Jeffersonville Bancorp 2001  (LOGO)  Annual Report and 10K

(PHOTO)
(C) Nature's Art LLC 2001 Photographer: John A. DiGiorgio

<PAGE>


     The American bald eagle, our nation's symbol, represents strength, power
and individualism. It is uniquely ours, living and breeding only in North
America. Here in the Catskills/Upper Delaware Region, we can also lay claim
to the eagle being "uniquely ours." Around 10 breeding pairs of eagles
currently make their nests in our area.

     Since September 11, we have seen a surge in patriotism. American flags
and stirring images of the eagle are everywhere. Locally, we should be proud
to be playing a role in the recovery and survival of our nation's symbol. For
more information about eagles in our region, contact the Eagle Institute at
(845) 557-6162, or visit their web site at www.eagleinstitute.org.

     The image on the cover is by John A. DiGiorgio of Nature's Art in
Narrowsburg, New York. Nature's Art is dedicated to capturing images and
promoting awareness of the beauty and wild heritage of our wildlife.


<PAGE>


                      To Our Stockholders and Customers

The year 2001 proved to be both challenging yet rewarding for Jeffersonville
Bancorp. We enjoyed continued growth in deposits in excess of 6%, with demand
deposits growing over 14%. Our overall loan growth exceeded 10%, with real
estate loan growth exceeding 12%. We continue to make significant investments
in our future, focusing on areas to improve efficiency, grow loans and
deposits, improve net income, and expand customer services and products. We
continue the process of upgrading technology to serve our customers more
effectively without sacrificing our emphasis on the personal side of banking.
We also continued to expand our product lines. All of these initiatives have
associated costs, however we believe the rewards of these investments will
greatly exceed the costs.

     Net income for 2001 was $2.43 per share, which was 30.6% above net
income for 2000 of $1.86 per share. One of our goals at the beginning of the
year 2001 was to achieve record earnings. The year 2001 got off to a slow
start due to the carrying costs incurred in connection with a large
commercial loan foreclosure we took possession of in 2000. However, interest
rate reductions by the Federal Reserve resulted in a reduction in interest
expense of over 8% which helped account for our record earnings.

     Foreclosures were well below the levels of 2000 reflecting an overall
improvement in asset quality statistics and other real estate balances. Our
net charge-offs in 2001 were less than 2000. We increased our allowance by
$179,000, while our provision for loan losses remained the same as in 2000.
The increase in earnings resulted in your Board of Directors increasing
dividends from $.72 to $.74 per share, an increase of over 2%.

     We have also continued our trend of increasing our market share of
deposits within Sullivan County to almost 28% with our nearest competitor at
less than 15%. Our continuing growth in market share and loan balances
confirms that we are achieving our mission as a community bank, to serve the
banking needs of the residents, small businesses and local governments of
Sullivan County.

     Continuing our practice of prior years, we continued to repurchase
shares when market conditions warranted. During the year, we repurchased a
total of 25,978 shares at a cost of $554,000. Your Board of Directors has
earmarked an additional $1 million for stock repurchases for the current
year.

     We are looking forward to the new optimism being exhibited in the county
and want to share in the opportunities. We continue to consider opportunities
to expand services to our customers and strive to improve upon all facets of
our operation. If you have any questions regarding this report please contact
us.

(PHOTO)
Arthur E. Keesler

(PHOTO)
Raymond Walter

                            /s/ Arthur E. Keesler
                              Arthur E. Keesler
                                  President
                           Jeffersonville Bancorp

                              /s/ Raymond Walter
                               Raymond Walter
                                  President
                  The First National Bank of Jeffersonville

                                      1


<PAGE>


                       Selected Financial Information

<TABLE>

<CAPTION>

FIVE-YEAR SUMMARY

                                           2001             2000             1999             1998             1997

<S>                                <C>              <C>              <C>              <C>              <C>
RESULTS OF OPERATIONS
Interest income                    $ 20,230,000     $ 19,379,000     $ 18,444,000     $ 17,102,000     $ 15,847,000
Interest expense                      7,627,000        8,295,000        7,711,000        7,492,000        6,943,000
Net interest income                  12,603,000       11,084,000       10,733,000        9,610,000        8,904,000
Provision for loan losses               300,000          300,000          300,000          600,000        1,150,000
Net income                            3,625,000        2,823,000        2,873,000        2,318,000        1,763,000

FINANCIAL CONDITION
Total assets                       $298,110,000     $273,464,000     $256,960,000     $243,853,000     $213,659,000
Deposits                            238,029,000      223,278,000      201,603,000      198,114,000      179,160,000
Gross loans                         162,711,000      147,456,000      140,261,000      132,341,000      127,655,000
Stockholders' equity                 27,313,000       25,109,000       22,001,000       23,017,000       22,176,000

AVERAGE BALANCES
Total assets                       $286,823,000     $268,967,000     $254,777,000     $230,955,000     $211,034,000
Deposits                            234,431,000      218,671,000      207,018,000      191,322,000      180,635,000
Gross loans                         157,165,000      143,954,000      137,696,000      129,754,000      122,567,000
Stockholders' equity                 28,139,000       24,261,000       22,816,000       22,752,000       21,539,000

FINANCIAL RATIOS
Net income to average
  total assets                             1.26%            1.05%            1.13%            1.00%            0.84%
Net income to average
  stockholders' equity                    12.88%           11.64%           12.59%           10.19%            8.19%
Average stockholders' equity
  to average total assets                  9.81%            9.02%            8.96%            9.85%           10.21%

PER SHARE DATA
Net income per share               $       2.43     $       1.86     $       1.87     $       1.49     $       1.13
Dividends per share                $       0.74     $       0.72     $       0.62     $       0.55     $       0.51
Dividend payout ratio                     30.40%           38.72%           33.41%           36.66%           44.92%
Book value at year end             $      18.48     $      16.69     $      14.40     $      14.88     $      14.20
Total dividends paid               $  1,102,000     $  1,093,000     $    960,000     $    850,000     $    792,000
Average number of
  shares outstanding                  1,490,888        1,517,259        1,534,288        1,556,500        1,561,228
Shares outstanding
  at year end                         1,478,107        1,504,085        1,528,359        1,546,485        1,561,225

</TABLE>

                                      2


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

The following is a discussion of the factors, which significantly
affected the consolidated results of operations and financial condition of
Jeffersonville Bancorp ("the Parent Company") and its wholly-owned
subsidiary, The First National Bank of Jeffersonville ("the Bank"). For
purposes of this discussion, references to the Company include both the Bank
and Parent Company, as the Bank is the Parent Company's only subsidiary. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto, and the other financial information appearing
elsewhere in this annual report.

     This document contains forward-looking statements, which are based on
assumptions and describe future plans, strategies and expectations of the
Company. These forward-looking statements are generally identified by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar words. The Company's ability to predict results and the actual
effect of future plans or strategies is uncertain. Factors which could have a
material adverse effect on operations include, but are not limited to,
changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and Federal Reserve
Board, the quality or composition of the loan or investment portfolios,
demand for loan products, deposit flows, competition, demand for financial
services in the Company's market areas and accounting principles and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements.Actual results could differ materially from
forward-looking statements.

General

The Parent Company is a one-bank holding company founded in 1982 and
headquartered in Jeffersonville, New York. The Parent Company owns 100% of
the outstanding shares of the Bank's common stock and derives substantially
all of its income from the Bank's operations. The Bank is a commercial bank
chartered in 1913 serving Sullivan County, New York with offices in
Jeffersonville, Eldred, Liberty, Loch Sheldrake, Monticello (2), Livingston
Manor, Narrowsburg, Callicoon and Wurtsboro.

     The Company's mission is to serve the community banking needs of its
borrowers and depositors, who predominantly are individuals, small businesses
and local municipal governments. The Company believes it understands its
local customer needs and provides quality service with a personal touch. This
discussion and analysis of financial results should be reviewed in
conjunction with the Company's audited financial statements.

Local Economy

The local economy began to show signs of improvement in 2001. Non-performing
assets and delinquency statistics showed some improvement in 2001 as compared
to 2000. Other real estate owned decreased from $2,564,000 in 2000 to
$1,237,000 in 2001. This net decrease is due to the sale of 40 of the 81
foreclosed condominium units at Grandview Palace. As of December 31, 2001, 41
units remain, of which 26 are currently under sales contract. We anticipate
full disposal of all remaining units by 2002. Delinquencies of ninety days or
more decreased in the residential and commercial loan portfolios. Confined
improvement in the local economy will be heavily dependent on the Sullivan
County tourism and real estate markets. Several major projects continued to
progress, which increase optimism in the county's future. A permanent concert
facility will be constructed on the original site of the Woodstock Festival
in Bethel and is moving ahead. Kohl's Department Store has almost completed
construction of a major distribution center in the Town of Mamakating, which
will employ five to six hundred individuals. Recent legislation approval,
property purchases and agreements, and gaming applications lead us to believe
that casino gambling will be a reality in the near future. The success of
these projects, tourism, real estate values and the availability of qualified
labor is critical to the economy and the Company.

Financial Condition

Total assets increased by $24.6 million or 9.0% to $298.1 million at December
31, 2001 from $273.5 million at December 31, 2000. The increase was primarily
due to a $15.3 million or 10.3% increase in gross loans outstanding from
$147.5 million at December 31, 2000

                                      3


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

to $162.7 million at December 31, 2001. Securities available for sale
increased $9.9 million from $94.2 million at December 31, 2000 to $104.1
million at December 31, 2001. Securities held to maturity increased $400,000
from purchases of municipal securities. These 2001 asset increases were
funded by a $14.8 million increase in total deposits from $223.3 million at
December 31, 2000 to $238.0 million at December 31, 2001. Much of the
securities portfolio remains funded with long term borrowings from the
Federal Home Loan Bank, a leveraging strategy implemented in 1997, in which
the Company funded security purchases with FHLB borrowings at a positive
interest rate spread.

     In 2001, total gross loans increased $15.3 million or 10.3% from $147.5
million to $162.7 million. Within the loan portfolio, commercial real estate
loans increased $6.3 million to $39.9 million at December 31, 2001,
residential real estate increased by $2.3 million to $67.2 million, real
estate construction loans increased $4.2 million to $5.6 million, home equity
loans increased $1.3 million to $12.8 million and consumer loans decreased
$400,000 to $20.7 million. The commercial real estate growth reflects the
Company's strategy to provide loans for local real estate projects where
there is strong loan to values and solid principals. The growth in
residential mortgages reflects new products to meet the highly competitive
nature of this market. As a result of casino gambling proposals and related
local economic improvement, the Company anticipates continued commercial real
estate loan opportunities. Accordingly, additional growth is anticipated in
commercial real estate loans during 2002. The overall loan portfolio is
structured in accordance with management's belief that loans secured by
residential and commercial real estate generally result in lower loan loss
levels compared to other types of loans, because of the value of the
underlying collateral. In the event that the casino gambling proposals do not
progress, collateral underlying certain real estate projects could lose
value.

     Other real estate owned at December 31, 2001 was $1.2 million compared
to $2.6 million at December 31, 2000. During the third quarter of 2000, the
Bank obtained a deed in lieu of foreclosure to 81 condominium units at the
Grandview Palace in Loch Sheldrake, New York. The total loan balance at that
time was $2.2 million. As of year end, we had 41 units remaining of which 26
were under contract for sale. Total non-performing loans decreased from $2.4
million at December 31, 2000 to $1.7 million at December 31, 2001. Net loan
charge-offs decreased from $201,000 in 2000 to $121,000 in 2001. At December
31, 2001, the allowance for loan losses equaled $2.6 million representing
1.61% of total gross loans outstanding and 157.7% of total non-performing
loans.

     Total deposits increased $14.8 million to $238.0 million at December 31,
2001 from $223.3 million at December 31, 2000. Within the deposit mix, both
lower costing demand and savings deposits increased as did higher costing
time deposits. Much of the increase in deposits was caused by the Company's
continued success of new branches and the attraction of new customers from
larger regional banks. The Company continues to be successful in increasing
demand deposit balances, which provides a pool of low cost funds for
reinvest-ment opportunities. Demand deposits increased from $39.7 million at
December 31, 2000 to $45.7 million at December 31, 2001, an increase of $5.9
million or 15.0%.

     Total stockholders' equity was $27.3 million at December 31, 2001, an
increase of $2.2 million from December 31, 2000. The increase was due
primarily to net income and the increase in accumulated other comprehensive
income of $235,000 reduced by cash dividends of $1,102,000, and treasury
stock repurchases of $554,000.

Results of Operations 2001 versus 2000

NET INCOME

Net income for 2001 of $3.6 million increased 28.4% or $0.8 million from the
2000 net income of $2.8 million. The higher level of earnings in 2001
reflects the interaction of a number of factors including increases in
interest income, decreases in interest expense and several higher
non-interest expense categories. The most significant factor, which increased
2001 net income was the increase in interest income to $20.2 million from
$19.4 million in 2000, an increase of $851,000 or 4.4%. An additional factor
was the decrease in interest expense to $7.6 million from $8.3 million in
2000, a decrease of $668,000 or 8.1%. The provision for loan losses was
$300,000 in both 2001 and 2000. Salary expense

                                      4


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

increased $183,000 or 5.1% in 2001, primarily due to the addition of new
employees and normal salary increases. Occupancy and equipment expenses
increased by $154,000 or 10.4% due to increased costs incurred for the full
effect of new branches. Net other real estate owned expense increased by
$192,000 in 2001, primarily due to selling and maintenance costs associated
with disposition of Grandview Palace condominium units.

INTEREST INCOME AND INTEREST EXPENSE

Throughout the following discussion, net interest income and its components
are expressed on a tax equivalent basis which means that, where appropriate,
tax exempt income is shown as if it were earned on a fully taxable basis.

     The largest source of income for the Company is net interest income,
which represents interest earned on loans, securities and short-term
investments, less interest paid on deposits and other interest bearing
liabilities. Tax equivalent net interest income of $13.1 million for 2001
represented an increase of 11.9% compared to $11.7 million for 2000. Net
interest margin increased to 4.96% in 2001 compared to 4.76% in 2000, as
decreases in cost of deposits and borrowings exceed decreases in earning
asset yields.

     Total interest income for 2001 was $20.8 million, compared to $20.0
million in 2000. The increase in 2001 is the result of an increase in the
average balance of interest earning assets from $246.4 million in 2000 to
$264.8 million in 2001, an increase of 7.5%. Interest income from the
increase in earning assets was offset by an overall decrease in average yield
on earning assets of twenty-nine basis points in 2001. Total average
securities (securities available for sale and securities held to maturity)
increased $1.2 million or 1.2% in 2001 to $101.7 million. The increase in
2001 reflects excess funds derived from increased deposits, which were not
needed to fund new loans. The benefits of increased average security balances
was offset by a decreasing yield on total securities which decreased from
6.88% in 2000 to 6.63% in 2001 due to the overall decline in interest rates.
In 2001, average loans increased $13.2 million to $157.2 million from $144.0
million in 2000. Concurrently the average loan yield decreased from 9.02% in
2000 to 8.75% in 2001. Average residential and commercial real estate loans
continued to make up a major portion of the loan portfolio at 69.3% of total
loans in 2001. In 2002, increases in funding will continue to be allocated
first to meet loan demand, as necessary, and then to the securities
portfolios.

     Total interest expense in 2001 decreased $669,000 or 8.1% over 2000. The
average balance of interest bearing liabilities increased from $204.3 million
in 2000 to $214.5 million in 2001, an increase of 5.0%. During 2001, the
average cost of total interest bearing liabilities decreased by fifty basis
points, reflecting the lower market interest during the year.

     Average interest bearing deposits increased $10.9 million to reach
$192.9 million in 2001, an increase of 6.0%. The lower interest rates paid on
time savings certificates resulted from general market conditions in 2001 as
compared to 2000, a reduction of 33 basis points from 5.19% in 2000 to 4.86%.
Interest rates on interest bearing deposits decreased from an average rate
paid of 3.92% in 2000 to 3.39% in 2001. In 2001, average demand deposit
balances increased 13.4% over 2000.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $300,000 in 2001 and 2000. Provisions for
loan losses are recorded to maintain the allowance for loan losses at an
amount management considers adequate to cover loan losses which are deemed
probable and can be estimated. These provisions were based upon a number of
factors, including asset classifications, management's assessment of the
credit risk inherent in the portfolio, historical loan loss experience,
economic trends, industry experience and trends, estimated collateral values
and underwriting policies. Total non-performing loans decreased from $2.4
million at December 31, 2000 to $1.7 million at December 31, 2001. This
decrease was due to decreases in 90 day and over delinquencies in the
residential and commercial loan portfolios. Net loan charge-offs decreased
from $201,000 in 2000 to $121,000 in 2001.

                                      5


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

SUMMARY OF LOAN LOSS EXPERIENCE

The following table indicates the amount of charge-offs and recoveries in the
loan portfolio by category.

<TABLE>

ANALYSIS OF THE CHANGES IN ALLOWANCE FOR LOAN LOSSES FOR 2001, 2000 AND 1999

<CAPTION>

                                                                   2001             2000              1999

<S>                                                          <C>              <C>               <C>
Balance at beginning of year                                 $2,435,000       $2,336,000        $2,310,000
Charge-offs:
   Commercial, financial and agriculture                        (29,000)          (9,000)          (29,000)
   Real estate -- mortgage                                      (35,000)         (28,000)          (74,000)
   Installment loans to individuals                            (179,000)        (214,000)         (246,000)
   Other loans                                                  (76,000)         (95,000)          (96,000)

      Total charge-offs                                        (319,000)        (346,000)         (445,000)

Recoveries:
   Commercial, financial and agriculture                         43,000           31,000            15,000
   Real estate -- mortgage                                       38,000           16,000            59,000
   Installment loans to individuals                              95,000           71,000            82,000
   Other loans                                                   22,000           27,000            15,000

      Total recoveries                                          198,000          145,000           171,000

Net charge-offs                                                (121,000)        (201,000)         (274,000)
Provision charged to operations                                 300,000          300,000           300,000

Balance at end of year                                       $2,614,000       $2,435,000        $2,336,000

Ratio of net charge-offs to average outstanding loans               .08%             .14%              .20%

</TABLE>

     Net charge-offs were 0.08% of average outstanding loans in 2001 compared
to 0.14% in 2000 and 0.20% in 1999, a continued stabilization of loan losses.
Continuation of this trend in net charge-offs will still depend significantly
on improvement in the local economy.

     The Company manages asset quality with a review process that includes
analysis of credit applications and both internal and external loan review of
existing outstanding loans and delinquencies. Management strives to identify
potential non-performing loans early; take charge-offs promptly based on a
realistic assessment of probable losses; and maintain an adequate allowance
for loan losses based on the inherent risk of loss in the existing portfolio.

     The allowance for loan losses was $2.6 million at December 31, 2001
compared to $2.4 million and $2.3 million at December 31, 2000 and 1999,
respectively. The allowance as a percentage of total loans was 1.61% at
December 31, 2001, compared to 1.65% and 1.67% at December 31, 2000 and 1999,
respectively. The allowance's coverage of non-performing loans was 157.7% and
99.8% at December 31, 2001 and 2000 respectively.

                                      6


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

     No portion of the allowance for loan losses is restricted to any loan or
group of loans, as the entire allowance is available to absorb charge-offs in
any loan category. The amount and timing of future charge-offs and allowance
allocations may vary from current estimates and will depend on local economic
conditions. The following table shows the allocation of the allowance for
loan losses to major portfolio categories and the percentage of each loan
category to total loans outstanding.

<TABLE>

DISTRIBUTION OF ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31, 2001

<CAPTION>

                                                                                          Percentage      Loan Balance
                                                                      Allowance           of Total        by Type to
Loan Category                                                         Balance             Allowance       Total Loans<F1>

<S>                                                                   <C>                 <C>             <C>
Residential mortgages (includes home equity loans)                    $  848,000             32.4%             55.1%
Commercial mortgages                                                     300,000             11.5              21.6
Commercial loans                                                         630,000             24.1               7.0
Consumer loans                                                           603,000             23.1              13.4
Other loans                                                              233,000              8.9               2.9

                                                                      $2,614,000            100.0%            100.0%

<FN>

<F1> Percentage relationship between average loans outstanding by type
     compared to total average loans outstanding.

</FN>

</TABLE>

<TABLE>

DISTRIBUTION OF ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31, 2000

<CAPTION>

                                                                                     Percentage        Loan Balance
                                                                       Allowance       of Total         by Type to
Loan Category                                                            Balance      Allowance        Total Loans<F1>

<S>                                                                   <C>            <C>               <C>
Residential mortgages (includes home equity loans)                    $  802,000           32.9%             56.0%
Commercial mortgages                                                     500,000           20.5              21.4
Commercial loans                                                         381,000           15.7               7.2
Consumer loans                                                           542,000           22.3              13.9
Other loans                                                              210,000            8.6               1.5

                                                                      $2,435,000          100.0%            100.0%

<FN>

<F1> Percentage relationship between average loans outstanding by type
     compared to total average loans outstanding.

</FN>

</TABLE>

     Management believes that the allowance for loan losses is adequate;
however, certain regulatory agencies, as an integral part of their
examination process, periodically review the adequacy of the Company's
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgments about information
available to them at the time of their examination, which may not be
currently available to management.

                                      7
<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

NONACCRUAL AND PAST DUE LOANS

The Company places a loan on nonaccrual status when collectability of
principal or interest is doubtful, or when either principal or interest is 90
days or more past due and the loan is not well secured and in the process of
collection. Interest payments received on nonaccrual loans are applied as a
reduction of the principal balance when concern exists as to the ultimate
collection of principal. A distribution of nonaccrual loans and loans 90 days
or more past due and still accruing interest is shown in the following table.

<TABLE>

<CAPTION>

DECEMBER 31, 2001

                                                   90 Days
                                                  Or More,
                                                     Still
Loan Category                       Nonaccrual    Accruing          Total                 Percentage<F1>   Percentage<F2>

<S>                                 <C>           <C>               <C>                   <C>             <C>
Residential mortgages
  (includes home equity loans)      $372,000      $539,000          $  911,000            1.1%             55.0%
Commercial mortgages                 222,000        95,000             317,000            0.8              19.1
Commercial loans                     240,000       167,000             407,000            2.2              24.5
Consumer loans                        15,000         8,000              23,000            0.1               1.4

Total                               $849,000      $809,000          $1,658,000            1.0%            100.0%

<FN>

<F1> Percentage of gross loans outstanding for each loan category.

<F2> Percentage of total nonaccrual and 90 day past due loans.

</FN>

</TABLE>

<TABLE>

<CAPTION>

DECEMBER 31, 2000

                                                      90 Days
                                                     Or More,
                                                        Still
Loan Category                       Nonaccrual       Accruing         Total                 Percentage<F1>  Percentage<F2>

<S>                                 <C>             <C>               <C>                   <C>             <C>
Residential mortgages               $718,000        $1,006,000        $1,724,000            2.3%             70.7%
Commercial mortgages                  42,000           629,000           671,000            2.0              27.5
Commercial loans                          --                --                --             --                --
Consumer loans                        15,000            29,000            44,000            0.2               1.8

Total                               $775,000        $1,664,000        $2,439,000            1.7%            100.0%

<FN>

<F1> Percentage of gross loans outstanding for each loan category.

<F2> Percentage of total nonaccrual and 90 day past due loans.

</FN>

</TABLE>

     The decrease in total non-performing loans is primarily due to decreases
in past due residential mortgages and commercial mortgages. Total nonaccrual
and 90 day past due residential and commercial mortgage loans represent 1.1%
and 0.8% of the respective portfolio totals, an improvement over last year.
The majority of the Company's total nonaccrual and past due loans are secured
loans and, as such, management anticipates there will be limited risk of loss
in their ultimate resolution.

     From time to time, loans may be renegotiated in a troubled debt
restructuring when the Company determines that it will ultimately receive
greater economic value under the new terms than through foreclosure,
liquidation, or bankruptcy. Candidates for renegotiation must meet specific
guidelines. There were no restructured loans as of December 31, 2001 and
2000.

                                      8
<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

LOAN PORTFOLIO

The following table indicates the amount of loans in portfolio categories
according to their period to maturity. The table also indicates the dollar
amount of these loans that have predetermined or fixed rates vs. variable or
adjustable rates.

<TABLE>

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES AT DECEMBER 31, 2001

<CAPTION>

                                                                        One Year
                                                      One Year           Through            After
                                                       or Less        Five Years       Five Years             Total

<S>                                                <C>                <C>              <C>              <C>
Commercial, financial and agricultural             $ 7,752,000        $6,267,000       $3,133,000       $17,152,000
Real estate construction                             5,469,000           101,000               --         5,570,000

      Total                                        $13,221,000        $6,368,000       $3,133,000       $22,722,000

Interest sensitivity of loans:
   Predetermined rate                              $ 4,600,000        $5,892,000       $3,133,000       $13,625,000
   Variable rate                                     8,621,000           476,000               --         9,097,000

      Total                                        $13,221,000        $6,368,000       $3,133,000       $22,722,000

</TABLE>

OTHER REAL ESTATE OWNED

Other real estate owned represents properties acquired through foreclosure
and is recorded on an individual-asset basis at the lower of (1) fair value
less estimated costs to sell or (2) cost, which represents the loan balance
at initial foreclosure. When a property is acquired, the excess of the loan
balance over the fair value of the property is charged to the allowance for
loan losses. Subsequent write downs to reflect further declines in fair value
are included in non-interest expense.

     The following are the changes in other real estate owned during the last
two years:

Years Ended December 31,            2001           2000

Beginning balance            $ 2,564,000    $   693,000
Additions (includes
  costs capitalized)             787,000      2,629,000
Sales                         (2,097,000)      (678,000)
Write downs                      (17,000)       (80,000)

Ending balance               $ 1,237,000     $2,564,000

NON-INTEREST INCOME AND EXPENSE

Non-interest income primarily consists of service charges, commissions and
fees for various banking services, and securities gains and losses. Total
non-interest income in 2001 increased 19.3% or $467,000 over 2000. The
increase is attributable to ATM debit card revenue, income from ATM fees
charged to nonbank customers, increases in fees for NSF checks, higher
monthly service charges for checking accounts, and income recorded for the
increase in cash surrender value of bank-owned life insurance.

     Non-interest expense increased by $684,000 or 7.2% in 2001. Salary and
wage expense combined with employee benefit expense increased 3.0% to $5.4
million in 2001. This increase was caused by increased expenses for normal
salary increases. Occupancy and equipment expense increased 10.4% to reach
$1.6 million in 2001. Net other real estate owned expense increased $192,000
to $714,000 in 2001 from $522,000 in 2000 primarily due to expenses related
to Grandview Palace. Recent sale trends are very encouraging and we expect
other real estate expenses to decline due to the sales activity at Grandview
Palace. Other non-interest expense increased by $184,000 or 7.9% in 2001 to
$2.5 million from $2.3 million in 2000.

INCOME TAX EXPENSE

Income tax expense totaled 1,322,000 in 2001 versus $822,000 in 2000. The
effective tax rate approximated 26.7% in 2001 and 22.6% in 2000. This
relatively low tax rate reflects the favorable tax treatment received on
municipal security interest and other tax reduction strategies.

                                      9


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

Results of Operations 2000 versus 1999

NET INCOME

Net income for 2000 of $2.8 million was down 1.7% from the 1999 net income of
$2.9 million. The lower level of earnings in 2000 reflects the interaction of
a number of factors including increases in net interest income, offset by
increased interest expense and several higher non-interest expense
categories. The most significant factor, which decreased 2000 net income was
the increase in non-interest expense to $9.6 million from $8.8 million in
1999, an increase of $784,000 or 8.9%. The provision for loan losses was
$300,000 in both 2000 and 1999. Salary expense increased $162,000 or 4.7% in
2000, primarily due to the addition of new employees, a new branch and normal
salary increases. Employee benefit expenses increased by $375,000 or 4.8% due
to the costs incurred for post retirement benefits and the pension plan. Net
other real estate owned expense increased by $278,000 in 2000, primarily due
to costs associated with Grandview Palace.

INTEREST INCOME AND INTEREST EXPENSE

Tax equivalent net interest income of $11.7 million for 2000 represented an
increase of 3.2%, compared to $11.4 million for 1999. Total interest income
for 2000 was $20.0 million, compared to $19.1 million in 1999. The increase
in 2000 is the result of an increase in the average balance of interest
earning assets from $237.3 million in 1999 to $246.4 million in 2000, an
increase of 3.8%. The increase in earning assets complemented an overall
increase in average yield on earning assets of nine basis points in 2000.

     Total interest expense in 2000 increased $584,000 or 7.6% over 1999. The
average balance of interest bearing liabilities increased from $197.4 million
in 1999 to 204.3 million in 2000, an increase of 3.5%. During 2000, the
average deposit rate and the average cost of total interest bearing
liabilities increased by twenty-three basis points and fifteen basis points,
respectively, reflecting the higher market interest rates during the year.
Net interest margin decreased to 4.76% in 2000, compared to 4.79% in 1999.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $300,000 in 2000 and 1999. Provisions for
loan losses are recorded to maintain the allowance for loan losses at an
amount management considers adequate to cover loan losses, which are deemed
probable and can be estimated. These provisions were based upon a number of
factors, including asset classifications, management's assessment of the
credit risk inherent in the portfolio, historical loan loss experience,
economic trends, industry experience and trends, estimated collateral values
and underwriting policies. Total non-performing loans increased from $1.9
million at December 31, 1999 to $2.4 million at December 31, 2000. Net loan
charge-offs decreased from $274,000 in 1999 to $201,000 in 2000. At December
31, 2000, the allowance for loan losses equaled $2.4 million representing
1.60% of total gross loans outstanding and 99.8% of total non-performing
loans.

NON-INTEREST INCOME AND EXPENSE

Total non-interest income in 2000 increased 9.7% or $213,000 over 1999. The
increase is attributable to income earned on ATM debit card fees, income from
ATM fees charged to nonbank customers, increases in fees for NSF checks,
higher monthly service charges for checking accounts, and income recorded for
the increase in cash surrender value of bank-owned life insurance.

     Non-interest expense increased by $784,000 or 8.9% in 2000. Salary and
wage expense, combined with employee benefit expense, increased 4.8% to $5.2
million in 2000, compared to $4.8 million in 1999. Occupancy and equipment
expense increased 2.3% to reach $1.5 million in 2000 an increase of $33,000
over 1999. Net other real estate owned expense increased $278,000 to $522,000
in 2000 from $244,000 in 1999 primarily due to expenses related to Grandview
Palace. Other non-interest expense increased by $236,000 or 11.3% in 2000 to
$2.3 million from $2.1 million, primarily due to higher professional costs.

INCOME TAX EXPENSE

Income tax expense decreased to $822,000 from $992,000, primarily as a result
of the decrease in income before taxes. The effective tax rates of 22.6% and
25.7% for 2000 and 1999, respectively, are a result of the favorable tax
treatment on tax exempt interest income.

LIQUIDITY

Liquidity is the ability to provide sufficient cash flow to meet financial
commitments such as additional loan demand and withdrawals of existing
deposits. The Company's primary sources of liquidity are its deposit base;
FHLB borrowings; repayments and maturities on loans; short-term assets such
as federal funds and short-term interest bearing deposits in banks; and
maturities and sales of securities available for sale. These sources are
available in amounts sufficient to provide liquidity to meet the Company's
ongoing funding requirements.

                                     10


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

The Bank's membership in the FHLB of New York enhances liquidity in the form
of overnight and 30 day lines of credit of approximately $28.0 million, which
may be used to meet unforeseen liquidity demands. There were no overnight
borrowings being used at December 31, 2001. Six separate FHLB term advances
totaling $30.0 million at December 31, 2001 were being used to fund
securities leverage transactions.

     In 2001, cash generated from operating activities amounted to $4.2
million and cash generated from financing activities amounted to $20.4
million. These amounts were offset by a use of cash in investing activities
of $24.1 million, resulting in a net increase in cash and cash equivalents of
$482,000. See the Consolidated Statements of Cash Flows for additional
information.

MATURITY SCHEDULE OF TIME DEPOSITS OF $100,000 OR MORE AT DECEMBER 31, 2001

Deposits
Due three months or less                    $14,428,000
Over three months through six months          4,220,000
Over six months through twelve months         1,678,000
Over twelve months                            1,715,000

                                            $22,041,000

     Management anticipates much of these maturing deposits to rollover at
maturity, and that liquidity will be adequate to meet funding requirements.

CAPITAL ADEQUACY

One of management's primary objectives is to maintain a strong capital
position to merit the confidence of depositors, the investing public, bank
regulators and shareholders. A strong capital position should help the
Company withstand unforeseen adverse developments and take advantage of
profitable investment opportunities when they arise. Stockholders' equity
increased $2.2 million or 8.8% in 2001 following an increase of 14.1% in
2000.

     In 2000, the Board of Directors authorized that $1.0 million be made
available to purchase shares on the open market. Through December 31, 2001, a
total of 25,978 common shares were purchased and retired, reducing
stockholders' equity by $554,000. Management believes that the repurchase of
Company stock represents a prudent use of excess capital.

     The Company retained $2.5 million from 2001 earnings, while other
comprehensive income increased stockholders' equity by $1.9 million. In
accordance with regulatory capital rules, the adjustment for other
comprehensive income is not considered in the computation of regulatory
capital ratios.

     Under the Federal Reserve Bank's risk-based capital rules, the Company's
Tier I risk-based capital was 16.1% and total risk-based capital was 17.4% of
risk-weighted assets. These risk-based capital ratios are well above the
minimum regulatory requirements of 4.0% for Tier I capital and 8.0% for total
capital. The Company's leverage ratio (Tier I capital to average assets) of
9.2% is well above the 4.0% minimum regulatory requirement. The following
table shows the Company's actual capital measurements compared to the minimum
regulatory requirements.

<TABLE>

<CAPTION>

As of December 31,                                                                    2001                       2000

<S>                                                                           <C>                        <C>
TIER I CAPITAL
Stockholders' equity, excluding the after-tax net
  unrealized gain on debt securities available for sale                       $ 27,137,000               $ 25,543,000

TIER II CAPITAL
Allowance for loan losses<F1>                                                    2,111,000                  1,931,000

Total risk-based capital                                                      $ 29,248,000               $ 27,474,000

Risk-weighted assets<F2>                                                      $168,320,000               $153,995,000

Average assets                                                                $296,411,000               $268,967,000

RATIOS
Tier I risk-based capital (minimum 4.0%)                                              16.1%                      16.6%
Total risk-based capital (minimum 8.0%)                                               17.4%                      17.8%
Leverage ( minimum 4.0%)                                                               9.2%                       9.5%

<FN>

<F1> The allowance for loan losses is limited to 1.25% of risk-weighted
     assets for the purpose of this calculation.

<F2> Risk-weighted assets have been reduced for the portion allowance for
     loan losses excluded from total risk-based capital.

</FN>

</TABLE>

                                     11


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

Recent Accounting Standards

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 137 and SFAS No. 138, establishes
comprehensive accounting and reporting requirements for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Changes in the fair value of the
derivative financial instruments are reported in either earnings or
comprehensive income, depending on the use of the derivative and whether or
not it qualifies for hedge accounting. The statement also permits certain
reclassification of securities among the trading, available for sale and held
to maturity classifications. The adoption of SFAS No. 133, as amended, on of
January 1, 2001 did not have a material impact on the Company's consolidated
financial statements.

     In July 2001, the FASB issued SFAS No. 141, "Business Combinations,"
which requires that all business combinations be accounted for under the
purchase method. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 requires that the purchase method be used for
business combinations initiated after June 30, 2001. The adoption of this
pronouncement will not have any effect on the Company's consolidated
financial statements.

     In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The Company adopted this
statement effective January 1, 2002. The adoption of this pronouncement will
not have any effect on the Company's consolidated financial statements.

Critical Accounting Policies

Pursuant to recent SEC guidance, management of public companies are
encouraged to evaluate and disclose those accounting policies that are judged
to be critical policies, or those most important to the portrayal of the
Company's financial condition and results, and that require management's most
difficult subjective or complex judgments. Management of the Company
considers the accounting policy relating to the allowance for loan losses to
be a critical accounting policy given the inherent uncertainty in evaluating
the levels of the allowance required to cover credit losses in the portfolio
and the material effect that such judgments can have on the results of
operations. The allowance for loan losses is maintained at a level deemed
adequate by management based on an evaluation of such factors as economic
conditions in the Company's market area, past loan loss experience, the
financial condition of individual borrowers, and underlying collateral values
based on independent appraisals. While management uses available information
to recognize losses on loans, future additions to the allowance for loan
losses may be necessary based on changes in economic conditions, particularly
in Sullivan County. In addition, Federal regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses and may require the Company to recognize additions
to the allowance based on their judgments about information available to them
at the time of their examination, which may not be currently available to the
management.

     There are no new accounting standards that are expected to have a
material impact on the Company's consolidated financial statements.

                                      12


<PAGE>


         Distribution of Assets, Liabilities & Stockholders' Equity:
                    Interest Rates & Interest Differential

The following schedule presents the condensed average consolidated balance
sheets for 2001, 2000 and 1999. The total dollar amount of interest income
from earning assets and the resultant yields are calculated on a tax
equivalent basis. The interest paid on interest-bearing liabilities,
expressed in dollars and rates, are also presented.

<TABLE>

<CAPTION>

CONSOLIDATED AVERAGE BALANCE SHEET 2001

                                                                          Percentage
                                                                            of Total
                                                             Average         Average          Interest           Average
                                                             Balance          Assets       Earned/Paid        Yield/Rate

<S>                                                     <C>               <C>              <C>                <C>
ASSETS
Securities available for sale
  and held to maturity:<F3>
Taxable securities                                      $ 81,577,000       28.44%          $ 5,204,000         6.38%
Tax exempt securities                                     20,099,000        7.01             1,542,000         7.67

      Total securities                                   101,676,000       35.45             6,746,000         6.63

Short-term investments                                     5,913,000        2.06               258,000         4.36
Loans (net of unearned discount)
   Real estate mortgages                                 108,839,000       37.95             9,246,000         8.50
   Home equity loans                                      11,807,000        4.12               987,000         8.36
   Time and demand loans                                  10,935,000        3.81               976,000         8.93
   Installment loans                                      21,050,000        7.34             2,254,000        10.71
   Other loans                                             4,534,000        1.58               287,000         6.33

      Total loans<F1>                                    157,165,000       54.80            13,750,000         8.75

      Total interest earning assets                      264,754,000       92.31            20,754,000         7.84%

Allowance for loan losses                                 (2,553,000)      (0.89)
Unrealized gains and losses on portfolio                     619,000        0.22
Cash and due from banks (demand)                           8,787,000        3.06
Fixed assets (net)                                         2,645,000        0.92
Bank owned life insurance                                  7,112,000        2.48
Other assets                                               5,459,000        1.90

      Total assets                                      $286,823,000      100.00%

LIABILITIES AND STOCKHOLDERS' EQUITY
NOW and Super NOW deposits                              $ 29,668,000       10.34%              416,000         1.40%
Savings and insured money market deposits                 63,864,000       22.27             1,289,000         2.02
Time deposits                                             99,384,000       34.65             4,832,000         4.86

      Total interest bearing deposits                    192,916,000       67.26             6,537,000         3.39

Federal funds purchased and other short-term debt            409,000        0.14                21,000         5.13
Long-term debt                                            21,156,000        7.38             1,068,000         5.05

      Total interest bearing liabilities                 214,481,000       74.78             7,626,000         3.56

Demand deposits                                           41,515,000       14.47
Other liabilities                                          2,688,000        0.94

      Total liabilities                                  258,684,000       90.19
Stockholders' liability                                   28,139,000        9.81

      Total liabilities and stockholders' equity        $286,823,000      100.00%

Net interest income                                                                        $13,128,000

Net interest spread                                                                                            4.28%

Net interest margin<F2>                                                                                        4.96%

<FN>

<F1> For purpose of this schedule, interest in nonaccruing loans has been
     included only to the extent reflected in the consolidated income
     statement. However, the nonaccrual loan balances are included in the
     average amount outstanding.

<F2> Computed by dividing net interest income by total interest earning
     assets.

<F3> Yields on securities available for sale are based on amortized cost.

</FN>

</TABLE>

                                      13


<PAGE>


         Distribution of Assets, Liabilities & Stockholders' Equity:
                    Interest Rates & Interest Differential

<TABLE>

CONSOLIDATED AVERAGE BALANCE SHEET 2000

<CAPTION>

                                                                        Percentage
                                                                          of Total
                                                        Average            Average           Interest              Average
                                                        Balance             Assets        Earned/Paid           Yield/Rate

<S>                                                     <C>             <C>               <C>                   <C>
ASSETS
Securities available for sale
  and held to maturity:<F3>
Taxable securities                                      $ 76,168,000     28.32%           $ 5,013,000             6.58%
Tax exempt securities                                     24,305,000      9.04              1,901,000             7.82

      Total securities                                   100,473,000     37.36              6,914,000             6.88

Short-term investments                                     1,963,000      0.73                133,000             6.78
Loans (net of unearned discount)
   Real estate mortgages                                 100,217,000     37.26              8,517,000             8.50
   Home equity loans                                      11,247,000      4.18              1,015,000             9.02
   Time and demand loans                                  10,366,000      3.85              1,037,000            10.00
   Installment loans                                      20,034,000      7.45              2,136,000            10.66
   Other loans                                             2,090,000      0.78                274,000            13.11

      Total loans<F1>                                    143,954,000     53.52             12,979,000             9.02

      Total interest earning assets                      246,390,000     91.61             20,026,000             8.13%

Allowance for loan losses                                 (2,405,000)    (0.89)
Unrealized gains and losses on portfolio                  (3,671,000)    (1.36)
Cash and due from banks (demand)                           8,403,000      3.12
Fixed assets (net)                                         2,888,000      1.07
Bank owned life insurance                                  6,684,000      2.48
Other assets                                              10,678,000      3.97

      Total assets                                      $268,967,000    100.00%

LIABILITIES AND STOCKHOLDERS' EQUITY
NOW and Super NOW deposits                              $ 30,276,000     11.26%               674,000             2.23%
Savings and insured money market deposits                 63,551,000     23.63              1,889,000             2.97
Time deposits                                             88,224,000     32.80              4,578,000             5.19

      Total interest bearing deposits                    182,051,000     67.69              7,141,000             3.92

Federal funds purchased and other short-term debt          2,221,000      0.83                138,000             6.21
Long-term debt                                            20,000,000      7.43              1,016,000             5.08

      Total interest bearing liabilities                 204,272,000     75.95              8,295,000             4.06

Demand deposits                                           36,620,000     13.61
Other liabilities                                          3,814,000      1.42

      Total liabilities                                  244,706,000     90.98
Stockholders' liability                                   24,261,000      9.02

      Total liabilities and stockholders' equity        $268,967,000    100.00%

Net interest income                                                                       $11,731,000

Net interest spread                                                                                               4.07%

Net interest margin<F2>                                                                                           4.76%

<FN>

<F1> For purpose of this schedule, interest in nonaccruing loans has been
     included only to the extent reflected in the consolidated income
     statement. However, the nonaccrual loan balances are included in the
     average amount outstanding.

<F2> Computed by dividing net interest income by total interest earning
     assets.

<F3> Yields on securities available for sale are based on amortized cost.

</FN>

</TABLE>

                                     14


<PAGE>


         Distribution of Assets, Liabilities & Stockholders' Equity:
                    Interest Rates & Interest Differential

<TABLE>

<CAPTION>

CONSOLIDATED AVERAGE BALANCE SHEET 1999

                                                                          Percentage
                                                                            of Total
                                                             Average         Average     Interest           Average
                                                             Balance          Assets  Earned/Paid        Yield/Rate

<S>                                                     <C>               <C>         <C>                <C>
ASSETS
Securities available for sale
  and held to maturity:<F3>
Taxable securities                                      $ 75,354,000       29.58%     $ 4,755,000         6.31%
Tax exempt securities                                     23,339,000        9.16        1,870,000         8.01

      Total securities                                    98,693,000       38.74        6,625,000         6.71

Short-term investments                                       937,000        0.37           45,000         4.80
Loans (net of unearned discount)
   Real estate mortgages                                  96,112,000       37.72        8,258,000         8.59
   Home equity loans                                       9,969,000        3.91          874,000         8.77
   Time and demand loans                                  10,645,000        4.18          995,000         9.35
   Installment loans                                      18,812,000        7.38        1,986,000        10.56
   Other loans                                             2,158,000        0.85          297,000        13.76

      Total loans<F1>                                    137,696,000       54.05       12,410,000         9.01

      Total interest earning assets                      237,326,000       93.15       19,080,000         8.04%

Allowance for loan losses                                 (2,379,000)      (0.93)
Unrealized gains and losses on portfolio                  (1,313,000)      (0.52)
Cash and due from banks (demand)                           7,833,000        3.07
Fixed assets (net)                                         2,781,000        1.09
Bank owned life insurance                                  6,258,000        2.46
Other assets                                               4,271,000        1.68

      Total assets                                      $254,777,000      100.00%

LIABILITIES AND STOCKHOLDERS' EQUITY
NOW and Super NOW deposits                              $ 28,911,000       11.35%         642,000         2.22%
Savings and insured money market deposits                 59,716,000       23.44        1,615,000         2.70
Time deposits                                             86,550,000       33.97        4,201,000         4.85

      Total interest bearing deposits                    175,177,000       68.76        6,458,000         3.69

Federal funds purchased and other short-term debt          2,260,000        0.89           94,000         4.16
Long-term debt                                            20,000,000        7.85        1,159,000         5.80

      Total interest bearing liabilities                 197,437,000       77.49        7,711,000         3.91

Demand deposits                                           32,880,000       12.91
Other liabilities                                          1,644,000        0.65

      Total liabilities                                  231,961,000       91.04
Stockholders' liability                                   22,816,000        8.96

      Total liabilities and stockholders' equity        $254,777,000      100.00%

Net interest income                                                                   $11,369,000

Net interest spread                                                                                       4.13%

Net interest margin<F2>                                                                                   4.79%

<FN>

<F1> For purpose of this schedule, interest in nonaccruing loans has been
     included only to the extent reflected in the consolidated income
     statement. However, the nonaccrual loan balances are included in the
     average amount outstanding.

<F2> Computed by dividing net interest income by total interest earning
     assets.

<F3> Yields on securities available for sale are based on amortized cost.

</FN>

</TABLE>

                                      15


<PAGE>


             Summary of Unaudited Quarterly Financial Information

<TABLE>

SUMMARY OF QUARTERLY RESULTS OF OPERATIONS FOR 2001 AND 2000

<CAPTION>

                                    March 31           June 30       September 30     December 31             Total

<S>                              <C>               <C>               <C>              <C>              <C>
2001
Interest income                  $ 5,005,000       $ 5,010,000       $ 5,126,000      $ 5,089,000      $ 20,230,000
Interest expense                  (2,193,000)       (2,039,000)       (1,864,000)      (1,531,000)       (7,627,000)

Net interest income                2,812,000         2,971,000         3,262,000        3,558,000        12,603,000
Provision for loan losses            (75,000)          (75,000)          (75,000)         (75,000)         (300,000)
Non-interest income                  626,000           674,000           757,000          826,000         2,883,000
Non-interest expenses             (2,439,000)       (2,585,000)       (2,459,000)      (2,756,000)      (10,239,000)

Income before taxes                  924,000           985,000         1,485,000        1,553,000         4,947,000
Income taxes                        (221,000)         (242,000)         (421,000)        (438,000)       (1,322,000)

Net income                       $   703,000       $   743,000       $ 1,064,000      $ 1,115,000      $  3,625,000

Basic earnings per share         $      0.47       $      0.50       $      0.71      $      0.75      $       2.43

</TABLE>

<TABLE>

<CAPTION>

                                    March 31           June 30       September 30     December 31             Total

<S>                              <C>               <C>               <C>              <C>              <C>
2000
Interest income                  $ 4,678,000       $ 4,868,000       $ 4,904,000      $ 4,929,000      $ 19,379,000
Interest expense                  (1,983,000)       (2,068,000)       (2,180,000)      (2,064,000)       (8,295,000)

Net interest income                2,695,000         2,800,000         2,724,000        2,865,000        11,084,000
Provision for loan losses            (75,000)          (75,000)          (75,000)         (75,000)         (300,000)
Non-interest income                  557,000           673,000           654,000          532,000         2,416,000
Non-interest expenses             (2,178,000)       (2,481,000)       (2,406,000)      (2,490,000)       (9,555,000)

Income before taxes                  999,000           917,000           897,000          832,000         3,645,000
Income taxes                        (247,000)          (38,000)         (298,000)        (239,000)         (822,000)

Net income                       $   752,000       $   879,000       $   599,000      $   593,000      $  2,823,000

Basic earnings per share         $      0.49       $      0.58       $      0.39      $      0.40      $       1.86

</TABLE>

                                      16


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

Inflation

     The Company's operating results are affected by inflation to the extent
that interest rates, loan demand and deposit levels adjust to inflation and
impact net interest income. Management can best counter the effect of
inflation over the long term by managing net interest income and controlling
expenses. The most significant item not reflecting the effects of inflation
is depreciation expense, as it is determined based on the historical cost of
the assets.

Interest Rate Risk

<TABLE>

SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES ANALYSIS<F1>
ANALYSIS BY TYPE AND BY PERIOD TO MATURITY

<CAPTION>

December 31, 2001                 Under 1 Year             1-5 Years            5-10 Years            After 10 Years

                                 Balance    Rate        Balance    Rate       Balance    Rate         Balance   Rate         Total

<S>                          <C>            <C>     <C>            <C>     <C>           <C>      <C>           <C>   <C>
U.S. Government Agency       $28,894,000    6.82%   $12,326,000    6.62%   $1,994,000    5.93%    $ 4,500,000   6.53% $ 47,714,000
Municipal securities --
  tax exempt<F2>               5,757,000    4.80      9,207,000    5.16     4,286,000    4.74              --     --    19,250,000
Mortgage backed securities
  and collateralized
  mortgage obligations
  other than U.S. Government
  Agencies                    13,052,000    4.59     15,042,000    6.54       711,000    6.14      11,975,000   6.11    40,780,000
Other securities                      --      --        200,000    6.62       496,000    7.10              --     --       696,000

                             $47,703,000    5.97%   $36,775,000    6.22%   $7,487,000    5.35%    $16,475,000   6.23% $108,440,000

<FN>

<F1> The analysis shown above combines the Company's Securities Available for
     Sale portfolio and the Investment Securities portfolio, excluding equity
     securities. All securities are included above at their amortized cost.

<F2> Yields on tax exempt securities have not been stated on a tax equivalent
     basis.

</FN>

</TABLE>

                                     17


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

Interest Rate Risk

Management of interest rate risk involves continual monitoring of the
relative sensitivity of asset and liability portfolios to changes in rates
due to maturities or repricing. Interest rate sensitivity is a function of
the repricing of assets and liabilities through maturity and interest rate
changes. The objective of interest rate risk management to maintain an
appropriate balance between income growth and the risks associated with
maximizing income through the mismatch of the timing of interest rate is
changes between assets and liabilities. Perfectly matching the repricing of
assets and liabilities can eliminate interest rate risk, but net interest
income is not always enhanced. One measure of interest rate risk, the
so-called "gap," is illustrated in the table below as of December 31, 2001.
This table measures the incremental and cumulative gap, or difference between
assets and liabilities subject to repricing during the periods indicated. The
dollar amounts presented are stated on the basis of "contractual gap" which
measures the stated repricing and maturity of assets and liabilities. The
data presented indicates that rate sensitive liabilities are generally
subject to repricing sooner than rate sensitive assets. Management retains
the ability to change, or not change, interest rates on certain deposit
products as general market rates change in the future, and is also in the
position to liquidate a portion of its securities available for sale should
conditions warrant such action. The following is one of several different
analysis tools management utilizes in managing interest rate risk.

<TABLE>

<CAPTION>

                                              0 to 3        3 to 12           1 to 5          Over 5
Maturity                                      Months         Months            Years           Years           Total

<S>                                      <C>            <C>             <C>              <C>            <C>
Loans, net<F1>                           $27,361,000    $51,148,000     $ 64,572,000     $17,016,000    $160,097,000
Taxable securities<F2>                    19,225,000     23,995,000       27,568,000      19,676,000      90,464,000
Non taxable securities<F2>                 3,235,000      2,522,000        9,207,000       4,286,000      19,250,000

Total interest earning assets            $49,821,000    $77,665,000     $101,347,000     $40,978,000    $269,811,000

NOW and Super NOW accounts               $ 6,441,000    $        --     $ 24,232,000     $        --    $ 30,673,000
Savings and insured
  money market deposits<F1><F3>          14,525,000             --       51,497,000              --      66,022,000
Time deposits<F3>                         31,366,000     43,237,000       21,073,000              --      95,676,000
Long term debt<F1>                                --      5,000,000       10,000,000      15,000,000      30,000,000
Short term debt<F1>                           38,000             --              --               --          38,000

Total interest bearing liabilities       $52,370,000    $48,237,000     $106,802,000     $15,000,000    $222,409,000

Gap                                      $(2,549,000)   $29,428,000     $ (5,455,000)    $25,978,000    $ 47,402,000
Cumulative gap                            (2,549,000)    26,879,000       21,424,000      47,402,000
Cumulative gap as a percentage
  of total interest earning assets             (0.94)%         9.96%            7.94%          17.57%

<FN>

<F1> Based on contractual maturity or period to in repricing

<F2> Based on anticipated maturity. Includes Securities Available for Sale
     and Securities Held to Maturity, at their amortized cost.

<F3> Fixed rate deposits and deposits with fixed pricing intervals are
     included in the period of contractual maturity. Deposits withdrawable on
     demand or within short notice periods (such as NOW and savings accounts)
     are shown in repricing periods based on management's estimate of the
     interest rate sensitivity of these accounts, based in part on the
     Company's favorable historical experience of a substantial portion of
     these balances during periods of changing interest rates.

</FN>

</TABLE>

                                     18


<PAGE>


                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations

Management's Statement of Responsibility

The consolidated financial statements and related information in the 2001
Annual Report were prepared by management in conformity with generally
accepted accounting principles. Management is responsible for the integrity
and objectivity of the consolidated financial statements and related
information. Accordingly, it maintains internal controls and accounting
policies and procedures designed to provide reasonable assurance of the
accountability and safeguarding of the Company's assets and of the accuracy
of reported financial information. These controls and procedures include
management evaluations of asset quality and the impact of economic events;
organizational arrangements that provide an appropriate division of
responsibility; and a program of internal audits to evaluate independently
the effectiveness of internal controls and the extent of ongoing compliance
with the Company's adopted policies and procedures.

     The responsibility of the Company's independent auditors, KPMG LLP, is
limited to the expression of an opinion as to the fair presentation of the
consolidated financial statements based on their audit conducted in
accordance with generally accepted auditing standards.

     The Board of Directors, through its Examining Committee, is responsible
for insuring that both management and the independent auditors fulfill their
respective responsibilities with regard to the consolidated financial
statements. The Examining Committee, which is comprised entirely of directors
who are not officers or employees of the Company, meets periodically with
management, the internal auditor and the independent auditors. The internal
auditor and independent auditors have full and free access to and meet with
the Examining Committee, without management being present, to discuss
financial reporting and other relevant matters.

     The consolidated financial statements have not been reviewed or
confirmed for accuracy or relevance by the Office of the Comptroller of the
Currency.

/s/ Arthur E. Keesler
Arthur E. Keesler
President
Jeffersonville Bancorp

/s/ Raymond Walter
Raymond Walter
Vice President
Jeffersonville Bancorp

/s/ John M. Riley
John M. Riley
Treasurer
Jeffersonville Bancorp

                                     19


<PAGE>


                           Volume and Rate Analysis

The following schedule sets forth, for each major category of interest
earning assets and interest bearing liabilities, the dollar amount of
interest income (calculated on a tax equivalent basis) and interest expense,
and changes therein for 2001 as compared to 2000, and 2000 as compared to
1999.

     The changes in interest income and expense attributable to both rate and
volume have been allocated to rate on a consistent basis.

<TABLE>

VOLUME AND RATE ANALYSIS

<CAPTION>

                                               2001 Compared to 2000                  2000 Compared to 1999
                                               Increase (Decrease)                      Increase (Decrease)
                                                 Due to Change In                        Due to Charge In

                                           Volume         Rate        Total       Volume         Rate         Total

<S>                                    <C>         <C>           <C>            <C>         <C>           <C>
INTEREST INCOME
Investment securities
  and securities available for sale    $   82,000  $  (250,000)  $ (168,000)    $119,000    $ 170,000     $ 289,000
Federal funds sold                        271,000     (146,000)     125,000       48,000       40,000        88,000
Loans                                   1,156,000     (385,000)     771,000      564,000        5,000       569,000

      Total interest income             1,509,000     (781,000)     728,000      731,000      215,000       946,000

INTEREST EXPENSE
NOW and Super NOW deposits                (14,000)    (244,000)    (258,000)      30,000        2,000        32,000
Savings and insured
  money market deposits                     9,000     (609,000)    (600,000)     104,000      170,000       274,000
Time deposits                             579,000     (325,000)     254,000       81,000      296,000       377,000
Federal funds purchased
  and other short-term debt              (113,000)      (4,000)    (117,000)      (2,000)      46,000        44,000
Long-term debt                             59,000       (7,000)      52,000           --     (143,000)     (143,000)

      Total interest expense              520,000   (1,189,000)    (669,000)     213,000      371,000       584,000

      Net interest income              $  989,000  $   408,000   $1,397,000     $518,000    $(156,000)    $ 362,000

</TABLE>

                                      20


<PAGE>


                         Independent Auditors' Report

(LOGO)

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, 2001
and 2000, 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, 2001. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2001 and 2000, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.

/s/ KPMG LLP

Albany, New York
February 15, 2002

                                     21


<PAGE>

<TABLE>

                         Consolidated Balance Sheets

<CAPTION>

December 31,                                                                              2001                 2000

<S>                                                                               <C>                  <C>
ASSETS
Cash and due from banks (note 2)                                                  $ 10,844,000         $ 10,362,000
Securities available for sale, at fair value (notes 3 and 8)                       104,104,000           94,217,000
Securities held to maturity (estimated fair value of $5,920,000 at
  December 31, 2001 and $5,496,000 at December 31, 2000) (note 4)                    5,786,000            5,408,000
Loans, net of allowance for loan losses of $2,614,000 at December 31, 2001
  and $2,435,000 at December 31, 2000 (notes 5, 8 and 9)                           160,097,000          145,021,000
Accrued interest receivable                                                          2,033,000            1,966,000
Premises and equipment, net (note 6)                                                 2,765,000            2,648,000
Federal Home Loan Bank stock (notes 8 and 9)                                         1,650,000            1,628,000
Other real estate owned                                                              1,237,000            2,564,000
Cash surrender value of bank-owned life insurance                                    7,355,000            6,918,000
Other assets (notes 10 and 16)                                                       2,239,000            2,732,000

         Total assets                                                             $298,110,000         $273,464,000

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Deposits:
      Demand deposits                                                             $ 45,658,000         $ 39,715,000
      NOW and Super NOW accounts                                                    30,673,000           29,151,000
      Savings and money market deposits                                             66,022,000           62,130,000
      Time deposits (note 7)                                                        95,676,000           92,282,000

         Total deposits                                                            238,029,000          223,278,000

   Federal Home Loan Bank borrowings (note 8)                                       30,000,000           20,000,000
   Short-term debt (note 9)                                                             38,000            2,732,000
   Accrued expenses and other liabilities (note 16)                                  2,730,000            2,345,000

         Total liabilities                                                         270,797,000          248,355,000

Commitments and contingent liabilities (note 17)

Stockholders' equity (notes 12, 13 and 14):
   Series A preferred stock, no par value; 2,000,000 shares
     authorized; none issued                                                                --                   --
   Common stock, $0.50 par value; 2,225,000 shares authorized;
     1,589,262 shares issued at December 31, 2001 and 2000                             795,000              795,000
   Paid-in capital                                                                   8,072,000            8,072,000
   Treasury stock, at cost; 111,155 shares and 85,177 shares
     at December 31, 2001 and 2000, respectively                                    (1,108,000)            (554,000)
   Retained earnings                                                                19,753,000           17,230,000
   Accumulated other comprehensive loss, net of taxes
     of $(137,000) in 2001 and $(299,000) in 2000                                     (199,000)            (434,000)

         Total stockholders' equity                                                 27,313,000           25,109,000

         Total liabilities and stockholders' equity                               $298,110,000         $273,464,000

</TABLE>

See accompanying notes to consolidated financial statements.

                                     22


<PAGE>

<TABLE>

                      Consolidated Statements of Income

<CAPTION>

Years Ended December 31,                                                    2001             2000              1999

<S>                                                                  <C>              <C>               <C>
INTEREST INCOME
Loan interest and fees                                               $13,750,000      $12,979,000       $12,410,000
Securities:
   Taxable                                                             5,204,000        5,013,000         4,755,000
   Non-taxable                                                         1,018,000        1,254,000         1,234,000
Federal funds sold                                                       258,000          133,000            45,000

      Total interest income                                           20,230,000       19,379,000        18,444,000

INTEREST EXPENSE
Deposits                                                               6,511,000        7,141,000         6,458,000
Federal Home Loan Bank borrowings                                      1,068,000        1,016,000         1,159,000
Other                                                                     48,000          138,000            94,000

      Total interest expense                                           7,627,000        8,295,000         7,711,000

      Net interest income                                             12,603,000       11,084,000        10,733,000
Provision for loan losses (note 5)                                       300,000          300,000           300,000

      Net interest income after provision for loan losses             12,303,000       10,784,000        10,433,000

NON-INTEREST INCOME
Service charges                                                        1,553,000        1,294,000         1,112,000
Earnings from cash surrender value
  of bank-owned life insurance                                           431,000          371,000           350,000
Net security gains (note 3)                                                7,000            5,000            30,000
Other non-interest income                                                892,000          746,000           711,000

      Total non-interest income                                        2,883,000        2,416,000         2,203,000

NON-INTEREST EXPENSES
Salaries and wages                                                     3,770,000        3,587,000         3,425,000
Employee benefits (note 16)                                            1,602,000        1,631,000         1,556,000
Occupancy and equipment expenses                                       1,640,000        1,486,000         1,453,000
Other real estate owned expenses, net                                    714,000          522,000           244,000
Other non-interest expenses (note 11)                                  2,513,000        2,329,000         2,093,000

      Total non-interest expenses                                     10,239,000        9,555,000         8,771,000

Income before income tax expense                                       4,947,000        3,645,000         3,865,000
Income tax expense (note 10)                                           1,322,000          822,000           992,000

Net income                                                           $ 3,625,000      $ 2,823,000       $ 2,873,000

Basic earnings per common share                                      $      2.43      $      1.86       $      1.87

</TABLE>

See accompanying notes to consolidated financial statements.

                                     23


<PAGE>

<TABLE>

                         Consolidated Statements of
                       Changes in Stockholders' Equity

<CAPTION>

                                                                                             Accumulated
                                                                                                   Other          Total
Years Ended December 31,            Common       Paid-in       Treasury        Retained    Comprehensive  Stockholders'
2001, 2000 and 1999                  Stock       Capital          Stock        Earnings    Income (Loss)         Equity

<S>                               <C>         <C>           <C>             <C>            <C>            <C>
BALANCE AT
  DECEMBER 31, 1998               $734,000    $5,431,000    $  (206,000)    $16,795,000    $  263,000     $23,017,000
Net income                              --            --             --       2,873,000            --       2,873,000
Other comprehensive (loss)              --            --             --              --    (2,586,000)     (2,586,000)

Comprehensive income                                                                                          287,000
Cash dividends
  ($0.62 per share)                     --            --             --        (960,000)           --        (960,000)
Purchases and retirements
  of common stock                   (6,000)     (337,000)            --              --            --        (343,000)
Stock dividend                      70,000     3,138,000             --      (3,208,000)           --              --

BALANCE AT
  DECEMBER 31, 1999                798,000     8,232,000       (206,000)     15,500,000    (2,323,000)     22,001,000
Net income                              --            --             --       2,823,000            --       2,823,000
Other comprehensive income              --            --             --              --     1,889,000       1,889,000

Comprehensive income                                                                                        4,712,000
Cash dividends
  ($0.72 per share)                     --            --             --      (1,093,000)           --      (1,093,000)
Purchases and retirements
  of common stock                   (3,000)     (160,000)            --              --            --        (163,000)
Treasury stock purchased                --            --       (348,000)             --            --        (348,000)

BALANCE AT
  DECEMBER 31, 2000                795,000     8,072,000       (554,000)     17,230,000      (434,000)     25,109,000
Net income                              --            --             --       3,625,000            --       3,625,000
Other comprehensive income              --            --             --              --       235,000         235,000

Comprehensive income                                                                                        3,860,000
Cash dividends
  ($0.74 per share)                     --            --             --      (1,102,000)           --      (1,102,000)
Treasury stock purchased                --            --       (554,000)             --            --        (554,000)

BALANCE AT
  DECEMBER 31, 2001               $795,000    $8,072,000    $(1,108,000)    $19,753,000    $ (199,000)    $27,313,000

</TABLE>

See accompanying notes to consolidated financial statements.

                                      24


<PAGE>


<TABLE>

                    Consolidated Statements of Cash Flows

<CAPTION>

Years Ended December 31,                                                    2001             2000              1999

<S>                                                                <C>              <C>               <C>
OPERATING ACTIVITIES
Net income                                                         $   3,625,000    $   2,823,000     $   2,873,000
Adjustments to reconcile net income to net
  cash provided by operating activities:
   Provision for loan losses                                             300,000          300,000           300,000
   Write down of other real estate owned                                  17,000           80,000            12,000
   Gain on sales of other real estate owned                              (67,000)         (99,000)          (47,000)
   Depreciation and amortization                                         588,000          658,000           636,000
   Net earnings from cash surrender value
     of bank-owned life insurance                                       (364,000)        (303,000)         (273,000)
   Deferred income tax benefit                                          (651,000)        (175,000)          (29,000)
   Net security gains                                                     (7,000)          (5,000)          (30,000)
   Increase in accrued interest receivable                               (67,000)        (271,000)         (303,000)
   Decrease (increase) in other assets                                   470,000         (592,000)           91,000
   Increase in accrued expenses and other liabilities                    385,000          715,000            26,000

      Net cash provided by operating activities                        4,229,000        3,131,000         3,256,000

INVESTING ACTIVITIES
Proceeds from maturities and calls:
   Securities available for sale                                      57,386,000        8,293,000        10,276,000
   Securities held to maturity                                         2,429,000        2,575,000           685,000
Proceeds from sales of securities available for sale                  13,086,000        1,755,000         7,163,000
Purchases:
   Securities available for sale                                     (79,443,000)     (12,220,000)      (21,736,000)
   Securities held to maturity                                        (2,807,000)      (3,253,000)       (1,813,000)
Disbursements for loan originations,
  net of principal collections                                       (15,560,000)      (9,872,000)       (8,790,000)
Purchase of Federal Home Loan Bank stock                                 (22,000)              --          (468,000)
Purchase of bank-owned life insurance                                    (73,000)        (350,000)               --
Net purchases of premises and equipment                                 (705,000)        (322,000)         (939,000)
Capital improvements made on other real estate                          (603,000)        (153,000)               --
Proceeds from sales of other real estate owned                         2,164,000          777,000           473,000

      Net cash used in investing activities                          (24,148,000)     (12,770,000)      (15,149,000)

FINANCING ACTIVITIES
Net increase in deposits                                              14,751,000       21,675,000         2,450,000
Proceeds from Federal Home Loan Bank borrowings                       15,000,000        5,000,000        10,000,000
Repayments of Federal Home Loan Bank borrowings                       (5,000,000)      (5,000,000)      (10,000,000)
Net (decrease) increase in short-term debt                            (2,694,000)      (9,174,000)       11,647,000
Cash dividends paid                                                   (1,102,000)      (1,093,000)         (960,000)
Purchases and retirements of common stock                                     --         (163,000)         (343,000)
Purchases of treasury stock                                             (554,000)        (348,000)               --

      Net cash provided by financing activities                       20,401,000       10,897,000        12,794,000

Net increase in cash and cash equivalents                                482,000        1,258,000           901,000
Cash and cash equivalents at beginning of year                        10,362,000        9,104,000         8,203,000

Cash and cash equivalents at end of year                            $ 10,844,000    $  10,362,000     $   9,104,000

SUPPLEMENTAL INFORMATION
Cash paid for:
   Interest                                                         $  7,734,000    $   8,223,000     $   7,741,000
   Income taxes                                                        1,580,000          880,000         1,250,000
Transfers of loans to other real estate owned                            184,000        2,476,000           596,000

</TABLE>

See accompanying notes to consolidated financial statements.

                                     25


<PAGE>


                  Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

BASIS OF PRESENTATION

The consolidated financial statements of Jeffersonville Bancorp (the "Parent
Company") include its wholly-owned subsidiary, The First National Bank of
Jeffersonville (the "Bank"). Collectively, these entities are referred to
herein as the "Company." All significant intercompany transactions have been
eliminated in consolidation.

     The Parent Company is a bank holding company whose principal activity is
the ownership of all outstanding shares of the Bank's stock. The Bank is a
commercial bank providing community banking services to individuals, small
businesses and local municipal governments in Sullivan County, New York.
Management makes operating decisions and assesses performance based on an
ongoing review of the Bank's community banking operations, which constitute
the Company's only operating segment for financial reporting purposes.

     The consolidated financial statements have been prepared, in all
material respects, in conformity with accounting principles generally
accepted in the United States of America. 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 cash and due from banks and federal funds sold, if any, to be cash
equivalents.

     Reclassifications are made to prior years' consolidated financial
statements whenever necessary to conform to the current year's presentation.

SECURITIES

Management determines the appropriate classification of securities at the
time of purchase. If management has the positive intent and ability to hold
debt securities to maturity, they are classified as securities held to
maturity and are stated at amortized cost. If securities are purchased for
the purpose of selling them in the near term, they are classified as trading
securities and are reported at fair value with unrealized gains and losses
reflected in current earnings. All other debt and marketable equity
securities are classified as securities available for sale and are reported
at fair value. Net unrealized gains or losses on securities available for
sale are reported (net of income taxes) in stockholders' equity as
accumulated other comprehensive income (loss). Non-marketable equity
securities are carried at cost. At December 31, 2001 and 2000, 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.

                                     26


<PAGE>


                 Notes to Consolidated Financial Statements

     The Company identifies impaired loans and measures loan impairment in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118. Under SFAS No. 114, a loan is considered to be impaired when, based on
current information and events, it is probable that the creditor will be
unable to collect all principal and interest contractually due. SFAS No. 114
applies to loans that are individually evaluated for collectibility in
accordance with the Company's ongoing loan review procedure, principally
commercial mortgage loans and commercial loans. Smaller balance, homogeneous
loans which are collectively evaluated, such as consumer and smaller balance
residential mortgage loans are specifically excluded from the classification
of impaired loans. Creditors are permitted to measure impaired loans based on
(i) the present value of expected future cash flows discounted at the loan's
effective interest rate, (ii) the loan's observable market price or (iii) the
fair value of the collateral if the loan is collateral dependent. If the
approach used results in a measurement that is less than an impaired loan's
recorded investment, an impairment loss is recognized as part of the
allowance for loan losses.

     The allowance for loan losses is maintained at a level deemed adequate
by management based on an evaluation of such factors as economic conditions
in the Company's market area, past loan loss experience, the financial
condition of individual borrowers, and underlying collateral values based on
independent appraisals. While management uses available information to
recognize losses on loans, future additions to the allowance for loan losses
may be necessary based on changes in economic conditions, particularly in
Sullivan County. In addition, Federal regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses and may require the Company to recognize additions
to the allowance based on their judgments about information available to them
at the time of their examination, which may not be currently available to
management.

PREMISES AND EQUIPMENT

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

FEDERAL HOME LOAN BANK STOCK

As a member institution of the Federal Home Loan Bank ("FHLB"), the Bank is
required to hold a certain amount of FHLB stock. This stock is considered to
be a non-marketable equity security and, accordingly, is carried at cost.

OTHER REAL ESTATE OWNED

Other real estate owned consists of properties acquired through foreclosure
and is stated on an individual-asset basis at the lower of (i) fair value
less estimated costs to sell or (ii) cost which represents the fair value at
initial foreclosure. When a property is acquired, the excess of the loan
balance over the fair value of the property is charged to the allowance for
loan losses. If necessary, subsequent write downs to reflect further declines
in fair value are included in non-interest expenses. Fair value estimates are
based on independent appraisals and other available information. While
management estimates losses on other real estate owned using the best
available information, such as independent appraisals, future write downs may
be necessary based on changes in real estate market conditions, particularly
in Sullivan County, and the results of regulatory examinations.

BANK-OWNED LIFE INSURANCE

The investment in bank-owned life insurance, which covers certain officers of
the Bank, is carried at the policies' cash surrender value. Increases in the
cash surrender value are recognized in non-interest income, and premiums paid
are included in non-interest expenses.

                                     27


<PAGE>


                 Notes to Consolidated Financial Statements

INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to "temporary differences" between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets are reduced by a valuation
allowance when management determines that it is more likely than not that all
or a portion of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.

EARNINGS PER COMMON SHARE

Basic earnings per share ("EPS") is computed by dividing income available to
common stockholders (net income less dividends on preferred stock, if any) by
the weighted average number of common shares outstanding for the period.
Entities with complex capital structures must also present diluted EPS which
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
shares. The Company does not have a complex capital structure and,
accordingly, has presented only basic EPS.

     Basic earnings per common share was computed based on average
outstanding common shares of 1,491,000 in 2001, 1,517,000 in 2000 and
1,534,000 in 1999. Income available to common stockholders equaled net income
for each of these years.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 137 and SFAS No. 138, establishes
comprehensive accounting and reporting requirements for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Changes in the fair value of the
derivative financial instruments are reported in either earnings or
comprehensive income, depending on the use of the derivative and whether or
not it qualifies for hedge accounting. The statement also permits certain
reclassification of securities among the trading, available for sale and held
to maturity classifications. The adoption of SFAS No. 133, as amended, on of
January 1, 2001 did not have a material impact on the Company's consolidated
financial statements.

     In July 2001, the FASB issued SFAS No. 141, "Business Combinations,"
which requires that all business combinations be accounted for under the
purchase method. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 requires that the purchase method be used for
business combinations initiated after June 30, 2001. The adoption of this
pronouncement will not have any effect on the Company's consolidated
financial statements.

     In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The Company adopted this
statement effective January 1, 2002. The adoption of this pronouncement will
not have any effect on the Company's consolidated financial statements.

2. Cash and Due From Banks

The Bank is required to maintain certain reserves in the form of vault cash
and/or deposits with the Federal Reserve Bank. The amount of this reserve
requirement, which is included in cash and due from banks, was approximately
$4,023,000 at December 31, 2001 and $3,059,000 at December 31, 2000.

                                     28


<PAGE>


                 Notes to Consolidated Financial Statements

3. Securities Available for Sale

The amortized cost and estimated fair value of securities available for sale
are as follows:

<TABLE>

<CAPTION>

                                                                           Gross            Gross         Estimated
                                                     Amortized        Unrealized       Unrealized              Fair
                                                          Cost             Gains           Losses             Value

<S>                                               <C>                 <C>             <C>              <C>
DECEMBER 31, 2001
U.S. Government agency securities                 $ 47,714,000        $  336,000      $  (516,000)     $ 47,534,000
Obligations of states and political subdivisions    13,464,000           457,000          (29,000)       13,892,000
Mortgage-backed securities and
  collateralized mortgage obligations               40,781,000           332,000         (392,000)       40,721,000
Corporate debt securities                              695,000            32,000               --           727,000

      Total debt securities                        102,654,000         1,157,000         (937,000)      102,874,000
Equity securities                                    1,274,000            20,000          (64,000)        1,230,000

      Total securities available for sale         $103,928,000        $1,177,000      $(1,001,000)     $104,104,000

</TABLE>

<TABLE>

<CAPTION>

                                                                           Gross            Gross         Estimated
                                                     Amortized        Unrealized       Unrealized              Fair
                                                          Cost             Gains           Losses             Value

<S>                                               <C>                 <C>             <C>              <C>
DECEMBER 31, 2000
U.S. Government agency securities                 $ 46,515,000        $  104,000      $  (687,000)     $ 45,932,000
Obligations of states and political subdivisions    16,269,000           421,000          (34,000)       16,656,000
Mortgage-backed securities and
  collateralized mortgage obligations               29,748,000            64,000         (352,000)       29,460,000
Corporate debt securities                              695,000                --           (3,000)          692,000

      Total debt securities                         93,227,000           589,000       (1,076,000)       92,740,000
Equity securities                                    1,723,000             9,000         (255,000)        1,477,000

      Total securities available for sale         $ 94,950,000        $  598,000      $(1,331,000)     $ 94,217,000

</TABLE>

Proceeds from sales of securities available for sale during 2001,
2000 and 1999 were $13,086,000, $1,755,000, and $7,163,000, respectively.
Gross gains and gross losses realized on sales and calls of securities were
as follows:

                                2001             2000              1999

Gross realized gains         $39,000         $ 16,000           $35,000
Gross realized losses        (32,000)         (11,000)           (5,000)

      Net security gains     $ 7,000         $  5,000           $30,000

The amortized cost and estimated fair value of debt securities available for
sale at December 31, 2001, 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        $ 44,599,000                       $ 44,407,000
One to five years        34,419,000                         34,994,000
Five to ten years         7,161,000                          7,268,000
Over ten years           16,475,000                         16,205,000

      Total            $102,654,000                       $102,874,000

Substantially all mortgage-backed securities and collateralized mortgage
obligations are securities guaranteed by Freddie Mac or Fannie Mae, which are
U.S. government-sponsored entities.

     Securities available for sale with an estimated fair value of
$43,918,000 at December 31, 2001 were pledged to secure public funds on
deposit and for other purposes.

                                      29


<PAGE>


                  Notes to Consolidated Financial Statements

4. Securities Held to Maturity

The amortized cost and estimated fair value of securities held to maturity
are as follows:

<TABLE>

<CAPTION>

                                                                           Gross            Gross     Estimated
                                                     Amortized        Unrealized       Unrealized          Fair
                                                          Cost             Gains           Losses         Value

<S>                                                 <C>               <C>              <C>            <C>
DECEMBER 31, 2001
Obligations of states and political subdivisions    $5,786,000        $134,000         $    --        $5,920,000

DECEMBER 31, 2000
Obligations of states and political subdivisions    $5,408,000        $ 89,000         $(1,000)       $5,496,000

</TABLE>

     The amortized cost and estimated fair value of these securities at
December 31, 2001, by remaining period to contractual maturity, are shown in
the following table. Actual maturities will differ from contractual
maturities because certain issuers have the right to call or prepay their
obligations.

                                 Amortized                Estimated
                                      Cost               Fair Value

Within one year                 $3,104,000               $3,139,000
One to five years                2,356,000                2,441,000
Five to ten years                  326,000                  340,000

      Total                     $5,786,000               $5,920,000

There were no sales of securities held to maturity in 2001, 2000 or 1999.

5. Loans

The major classifications of loans are as follows at December 31:

                                         2001                    2000

REAL ESTATE LOANS
Residential                      $ 67,246,000            $ 64,933,000
Commercial                         39,940,000              33,638,000
Home equity                        12,756,000              11,496,000
Farm land                           2,009,000               1,537,000
Construction                        5,570,000               1,416,000

                                  127,521,000             113,020,000

OTHER LOANS
Commercial loans                   18,111,000              17,822,000
Consumer installment loans         19,222,000              19,685,000
Other consumer loans                1,504,000               1,409,000
Agricultural loans                    667,000                 421,000

                                   39,504,000              39,337,000

      Total loans                 167,025,000             152,357,000
Unearned discounts                 (4,314,000)             (4,901,000)
Allowance for loan losses          (2,614,000)             (2,435,000)

      Total loans, net           $160,097,000            $145,021,000

                                      30


<PAGE>


                  Notes to Consolidated Financial Statements

     The Company originates residential and commercial real estate loans, as
well as commercial, consumer and agricultural loans, to borrowers in Sullivan
County, New York. A substantial portion of the loan portfolio is secured by
real estate properties located in that area. The ability of the Company's
borrowers to make principal and interest payments is dependent upon, among
other things, the level of overall economic activity and the real estate
market conditions prevailing within the Company's concentrated lending area.
Periodically, the Company purchases loans from other financial institutions
that are in markets outside of Sullivan County.

     Non-performing loans are summarized as follows at December 31:

<TABLE>

<CAPTION>

                                                                            2001             2000              1999

<S>                                                                   <C>               <C>               <C>
Non-accrual loans                                                     $  849,000          775,000           790,000
Loans past due 90 days or more and still accruing interest               809,000        1,664,000         1,100,000

      Total non-performing loans                                      $1,658,000        2,439,000         1,890,000

      Non-performing loans as a percentage of total loans                    1.0%             1.7%              1.3%

</TABLE>

Non-accrual loans had the following effect on interest income for the years
ended December 31:

<TABLE>

<CAPTION>

                                                                            2001             2000              1999

<S>                                                                      <C>               <C>               <C>
Interest contractually due at original rates                             $75,000           72,000            73,000
Interest income recognized                                               (37,000)          (9,000)          (31,000)

      Interest income not recognized                                     $38,000           63,000            42,000

</TABLE>

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

<TABLE>

<CAPTION>

                                                                            2001             2000              1999

<S>                                                                   <C>               <C>               <C>
Balance at beginning of the year                                      $2,435,000        2,336,000         2,310,000
Provision for loan losses                                                300,000          300,000           300,000
Loans charged-off                                                       (319,000)        (346,000)         (445,000)
Recoveries                                                               198,000          145,000           171,000

      Balance at end of year                                          $2,614,000        2,435,000         2,336,000

</TABLE>

     As of December 31, 2001 and 2000, the recorded investment in loans that
were considered to be impaired under SFAS No. 114 totaled $708,000 and
$674,000, 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 2001, 2000 and 1999, the average
recorded investment in impaired loans was $735,000, $684,000, and $694,000,
respectively. Interest income of $59,000, $34,000, and $22,000 was recognized
on impaired loans during 2001, 2000 and 1999, respectively, using a
cash-basis method of accounting.

                                      31


<PAGE>


                  Notes to Consolidated Financial Statements

6. Premises and Equipment

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

                                                        2001            2000

Land                                             $   377,000     $   377,000
Buildings                                          2,228,000       2,228,000
Furniture and fixtures                               455,000         440,000
Equipment                                          4,172,000       4,172,000
Building and leasehold improvements                  756,000         724,000
Construction in progress                             282,000              --

                                                   8,270,000       7,941,000
Less accumulated depreciation and amortization    (5,505,000)     (5,293,000)

      Total premises and equipment, net           $2,765,000      $2,648,000

Depreciation and amortization expense was $588,000, $658,000, and $636,000 in
2001, 2000 and 1999, respectively.

7. Time Deposits

The following is a summary of time deposits at December 31, 2001 by
remaining period to contractual maturity:

Within one year                             $74,603,000
One to two years                             11,463,000
Two to three years                            3,657,000
Three to five years                           5,953,000

      Total time deposits                   $95,676,000

     Time deposits of $100,000 or more totaled $22,041,000 at December 31,
2001 and $17,055,000 at December 31, 2000. Interest expense related to time
deposits over $100,000 was $1,089,000, $923,000, and $786,000 for 2001, 2000
and 1999, respectively.

8. Federal Home Loan Bank Borrowings

The following is a summary of FHLB advances outstanding at December 31:

<TABLE>

<CAPTION>

                                                              2001        2001              2000            2000
                                                            Amount        Rate            Amount            Rate

<S>                                                    <C>                <C>        <C>                      <C>
Variable rate advances maturing within one year        $ 5,000,000        2.59%      $ 5,000,000             6.41%
Fixed rate advances maturing in 2003                     3,000,000        3.75%               --               --
Fixed rate advances maturing in 2004                     3,500,000        4.40%               --               --
Fixed rate advances maturing in 2005                     3,500,000        4.86%               --               --
Fixed rate advances maturing in 2008                    10,000,000        5.02%       10,000,000             5.02%
Fixed rate advances maturing in 2009                     5,000,000        5.45%        5,000,000             5.45%

      Total FHLB advances                              $30,000,000        4.47%      $20,000,000             5.47%

</TABLE>

     Borrowings are secured by the Bank's investment in FHLB stock and by a
blanket security agreement. This agreement requires the Bank to maintain as
collateral certain qualifying assets (principally securities and residential
mortgage loans) not otherwise pledged. The Bank satisfied this collateral
requirement at December 31, 2001 and 2000.

                                      32


<PAGE>


                  Notes to Consolidated Financial Statements

9. Short-term Debt

Short-term borrowings at December 31, 2001 consists of $38,000 of treasury,
tax and loan notes. In addition to $382,000 of treasury, tax and loan notes,
short-term borrowings at December 31, 2000 were comprised of overnight FHLB
borrowings. The Bank, as a member of the FHLB, has access to a line of credit
program with a maximum borrowing capacity of $28.0 million and $26.0 million
as of December 31, 2001 and 2000, respectively. Borrowings under the
overnight program at December 31, 2000, were $2.4 million at a rate of 5.85%.
The Bank has pledged mortgage loans and FHLB stock as collateral on these
borrowings. During 2001, the maximum month-end balance was $1.5 million, the
average balance was $0.1 million, and the average interest rate was 3.70%.
During 2000, the maximum month-end balance was $7.3 million, the average
balance was $1.6 million, and the average interest rate was 5.84%.

10. Income Taxes

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

                                       2001             2000              1999

CURRENT TAX EXPENSES
Federal                          $1,761,000          891,000           733,000
State                               212,000          106,000           288,000
Deferred tax benefit               (651,000)        (175,000)          (29,000)

      Total income tax expense   $1,322,000         $822,000          $992,000

     Not included in the above table is income tax expense (benefit)
associated with the unrealized gain or loss on securities available for sale
and the income tax benefit associated with the recognition of a minimum
pension liability, which are recorded directly in stockholders' equity.

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

<TABLE>

<CAPTION>

                                              2001             2000              1999

<S>                                     <C>             <C>                <C>
Tax at statutory rate                   $1,682,000      $ 1,239,000        $1,314,000
State taxes, net of Federal
  tax benefit                               69,000           33,000           190,000
Tax-exempt interest                       (346,000)        (426,000)         (420,000)
Interest expense allocated
  to tax-exempt securities                  37,000           53,000            48,000
Net earnings from cash surrender value
  of bank-owned life insurance            (124,000)        (103,000)         (119,000)
Other adjustments                            4,000           26,000           (21,000)

      Income tax expense                $1,322,000      $   822,000        $  992,000

</TABLE>

                                     33

<PAGE>


                 Notes to Consolidated Financial Statements

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

                                    2001           2000

DEFERRED TAX ASSETS
Allowance for loan
  losses in excess of tax
  bad debt reserve            $  856,000     $  755,000
Interest on
  non-accrual loans               14,000        132,000
Postretirement benefits          515,000        427,000
Deferred compensation             78,000         73,000
Depreciation                     233,000         (4,000)
Other real estate owned          296,000          2,000

      Total deferred
        tax assets             1,992,000      1,385,000

DEFERRED TAX LIABILITIES
Prepaid expenses                (290,000)      (334,000)
Other taxable temporary
  differences                     (4,000)        (4,000)

      Total deferred
        tax liabilities         (294,000)      (338,000)

      Net deferred
        tax asset             $1,698,000      1,047,000

     In addition to the deferred tax assets and liabilities described above,
the Company also has a deferred tax liability of $72,000 at December 31, 2001
related to the net unrealized gain on securities available for sale as of
December 31, 2001 and a deferred tax asset of $209,000 related to the
recognition of a minimum pension liability as of December 31, 2001. The
Company had a deferred tax asset of $299,000 at December 31, 2000 related to
the net unrealized loss on securities available for sale as of December 31,
2000.

     In assessing the realizability of the Company's total deferred tax
assets, management considers whether it is more likely than not that some
portion or all of those assets will not be realized. Based upon management's
consideration of historical and anticipated future pre-tax income, as well as
the reversal period for the items giving rise to the deferred tax assets and
liabilities, a valuation allowance for deferred tax assets was not considered
necessary at December 31, 2001 and 2000.

11. Other Non-Interest Expenses

The major components of other non-interest expenses are as follows for the
years ended December 31:

                                 2001             2000              1999

Stationery and supplies    $  287,000       $  247,000        $  272,000
Director expenses             228,000          232,000           227,000
ATM and credit card
  processing fees             491,000          400,000           400,000
Professional services         259,000          324,000           137,000
Other expenses              1,248,000        1,126,000         1,057,000

      Other expenses       $2,513,000       $2,329,000        $2,093,000

                                      34

<PAGE>


                 Notes to Consolidated Financial Statements

12. Regulatory Capital Requirements

National banks are required to maintain minimum levels of regulatory capital
in accordance with regulations of the Office of the Comptroller of the
Currency ("OCC"). The Federal Reserve Board ("FRB") imposes similar
requirements for consolidated capital of bank holding companies. The OCC and
FRB regulations require a minimum leverage ratio of Tier 1 capital to total
adjusted assets of 4.0%, and minimum ratios of Tier I and total capital to
risk-weighted assets of 4.0% and 8.0%, respectively.

     Under its prompt corrective action regulations, the OCC is required to
take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized bank. Such actions could have a
direct material effect on a bank's financial statements. The regulations
establish a framework for the classification of banks into five categories:
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Generally, a bank is
considered well capitalized if it has a leverage (Tier I) capital ratio of at
least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0%, and a total
risk-based capital ratio of at least 10.0%.

     The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the regulators
about capital components, risk weightings and other factors.

     Management believes that, as of December 31, 2001 and 2000, the Bank and
the Parent Company met all capital adequacy requirements to which they are
subject. Further, the most recent OCC notification categorized the Bank as a
well-capitalized bank under the prompt corrective action regulations. There
have been no conditions or events since that notification that management
believes have changed the Bank's capital classification.

     The following is a summary of the actual capital amounts and ratios as
of December 31, 2001 and 2000 for the Bank and the Parent Company
(consolidated), compared to the required ratios for minimum capital adequacy
and for classification as well-capitalized:

<TABLE>

<CAPTION>

                                                                   Actual                            Required Ratios

                                                                                                Minimum     Classification
                                                                                                Capital            As Well
                                                        Amount                Ratio             Adequacy       Capitalized

<S>                                                <C>                        <C>               <C>         <C>
DECEMBER 31, 2001
BANK
Leverage (Tier 1) capital                          $24,311,000                 8.3%             4.0%         5.0%
Risk-based capital:
   Tier 1                                           24,311,000                14.6              4.0          6.0
   Total                                            26,396,000                15.9              8.0         10.0

CONSOLIDATED
Leverage (Tier 1) capital                          $27,137,000                 9.2%             4.0%
Risk-based capital:
   Tier 1                                           27,137,000                16.1              4.0
   Total                                            29,222,000                17.4              8.0

DECEMBER 31, 2000
BANK
Leverage (Tier 1) capital                          $22,528,000                 8.2%             4.0%         5.0%
Risk-based capital:
   Tier 1                                           22,528,000                14.9              4.0          6.0
   Total                                            24,427,000                16.1              8.0         10.0

CONSOLIDATED
Leverage (Tier 1) capital                          $25,543,000                 9.5%             4.0%
Risk-based capital:
   Tier 1                                           25,543,000                16.6              4.0
   Total                                            27,474,000                17.8              8.0

</TABLE>

                                     35


<PAGE>


                 Notes to Consolidated Financial Statements

13. Stockholders' Equity

DIVIDEND RESTRICTIONS

Dividends paid by the Bank are the primary source of funds available to the
Parent Company for payment of dividends to its stockholders and for other
working capital needs. Applicable Federal statutes, regulations and
guidelines impose restrictions on the amount of dividends that may be
declared by the Bank. Under these restrictions, the dividends declared and
paid by the Bank to the Parent Company may not exceed the total amount of the
Bank's net profit retained in the current year plus its retained net profits,
as defined, from the two preceding years. The Bank's retained net profits
(after dividend payments to the Parent Company) for 2001 and 2000 combined
totaled approximately $2,900,000.

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.

                                      36


<PAGE>


                  Notes to Consolidated Financial Statements

14. Comprehensive Income (Loss)

Comprehensive income represents the sum of net income and items of "other
comprehensive income" which are reported directly in stockholders' equity,
such as the net unrealized gain or loss on securities available for sale and
minimum pension liability adjustments. The Company has reported its
comprehensive income for 2001, 2000 and 1999 in the consolidated statements
of changes in stockholders' equity.

     The Company's accumulated other comprehensive income (loss), which is
included in stockholders' equity, consisted of the following components for
the years ended December 31:

<TABLE>

<CAPTION>

                                                                              2001             2000              1999
<S>                                                                      <C>             <C>              <C>
Net unrealized holding gains (losses) arising
  during the year, net of taxes of $(374,000) in 2001,
  $(1,304,000) in 2000 and $1,772,000 in 1999                            $ 542,000       $1,892,000       $(2,568,000)
Reclassification adjustment for net realized gains
  included in income, net of taxes of $3,000 in 2001,
  $2,000 in 2000 and $12,000 in 1999                                        (4,000)          (3,000)          (18,000)
Minimum pension liability adjustment net
  of taxes of $209,000 in 2001                                            (303,000)              --                --

      Other comprehensive income (loss)                                  $ 235,000       $1,889,000       $(2,586,000)

</TABLE>

15. Related Party Transactions

Certain directors and executive officers of the Company, as well as certain
affiliates of these directors and officers, have engaged in loan transactions
with the Company. Such loans were made in the ordinary course of business at
the Company's normal terms, including interest rates and collateral
requirements, and do not represent more than normal risk of collection.
Outstanding loans to these related parties are summarized as follows at
December 31:

                                    2001           2000

Directors                     $  905,000     $1,115,000
Executive offices
(non-directors)                  278,000        216,000
                              $1,183,000     $1,331,000

Total advances to these directors and officers during the years 2001 and 2000
were $659,000 and $417,000, respectively. Total payments made on these loans
were $807,000 in 2001 and $702,000 in 2000. These directors and officers had
unused lines of credit with the Company of $1,444,000 at December 31, 2001.

                                     37


<PAGE>


                 Notes to Consolidated Financial Statements

16. Employee Benefit Plans

PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company has a non-contributory defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of
service and the employee's average compensation during the five consecutive
years in the last ten years of employment affording the highest such average.
The Company's funding policy is to contribute annually an amount sufficient
to satisfy the minimum funding requirements of ERISA, but not greater than
the maximum amount that can be deducted for Federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for benefits expected to be earned in the future.

     The Company also sponsors postretirement medical and life insurance
benefit plans for retirees in the pension plan. Effective in 1993, employees
must retire after age 60 with at least 10 years of service to be eligible for
medical benefits. The plans are non-contributory, except that the retiree
must pay the full cost of spouse medical coverage. Both of the plans are
unfunded. The Company accounts for the cost of these postretirement benefits
in accordance with SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." Accordingly, the cost of these benefits is
recognized on an accrual basis as employees perform services to earn the
benefits. The Company adopted SFAS No. 106 as of January 1, 1993 and elected
to amortize the accumulated benefit obligation at that date ("transition
obligation") into expense over the allowed period of 20 years.

     The following is a summary of changes in the benefit obligations and
plan assets for the pension plan and the other postretirement benefits plan,
together with a reconciliation of each plan's funded status to the amounts
recognized in the consolidated balance sheets:

<TABLE>

<CAPTION>

                                                              Pension Benefits            Other Postretirement Benefits

                                                          2001              2000             2001              2000

<S>                                                <C>                <C>             <C>               <C>
CHANGES IN BENEFIT OBLIGATION
Beginning of year                                  $ 4,205,000        $3,809,000      $ 1,639,000       $ 1,255,000
Service cost                                           202,000           174,000          128,000            99,000
Interest cost                                          299,000           278,000          118,000            90,000
Actuarial (gain) loss                                   14,000           112,000          676,000           231,000
Benefits paid                                         (195,000)         (168,000)         (37,000)          (36,000)
Other                                                       --                --            6,000                --

End of year                                          4,525,000         4,205,000        2,530,000         1,639,000

CHANGES IN FAIR VALUE OF PLAN ASSETS:
Beginning of year                                    3,579,000         3,038,000               --                --
Actual return on plan assets                          (385,000)          334,000               --                --
Employer contributions                                 239,000           392,000           37,000            36,000
Benefits and plan expenses                            (223,000)         (185,000)         (37,000)          (36,000)

End of year                                          3,210,000         3,579,000               --                --

Funded status at end of year                        (1,315,000)         (626,000)      (2,530,000)       (1,639,000)
Unrecognized net transition (asset) obligation         (19,000)          (23,000)         202,000           221,000
Unrecognized net actuarial loss                      1,463,000           755,000        1,006,000           359,000
Unrecognized prior service cost                        312,000           337,000               --                --

      Prepaid (accrued) benefit cost               $   441,000        $  443,000      $(1,322,000)      $(1,059,000)

AMOUNTS RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEET CONSIST OF:
Prepaid (accrued) benefit cost                     $   441,000        $  443,000      $(1,322,000)      $(1,059,000)
Additional minimum liability                          (824,000)               --               --                --
Intangible asset                                       312,000                --               --                --
Accumulated other comprehensive
  loss (pre-tax basis)                                 512,000                --               --                --

      Prepaid (accrued) benefit cost               $   441,000        $  443,000      $(1,322,000)      $(1,059,000)

</TABLE>

                                      38


<PAGE>


                 Notes to Consolidated Financial Statements

The components of the net periodic benefit cost for these plans were
as follows:

<TABLE>

<CAPTION>

                                                                                       Pension Benefits

                                                                            2001             2000              1999

<S>                                                                     <C>              <C>               <C>
Service cost                                                            $202,000         $174,000          $189,000
Interest cost                                                            299,000          278,000           252,000
Expected return on plan assets                                          (306,000)        (268,000)         (237,000)
Amortization of prior service cost                                        25,000           25,000            25,000
Amortization of transition asset                                          (4,000)          (4,000)           (4,000)
Recognized net actuarial loss                                             25,000           32,000            44,000

      Net periodic benefit expense                                      $241,000         $237,000          $269,000

</TABLE>

<TABLE>

<CAPTION>

                                                                                Other Postretirement Benefits

                                                                            2001             2000              1999

<S>                                                                     <C>              <C>                <C>
Service cost                                                            $128,000           99,000            95,000
Interest cost                                                            118,000           90,000            88,000
Amortization of transition obligation                                     29,000           18,000            18,000
Recognized net actuarial loss                                                 --               --            11,000

      Net periodic benefit expense                                      $275,000         $207,000           $212,000

</TABLE>

The discount rates used to determine the benefit obligations in 2001, 2000
and 1999 were 7.25% for the pension plan and 7.25% for the other
postretirement benefits plan. For the pension plan, the expected rate of
return on plan assets was 8.50% and the rate of increase in future
compensation was 5.0% for each of the years 2001, 2000 and 1999. The assumed
health care cost trend rate for retirees under age 65 which was used to
determine the benefit obligation for the other postretirement benefits plan
at December 31, 2001 was 10.0%, declining gradually to 5.0% in 2007 and
remaining at that level thereafter. The assumed health care cost trend rate
for retirees over age 65 which was also used to determine the benefit
obligation for the other postretirement benefits plan at December 31, 2001
was 9.0%, declining gradually to 4.0% in 2007 and remaining at that level
thereafter. Increasing the assumed health care cost trend rates by one
percentage point in each year would increase the benefit obligation at
December 31, 2001 by approximately $417,000 and the net periodic benefit cost
for the year by approximately $48,000; a one percentage point decrease would
decrease the benefit obligation and benefit cost by approximately $333,000
and $37,000, respectively.

TAX-DEFERRED SAVINGS PLAN

The Company maintains a qualified 401(k) plan for all employees, which
permits tax-deferred employee contributions up to 15% of salary and provides
for matching contributions by the Company. The Company matches 100% of
employee contributions up to 4% of the employee's salary and 25% of the next
2% of the employee's salary. The Company continues to match 25% of employee
contributions beyond 6% of the employee's salary until the total matching
contribution reaches $1,500 or 15%. The Company contributed approximately
$132,000 in 2001, $127,000 in 2000 and $114,000 in 1999.

                                     39


<PAGE>


                 Notes to Consolidated Financial Statements

17. Commitments and Contingent Liabilities

LEGAL PROCEEDINGS

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

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

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

     The Company's maximum exposure to credit loss in the event of
non-performance by the other party to these instruments represents the
contract amounts, assuming that they are fully funded at a later date and any
collateral proves to be worthless. The Company uses the same credit policies
in making commitments as it does for on-balance-sheet extensions of credit.

     Contract amounts of financial instruments that represent agreements to
extend credit are as follows at December 31:

                                    2001           2000
Loan origination
  commitments and
  unused lines of credit:
    Mortgage loans            $ 4,085,000    $ 2,419,000
    Commercial loans            4,637,000      3,894,000
    Credit card lines           3,270,000      3,124,000
    Home equity lines           4,131,000      3,390,000
    Other revolving credit      1,910,000      4,851,000

                               18,033,000     17,678,000
Standby letters of credit         311,000        315,000

                              $18,344,000    $17,993,000

     These agreements to extend credit have been granted to customers within
the Company's lending area described in note 5 and relate primarily to
fixed-rate loans.

     Loan origination commitments and lines of credit are agreements to lend
to a customer as long as there is no violation of any condition established
in the contract. These agreements generally have fixed expiration dates or
other termination clauses and may require payment of a fee by the customer.
Since commitments and lines of credit may expire without being fully drawn
upon, the total contract amounts do not necessarily represent future cash
requirements.

     The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral, if any, required by the Company upon the
extension of credit is based on management's credit evaluation of the
customer. Mortgage commitments are secured by a first lien on real estate.
Collateral on extensions of credit for commercial loans varies but may
include accounts receivable, equipment, inventory, livestock and
income-producing commercial property.

     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.

                                      40


<PAGE>


Notes to Consolidated Financial Statements

18. Fair Values of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its on- and
off-balance-sheet financial instruments. SFAS No. 107 defines fair value as
the amount at which a financial instrument could be exchanged in a current
transaction between parties other than in a forced sale or liquidation.

     Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holding of a particular
financial instrument, nor do they reflect possible tax ramifications or
transaction costs. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected net cash flows, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment, and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

     Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business or the value of non-financial assets and liabilities. In
addition, there are significant unrecognized intangible assets that are not
included in these fair value estimates, such as the value of "core deposits"
and the Company's branch network.

     The following is a summary of the net carrying values and estimated fair
values of the Company's financial assets and liabilities (none of which were
held for trading purposes) at December 31:

<TABLE>

<CAPTION>

                                                                2001                                2000

                                                           Net         Estimated              Net         Estimated
                                                      Carrying              Fair         Carrying              Fair
                                                         Value             Value            Value             Value

<S>                                              <C>               <C>              <C>               <C>
FINANCIAL ASSETS
Cash and due from banks                          $  10,844,000     $  10,844,000    $  10,362,000     $  10,362,000
Securities available for sale                      104,104,000       104,104,000       94,217,000        94,217,000
Securities held to maturity                          5,786,000         5,920,000        5,408,000         5,496,000
Loans, net                                         160,097,000       163,075,000      145,021,000       146,039,000
Accrued interest receivable                          2,033,000         2,033,000        1,966,000         1,966,000
FHLB stock                                           1,650,000         1,650,000        1,628,000         1,628,000

FINANCIAL LIABILITIES
Demand deposits (non-interest bearing)              45,658,000        45,658,000       39,715,000        39,715,000
Interest-bearing deposits                          192,371,000       192,371,000      183,563,000       183,661,000
FHLB advances                                       30,000,000        29,978,000       20,000,000        20,001,000
Short-term debt                                         38,000            38,000        2,732,000         2,732,000
Accrued interest payable                               613,000           613,000          720,000           720,000

</TABLE>

                                      41


<PAGE>


                  Notes to Consolidated Financial Statements

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

SECURITIES

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

LOANS

Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, consumer,
real estate and other loans. Each loan category is further segregated into
fixed and adjustable rate interest terms and by performing and non-performing
categories. The fair values of performing loans are calculated by discounting
scheduled cash flows through estimated maturity using estimated market
discount rates that reflect the credit and interest rate risks inherent in
the loans. Estimated maturities are based on contractual terms and repricing
opportunities.

     The fair values of non-performing loans are based on recent external
appraisals and discounted cash flow analyses. Estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows and
discount rates are judgementally determined using available market
information and specific borrower information.

DEPOSIT LIABILITIES

The fair values of deposits with no stated maturity (such as checking,
savings and money market deposits) equal the carrying amounts payable on
demand. The fair values of time deposits are based on the discounted value of
contractual cash flows (but are not less than the net amount at which
depositors could settle their accounts). The discount rates are estimated
based on the rates currently offered for time deposits with similar remaining
maturities.

FHLB ADVANCES

The fair value was estimated by discounting scheduled cash flows through
maturity using current market rates.

OTHER FINANCIAL INSTRUMENTS

The fair values of cash and cash equivalents, FHLB stock, accrued interest
receivable, accrued interest payable and short-term debt approximated their
carrying values at December 31, 2001 and 2000.

     The fair values of the agreements to extend credit described in note 17
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, 2001
and 2000, the fair values of these financial instruments approximated the
related carrying values which were not significant.

                                      42


<PAGE>


                  Notes to Consolidated Financial Statements

19. Condensed Parent Company Financial Statements

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

BALANCE SHEETS

December 31,                                    2001            2000

ASSETS
Cash                                     $   101,000     $   576,000
Securities available for sale              1,189,000       1,436,000
Investment in subsidiary                  24,211,000      22,241,000
Premises and equipment                     1,148,000       1,071,000
Other assets                                 667,000         131,000

      Total assets                        27,316,000      25,455,000

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities                                    3,000         346,000
Stockholders' equity                      27,313,000      25,109,000

      Total liabilities and
        stockholders' equity             $27,316,000     $25,455,000

<TABLE>

STATEMENTS OF INCOME

<CAPTION>

Years Ended December 31,                                                    2001             2000              1999

<S>                                                                   <C>              <C>               <C>
Dividend income from subsidiary                                       $1,600,000       $1,650,000        $1,275,000
Dividend income on securities available for sale                         127,000          145,000           140,000
Net security gains                                                        30,000               --                --
Rental income from subsidiary                                            313,000          310,000           258,000

                                                                       2,070,000        2,105,000         1,673,000

Occupancy and equipment expenses                                         108,000          115,000            92,000
Other non-interest expenses                                               79,000           53,000            58,000

                                                                         187,000          168,000           150,000

Income before income taxes and undistributed
  income of subsidiary                                                 1,883,000        1,937,000         1,523,000
Income tax expense                                                       113,000          109,000            99,000

Income before undistributed income of subsidiary                       1,770,000        1,828,000         1,424,000
Equity in undistributed income of subsidiary                           1,855,000          995,000         1,449,000

      Net income                                                      $3,625,000       $2,823,000        $2,873,000

</TABLE>

                                      43

<PAGE>


<TABLE>

                  Notes to Consolidated Financial Statements

STATEMENTS OF CASH FLOWS

<CAPTION>

Years Ended December 31,                                                    2001             2000              1999

<S>                                                                   <C>              <C>               <C>
OPERATING ACTIVITIES
Net income                                                            $3,625,000       $2,823,000        $2,873,000
Equity in undistributed income of subsidiary                          (1,855,000)        (995,000)       (1,449,000)
Depreciation and amortization                                             62,000           86,000            92,000
Net security gains                                                       (30,000)              --                --
Other adjustments, net                                                  (960,000)          29,000            68,000

      Net cash provided by operating activities                          842,000        1,943,000         1,584,000

INVESTING ACTIVITIES
Proceeds from calls of securities available for sale                     530,000               --                --
Purchase of securities available for sale                                (52,000)              --          (150,000)
Net purchases of premises and equipment                                 (139,000)              --                --

      Cash provided by (used in) investing activities                    339,000               --          (150,000)

FINANCING ACTIVITIES
Cash dividends paid                                                   (1,102,000)      (1,093,000)         (960,000)
Purchases and retirements of common stock                                     --         (163,000)         (343,000)
Purchases of treasury stock                                             (554,000)        (348,000)               --

      Net cash used in financing activities                           (1,656,000)      (1,604,000)       (1,303,000)

Net (decrease) increase in cash                                         (475,000)         339,000           131,000
      Cash at beginning of year                                          576,000          237,000           106,000

      Cash at end of year                                             $  101,000       $  576,000        $  237,000

</TABLE>

                                      44

<PAGE>

                  The First National Bank of Jeffersonville

Officers

Arthur E. Keesler
Chairman of the Board

Raymond Walter
President and
Chief Executive Officer

John M. Riley
Executive Vice President/
Chief Lending Officer

Charles E. Burnett
Senior Vice President/
Chief Financial Officer

Wayne V. Zanetti
Senior Vice President/
Chief Operating Officer

June B. Tegeler
Vice President/
Branch Coordinator

Claire A. Pecsi
Vice President/
Human Resources

Tatiana Hahn
Vice President/
Senior Loan Officer

Loreen Gebelein
Assistant Vice President/
Loan Servicing Manager

Andrew McKean
Assistant Vice President/
Commercial Loans

Martha Huebsch
Assistant Vice President/
Installment Loans

Michael Horodyski
Auditor

Scott D. Sparling
IS Manager

Stacey Stephenson
Compliance Officer

Pearl L. Gain
Assistant Cashier/Accounting

Barbara Hahl
Marketing Manager

Sandee Sipple
Assistant Vice President/
Loan Origination Manager

Lorraine Lilholt
Branch Manager
Monticello

Rhonda Decker
Branch Manager
Liberty

Tanja McKerrell
Branch Manager
Eldred

Kathleen Beseth
Branch Manager
Loch Sheldrake

Linda Fisk
Branch Manager
Livingston Manor

Florence Horecky
Sales Manager
Callicoon

Jayne Wartell
Sales Manager
Narrowsburg

Janet R. Siano
Sales Manager
Wal*Mart

Valerie Panich
Sales Manager
Wurtsboro

Gale A. Myers
Assistant Branch Manager
Monticello

Lisa Dreher
Assistant Branch Manager
Liberty

JoAnne Girardi
Assistant Branch Manager
Eldred

Edie Houghtaling
Assistant Branch Manager
Loch Sheldrake

Mandy Roberts
Assistant Branch Manager
Livingston Manor

Diane McGrath
Assistant Loan
Servicing Manager



Staff

Robynne Asher
Candice Bellini
Amanda Bogert
Eleida Black
Jerilynn Brock
Michelle Brockner
Nancy Brown
Denise Buchholz
Shauna A. Buchholz
Silvia Burgos
Alyson Cogswell
Alana Conklin
Nancy Crumley
Lydia D'Antoni
Susan DeVito
Melanie Dirie
Barbara Donnelly
Kelly Ellsworth
Tara Everett
Latisha Fields
Rosemarie Finkle
Susan Fippinger
Deborah Forsblom
Helen Forster
Tara Gagliardo
Dawn Gandy
Rebekah Gulley
Eugene Hahn
Margaret Hanson
Douglas Heinle
Amy Hiller
Alisa Horan
Cathy Horan
Carolyn Hubert
Vivian A. Huggler
Heidi Hulse
Betty Johaneman
Laurie Keeler
Jean Kelly
Jessica Kenyon
Lauren Kickuth
Carol Ann Kinney
Brian Knack
Nanci Lombardo
Sonya Lane
Brandy Leonardo
Frank Leonardo Jr.
Patricia Leonardo
Shirley Lindsley
Michele Lupardo
Merrily Lynch
Martha Lyons
Linda Mall
JoAnn Malley
Christina Marchese
Charlotte Mattice
Jamie McAteer
Jonathan McGruder
Toni McKay
Tina Millis
Denise Minckler
Jennifer Murphy
Deborah Muzuruk
Diane O'Dell
Kelli Pagan
George Lewis Palmer
Kimberly Peck
Bruce Pecsi
Kimberly Pecsi
Jenny Peters
LeighAnne Pfriender
Barbara Pietrucha
Jimmy Porter
Margaret Porter
Alice Reisen
Muriel Rembe
Sherri Rhyne
Andrew Richardson
Damaris Rios
Sandra Ross
John Rudy
Amanda Scholz
Nancy Scott
Barbara Sochinski
Theresa Specht
Kristie Stauch
Julianna Sullivan
Tammie Vargas
Barbara Walter
Natasha Ward
Janet Warden
Jayne Wartell
Carol Welton
Kimberly White
Everett Williams
Heather Worzel
Barry Yoder

                                      57


<PAGE>


                  Jeffersonville Bancorp Board of Directors

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

(PHOTO)
John W. Galligan
Owner John Galligan, Land Surveyor
Monticello, New York
Surveyor

(PHOTO)
John K. Gempler
Secretary/Treasurer
Callicoon Co-op Insurance Company
Jeffersonville, New York

(PHOTO)
Douglas A. Heinle
Retired Postmaster
Cochecton Center, New York

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

(PHOTO)
Kenneth C. Klein
Attorney
Liberty and Jeffersonville, New York

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

(PHOTO)
James F. Roche
President
Roche's Garage Inc.
Callicoon, New York
Automobile Dealer

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

(PHOTO)
Raymond Walter
President
First National Bank of Jeffersonville
Jeffersonville, New York

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

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

                                   Officers

                 Arthur E. Keesler              John K. Gempler
                     President                     Secretary

                   Raymond Walter                John M. Riley
                   Vice President                  Treasurer

                                      58


<PAGE>


                            Corporate Information

Corporate Headquarters

Jeffersonville Bancorp
4866 State Route 52
Box 398
Jeffersonville, New York 12748
Telephone: (845) 482-4000
Web site: www.jeffbank.com
E-mail: jeffbank@jeffbank.com

Description of Business

Jeffersonville Bancorp is a one-bank holding company formed in June 1982
under the laws of the State of New York. Its subsidiary is The First National
Bank of Jeffersonville, which serves customers in Sullivan County, New York
and surrounding communities in Southeastern, New York through ten offices. A
full-service commercial bank, providing a broad range of financial products,
including demand, savings, time deposits and mortgage, consumer and
commercial loans.

Annual Meeting

The Annual Meeting of stockholders will be held on Tuesday, April 30, 2002 at
3:00 p.m., in the Company's Board Room at Jeffersonville, New York.

Stock Information

The Company's common stock has traded in the Over-the-Counter market under
the symbol JFBC since January 1997. The following investment firms are known
to handle Jeffersonville Bancorp stock transactions: Boenning & Scattergood
Inc, Monroe Securities Inc., Spear, Leeds & Kellogg and Ryan, Beck & Co.

     The following table shows the range of high and low bid prices for the
Company's stock for the end of quarters indicated.

                                        Bid Price

Quarter Ended                       Low            High

March 31, 2000                   $22.88          $22.88
June 30, 2000                    $22.00          $22.00
September 30, 2000               $21.13          $21.75
December 31, 2000                $21.06          $21.06
March 31, 2001                   $21.03          $21.03
June 30, 2001                    $21.50          $21.52
September 30, 2001               $21.55          $21.99
December 31, 2001                $24.00          $25.50


     Cash dividends of $0.18, $0.18, $0.18 and $0.20 per share were declared
quarterly in 2001. During 2000, the Company declared cash dividends of $0.18
quarterly. The Board of Directors intends to continue the payment of
dividends on a quarterly basis, subject to its ongoing consideration of the
Company's financial condition and operating results; market and economic
conditions; and other factors.

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                            Jeffersonville Bancorp

Offices

Main Office
4866 State Route 52
Jeffersonville, New York 12748
(845) 482-4000

Callicoon Office
45 Main Street
Callicoon, New York 12723
(845) 887-4866

Eldred Office
561 Route 55
Eldred, New York 12732
(845) 557-8513

Liberty Office
Church & Darbee Lane
Liberty, New York 12754
(845) 292-6300

Livingston Manor Office
45 Main Street
Livingston Manor, New York 12758
(845) 439-8123

Loch Sheldrake Office
Route 52
Loch Sheldrake, New York 12759
(845) 434-1180

Monticello Office
15 Forestburgh Road
Monticello, New York 12701
(845) 791-4000

Narrowsburg Office
122 Kirk Road
Narrowsburg, New York 12764
(845) 252-6570

Wal*Mart Office
33 Anawana Lake Road
Monticello, New York 12701
(845) 794-3988

Wurtsboro Office
2930 State Route 209
Wurtsboro, New York 12790
(845) 888-5890


Subsidiary

The First National Bank
of Jeffersonville


Stock Transfer Agent

American Stock Transfer Company
40 Wall Street
46th Floor
New York, New York 10005
(212) 936-5100

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    This painting can be found at the corner of Route 17B and Main Street
     in Callicoon, New York. It is the creation of artist Diane Hess, who
     lives in North Branch, New York. The lettering above the painting is
      the work of Craig Stewart of Stewart Signs in Callicoon, New York.


<PAGE>

(LOGO)

Jeffersonville Bancorp
P.O. Box 398
Jeffersonville, NY 12748
www.jeffbank.com