Cash and cash equivalents at beginning of year ..............     10,038,000       7,524,000       5,886,000
                                                                  ----------       ---------       ---------

Cash and cash equivalents at end of year ....................   $  6,023,000    $ 10,038,000    $  7,524,000
                                                                ============    ============    ============

Supplemental Disclosures
Cash paid for:
Interest ...........................................            $  6,153,000   $ 6,314,000    $ 5,370,000
Income taxes .......................................            $    728,000   $   462,000    $   873,000
                                                                ============   ===========    ===========

Transfer of loans to other real estate owned .......            $    814,000   $   582,000    $   136,000
                                                                ============   ===========    ===========

Transfer of investment securities to securities
available for sale upon adoption of Statement
of Financial Accounting Standards No. 115 ..........            $              $              $64,132,000
                                      ===                       =========================================

Unrealized net gain on securities available for sale
upon adoption of Statement of Financial Accounting
Standards No. 115, net of taxes of $1,062,000 ......            $              $              $ 1,535,000
              ====                 ==========                   =========================================

Change in net unrealized gain or loss on securities
available for sale, net of tax                                  $(299,000)     $ 2,613,000    $(3,527,000)
                                                                =========      ===========    ===========

Deferred tax effect of change in net unrealized
gain or loss on securities available for sale ......            $  206,000     $(1,819,000)   $ 2,440,000
                                                                ==========     ===========    ===========

See accompanying notes to consolidated financial statements.
</TABLE>

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 Banks stock. The Bank
is a commercial bank providing community banking services to individuals,  small
businesses and local  municipal  governments in Sullivan  County,  New York. The
consolidated  financial statements have been prepared, in all material respects,
in conformity with generally accepted  accounting  principles.  In preparing the
consolidated financial statements,  management is required to make estimates and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses.  Material estimates that are particularly susceptible to near-term
change  include the  allowance  for loan losses and the  valuation of other real
estate owned, which are described below.  Actual results could differ from these
estimates.  For  purposes of the  consolidated  statements  of cash  flows,  the
Company   considers  Federal  funds  sold,  if  any,  to  be  cash  equivalents.
Reclassifications  are made to prior  years  consolidated  financial  statements
whenever necessary to conform to the current years presentation.

Securities

     The Company adopted Statement of Financial  Accounting Standards (SFAS) No.
115,  Accounting  for  Certain  Investments  in Debt and Equity  Securities,  on
January  1,  1994.  Management  determines  the  appropriate  classification  of
securities at the time of purchase.  If management  has the positive  intent and
ability to hold debt  securities to maturity,  they are classified as investment
securities  held to maturity and are stated at amortized cost. If securities are
purchased for the purpose of selling them in the near term,  they are classified
as trading  securities and are reported at fair value with unrealized  gains and
losses  reflected  in current  earnings.  All other debt and  marketable  equity
securities are  classified as securities  available for sale and are reported at
fair value,  with net unrealized gains or losses reported,  net of income taxes,
as a separate component of stockholders equity. Non-marketable equity securities
are carried at cost.  At December 31, 1996 and 1995,  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.

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.  Effective  January 1, 1995, the Company  prospectively
adopted 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 loans effective  interest rate,
(ii) the loans 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  loans  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 Companys
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 Companys  allowance for loan losses and may require the
Company to recognize  additions to the allowance  based on their judgments about
information available to them at the time of their examination, which may not be
currently available to management.

Premises and  Equipment

     Premises and equipment are stated at cost,  less  accumulated  depreciation
and amortization.  Depreciation and amortization are provided over the estimated
useful lives of the assets using straight-line or accelerated methods.

Federal Home Loan Bank Stock

     As a member  institution of the Federal Home Loan Bank (FHLB),  the Bank is
required to hold a certain amount of FHLB stock.  This stock is considered to be
a  non-marketable  equity  security and,  accordingly,  is carried at cost since
there is no readily available market value.

Other Real Estate Owned

     Other real estate owned consists of properties acquired through foreclosure
and loans classified as in-substance  foreclosures.  In accordance with SFAS No.
114, a loan is classified as an  in-substance  foreclosure  when the Company has
taken  possession of the  collateral  regardless of whether  formal  foreclosure
proceedings  have  taken  place.  Other  real  estate  owned  is  stated  on  an
individual-asset  basis at the lower of (i) fair value less  estimated  costs to
sell or (ii) cost  (defined  as the fair value at initial  foreclosure).  When a
property is acquired or a loan is classified as an in-substance foreclosure, the
excess of the loan balance over the fair value of the property is charged to the
allowance  for loan  losses.  If  necessary,  subsequent  write downs to reflect
further  declines in fair value are included in other  operating  expense.  Fair
value  estimates  are  based  on  independent  appraisals  and  other  available
information.  While management estimates real estate owned losses using the best
available information, such as independent appraisals, future write downs may be
necessary  based on changes in real estate market  conditions,  particularly  in
Sullivan County, and the results of regulatory examinations.

Income  Taxes

     In accordance with the asset and liability method of SFAS No. 109, 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.

Income Per Common Share

     Income per share is  computed  based upon the  weighted  average  number of
common shares outstanding during the year.

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 and $1,260,000 at December 31, 1996 and 1995, respectively.

3.  Securities  Available  for Sale

     The amortized  cost and estimated  fair values of securities  available for
sale at December 31, 1996 and 1995 are as follows:
<TABLE>

December 31, 1996
                                                        Gross           Gross       Estimated
                                      Amortized    Unrealized      Unrealized            Fair
                                           Cost         Gains          Losses           Value
<S>                                 <C>            <C>              <C>           <C>
U.S. Treasury securities ........   $   100,000    $    ---         $    ---      $   100,000
U.S. Government agency securities    15,400,000         ---          (170,000)     15,230,000
Obligations of states and
political subdivisions               27,419,000       954,000         (73,000)     28,300,000
Corporate debt securities .......       509,000          ---           (8,000)        501,000
Mortgage-backed
securities and collateralized
mortgage obligations ............    20,293,000         41,000        (187,000)    20,147,000
                                     ----------         ------        --------     ----------

Total debt securities ...........    63,721,000        995,000        (438,000)    64,278,000
Equity securities ...............       573,000          ---            (9,000)       564,000
                                        -------                         ------        -------

                                    $64,294,000   $    995,000    $   (447,000)   $64,842,000
                                    ===========   ============    ============    ===========

December 31, 1995
                                                        Gross           Gross       Estimated
                                      Amortized    Unrealized      Unrealized            Fair
                                           Cost         Gains          Losses           Value
U.S. Government agency securities   $10,148,000   $    13,000    $    (27,000)   $ 10,134,000
Obligations of states and
political subdivisions               25,845,000     1,148,000         (54,000)     26,939,000
Corporate debt securities .......     1,511,000        13,000            --         1,524,000
Mortgage-backed
securities and collateralized
mortgage obligations ............    22,984,000       142,000        (173,000)     22,953,000
                                     ----------       -------        --------      ----------

Total debt securities ...........    60,488,000     1,316,000        (254,000)     61,550,000
Equity securities ...............        73,000          --            (9,000)         64,000
                                         ------                        ------          ------

                                    $60,561,000   $ 1,316,000    $   (263,000)   $61,614,000
                                    ===========   ===========    ============    ===========
</TABLE>


The net unrealized gain on available for sale securities was $548,000  ($322,000
after  taxes) at December  31, 1996 and  $1,053,000  ($621,000  after  taxes) at
December 31, 1995.  Changes in unrealized  holding gains and losses during 1996,
1995 and 1994 resulted in pre-tax increases  (decreases) in stockholders  equity
of ($505,000), $4,423,000 and ($5,967,000), respectively. These gains and losses
will  continue  to  fluctuate  based on  changes  in the  portfolio  and  market
conditions.  Proceeds from sales of  securities  available for sale during 1996,
1995 and 1994 were $3,812,000, $18,496,000 and $16,116,000,  respectively. Gross
gains and gross losses realized on these transactions were as follows:

                            1996         1995         1994
Gross realized gains    $ 96,000    $ 380,000    $ 155,000
Gross realized losses     (1,000)    (347,000)    (321,000)
                          ------     --------     --------

                        $ 95,000    $  33,000    $(166,000)
                        ========    =========    =========


The amortized  cost and estimated  fair value of debt  securities  available for
sale at December 31, 1996,  by remaining  period to  contractual  maturity,  are
shown in the following  table.  Actual  maturities will differ from  contractual
maturities  because of security  prepayments and the right of certain issuers to
call or prepay their obligations.
                                Amortized     Estimated
                                     Cost    Fair Value

Within one year               $17,733,000   $17,622,000
One to five years .........    26,768,000    27,165,000
Five to ten years .........    17,429,000    17,654,000
Over ten years ............     1,791,000     1,837,000
                                ---------     ---------

                              $63,721,000   $64,278,000
                              ===========   ===========

Substantially  all  mortgage-backed   securities  and  collateralized   mortgage
obligations  are  securities  guaranteed  by  Freddie  Mac or  Fannie  Mae (U.S.
government-sponsored  entities). Securities available for sale with an estimated
fair value of  $30,167,000  at December 31, 1996 were  pledged to secure  public
funds on deposit and for other purposes required by law

4. Investment Securities

The  amortized  cost and estimated  fair values of  investment  securities as of
December 31, 1996 and 1995 are as follows:

December 31, 1996
                                             Gross        Gross       Estimated
                          Amortized     Unrealized   Unrealized            Fair
                               Cost          Gains       Losses           Value
Obligations of states and
political subdivisions   $3,401,000      $ 118,000      $(1,000)     $3,518,000
                         ==========      =========      =======      ==========

December 31, 1995
                                             Gross        Gross       Estimated
                          Amortized     Unrealized   Unrealized            Fair
                               Cost          Gains       Losses           Value
Obligations of states and
political subdivisions   $1,782,000      $ 119,000      $(3,000)     $1,898,000
                         ==========      =========      =======      ==========

The amortized cost and estimated fair value of these  securities at December 31,
1996, by remaining period to contractual maturity, are shown in the table below.
Actual  maturities  will  differ from  contractual  maturities  because  certain
issuers have the right to call or prepay their obligations.

                                        Amortized    Estimated
                                             Cost   Fair Value
 Within one year                       $ 630,000    $  649,000
 One to five years                      2,137,000    2,211,000
Five to ten years                         568,000      584,000
Over ten years                             66,000       74,000
                                           ------       ------

                                       $3,401,000   $3,518,000
                                       ==========   ==========

There were no sales of investment securities in 1996, 1995 or 1994

5. Loans Receivable

The major classifications of loans are as follows at December 31:
        1996    1995
Real estate loans:
Residential ..............   $ 67,577,000   $ 67,567,000
Commercial ...............     15,689,000     15,860,000
Farm land ................      1,560,000      1,732,000
Construction .............      1,636,000        703,000
Home equity ..............      4,331,000          ---
                                ---------     ----------

                               90,793,000     85,862,000
                               ----------     ----------

Other loans:
Commercial loans .........      9,960,000      8,006,000
Consumer installment loans     17,846,000     16,023,000
Other consumer loans .....      1,567,000      4,442,000
Agricultural loans .......        542,000        435,000
                                  -------        -------

                               29,915,000     28,906,000
                               ----------     ----------

Total loans ..............    120,708,000    114,768,000
Less:
Unearned discounts .......      3,392,000      3,851,000
Allowance for loan losses       1,711,000      1,629,000
                                ---------      ---------

TOTAL LOANS, net .........   $115,605,000   $109,288,000
                             ============   ============

The Company originates  residential and commercial real estate loans, as well as
commercial,  agricultural  and consumer loans, to borrowers in Sullivan  County,
New York. A substantial  portion of the loan portfolio is secured by real estate
properties  located in that area. The ability of the Companys  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  Companys  concentrated  lending  area.   Non-performing  loans  are
summarized as follows at December 31:

                                       1996          1995          1994

Non-accrual loans ............   $2,572,000    $2,475,000    $2,476,000
Restructured loans ...........      481,000       841,000       388,000
Loans past due 90 days or more
and still accruing interest ..    1,423,000       863,000     1,054,000
                                  ---------       -------     ---------

Total non-performing loans ...   $4,476,000    $4,179,000    $3,918,000
                                 ==========    ==========    ==========

Non-performing loans
as a percentage of total loans          3.7%          3.6%          3.7%
                                        ===           ===           ===


The effects of non-accrual  and  restructured  loans on interest  income were as
follows for the years ended December 31:
                                           1996         1995         1994
Interest  contractually due at
original rates ....................   $ 280,000    $ 402,000    $ 275,000
Interest  income  recognized ......    (200,000)    (192,000)     (44,000)
                                       --------     --------      -------

Interest income not recognized ..     $  80,000    $ 210,000    $ 231,000
                                      =========    =========    =========

Changes in the allowance for loan losses are summarized as follows for the years
ended December 31:

                                             1996           1995           1994
Balance at beginning of the year ..   $ 1,629,000    $ 1,592,000    $ 1,698,000
Provision for loan losses .........       290,000        160,000        427,000
Loans charged-off .................      (346,000)      (384,000)      (634,000)
Recoveries ........................       138,000        261,000        101,000
                                          -------        -------        -------

Balance at end of the year ........   $ 1,711,000    $ 1,629,000    $ 1,592,000
                                      ===========    ===========    ===========

     The  adoption of SFAS No. 114,  effective  January 1, 1995,  did not have a
significant effect on the Companys consolidated  financial statements.  SFAS No.
114  applies to loans that are  individually  evaluated  for  collectability  in
accordance  with  the  Companys  ongoing  loan  review  procedures  (principally
commercial  mortgage  loans and commercial  loans).  As of December 31, 1996 and
1995, the recorded  investment in loans that are considered to be impaired under
SFAS No. 114  totaled  $1,922,000  and  $1,838,000,  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 1996 and 1995,  the average  recorded  investment  in impaired  loans was
$1,668,000 and $1,634,000, respectively. Interest income of $146,000 and $83,000
was  recognized on impaired  loans during 1996 and 1995,  respectively,  using a
cash-basis method of accounting.

6. Premises and Equipment

The major  classifications  of premises and equipment are as follows at December
31:

                                                              1996          1995
Land ...............................................    $  376,000    $  294,000
Buildings ..........................................     2,112,000     2,112,000
Furniture and fixtures .............................       399,000       377,000
Equipment ..........................................     3,150,000     2,597,000
Building and leasehold improvements ................       387,000       293,000
Construction in progress ...........................        69,000         ---
                                                            ------
                                                         6,493,000     5,673,000
                                                         ---------     ---------
Less accumulated depreciation and amortization .....     3,891,000     3,468,000
                                                         ---------     ---------

                                                        $2,602,000    $2,205,000
                                                        ==========    ==========

Depreciation  and  amortization  expense was $423,000,  $368,000 and $341,000 in
1996,  1995 and 1994,  respectively.

7. Other Real Estate Owned

     At December  31,1996,  real estate  owned  represented  fifteen  foreclosed
properties.  Property distribution  consisted of three commercial,  three vacant
land and nine one- to four- family properties. At December 31, 1995, real estate
owned  represented  thirteen  foreclosed   properties.   Property   distribution
consisted  of one  commercial,  three  vacant land and nine one- to four- family
properties.

8. Time Deposits

The  approximate  amount of contractual  maturities of time deposit  accounts at
December 31, 1996 are as follows:

Within one year .......................................              $44,958,000
One to two years ......................................               16,653,000
Two to three years ....................................                4,507,000
Three to four years ...................................                2,597,000
Over four years .......................................                1,965,000
                                                                       ---------

                                                                     $70,680,000
                                                                     ===========

Individual time deposits of $100,000 or more totaled $10,535,000 at December 31,
1996 and  $4,271,000  at December 31,  1995.  Interest  expense  related to time
deposits over $100,000 was  $422,000,  $344,000 and $198,000 for 1996,  1995 and
1994, respectively.

9. Federal Home Loan Bank Advance FHLB  borrowings  of$1,700,000 at December 31,
1995 represented the remaining balance of a long-term variable-rate advance with
an interest rate of 4.6% at year-end 1995.  This advance was fully repaid during
1996.

 10. Income Taxes The  components of income tax expense are as follows for
the years  ended  December  31:

                                         1996       1995       1994
 Current  tax  expense:
 Federal ........................    $470,000   $622,000   $415,000
 State ...........................    201,000    286,000    223,000
 Deferred tax (benefit)expense       (102,000)   (94,000)   264,000
                                     --------    -------    -------

                                     $569,000   $814,000   $902,000
                                     ========   ========   ========

The  reasons  for the  differences  between  income tax  expense  and the amount
computed  by applying  the  statutory  Federal tax rate of 34% to income  before
income taxes are as follows:

        1996    1995    1994
Tax at statutory rate ................. $   923,000   $ 1,101,000   $ 1,143,000
State taxes, net of Federal tax benefit     123,000       168,000       147,000
Tax-exempt interest ...................    (554,000)     (560,000)     (576,000)
Interest expense allocated
to tax-exempt securities ..............      63,000        74,000        67,000
Tax assessment ........................        --          21,000        64,000
Other adjustments .....................      14,000        10,000        57,000
                                             ------        ------        ------

Income tax expense .................... $   569,000   $   814,000   $   902,000
                                        ===========   ===========   ===========

The tax  effects of  temporary  differences  and tax  credits  that give rise to
deferred tax assets and liabilities at December 31 are presented below:

                                                            1996           1995
Deferred tax assets:
Allowance for loan losses in
excess of tax bad debt reserve ...................     $ 467,000      $ 388,000
Interest on non-accrual loans ....................       155,000         99,000
Alternative minimum tax credit ...................        64,000         75,000
                                                          ------         ------

Total deferred tax assets ........................       686,000        562,000
                                                         -------        -------

Deferred tax liabilities:
Prepaid expenses .................................      (173,000)      (149,000)
Other taxable temporary differences ..............       (61,000)       (63,000)
                                                         -------        -------

Total deferred tax liabilities ...................      (234,000)      (212,000)
                                                        --------       --------

Net deferred tax asset ...........................       452,000        350,000
Deferred tax liability for unrealized gain on
securities recognized in stockholders equity .....      (226,000)      (432,000)
                                                        --------       --------

Net deferred tax asset (liability) ...............     $ 226,000      $ (82,000)
                                                       =========      =========

In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized. Based upon managements  consideration of historical
and anticipated  future pre-tax  income,  as well as the reversal period for the
items  giving rise to the  deferred tax assets,  a valuation  allowance  was not
considered necessary at December 31, 1996 and 1995.

11. Other Operating Expenses

The major  components of other  operating  expenses are as follows for the years
ended December 31:
                                                  1996         1995         1994
Stationery and supplies                      $ 206,000   $  198,000   $  161,000
Director expenses .......................      254,000      237,000      231,000
ATM and credit card processing fees .....      178,000      157,000       22,000
Federal deposit insurance premium .......        2,000      190,000      363,000
Other expenses ..........................    1,121,000      936,000    1,107,000
                                             ---------      -------    ---------

                                            $1,761,000   $1,718,000   $1,884,000
                                            ==========   ==========   ==========

12. Stockholders Equity
Regulatory Capital Requirements
National banks are required to maintain minimum levels of regulatory  capital in
accordance  with  regulations  of the Office of the  Comptroller of the Currency
(OCC).  The  Federal  Reserve  Board  (FRB)  imposes  similar  requirements  for
consolidated  capital of bank  holding  companies.  The OCC and FRB  regulations
require a minimum  leverage ratio of Tier I 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 banks  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 I  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, 1996,  the Bank and the
Parent Company met all capital adequacy  requirements to which they are subject.
Further,   the  most  recent  OCC   notification   categorized  the  Bank  as  a
well-capitalized bank under the prompt corrective action regulations. There have
been no conditions or events since that  notification  that management  believes
have changed the Banks capital classification. The following is a summary of the
actual  capital  amounts and ratios as of December 31, 1996 for the Bank and the
Parent  Company  (consolidated),  compared  to the  required  ratios for minimum
capital adequacy and for classification as well-capitalized:
<TABLE>
                                                                                                           Required Ratios

                                                                                                            ---------------

                                                                                Actual    Minimum Capital  Classification as
                                                                                ------
                                                                      Amount      Ratio     Adequacy        Well Capitalized
                                                                      ------      -----     --------        ----------------
(Dollars in thousands)
Bank
<S>                                                                  <C>            <C>      <C>                  <C>
Leverage (Tier I) capital .............................              $18,782        9.4%     4.0%                 5.0%
Risk-based capital:
Tier I ................................................               18,782       17.8      4.0                  6.0
Total .................................................               20,105       19.1      8.0                 10.0
Consolidated
Leverage (Tier I) capital .............................              $20,653       10.4%     4.0%
Risk-based capital:
Tier I ................................................               20,653       19.3      4.0
Total .................................................               21,996       20.6      8.0
</TABLE>

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 Banks net profit  retained
in the current  year plus its retained  net  profits,  as defined,  from the two
preceding  years. As of December 31, 1996,  this total amount was  approximately
$1,250,000.

Preferred  Stock  Purchase  Rights

On July 9, 1996, the Board of Directors declared a dividend  distribution of one
purchase right (Right) for each outstanding share of Parent Company common stock
(Common  Stock),  to  stockholders of record at the close of business on July 9,
1996. The Rights have a 10-year term. The Rights become  exercisable (i) 10 days
following a public announcement that a person or group has acquired, or obtained
the right to acquire,  beneficial  ownership  of 20% or more of the  outstanding
shares of Common Stock,  or (ii) 10 days following the  commencement of a tender
offer or exchange offer that, if successful, would result in an acquiring person
or group beneficially owning 30% or more of the outstanding Common Stock (unless
such tender or exchange offer is predicated  upon the redemption of the Rights).
When the  Rights  become  exercisable,  a holder is  entitled  to  purchase  one
one-hundredth of a share, subject to adjustment,  of Series A Preferred Stock of
the Parent Company or, upon the occurrence of certain  events  described  below,
Common Stock of the Parent  Company or common  stock of an entity that  acquires
the Company.  The purchase  price per one  one-hundredth  of a share of Series A
Preferred Stock (Purchase  Price) will equal the Board of Directors  judgment as
to the long-term investment value of one share of Common Stock at the end of the
10-year term of the Rights.  Upon the  occurrence of certain  events  (including
certain acquisitions of more than 20% of the Common Stock by a person or group),
each holder of an  unexercised  Right will be entitled to receive  Common  Stock
having  a value  equal to  twice  the  Purchase  Price  of the  Right.  Upon the
occurrence of certain other events (including  acquisition of the Parent Company
in a merger or other business combination in which the Parent Company is not the
surviving corporation),  each holder of an unexercised Right will be entitled to
receive  common stock of the acquiring  person having a value equal to twice the
Purchase  Price of the Right.  The Parent  Company may redeem the Rights (to the
extent not exercised) at any time, in whole but not in part, at a price of $0.01
per Right.

13.  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
Companys 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:

                                                              1996       1995

Executive officers    (non-director)    ..............    $136,000   $148,000
Directors                                                  720,000    746,000
                                                          -------      -------

                                                          $856,000   $894,000
                                                          ========   ========

Total  advances to these  directors and officers  during the years 1996 and 1995
were $577,000 and  $410,000,  respectively.  Total  payments made on these loans
were  $615,000 in 1996 and $425,000 in 1995.  These  directors  and officers had
unused lines of credit with the Company of $539,000 at December 31, 1996.

14.Employee Benefit Plans

Pension Plan

The  Company  has a  non-contributory  defined  benefit  pension  plan  covering
substantially  all of its employees.  The benefits are based on years of service
and the employees average  compensation during the five consecutive years in the
last ten years of employment  affording  the highest such average.  The Companys
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 following is a reconciliation
of the plans  funded  status  and the  amounts  recognized  in the  consolidated
balance  sheets at  December  31:  1996  1995  Accumulated  benefit  obligation,
including  vested  benefits  of  $1,948,000  in  1996  and  $1,819,000  in  1995
 ............   $(1,958,000)   $(1,829,000)   ==========   ====  ==========  ====
=========== ===========
<TABLE>

<S>                                                         <C>            <C>
Projected benefit obligation for service rendered to date   $(2,605,000)   $(2,407,000)
Plan assets at fair value, primarily listed stocks and
U.S. Government securities ..............................     2,139,000      2,006,000
                                                              ---------      ---------

Projected benefit obligation in excess of plan assets ...      (466,000)      (401,000)
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions .       797,000        840,000
Unrecognized prior service cost .........................       (49,000)       (53,000)
Unrecognized net transition obligation being recognized
over 19.5 years .........................................       (40,000)       (44,000)
     ----                                                       -------        -------

Prepaid pension costs ...................................   $   242,000    $   342,000
                                                            ===========    ===========
</TABLE>

Net pension expense included the following components:

                                                     1996       1995       1994
Service cost (benefits earned during the year)  $ 112,000  $  90,000  $ 124,000
Interest cost on projected benefit obligation     172,000    157,000    138,000
Return on plan assets ........................   (195,000)  (205,000)  (150,000)
Net amortization and deferral ................     60,000     72,000     19,000
                                                   ------     ------     ------

Net pension expense ..........................   $ 149,000  $ 114,000  $ 131,000
                                                 =========  =========  =========

Significant  assumptions used in determining the actuarial  present value of the
projected benefit obligation at December 31, 1996, 1995 and 1994 are as follows:

       1                                     1996        1995        1994

Weighted average discount rate ..........   7.25%       7.25%       8.00%
Increase in future compensation .........   5.00%       5.00%       5.00%

The expected  long-term  rate of return on plan assets was 8.50% for 1996,  1995
and 1994.

Other Postretirement Benefits

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.  Beginning
in 1995,  medical  benefits are  provided  under the Aetna plan,  which  manages
healthcare  expenses  by setting  reasonable  fee limits on claims.  Previously,
benefits were provided under the New York State Bankers  Association plan, which
was an  indemnity  plan.  Life  insurance  is  provided in the amount of $20,000
($10,000 if final-year compensation as an active employee is less than $30,000).
The Company accounts for the cost of these postretirement benefits in accordance
with SFAS No. 106, Employers  Accounting for Postretirement  Benefits Other Than
Pensions.  Accordingly,  the cost of these  benefits is recognized on an accrual
basis as employees  perform  services to earn the benefits.  The Company adopted
SFAS No. 106 as of  January 1, 1993 and  elected  to  amortize  the  accumulated
benefit  obligation at that date  (transition  obligation) into expense over the
allowed  period of 20 years.  The  following  is a  reconciliation  of the plans
unfunded  benefit  obligations  and the amounts  recognized in the  consolidated
balance sheets at December 31:
                                                             1996           1995
Accumulated postretirement benefit obligation:
Retirees ...........................................    $(207,000)    $(211,000)
Fully-eligible active plan participants ............      (52,000)      (49,000)
Other active plan participant ......................    s (341,000)    (286,000)
                                                          --------     --------

                                                         (600,000)     (546,000)
Unrecognized transition obligation .................      294,000       312,000
Unrecognized net gain ..............................     (149,000)     (146,000)
                                                         --------      --------

Accrued postretirement benefit cost ................    $(455,000)    $(380,000)
                                                        =========     =========

Net postretirement benefit expense included the following components:
                                                      1996       1995       1994
Service cost (benefits earned during the year)    $ 34,000   $ 52,000   $ 61,000
Interest cost on accumulated benefit obligation     39,000     59,000     58,000
Net amortization and deferral .................     14,000     24,000     43,000
                                                    ------     ------     ------

Net postretirement benefit expense ............   $ 87,000   $135,000   $162,000
                                                  ========   ========   ========

The discount rate used in determining  the  accumulated  postretirement  benefit
obligation  was 7.25%,  7.25% and 8.00% at  December  31,  1996,  1995 and 1994,
respectively. For measurement purposes at December 31, 1996, a 9.00% annual rate
of increase in the per capita cost of covered  health care  benefits was assumed
for medical  coverage in 1997;  the rate was  assumed to decrease  gradually  to
4.00% by 2001 and to remain at that level thereafter. The health care cost trend
rate assumption has a significant effect on the amounts reported. Increasing the
assumed health care cost trend rates by one percentage  point in each year would
increase the accumulated  postretirement  benefit  obligation as of December 31,
1996 by approximately $91,000 and the aggregate of the service and interest cost
components of the net postretirement benefit expense by approximately $13,000

 .
Tax-Deferred  Savings Plan

The Company  maintains a qualified 401(k) plan for all employees,  which permits
tax-deferred  employee  contributions  up to  15% of  salary  and  provides  for
matching  contributions  by the Company.  Beginning in 1996, the Company matches
100% of employee  contributions  up to 4% of the employees salary and 25% of the
next 2% of the employees salary.  The Company continues to match 25% of employee
contributions  beyond  6% of the  employees  salary  until  the  total  matching
contribution reaches $1,500 or 15%. For 1995 and 1994, the Company contributed a
maximum  of  fifty  cents  for each  dollar  contributed  by each  participating
employee,  up to a maximum  of $1,500  per  employee.  The  Company  contributed
approximately $93,000 in 1996, $53,000 in 1995 and $48,000 in 1994.

15. Commitments and Contingent Liabilities

Legal Proceedings

The Parent  Company  and the Bank are,  from time to time,  defendants  in legal
proceedings  relating to the conduct of their business.  In the best judgment of
management,  the  consolidated  financial  position of the  Company  will not be
affected materially by the outcome of any pending legal proceedings.

Off-Balance-Sheet  Financial  Instruments

The Company is a party to certain financial  instruments with  off-balance-sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers. These are limited to commitments to extend credit and standby letters
of credit which involve,  to varying degrees,  elements of credit risk in excess
of the amounts  recognized  in the  consolidated  balance  sheets.  The contract
amounts of these instruments  reflect the extent of the Companys  involvement in
particular  classes of financial  instruments.  The Companys 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:  1996 1995 Loan
origination commitments and unused lines of credit:

Mortgage loans .........................         $ 1,468,000         $ 2,914,000
Commercial loan ........................           4,512,000           3,106,000
Credit card lines ......................           2,544,000           2,675,000
Home equity lines ......................           1,730,000                --
Other revolving credit .................           1,265,000           1,083,000
                                                   ---------           ---------

                                                  11,519,000           9,778,000
Standby letters of credit ..............             140,000             234,000
                                                     -------             -------

                                                 $11,659,000         $10,012,000
                                                 ===========         ===========

These  agreements  to extend  credit have been granted to  customers  within the
Companys  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 customers  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  managements  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.

 Lines of Credit

The  Company  is a member  of the  FHLB  and had an  unused  line of  credit  of
$19,466,000  at December 31, 1996. The Company also had an unused line of credit
with an unrelated financial institution for $4,400,000 at December 31, 1996.

 16.Fair Values of Financial  Instruments

SFAS No. 107,  Disclosures about Fair Value of Financial  Instruments,  requires
that   the   Company   disclose   estimated   fair   values   for  its  on-  and
off-balance-sheet financial instruments.  SFAS No. 107 defines fair value as the
amount  at which  the  financial  instrument  could be  exchanged  in a  current
transaction  between  parties other than in a forced or liquidation  sale.  Fair
value  estimates are made at a specific point in time,  based on relevant market
information and information about the financial  instrument.  These estimates do
not reflect any premium or discount  that could result from offering for sale at
one time the Companys 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 Companys financial  instruments,
fair value estimates are based on judgments  regarding  future expected net cash
flows,  current economic  conditions,  risk characteristics of various financial
instruments,  and other  factors.  These  estimates are subjective in nature and
involve uncertainties and matters of significant judgment,  and therefore cannot
be determined with precision.  Changes in assumptions could significantly affect
the estimates.  Fair value  estimates are based on existing on- and  off-balance
sheet  financial  instruments  without  attempting  to  estimate  the  value  of
anticipated future business or the value of non-financial assets and liabilities
such as premises and equipment.  In addition,  there are significant  intangible
assets that are not included in these fair value estimates, such as the value of
core deposits and the Companys branch network. The following is a summary of the
net carrying values and estimated fair values of the Companys  financial  assets
and liabilities  (none of which were held for trading  purposes) at December 31,
1996 and 1995:

 December  31,  1996
                                                  Net Carrying        Estimated
                                                         Value      Fair  Value

Financial Assets:
Cash and cash equivalents ....................     $  6,023,000     $  6,023,000
Securities available  for  sale ..............       64,482,000       64,482,000
Investment  securities .......................        3,401,000        3,518,000
Loans ........................................      115,605,000      116,992,000
Accrued interest  receivable .................        1,168,000        1,168,000
Federal Home Loan Bank stock .................          717,000          717,000

Financial  Liabilities:
Demand deposits  (non-interest  bearing) .....       22,044,000       22,044,000
Interest-bearing deposits ....................      150,886,000      151,043,000
Short-term  debt .............................          529,000          529,000
Accrued interest payable ......................         601,000          601,000

December 31, 1995

                                            Net Carrying      Estimated
                                                   Value     Fair Value

 Financial Assets:
Cash and cash equivalents ...............   $ 10,038,000   $ 10,038,000
Securities  available  for  sale ........     61,614,000     61,614,000
Investment  securities ..................      1,782,000      1,898,000
Loans ...................................    109,288,000    109,514,000
Accrued interest receivable .............      1,180,000      1,180,000
Federal  Home Loan Bank stock ...........        736,000        736,000

Financial Liabilities:
Demand  deposits  (non-interest  bearing)     20,879,000     20,879,000
Interest-bearing deposits                    143,305,000    143,474,000
Short-term  debt ........................        197,000        197,000
Federal Home Loan Bank advance ..........      1,700,000      1,706,000
Accrued  interest payable ...............        476,000        476,000

The specific  estimation  methods and  assumptions  used can have a  substantial
impact  on  the  estimated  fair  values.  The  following  is a  summary  of the
significant  methods and  assumptions  used by the Company to estimate  the fair
values  shown  in the  preceding  table:
Securities

     The carrying values for securities maturing within 90 days approximate fair
values  because  there is little  interest rate or credit risk  associated  with
these instruments. The fair values of longer-term securities are estimated based
on bid prices published in financial  newspapers or bid quotations received from
securities  dealers.  The fair values of certain state and municipal  securities
are not  readily  available  through  market  sources;  accordingly,  fair value
estimates are based on quoted market prices of similar instruments, adjusted for
any significant  differences  between the quoted instruments and the instruments
being valued.

Loans

     Fair values are  estimated for  portfolios of loans with similar  financial
characteristics. Loans are segregated by type such as commercial, consumer, real
estate and other loans. Each loan category is further  segregated into fixed and
adjustable rate interest terms and by performing and  nonperforming  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  nonperforming  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
non-interest-bearing   demand  deposits  and  savings,  NOW,  money  market  and
interest-bearing  checking  accounts),  equal the amounts payable on demand. The
fair values of time deposits are based on the  discounted  value of  contractual
cash  flows  (but are not less  than the net  amount at which  depositors  could
settle their  accounts).  The discount  rates are  estimated  based on the rates
currently offered for time deposits with similar remaining maturities.

Federal Home Loan Bank  Advance

     The fair value was estimated by  discounting  scheduled  cash flows through
the remaining repricing dates using current market rates.

Other  Financial Instruments

     The fair values of cash and cash equivalents, Federal Home Loan Bank stock,
accrued  interest  receivable,  accrued  interest  payable and  short-term  debt
approximated  their  carrying  values at December  31,  1996 and 1995.  The fair
values of the  agreements  to extend  credit  described in note 15 are estimated
based on the fees  currently  charged to enter into similar  agreements,  taking
into  account  the   remaining   terms  of  the   agreements   and  the  present
creditworthiness  of the counterparties.  For fixed rate loan commitments,  fair
value  estimates also consider the difference  between  current market  interest
rates and the committed rates. At December 31, 1996 and 1995, the fair values of
these financial instruments  approximated the related carrying values which were
not significant.

17. Recent  Accounting  Standard

     In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial  Assets and  Extinguishments
of  Liabilities.  Transactions  within  the scope of SFAS No. 125  include  loan
securitizations,  sales of partial  interests  in financial  assets,  repurchase
agreements,  securities  lending,  pledges of collateral,  loan syndications and
participations,  sales of receivables  with recourse,  servicing of mortgage and
other loans, and in-substance defeasances of debt.
     SFAS No. 125 applies a  financial-components  approach  that focuses on the
entitys  control over a financial  asset to determine the proper  accounting for
financial  asset  transfers.  Under that approach,  after  financial  assets are
transferred,  an entity  recognizes  in the balance sheet all assets it controls
and all  liabilities  it has incurred.  The entity would remove from the balance
sheet those assets it no longer  controls and  liabilities it has satisfied.  If
the  entity  has  surrendered  control  over the  transferred  assets,  based on
criteria set forth in SFAS No. 125, the  transaction is accounted for as a sale.
If any of these criteria are not met, the transfer is accounted for as a secured
borrowing. SFAS No. 125 also requires recognition of servicing assets when loans
are sold or  securitized  with  servicing  retained.  SFAS No.  125 has  limited
applicability  to the Companys current  activities.  However,  as required,  the
Company  will apply SFAS No. 125 to  affected  transactions  entered  into on or
after January 1, 1997.  Management  anticipates that the  implementation of SFAS
No. 125 will not have a material impact on the Companys  consolidated  financial
condition or results of operations.

18.  Condensed  Parent  Company  Financial Statements

The following are the condensed  parent  company only  financial  statements for
Jeffersonville Bancorp:

Balance Sheets (Parent Company Only) As of
December 31,                                                 1996           1995
Assets
Cash .............................................    $   155,000    $   152,000
Securities  available for sale, at fair value ....        523,000         23,000
Investment  in  subsidiary .......................     19,112,000     19,568,000
Premises and equipment, net ......................      1,324,000      1,297,000
                                                        ---------      ---------

Total assets .....................................    $21,114,000    $21,040,000
                                                      ===========    ===========

Liabilities and Stockholders Equity
Liabilities ......................................    $   139,000    $   112,000
Stockholders Equity ..............................     20,975,000     20,928,000
                                                       ----------     ----------

Total liabilities and stockholders equity ........    $21,114,000    $21,040,000
                                                      ===========    ===========

Statements of Income
(Parent Company Only)
For Years Ended December 31, ........          1996           1995          1994

Dividend income from subsidiary bank    $ 2,253,000    $ 2,090,000   $ 1,262,000
Interest expense on long-term debt ..          --             --          20,000
                                         ----------      ---------     --------

Net interest income .................     2,253,000      2,090,000     1,242,000
                                          ---------      ---------     ---------

Operating Income
Rental income from subsidiary .......       246,000        209,000       210,000
                                            -------        -------       -------

Other Expenses
Occupancy and equipment .............        62,000         53,000        52,000
Other operating expense .............       101,000         41,000        44,000
                                            -------         ------        ------

                                            163,000         94,000        96,000
                                            -------         ------        ------

Income before income taxes and
undistributed income of subsidiary ..     2,336,000      2,205,000     1,356,000
Income tax expense ..................        34,000         47,000        38,000
                                             ------         ------        ------

Income before undistributed
income of subsidiary ................     2,302,000      2,158,000     1,318,000
Equity in undistributed
income of subsidiary ................      (157,000)       266,000     1,142,000
                                           --------        -------     ---------

Net income ..........................   $ 2,145,000    $ 2,424,000   $ 2,460,000
                                        ===========    ===========   ===========
<TABLE>

Statements
of Cash Flow (Parent Company Only)
For Years Ended December 31,                        1996           1995           1994
<CAPTION>
Operating Activities
<S>                                          <C>            <C>            <C>
Net income ...............................   $ 2,145,000    $ 2,424,000    $ 2,460,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income
of subsidiary bank .......................       157,000       (266,000)    (1,142,000)
Depreciation and amortization ............        63,000         53,000         52,000
Increase in liabilities ..................        27,000          9,000          1,000
                                                  ------          -----          -----

Net cash provided
by operating activities ..................     2,392,000      2,220,000      1,371,000
                                               ---------      ---------      ---------

Investing Activities
Purchase of securities available for sale       (500,000)          --             --
Purchase of premises and equipment .......       (90,000)      (245,000)       (65,000)
                                                 -------       --------        -------

Net cash used in investing activities ....      (590,000)      (245,000)       (65,000)
                                                --------       --------        -------

Financing Activities
Cash dividends paid ......................      (775,000)      (755,000)      (709,000)
Purchases and retirements of common stock     (1,043,000)    (1,200,000)          --
Proceeds from sales of treasury stock ....        19,000         64,000           --
Repayment of long-term debt ..............         ---            ---         (602,000)
                                               ----------      ---------       --------

Net cash used in financing activities ....    (1,799,000)    (1,891,000)    (1,311,000)
                                              ----------     ----------     ----------

Net increase (decrease) in cash ..........         3,000         84,000         (5,000)
Cash at beginning of year ................       152,000         68,000         73,000
                                                 -------         ------         ------

Cash at end of year ......................   $   155,000    $   152,000    $    68,000
                                             ===========    ===========    ===========

Cash paid for:
Interest .................................   $      --      $      --      $    20,000
Income taxes (due to subsidiary) .........   $    34,000    $    47,000    $    38,000
                                             ===========    ===========    ===========
</TABLE>


19.  Summary of Unaudited  Quarterly  Financial  Information  The following is a
condensed summary of quarterly results of operations for 1996 and 1995: 1996
<TABLE>

                                March 31         June 30    September 30     December 31           Total

<S>                         <C>             <C>             <C>             <C>             <C>
Interest income .........   $  3,657,000    $  3,752,000    $  3,727,000    $  3,808,000    $ 14,944,000
Interest expense ........     (1,536,000)     (1,557,000)     (1,573,000)     (1,612,000)     (6,278,000)
                              ----------      ----------      ----------      ----------      ----------

Net interest income .....      2,121,000       2,195,000       2,154,000       2,196,000       8,666,000
Provision for loan losses           --           (60,000)        (60,000)       (170,000)       (290,000)
Operating income ........        220,000         310,000         211,000         318,000       1,059,000
Operating expenses ......     (1,518,000)     (1,737,000)     (1,680,000)     (1,786,000)     (6,721,000)
                              ----------      ----------      ----------      ----------      ----------

Income before taxes .....        823,000         708,000         625,000         558,000       2,714,000
Income taxes ............       (201,000)       (119,000)       (130,000)       (119,000)       (569,000)
                                --------        --------        --------        --------        --------

Net income ..............   $    622,000    $    589,000    $    495,000    $    439,000    $  2,145,000
                            ============    ============    ============    ============    ============

Income per share ........   $       0.51    $       0.49    $       0.42    $       0.37    $       1.79
                            ============    ============    ============    ============    ============

1995
                                March 31         June 30    September 30     December 31           Total

Interest income .........   $  3,698,000    $  3,740,000    $  3,712,000    $  3,718,000    $ 14,868,000
Interest expense ........     (1,542,000)     (1,595,000)     (1,591,000)     (1,559,000)     (6,287,000)

Net interest income .....      2,156,000       2,145,000       2,121,000       2,159,000       8,581,000
Provision for loan losses        (40,000)           --           (60,000)        (60,000)       (160,000)
Operating income ........        193,000         287,000         165,000         285,000         930,000
Operating expenses ......     (1,526,000)     (1,550,000)     (1,441,000)     (1,596,000)     (6,113,000)

Income before taxes .....        783,000         882,000         785,000         788,000       3,238,000
Income taxes ............       (153,000)       (243,000)       (238,000)       (180,000)       (814,000)

Net income ..............   $    630,000    $    639,000    $    547,000    $    608,000    $  2,424,000

Income per share ........   $       0.49    $       0.51    $       0.44    $       0.49    $       1.93
</TABLE>


Independent Auditors Report
KPMG Peat Marwick LLP
Certified Public Accountants

The Board of Directors and Stockholders
Jeffersonville Bancorp:

We have audited the accompanying  consolidated  balance sheets of Jeffersonville
Bancorp and  subsidiary  (the Company) as of December 31, 1996 and 1995, 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,
1996. These  consolidated  financial  statements are the  responsibility  of the
Companys  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, 1996 and 1995, and the results of their operations
and  their  cash  flows  for each of the years in the  three-year  period  ended
December 31, 1996 in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP
Albany, New York
February 7, 1997

Jeffersonville Bancorp
Board of Directors

Arthur E. Keesler
Chairman of the Board
Retired Chief Executive Officer
First National Bank of Jeffersonville
Jeffersonville, New York

Honorable Lawrence H. Cooke
Chief Judge of the State of New York
Retired

John W. Galligan
Owner
John Galligan, Land Surveyor
Monticello, New York
Surveyor

John K. Gempler
Secretary of the Board
Secretary/Treasurer
Callicoon Co-op Insurance Company
Jeffersonville, New York
Insurance Company

Douglas A. Heinle
OwnerGeneral Store
Heinles Store
Cochecton Center, New York
Retail Sales

Solomon Katzoff
President
Katzoff Realty, Inc.
Jeffersonville, New York
Real Estate Sales

Gibson McKean
President
McKean Real Estate, Inc.
Barryville, New York
Real Estate Sales

James F. Roche
President
Roches Garage Inc.
Callicoon, New York
Automobile Dealer

Frederick W. V. Schadt
Schadt and Schadt
Jeffersonville, New York
Attorneys

Edward T. Sykes
President
Mike Preis Inc.
Callicoon, New York
Insurance Agency

Raymond L. Walter
President
First National Bank of Jeffersonville
Jeffersonville, New York

Gilbert E. Weiss
Retired Chief Executive Officer
First National Bank of Jeffersonville
Jeffersonville, New York

Earl A. Wilde
Retired
Sullivan County Cooperative Extension
Liberty, New York

Officers
Arthur E. Keesler       President
Raymond L. Walter       Vice President
John K. Gempler         Secretary
K. Dwayne Rhodes        Treasurer


The First National Bank of Jeffersonville

Officers

     Arthur E. Keesler  Chairman of the Board  Raymond L. Walter  President  and
Chief  Executive  Officer K. Dwayne Rhodes  Executive Vice President and Cashier
John M. Riley Senior Vice  PresidentLoans  Theodore  Bertot  Auditor  Charles E.
Burnett  Controller  June B. Tegeler Vice  President and Branch  Manager  Claire
Pecsi  Vice  PresidentHuman  Resources  Tatiana  Hahn  Vice  President  Susan A.
Bodenstein  Assistant Vice  PresidentOperations  Jacqueline M. Gieger Operations
Manager Pearl L. Gain Assistant  CashierAccounting  Rhonda Decker Branch Manager
Raymond W. Browne Branch Manager Tanja McKerrell  Branch Manager Kathleen Beseth
Branch Manager Edith Houghtaling  Assistant Branch Manager Janet Siano Assistant
Branch  Manager Gladys  Manzolillo  Assistant  Branch Manager Stacey  Stephenson
Assistant  Branch Manager Sandra S. Sipple Sales Manager  Lorraine Lilholt Sales
Manager Beth  Schumacher  Sales Manager Loreen Gebelein  Mortgage  Administrator
Andrew McKean Credit  Administrator

Staff

     Melissa Adams Terri  Bagailuk  Catherine Baim Geri Bennett Dawn Berst Renae
Bishop  Alexandra  Brinsford  Jerilynn Brock Michelle  Brockner Erin Brown Nancy
Brown MaryPaige  Lang-Clouse Dawn Coney Nancy Crumley Lydia DAntoni Robin Darwin
Cindy DeLuca  Susan DeVito  Denise  Diehl  Barbara  Donnelly  Linda Fisk Deborah
Forsblom  JoAnne Girardi  Dwayne Gorton Nina Gorton Troy Gorton Cynthia  Gregson
Christine  Gruber Justine Hageman Barbara Hahl Eugene Hahn Tiffany Hammett Alisa
Horan  Florance  Horecky  Martha  Huebsch  Heidi  Hulse  Betty  Johaneman  Helen
Karkkainen  Jean Kelly Jessica Kenyon Lauren Kickuth  Trishia Kinney Minnie Knox
Patricia  Leonardo Dana LeRoy Shirley  Lindsley  Michele  Lupardo  Merrily Lynch
Linda Mall JoAnn Malley Diane  McGrath  Jonathan  McGruder  Kathryn  Miller Tina
Millis Ruth Mootz Carol Muhlig Deborah Muzuruk Gale Myers Lorraine Niemann Kelli
Pagan Bruce Pecsi,  Jr. Barbara  Pietrucha Alice Reisen Antonia  Renzulli Andrew
Richardson   Damaris  Rios  Sandra  Ross  John  Rudy  Sheri  Rutledge   Kristine
Scardefield  Barbara  Walter Valerie Walter Jayne Wartell Carol Welton Jean Wood
Luz Young

Corporate Information
Corporate Headquarters
Jeffersonville Bancorp
300 Main Street
P.O. Box 398
Jeffersonville, New York 12748
Tel. (914) 482-4000
http://www.jeffbank.com
Description of Business
Jeffersonville  Bancorp is a one-bank holding company formed in June 1982, under
the laws of the State of New York.  Its subsidiary is The First National Bank of
Jeffersonville,   which  serves  Sullivan  County,   New  York  and  surrounding
communities  in  Southeastern,  New York through eight  offices.  A full-service
commercial  bank,  it provides a broad range of  financial  products,  including
demand and time deposits, mortgage, consumer, commercial and agricultural loans

Annual Meeting

The Annual Meeting of  stockholders  will be held on Tuesday,  April 29, 1997 at
3:00 p.m., in the Companys Board Room at Jeffersonville, New York.

Annual Report on Form 10-K

Upon written request, Company management will provide, without charge, a copy of
the Companys  annual report on Form 10-K filed with the  Securities and Exchange
Commission.  Requests for this  information  should be submitted to the Companys
Treasurer at the above address.

Stock  Information

In January  1997,  the  Company  announced  that  trading  in its  common  stock
commenced on the  Over-The-Counter  market  under the symbol  JFBC.  Ryan Beck &
Company of West Orange,  New Jersey is the primary market maker (contact  Andrew
Lieb at 800-342-2325).  In January 1997, the Companys stock traded for $21.00 to
$22.00 per share. During 1996, the Companys Board of Directors declared two cash
dividends, in June for $0.32 per share and December for $0.33 per share.

Jeffersonville Bancorp
P.O. Box 398
Jeffersonville, New York 12748
http://www.jeffbank.com