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Exhibit 13
[JACKSONVILLE BANCORP LOGO]
2000 ANNUAL REPORT
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TABLE OF CONTENTS
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PAGE
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President's Letter to Stockholders..........................................ii
Selected Consolidated Financial Data.........................................1
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................3
Changes in Financial Condition for 2000 and 1999.............................7
Independent Auditors' Report...............................................F-1
Consolidated Financial Statements:
Consolidated Statements of Financial Condition....................F-2
Consolidated Statements of Earnings...............................F-3
Consolidated Statements of Stockholders' Equity...................F-4
Consolidated Statements of Cash Flow..............................F-6
Notes to Consolidated Financial Statements.................................F-7
Stock Information...........................................................19
Directors and Executive Officers............................................20
Banking Locations...........................................................21
Stockholder Information.....................................................22
Transfer Agent/Registrar....................................................22
Shareholder Requests........................................................22
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[JACKSONVILLE BANCORP LOGO]
Dear Fellow Shareholders:
On behalf of the directors, management and staff of our Company, we are pleased
to provide you with our 2000 Annual Report. Overall, fiscal 2000 was another
successful year as we continued to grow loan and deposit market share, book
value per share and earnings per share. We have continued to exceed all
regulatory capital requirements as mandated by regulators and currently maintain
a total capital position of $34.0 million.
Although we experienced rising interest rates during the year, our net earnings
reached $3.7 million or $1.82 per diluted share compared to $3.6 million or
$1.60 per diluted share for fiscal 1999, an increase of 13.8% per diluted share.
Earnings for fiscal 2000 were enhanced due to a refund of state franchise taxes
in the net amount of $155,000 for the years 1997 through 1999 on a ruling made
by the Texas Controllers Office related to treatment of available- for-sale
securities.
Due to the substantial investment of time and resources by our Information
Systems staff in meeting the demands of the Y2K operating environment, we are
pleased to report that we experienced no disruptions in our operations during
this challenging time.
With a dramatic shift of investments to the technology sector and a rising
interest rate environment, investors have shown less interest in bank stocks and
the market value of the entire financial sector has declined. While the market
value of our stock decreased to $14.375 at September 29, 2000 from $15.25 at
September 30, 1999 our book value increased from $15.70 to $17.32, a 10.3%
increase for the year after paying dividends of $.50 per share.
We are pleased to report that during fiscal 2000 our Company successfully
repurchased an additional 212,500 shares of company common stock in an effort to
enhance earnings per share to our shareholders. This brings total treasury
shares to 708,260 or 26.6% of the original shares sold at our initial public
offering at an average price of 87.7% of book value.
After several delays and unanticipated developments we are pleased to report
that the Hallsville Subdivision near Longview, Texas, is almost complete. We
anticipate that sales of lots will begin as early as January, 2001.
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We feel we have made excellent progress in changing the Bank's image from a
savings and loan institution to a community bank. We offer most products and
services that competitive commercial banks in our area offer while still being a
major lender of mortgage and home equity loans throughout East Texas. During the
year we completed installation of automated teller machines in all locations
except one, installed a voice response system, made the decision to purchase new
mortgage and consumer loan software, and initiated debit cards and free
checking.
We are satisfied with the performance of our second branch in Tyler, Texas after
one year in operation. For the year ended September 30, 2000 the branch had made
$6.9 million in loan originations which was somewhat lower than anticipated,
primarily due to rising interest rates, while its deposit base reached $2.6
million, a figure that is in line with pro-forma estimates.
Our goal for fiscal 2001 is to serve our customers and to expand our customer
base throughout East Texas by delivering banking services that meet or exceed
their expectations, while continuing the profitability of our banking
operations. We also remain committed to maximizing the value of your investment
in Jacksonville Bancorp, Inc.
As always, the success of fiscal year 2000 was the result of the hard work and
dedication of our officers, directors and employees and your support. We thank
you for the confidence that you have placed in our Company and look forward to
reporting continual successes in the future.
Sincerely,
/s/ JERRY CHANCELLOR
Jerry Chancellor
President & CEO
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SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial and other data of the Company
does not purport to be complete and is qualified in its entirety by reference to
the more detailed financial information contained elsewhere herein.
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September 30,
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2000 1999 1998 1997 1996
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SELECTED FINANCIAL CONDITION AND
OTHER DATA:
Total assets................................... $301,467 $290,392 $263,160 $233,944 $217,856
Cash and cash equivalents...................... 7,521 6,568 10,868 4,114 5,193
Investment securities.......................... 22,017 18,711 20,013 25,931 33,805
Mortgage-backed securities..................... 32,727 37,640 31,866 21,217 12,107
Loans receivable, net.......................... 226,854 216,267 191,153 174,044 158,034
Foreclosed real estate, net.................... 124 346 531 526 1,051
Deposits....................................... 220,766 215,209 204,490 190,033 174,328
Borrowings..................................... 41,000 35,000 17,000 2,000 2,000
Stockholders' equity........................... 34,089 34,219 35,562 33,788 35,431
Full-service offices........................... 8 7 7 6 6
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Year Ended September 30,
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2000 1999 1998 1997 1996
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SELECTED OPERATING DATA:
Total interest income.......................... $22,350 $20,465 $18,541 $17,172 $15,394
Total interest expense......................... 12,328 10,711 9,628 8,771 8,453
------- ------- ------- ------- -------
Net interest income.......................... 10,022 9,754 8,913 8,401 6,941
Provision for losses on loans.................. 69 60 35 110 100
-- -- -- --- ---
Net interest income after provision for
losses on loans........................... 9,953 9,694 8,878 8,291 6,841
Noninterest income............................. 1,740 1,687 1,554 1,392 1,290
Noninterest expense............................ 6,209 5,876 5,639 5,063 5,846
------- ------- ------- ------- -------
Income before income taxes..................... 5,484 5,505 4,793 4,620 2,284
Income taxes................................... 1,813 1,867 1,468 1,380 704
------- ------- ------- ------- -------
Net income..................................... $ 3,671 $ 3,638 $ 3,325 $ 3,240 $ 1,580
======= ======= ======= ======= =======
Earnings per share
Basic........................................ $ 1.87 $ 1.65 $ 1.44 $ 1.30 $ .64
Diluted...................................... 1.82 1.60 1.38 1.27 .63
------- ------- ------- ------- -------
Dividends Payout Ratio......................... 26.35% 30.07% 34.60% 36.98% 55.50%
===== ===== ===== ===== =====
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At or For the Year Ended September 30,
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2000 1999 1998 1997 1996
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SELECTED OPERATING RATIOS(1):
Return on average assets....................... 1.25% 1.33% 1.37% 1.45% .76%
Return on average equity....................... 10.90 10.82 9.98 9.35 6.13
Average equity to average assets............... 11.42 12.88 13.74 15.54 12.41
Equity to assets at end of period.............. 11.31 11.78 13.51 14.44 16.27
Interest rate spread(2)........................ 3.08 3.23 3.21 3.32 2.99
Net interest margin(2)......................... 3.56 3.72 3.84 3.94 3.50
Non-performing loans and troubled debt
restructurings to total loans at end of
period(3).................................... .35 .41 .55 .59 .76
Non-performing assets and troubled debt
restructurings to total assets at end of
period(3).................................... .31 .42 .60 .66 1.03
Average interest-earning assets to average
interest-bearing liabilities................. 111.08 111.90 115.38 114.95 111.92
Net interest income after provision for loan
losses to total noninterest expense.......... 160.30 164.98 157.45 163.78 117.01
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(See footnotes on following page.)
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(1) With the exception of end of period ratios, all ratios are based on average
monthly balances during the periods and are annualized where appropriate.
(2) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities. Net interest margin represents net interest
income as a percentage of average interest-earning assets.
(3) Non-performing loans consist of non-accrual loans and accruing loans that
are contractually past due 90 days or more; non-performing assets consist of
non-performing loans and real estate acquired by foreclosure, deed in lieu
thereof or deemed in substance foreclosure; and troubled debt restructurings
consist of restructured debt in accordance with Statement of Financial
Accounting Standards No. 15.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Jacksonville Bancorp, Inc. (the "Company"), through its wholly-owned
subsidiary, Jacksonville IHC, Inc., ("IHC") and Jacksonville Savings Bank, SSB
("Jacksonville"), wholly owned subsidiary of IHC, is primarily engaged in
attracting deposits from the general public and using those and other available
sources of funds to originate loans secured by single-family residences located
in Cherokee County and surrounding counties in East Texas. To a lesser extent,
Jacksonville also originates construction loans, land loans, consumer loans, and
home equity loans. It also has a significant amount of investments in
mortgage-backed securities and United States Government and federal agency
obligations.
The profitability of Jacksonville depends primarily on its net interest
income, which is the difference between interest and dividend income on
interest-earning assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing deposits and
borrowings. Jacksonville's net earnings also is dependent, to a lesser extent,
on the level of its noninterest income (including servicing fees and other fees)
and its noninterest expenses, such as compensation and benefits, occupancy and
equipment, insurance premiums, and miscellaneous other expenses, as well as
federal income tax expense.
ASSET AND LIABILITY MANAGEMENT
The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate-sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest rate-sensitive assets exceeds the amount of interest
rate-sensitive liabilities and is considered negative when the amount of
interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would have the
opposite effect.
The lending activities of savings associations have historically
emphasized long-term, fixed-rate loans secured by single-family residences, and
the primary source of funds of such institutions has been deposits and, more
recently, Federal Home Loan Bank advances. The deposit accounts and advances of
savings associations generally bear interest rates that reflect market rates and
largely mature or are subject to repricing within a short period of time. This
factor, in combination with substantial investments in long-term, fixed-rate
loans, has historically caused the income earned
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by savings associations on their loan portfolios to adjust more slowly to
changes in interest rates than their cost of funds.
Jacksonville originates both fixed- and variable-rate residential real
estate loans as market conditions dictate. Jacksonville's mortgage loan
portfolio, as of September 30, 2000 consisted of 28% of adjustable or floating
rate loans. In order to meet its customers' demands for fixed-rate loans during
periods of lower interest rates, until 1994 Jacksonville followed a policy of
selling to third parties a high percentage of the fixed-rate loans it originated
while retaining its variable-rate loans. The mixture of originations for sale
and originations for portfolio varies depending on the general mix of
interest-earning assets Jacksonville then currently holds in its portfolio and
other factors such as market fees for loan sales and the overall interest-rate
environment. As interest rates declined in late 1991, Jacksonville originated an
increasingly higher percentage of fixed-rate residential first mortgage loans
and continued to sell approximately 90% of such loans upon origination. Since
1994, it had been Jacksonville's policy to retain a large portion of its
fixed-rate residential first mortgage loans with terms of 15 years or less and
selling those fixed rate mortgages with terms in excess of 15 years. However,
during fiscal 2000 management elected to portfolio a greater percentage of its
30 year fixed rate mortgages due to increased interest rates, but continued to
sell some loans in the secondary market.
Notwithstanding the foregoing, however, because Jacksonville's
interest-bearing liabilities which mature or reprice within short periods
substantially exceed its earning assets with similar characteristics, material
and prolonged increases in interest rates generally would adversely affect net
interest income, while material and prolonged decreases in interest rates
generally, but to a lesser extent because of their historically low levels,
would have the opposite effect.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank's interest rate risk and asset-liability management are the
responsibility of the Interest Rate Risk Committee which reports to the Board of
Directors and is comprised of members of the Bank's senior management. The
Committee is actively involved in formulating the economic projections used by
the Bank in its planning and budgeting process and establishes policies which
monitor and coordinate the Bank's sources, uses and pricing of funds.
Interest rate risk, including mortgage prepayment risk, is the most
significant non-credit related risk to which the Bank is exposed. Net interest
income, the Bank's primary source of revenue, is affected by changes in interest
rates as well as fluctuations in the level and duration of assets and
liabilities on the Bank's balance sheet.
Interest rate risk can be defined as the exposure of the Bank's net
interest income or financial position to adverse movements in interest rates. In
addition to directly impacting net interest income, changes in the level of
interest rates can also affect, (i) the amount of loans originated and sold by
the institution, (ii) the ability of borrowers to repay adjustable or
variable-rate loans, (iii) the average maturity of loans, which tend to increase
when new loan rates are substantially higher than rates on existing loans and,
conversely, decrease when rates on new loans are substantially lower than rates
on existing loans, (iv) the value of the Bank's mortgage loans and the resultant
ability to realize gains
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on the sale of such assets and (v) the carrying value of investment securities
classified as available-for-sale and the resultant adjustments to shareholders'
equity.
The primary objective of the Bank's asset-liability management is to
maximize net interest income while maintaining acceptable levels of interest
rate sensitivity. To accomplish this the Bank monitors interest rate sensitivity
by use of a sophisticated simulation model which analyzes resulting net interest
income under various interest rate scenarios and anticipated levels of business
activity. Complicating management's efforts to measure interest rate risk is the
uncertainty of assumptions used for the maturity, repricing, and/or runoff
characteristics of some of the Bank's assets and liabilities.
To cope with these uncertainties, management gives careful attention to
its assumptions. For example, certain of the Bank's interest-bearing deposit
products (NOW accounts, savings and money market deposits) have no contractual
maturity and based on historical experience have only a fractional sensitivity
to movements in market rates. Because management believes it has some control
with respect to the extent and timing of rates paid on non-maturity deposits,
certain assumptions based on historical experience are built into the model.
Another major assumption built into the model involves the ability customers
have to prepay loans, often without penalty. The risk of prepayment tends to
increase when interest rates fall. Since future prepayment behavior of loan
customers is uncertain, the resultant interest rate sensitivity of loan assets
cannot be determined exactly. The Bank utilizes market consensus prepayment
assumptions related to residential mortgages.
The Bank uses simulation analysis to measure the sensitivity of net
interest income over a specified time period (generally 1 year) under various
interest-rate scenarios using the assumptions discussed above. The Bank's policy
on interest rate risk specifies that if interest rates were to shift immediately
up or down 200 basis points, estimated net interest income should decline by
less than 20%. Management estimates, based on its simulation model, that an
instantaneous 200 basis point increase in interest rates at September 30, 2000,
would result in a 11.4% decrease in net interest income over the next twelve
months, while a 200 basis point decrease in rates would result in a 1.5%
increase in net interest income over the next twelve months. In 1999, management
estimated, based on its simulation model, that an instantaneous 200 basis point
increase in interest rates at September 30, 1999, would result in a 10.3%
decrease in net interest income over the next twelve months, while a 200 basis
point decrease in rates would result in less than a .25% increase in net
interest income over the next twelve months. It should be emphasized that the
results are highly dependent on material assumptions such as those discussed
above. It should also be noted that the exposure of the Bank's net interest
income to gradual and/or modest changes in interest rates is relatively small.
At September 30, 2000 the Bank was within the acceptable range set forth in the
Bank's Interest Rate Risk policy.
REGULATORY CAPITAL REQUIREMENTS
The Bank is required to maintain specified amounts of capital pursuant to the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA")
and regulations promulgated by the FDIC thereunder. The capital standards
generally require the maintenance of regulatory capital sufficient to meet Tier
1 leveraged capital requirement, a Tier 1 risk-based capital requirement and a
total risk-based capital requirement. At September 30, 2000, Jacksonville
Savings Bank had Tier 1 leveraged capital, and Tier 1 risk based capital and
total risk based capital levels of
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10.83%,18.52% and 19.22%, respectively, which levels exceed all current
regulatory capital by $20.5 million, $25.4 million, and $19.7 million
respectively.
"SAFE HARBOR" STATEMENT
In addition to historical information, forward-looking statements are
contained herein that are subject to risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations, include, but are not limited to, the impact of economic conditions
(both generally and more specifically in the markets in which Jacksonville
operates), the impact of competition for Jacksonville's customers from other
providers of financial services, the impact of government legislation and
regulation (which changes from time to time and over which Jacksonville has no
control), and other risks detailed in this Form 10-K and in Jacksonville's other
Securities and Exchange Commission filings. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. Jacksonville undertakes no obligation to
publicly revise these forward-looking statements, to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents Jacksonville files from time to
time with the Securities and Exchange Commission.
YEAR 2000 STATEMENT
The Y2K event turned out to be a non-event at Jacksonville Bancorp, Inc., and
its subsidiaries. Neither the Company nor its subsidiaries experienced any
significant problems associated with the transition to the new millennium. We
expected and accomplished a smooth transition due to the substantial investment
of time and effort to ensure that no interruptions would occur to our system.
All costs have been incurred, and there are no further expenditures projected
for Y2K issues.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
was adopted by FASB on June 30, 1998. This Statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Among other things, it
supersedes FASB Statements No. 80, "Accounting for Futures Contracts," No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk," and No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments." It amends FASB Statement NO. 107, "Disclosures about Fair Value of
Financial Instruments," to include in Statement 107 the disclosure provisions
about concentrations of credit risk from Statement 105. The Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b)
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a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transactions. This Statement precludes
designating a nonderivative financial instrument as a hedge of an asset,
liability, unrecognized firm commitment, or forecasted transaction except that a
nonderivative instrument denominated in a foreign currency may be designated as
a hedge of the foreign currency exposure of an unrecognized firm commitment
denominated in a foreign currency or a net investment in a foreign operation.
The Company adopted the provisions of SFAS No. 133 effective September 30,
1999 and it did not significantly impact financial position or results of
operations.
In September 2000 the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
supersedes and replaces SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Accordingly, SFAS No. 140
is now the authoritative accounting literature for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS No. 140 also includes
several additional disclosure requirements in the area of securitized financial
assets and collateral arrangements. The provisions of SFAS No. 140 related to
transfers and servicing of financial assets are to be applied to all transfers
of financial assets occurring after March 31, 2001. The collateral recognition
and disclosure provisions in SFAS No. 140 are effective for fiscal years ending
after December 15, 2000. The Company anticipates that the adoption of SFAS No.
140 will not have a material impact on the Company's results of operations.
CHANGES IN FINANCIAL CONDITION FOR 2000 AND 1999
ASSETS
General. Total assets of the Company increased $11.1 million to $301.5 million
at September 30, 2000 from $290.4 million at September 30, 1999. This increase
was primarily due to increases in cash and cash equivalents, investment
securities available-for-sale, loans receivable, premises and equipment and
investment in real estate, offset by decreases in investment securities
held-to-maturity and mortgage-backed certificates. The growth in assets was
funded by a $6.0 million net increase in advances from the Federal Home Loan
Bank of Dallas (the "FHLB"), together with an $5.6 million net increase in
deposits. The Company repurchased $3.0 million of its common stock, on the open
market, during the year ended September 30, 2000, increasing its common shares
held in treasury from 495,760 shares at September 30, 1999 to 708,260 shares at
September 30, 2000. Retained earnings increased $2.7 million or 12.6% from $21.5
million at September 30, 1999 to $24.2 at September 30, 2000.
Cash and Cash Equivalents. Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits and cash on hand, increased by
$953,000 to $7.5 million at
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September 30, 2000 compared to $6.6 million at September 30, 1999. The increase
of $953,000 was primarily due to certificates of deposits in other insured
financial institutions.
Investment Securities
(1) Held-to-maturity - At September 30, 2000 the Company held investment
securities, held-to-maturity of $5.0 million compared to $7.0 million at
September 30, 1999. (2) Available-for-sale - Investments, available-for-sale,
increased $5.3 million from $11.7 million at September 30, 1999 to $17.0
million at September 30, 2000 due primarily to management's decisions to place
most securities purchased during the year in the AFS portfolio.
Mortgage-backed Securities
(1) Held-to-maturity - During the year, held-to-maturity mortgage-backed
securities decreased from $4.7 million at September 30, 1999 to $3.7 million
at September 30, 2000 primarily due to principal reductions in the portfolio
which were not replaced with new purchases.
(2) Available-for-sale - Available-for-sale certificates decreased 12.0% from
$33.0 million at September 30, 1999 to $29.0 million at September 30, 2000.
This decrease in mortgage-backed securities available-for-sale was due to
principal reductions and maturities in the portfolio not replaced by new
purchases.
Loans Receivable, Net. Loans receivable, net, increased $10.6 million or 4.9% to
$226.9 million at September 30, 2000 compared to $216.3 million for the
comparable period in 1999. The increase was primarily due to an increase in
single-family residential loans of $6.4 million or 3.9%; an increase in
construction loans, net of $3.9 million or 18.6% and an increase in consumer
loans of $93,000 or 0.4%. Loans receivable, net, amounted to 75.2% of total
assets at September 30, 2000 compared to 74.5% of total assets at September 30,
1999.
Premises and Equipment. Premises and equipment increased $263,000 from $4.6
million at September 30, 1999 to $4.8 million at September 30, 2000 due
primarily to paying the remaining costs associated with the construction and
equipping a second branch in Tyler, Texas.
Stock in Federal Home Loan Bank. Federal Home Loan Bank stock represents an
equity interest in the FHLB that does not have a readily determinable fair value
(for purposes of Federal Accounting Standards Board Statement No. 115) because
its ownership is restricted and it lacks a market. It can be sold only to the
FHLB or to another member institution. It is carried at cost. Both cash and
stock dividends are received on FHLB stock and are reported as income. The stock
dividends are redeemable at par value. At September 30, 2000, Federal Home Loan
Bank stock amounted to $2.2 million compared to $2.0 million for the same period
in 1999.
Investment in Real Estate. The Company reported $1.25 million in investment in
real estate at September 30, 2000, an increase of $533,000 from the $713,000
reported at September 30, 1999. This is a result of the investment to date of
the development of the residential subdivision in
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Hallsville, Texas. The subdivision is very near completion after several delays
and lot sales are expected to begin no later than January, 2001.
LIABILITIES AND STOCKHOLDER'S EQUITY
General. The Company's primary funding sources include deposits, FHLB advances
and stockholder's equity. The discussion that follows focuses on the major
changes in this mix during fiscal 2000.
Deposits. Total deposits increased by $5.6 million to $220.8 million at
September 30, 2000 compared to $215.2 million at September 30, 1999. During the
year ended September 30, 2000 NOW accounts and checking accounts grew by $5.0
million which was an increase of 17.8% from the September 30, 1999 balance of
$27.9 million. Certificates of deposit comprise the largest component of the
deposit portfolio and these accounts totaled $164.1 million at fiscal year end.
Certificates of deposits amounted to 74.3% of the Company's total deposits at
September 30, 2000 compared to 74.5% at the comparable period in 1999. Total
Deposits funded 73.2% of total assets at September 30, 2000 compared to 74.1%
for comparable period in 1999.
Federal Home Loan Bank Advances. The Company used advances from the FHLB of
Dallas as an additional source of funds to meet loan demand. At September 30,
2000 the outstanding amount of these borrowings was $41.0 million, which is a
$6.0 million increase from the $35.0 million outstanding at September 30, 1999.
The Company has also used FHLB advances to fund certain investment strategies
approved by the Board of Directors. At September 30, 2000 and September 30,
1999, $30.0 million in borrowings were outstanding to fund these strategies. At
September 30, 2000 advances funded 13.6% of total assets compared to 12.1% at
September 30, 1999.
Equity. At September 30, 2000, total stockholders' equity amounted to $34.1
million or 11.3% of assets compared to $34.2 million or 11.78% of assets at
September 30, 1999. The decrease of $130,000 is primarily due to increases in
net income of $3.7 million, employee and management awards of $248,000,
partially offset by the repurchase of 212,500 shares of common stock totaling
$3.0 million; an increase of $100,000 in unrealized loss of securities; and the
paying of cash dividends of $967,000 during the fiscal year ended September 30,
2000. Stockholders' equity funded 11.3% of assets at September 30, 2000 compared
to 11.8% at September 30, 1999.
CHANGES IN FINANCIAL CONDITION FOR 1999 AND 1998
At September 30, 1999, Jacksonville's assets totaled $290.4 million, as
compared to $263.2 million at September 30, 1998. Total assets increased $27.2
million, or 10.3%, from September 30, 1998 to September 30, 1999. The increase
in total assets during fiscal 1999 was principally the result of a $25.1 million
or 13.1% increase in loans receivable, net from $191.2 million at September 30,
1998 to $216.3 million at September 30, 1999. The increase was primarily the
result of an increase in single-family residential loans of $14.7 million or
9.8%, an increase in construction loans, net of $5.7 million or 36.7% and an
increase in consumer loans of $3.4 million or 16.3% during the period. A $8.5
million, or 54.8% decrease in investment securities, held to maturity; and a
$2.4 million, or
9
<PAGE>
33.9% decrease in mortgage-backed securities, held to maturity, was more than
offset by a $ 8.2 million increase in mortgage-backed securities, available for
sale and a $7.2 million, or 159.1% increase in investment securities available
for sale. The increase in mortgage-backed securities, available for sale, was
primarily due to Jacksonville's decision to implement a limited wholesale growth
strategy involving leveraged investing using FHLB advances to increase earnings.
During the year ended September 30, 1999, total liabilities increased
$28.6 million or 12.6% to $256.0 million. This increase was primarily the result
of an increase in total deposits of $10.7 million, or 5.2%; and an increase in
advances from the Federal Home Loan Bank of $18.0 million which proceeds were
used to purchase mortgage-backed securities.
Stockholders' equity decreased from $35.6 million at September 30, 1998
to $34.2 million at September 30, 1999, a decrease of $1.3 million or 3.8%. The
decrease was primarily the results of annual earnings after dividends less the
purchase of 209,835 Treasury shares in the amount of $3.4 million.
10
<PAGE>
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table presents for the periods indicated the total dollar
amount of interest from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollar and rates, and the net interest margin. The table does
not reflect any effect of income taxes. All average balances are based on
month-end balances. Management believes that the use of average monthly balances
is representative of its operations.
<TABLE>
<CAPTION>
September
30, 2000 2000 1999
----------- --------------------------------- ----------------------------------
Yield/ Average Yield/ Average Yield/
Rate Balance Interest Rate Balance Interest Rate
----------- --------- ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable(3)............... 8.31% $222,200 $18,557 8.35% $205,057 $17,092 8.34%
Mortgage-backed securities........ 6.41 35,053 2,447 6.98 34,029 2,223 6.53
Investment securities............. 6.27 19,278 1,078 5.59 17,684 880 4.98
Other interest-earning assets(1).. 6.23 4,605 268 5.82 5,380 270 5.02
-------- ------- -------- -------
Total interest-earning assets........ 281,136 $22,350 7.95% 262,150 $20,465 7.81%
======== ======= ==== ======== ======= ====
Non-interest-earning assets.......... 13,703 11,529
-------- --------
Total assets.................. $294,839 $273,679
======== ========
INTEREST-BEARING LIABILITIES:
Transaction accounts.............. 2.73% $ 53,999 $ 1,326 2.46% $ 54,114 $ 1,289 2.38%
Time deposits..................... 5.74 160,765 8,733 5.43 155,623 8,199 5.27
-------- ------- -------- -------
Total deposits................ 214,764 10,059 4.68 209,737 9,488 4.52
-------- ------- -------- -------
Borrowings........................ 6.21 38,328 2,270 5.92 24,542 1,223 4.98
-------- ------- -------- -------
Total interest-bearing
liabilities.................. 253,092 $12,329 4.87% 234,279 $10,711 4.57%
-------- ------- ==== -------- ======= ====
Non-interest-bearing liabilities..... 8,069 5,785
-------- --------
Total liabilities............. 261,160 240,064
-------- --------
Stockholders' Equity................. 33,679 33,615
-------- --------
Total liabilities and
stockholders' equity......... $294,839 $273,679
======== ========
Net interest income; interest rate
spread.......................... $10,021 3.08% $ 9,754 3.23%
======= ==== ======= ====
Net interest margin(2)............... 3.56% 3.72%
==== ====
Average interest-earning assets to
average interest bearing
liabilities....................... 111.08% 111.90%
====== ======
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------
Average Yield/
Balance Interest Rate
------- -------- ------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable(3).......................................... $180,021 $15,442 8.58%
Mortgage-backed securities................................... 22,286 1,501 6.74
Investment securities........................................ 23,502 1,261 5.36
Other interest-earning assets(1)............................. 6,326 337 5.33
-------- ------- ----
Total interest-earning assets................................... $232,135 $18,541 7.99%
======== ======= ====
Non-interest-earning assets..................................... 10,306
--------
Total assets............................................. $242,441
========
INTEREST-BEARING LIABILITIES:
Transaction accounts......................................... $47,720 $ 1,217 2.55%
Time deposits................................................ 148,546 8,131 5.47%
-------- -------
Total deposits........................................... 196,266 9,348 4.76
-------
Borrowings................................................... 4,923 280 5.69
-------- ------- ----
Total interest-bearing liabilities....................... 201,189 $ 9,628 4.78%
-------- ======= ====
Non-interest-bearing liabilities................................ 7,949
--------
Total liabilities........................................ 209,138
--------
Stockholders' Equity............................................ 33,303
--------
Total liabilities and stockholders' equity............... $242,441
========
Net interest income; interest rate speed........................ $ 8,913 3.21%
======= ====
Net interest margin(2).......................................... 3.84%
====
Average interest-earning assets to average interest bearing
liabilities.................................................. 115.38%
======
</TABLE>
-------------------------------
(1) Consists primarily of interest-bearing deposits.
(2) Net interest margin is net interest income divided by average
interest-earning assets.
(3) Includes non-accrual loans which do not significantly impact the average.
11
<PAGE>
The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected Jacksonville's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume), and (iii) total change in rate
and volume. The combined effect of changes in both rate and volume has been
allocated proportionately to the change due to rate and the change due to
volume.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------------------
2000 Vs. 1999 1999 Vs. 1998
---------------------------------- -----------------------------------
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
------------------ ---------- ------------------- ----------
Rate Volume (Decrease) Rate Volume (Decrease)
---- ------- ---------- ---- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans................................. $ 21 $1,444 $1,465 $(421) $2,071 $1,650
Mortgage-backed securities............ 156 68 224 (44) 766 722
Investment securities................. 114 84 198 (86) (295) (381)
Other interest-earning assets......... 40 (42) (2) (19) (48) (67)
---- ------ ------ ------ ------ ------
Total interest-earning assets..... $331 $1,554 $1,885 $(570) $2,494 $1,924
==== ====== ====== ====== ====== ======
INTEREST-BEARING LIABILITIES:
Deposits.............................. $341 $ 320 $ 571 $(382) $ 522 $ 140
Other borrowings...................... 263 784 1,074 (30) 973 943
---- ------ ------ ----- ------ ------
Total interest-bearing liabilities.... $604 $1,014 $1,618 $(412) $1,495 $1,083
==== ====== ====== ====== ====== ======
Increase (decrease) in net interest
income................................ $ 267 $ 841
====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------
1998 Vs. 1997
----------------------------------------------------
Increase
(Decrease) Total
Due to Increase
-------------------------- ----------
Rate Volume (Decrease)
---- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans............................................ $ (65) $1,413 $1,348
Mortgage-backed securities (33) 399 366
Investment securities............................ (133) (263) (396)
Other interest-earning assets.................... (19) 70 51
----- ------ ------
Total interest-earning assets................ $(250) $1,619 $1,369
===== ====== ======
INTEREST-BEARING LIABILITIES:
Deposits......................................... $ 94 $ 655 $ 749
Other borrowings................................. (11) 119 108
----- ------ ------
Total interest-bearing liabilities............... $ 83 $ 774 $ 857
===== ====== ======
Increase (decrease) in net interest income....... $ 512
======
</TABLE>
12
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED SEPTEMBER 30, 2000 AND
SEPTEMBER 30, 1999
GENERAL. Jacksonville's net income for the year ended September 30,
2000 was $3.7 million, compared to $3.6 million for the year ended September 30,
1999. In fiscal 2000, the increase in net interest income was the primary reason
for the increase in net income compared to fiscal 1999. However, while total
interest income increased from $20.5 million for the year ended September 30,
1999 to $22.3 million for fiscal 2000, total interest expense also increased
from $10.7 million to $12.3 million for the comparable periods resulting in a
declining interest rate margin. The increase in net interest income was also
partially offset by increases in non-interest expenses from $5.9 million for the
year ended September 30, 1999 to $6.2 million for fiscal year 2000.
Interest-earning assets increased $10.2 million or 3.7% during the fiscal
year ended September 30, 2000. The amount of such assets increased primarily as
a result of use of the increase in deposits and advances from the Federal Home
Loan Bank to fund loans receivable portfolio. As the average balance of
interest-earning assets increased, the Bank also experienced generally higher
interest rates during the period in which loans were originated which resulted
in the average yield on interest-earning assets increasing by 14 basis points
from 7.81% in fiscal 1999 to 7.95% in fiscal 2000. The positive impact on
earnings resulting from the increase in average balance on Jacksonville's
interest-earning assets was offset by a 30 basis point increase in the average
paid on interest bearing liabilities from 4.57% in fiscal 1999 to 4.87% in
fiscal 2000. The interest rate spread decreased from 3.23% in fiscal 1999 to
3.08% in 2000.
NET INTEREST INCOME. Net Interest Income is determined by the interest
rate spread (i.e., the difference between the yield on interest-earning assets
and the rates paid on interest bearing liabilities) and changes in the average
amounts of interest-bearing liabilities. Net interest income increased by
$268,000, or 2.7%, for the year ended September 30, 2000 compared to the year
ended September 30, 1999. This increase was due to a $1.9 million, or 9.2%,
increase in total interest income offset by a $1.6 million or 15.1% increase in
total interest expense.
The $1.9 million increase in total interest income was primarily the
result of increases in interest on loans receivable of $1.5 million or 8.6%,
interest on mortgage-backed securities of $224,000 or 10.1%, an increase of
$198,000 or 22.5% in interest income on investment securities, offset by a
decrease in other interest income of $2,000. The increase in interest income
from loans receivable was due primarily to a $17.1 million, or 8.4%, increase in
the average balance of Jacksonville's loan portfolio. The increase in interest
income from mortgage-backed securities reflects an increase in average balance
from $34.0 million in fiscal 1999 to $35.1 million in fiscal 2000 with an
increase in average yield from 6.53% to 6.98% in the respective periods. The
increase in interest income from investment securities reflects primarily an
increase in average balance from $17.7 million to $19.3 million, or 9.0%. The
increase in the average balance of securities reflects some shift in portfolio
mix by management of Jacksonville as funds were used to purchase
available-for-sale securities and to fund new mortgage loans.
The $1.6 million increase in total interest expense from $10.7 million
for the year ended September 30, 1999, to $12.3 million for the year ended
September 30, 2000, was primarily due to
13
<PAGE>
an increase in interest rates paid on deposits, and to an increase in interest
paid on FHLB advances. The average rate paid on deposits increased from 4.52% in
fiscal 1999 to 4.68% in fiscal 2000.
Jacksonville's net interest rate spread was 3.08% for the year ended
September 30, 2000 as compared to 3.23% in fiscal 1999.
PROVISION FOR LOSSES ON LOANS. Jacksonville's provision for loan losses
was $69,000 for the year ended September 30, 2000 compared to $60,000 for the
year ended September 30, 1999. Provisions for losses on loans are charged to
earnings to bring the total allowance to a level deemed appropriate by
management based on historical experience, the volume and type of lending
conducted by Jacksonville, industry standards, the amount of non-performing
assets, general economic conditions, particularly as they relate to
Jacksonville's market area, and other factors related to the collectability of
Jacksonville's loan portfolio. The amount of allowance for loan losses is only
an estimate, and actual losses may vary from these estimates. Non-performing
loans decreased to $472,000 during fiscal 2000, and net charge-offs for the
period increased $36,000 and totaled $54,000 for the year. The Company's level
of net loans outstanding increased $10.6 million which included an increase of
3.9% in mortgage loans. Overall economic conditions remained stable for the
market area and credit quality for the applicants showed no material change.
Upon consideration of such factors, Jacksonville determined that $69,000 in
provisions for losses on loans were appropriate in fiscal 2000, primarily
because of the increase in the loan portfolio. Jacksonville's allowance for
losses amounted to $1.2 million at September 30, 2000 an increase $15,000 from
the amount at September 30, 1999.
NON-INTEREST INCOME. The primary components of non-interest income are
comprised of service fees and charges, income from real estate operations, net,
mortgage servicing rights and other non-interest income. Total noninterest
income amounted to $1.74 million for the year ended September 30, 2000 compared
to $1.69 million in fiscal 1999. The $53,000 increase was due primarily to an
increase in fees and deposit service charges of $47,000; an increase of $46,000
in other noninterest income partially offset by a decrease in income from
origination of mortgage servicing of $15,000 and a decrease in income from real
estate operations, net of $25,000. The increase in income from fees and deposit
service charges primarily reflects an increase in service charges on deposits.
NON-INTEREST EXPENSE. Non-interest expense includes salaries and
employee benefits, occupancy and equipment, deposit insurance premiums and other
non-interest expense. Noninterest expense amounted to $6.2 million for the year
ended September 30, 2000 compared to $5.9 million during fiscal 1999. The
primary reason for the $333,000, or 5.7% increase in noninterest expense during
fiscal 1999 was from increases in compensation and benefits of $231,000; in
occupancy and equipment of $101,000, and other noninterest expenses of $51,000,
offset by a reduction in insurance expense of $50,000. Some of the increase in
non-interest expense is attributed to cost of staffing and other expenses
associated with the opening of a second branch in Tyler, Texas. Non-interest
expense was reduced by approximately $155,000 due to a refund of previous years'
state franchise taxes (1996 through 1999) based on a recent ruling made by the
Texas State Controllers Office related to treatment of available-for-sale
securities.
14
<PAGE>
INCOME TAXES. Income tax expense amounted to $1.8 million during the
year ended September 30, 2000, compared to $1.9 million in fiscal 1999. See
Note 11 to Consolidated Financial Statements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND
SEPTEMBER 30,1998
GENERAL. Jacksonville had net earnings of $3.6 million for the year ended
September 30, 1999 as compared to $3.3 million for the year ended September 30,
1998. During fiscal 1999, Jacksonville's net interest income increased by
$841,000 and its noninterest income increased by $133,000 while the provision
for losses on loans increased $25,000. Noninterest expense increased by
$237,000, primarily as a result of an increase in compensation and benefits of
$70,000, an increase in occupancy and equipment of $121,000, and an increase in
other noninterest expense of $48,000, offset by a decrease in insurance expense
of $2,000.
The $313,000 increase in net earnings for fiscal 1999 was primarily the
result of an growth in interest-earning assets of $30.0 million or 12.9%. The
amount of such assets increased primarily as a result of use of the increase in
deposits and advances from the Federal Home Loan Bank, to fund loans receivable
and mortgage backed securities, and loan originations. While the average balance
of interest-earning assets increased, the Bank experienced generally lower
interest rates during the period in which loans were originated which resulted
in the average yield on Jacksonville's interest-earning assets decreasing by 18
basis points from 7.99% in fiscal 1998 to 7.81% in fiscal 1999. The positive
impact on earnings resulting from the increase in average balance on
Jacksonville's interest-earning assets was enhanced by a 21 basis point decrease
in the average rate paid on interest-bearing liabilities from 4.78% in fiscal
1998 to 4.57% in fiscal 1999. The interest rate spread increased from 3.21% in
fiscal 1998 to 3.23% in 1999.
NET INTEREST INCOME. Net interest income increased by $841,000, or
9.4%, for the year ended September 30, 1999 compared to the year ended September
30, 1998. This increase was due primarily to a $1.9 million, or 10.4 %, increase
in total interest income partially offset by a $1.1 million or 11.2% increase
total interest expense.
The $1.9 million increase in total interest income was primarily the
result of increases in interest on loans receivable of $1.6 million or 10.7%,
and interest on mortgage-backed securities of $722,000 or 48.1%, offset by a
decrease of $381,000 or 30.2% in interest income on investment securities and a
decrease in other interest income of $66,000. The increase in interest income
from loans receivable was due primarily to a $25.0 million, or 13.9%, increase
in the average balance of Jacksonville's loan portfolio. The increase in
interest income from mortgage-backed securities reflects an increase in average
balance from $22.3 million in fiscal 1998 to $34.0 million in fiscal 1999 with a
decrease in average yield from 6.74% to 6.53% in the respective periods. The
decrease in interest income from investment securities reflects primarily a
decrease in average balance from $23.5 million to $17.7 million, or 24.8%. The
decrease in the average balance of securities reflects a shift in portfolio mix
by management of Jacksonville as funds from maturing investment securities were
used to purchase mortgage-backed securities and to fund new mortgage loans. The
average yield on loans originated and retained by Jacksonville during fiscal
1999 was 8.2%.
15
<PAGE>
The $1.1 million increase in total interest expense from $9.6 million
for the year ended September 30, 1998, to $10.7 million for the year ended
September 30, 1999, was primarily due to an increase in the growth of deposits,
and to an increase in interest paid on FHLB advances. The average rate paid on
deposits decreased from 4.76% in fiscal 1998 to 4.52% in fiscal 1999.
Jacksonville's net interest rate spread was 3.23 % for the year ended
September 30, 1999 as compared to 3.21% in fiscal 1998.
PROVISION FOR LOSSES ON LOANS. Jacksonville's provision for loan losses
was $60,000 for the year ended September 30, 1999 compared to $35,000 for the
year ended September 30, 1998. Provisions for losses on loans are charged to
earnings to bring the total allowance to a level deemed appropriate by
management based on historical experience, the volume and type of lending
conducted by Jacksonville, industry standards, the amount of non-performing
assets, general economic conditions, particularly as they relate to
Jacksonville's market area, and other factors related to the collectability of
Jacksonville's loan portfolio. Non-performing loans decreased to $544,000 during
fiscal 1999, and net charge-offs for the period decreased $39,000 and totaled
only $18,000 for the year. The Company's level of net loans outstanding
increased $25.1 million which included an increase of 16.3% in consumer loans.
Overall economic conditions remained stable for the market area and credit
quality for the applicants showed no material change. Upon consideration of such
factors, Jacksonville determined that $60,000 in provisions for losses on loans
were appropriate in 1999, primarily because of the increase in the loan
portfolio. Jacksonville's allowance for losses amounted to $1.2 million at
September 30, 1999 the same amount as allocated on September 30, 1998.
NON-INTEREST INCOME. Noninterest income amounted to $1.7 million for
the year ended September 30, 1999 compared to $1.6 million in fiscal 1998. The
$133,000 increase was due primarily to an increase in fees and deposit service
charges of $207,000; an increase of $14,000 in other noninterest income
partially offset by a decrease in income from origination of loan servicing of
$87,000. The increase in income from fees and deposit service charges reflects
an increase in loan originations and an increase in service charges on deposits.
NON-INTEREST EXPENSE. Noninterest expense amounted to $5.9 million for
the year ended September 30, 1999 compared to $5.6 million during fiscal 1998.
The primary reason for the $237,000, or 4.2% increase in noninterest expense
during fiscal 1999 was from increases in compensation and benefits of $70,000;
in occupancy and equipment of $121,000, and other noninterest expenses of
$48,000, offset by a reduction in insurance expense of $2,000.
INCOME TAXES. Income tax expense amounted to $1.9 million during the
year ended September 30, 1999, compared to $1.5 million in fiscal 1998. The
changes in such amounts primarily reflect differences in gross income levels of
Jacksonville. See Note 11 to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Jacksonville is required under applicable state regulations to maintain
specified levels of liquidity in an amount not less than 10% of its average
daily deposits for the most recently completed
16
<PAGE>
calendar quarter in cash and readily marketable investments. At September 30,
2000 the Bank's liquidity was $64.4 million with a liquidity ratio of 29%.
Cash was generated by Jacksonville's operating activities of $3.7
million and $3.9 million during the years ended September 30, 2000 and 1999,
respectively, primarily as a result of net earnings of $3.7 million and $3.6
million, respectively. The adjustments to reconcile net earnings to net cash
provided by operations during the periods presented consisted primarily of the
provision for losses on loans, depreciation and amortization expense,
amortization of deferred loan origination fees and increases or decreases in
other assets and other liabilities.
The primary investing activity of Jacksonville is lending and purchases
of investment and mortgage-backed securities, which is funded with cash provided
from operations and financing activities, as well as proceeds from amortization
and prepayments on existing loans and proceeds from maturities of investment
securities and mortgage-backed securities. During the year ended September 30,
2000, Jacksonville's investing activities used cash of $10.3 million,
principally as a result of net loan originations of $10.6 million, to purchase
mortgage backed securities totaling $569,000; to purchase investment securities
of $6.4 million; capital expenditures of $586,000; investment in real estate of
$533,000; to purchase stock in FHLB of $182,000; partially offset by proceeds on
maturity of investment securities of $3.1 million; principal paydown on MBS of
$5.3 million; and proceeds from sale of foreclosed real estate of $193,000.
During the year ended September 30, 1999, Jacksonville's investing
activities used cash of $32.7 million, principally as a result of net loan
originations of $24.9 million, to purchase mortgage backed securities totaling
$14.8 million; to purchase investment securities of $13.0 million; capital
expenditures of $907,000; investment in real estate of $713,000; to purchase
stock in FHLB of $353,000; partially offset by proceeds on maturity of
investment securities of $14.0 million; principal paydown on MBS of $7.8
million; and proceeds from sale of foreclosed real estate of $133,000.
During the year ended September 30, 2000, Jacksonville's financing
activities generated cash of $7.6 million as a result of a net increase in
deposits of $5.6 million; net increase of $6.0 million in advances from FHLB;
offset by a net decrease of $22,000 in advance payments by borrowers for
property taxes and insurances; the purchase of Treasury Stock in the amount of
$3.0 million; and the payment of dividends in the amount of $967,000.
During the year ended September 30, 1999, Jacksonville's financing
activities generated cash of $24.6 million as a result of a net increase in
deposits of $10.7 million; net increase of $18.0 million in advances from FHLB;
and net increase of $288,000 in advance payments by borrowers for property taxes
and insurances; offset by the purchase of Treasury Stock in the amount of $3.4
million; the payment of dividends in the amount of $1.1 million.
At September 30, 2000, Jacksonville had $4.2 million of outstanding
commitments to originate residential real estate loans and no commitments to
purchase investment securities. At the same date, the total amount of
certificates of deposit which are scheduled to mature by September 30, 2001 are
$149.8 million. Jacksonville believes that it has adequate resources to fund
commitments as they arise and that it can adjust the rate on savings
certificates to retain deposits in changing interest rate
17
<PAGE>
environments. If Jacksonville requires funds beyond its internal funding
capabilities, advances from the FHLB of Dallas are available as an additional
source of funds.
Jacksonville is required to maintain specified amounts of capital
pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA") and regulations promulgated by the FDIC thereunder. The capital
standards generally require the maintenance of regulatory capital sufficient to
meet a Tier 1 leveraged capital requirement, a Tier 1 risk-based capital
requirement and a total risk-based capital requirement. At September 30, 2000,
Jacksonville's Tier 1 leveraged capital and Tier 1 risk-based capital totaled
$32.5 million or 10.8% of adjusted total assets and 18.5% of risk-weighted
assets, respectively. These capital levels exceeded the minimum requirements at
that date by approximately $20.5 million and $25.4 million, respectively.
Jacksonville's total risk-based capital was $33.7 million at September 30, 2000
or 19.2% of risk-weighted assets which exceeded the current requirement of 8% of
risk-weighted assets by approximately $19.7 million.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power over time due
to inflation.
Unlike most industrial companies, virtually all of Jacksonville's
assets and liabilities are monetary in nature. As a result, interest rates
generally have a more significant impact on a financial institution's
performance than does the effect of inflation.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Jacksonville Bancorp, Inc.
We have audited the accompanying consolidated statements of financial condition
of Jacksonville Bancorp, Inc. and subsidiaries, as of September 30, 2000 and
1999, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended
September 30, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jacksonville
Bancorp, Inc. and subsidiaries, as of September 30, 2000 and 1999, and the
results of their operations and cash flows for each of the years in the three
year period ended September 30, 2000, in conformity with generally accepted
accounting principles.
<TABLE>
<S> <C>
/s/ HENRY & PETERS, P.C.
----------------------------------
HENRY & PETERS, P.C.
</TABLE>
Tyler, Texas
November 15, 2000
F-1
<PAGE>
JACKSONVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ -------------
ASSETS
<S> <C> <C>
Cash on hand and in banks $ 2,701,637 $ 2,995,572
Interest-bearing deposits 4,819,061 3,572,114
Investment securities:
Held-to-maturity, approximate fair market value of
$4,792,500 and $6,892,900 respectively 5,000,000 6,999,329
Available-for-sale, carried at fair value 17,017,020 11,711,605
Mortgage-backed certificates:
Held-to-maturity, approximate fair market value of
$3,668,056 and $4,642,925 respectively 3,700,341 4,657,579
Available-for-sale, carried at fair value 29,026,660 32,982,733
Loans receivable, net 226,853,940 216,267,027
Accrued interest receivable 2,523,749 2,254,158
Foreclosed real estate, net 123,646 346,317
Premises and equipment, net 4,845,675 4,582,898
Stock in Federal Home Loan Bank of Dallas, at cost 2,156,500 1,974,400
Investment in real estate 1,245,970 712,796
Mortgage servicing rights 625,505 587,553
Other assets 827,619 747,529
------------ ------------
Total assets $301,467,323 $290,391,610
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $220,766,244 $215,209,204
Advance from Federal Home Loan Bank 41,000,000 35,000,000
Advances from borrowers for taxes and insurance 4,073,917 4,095,425
Accrued expenses and other liabilities 1,465,396 1,722,240
------------ ------------
Total liabilities 267,305,557 256,026,869
DEFERRED INCOME
Gain on sale of real estate owned 72,699 145,815
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized; none issued - -
Common stock, $.01 par value, 25,000,000 shares authorized;
2,675,972 and 2,675,972 shares issued; 1,967,712 and 2,180,212
shares outstanding in 2000 and 1999, respectively 26,760 26,760
Additional paid-in capital 22,742,784 22,722,712
Retained earnings, substantially restricted 24,210,956 21,507,284
Accumulated other comprehensive income (loss) (900,852) (801,201)
Less:
Treasury stock, at cost (708,260 and 495,760 shares, respectively) (10,753,968) (7,771,886)
Shares acquired by Employee Stock Ownership Plan (1,055,546) (1,116,537)
Shares acquired by Management Recognition Plan (181,067) (348,206)
------------ ------------
Total stockholders' equity 34,089,067 34,218,926
------------ ------------
Total liabilities and stockholders' equity $301,467,323 $290,391,610
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
JACKSONVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------- --------------
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 18,556,989 $17,091,560 $15,442,039
Mortgage-backed securities 2,446,644 2,223,096 1,501,491
Investment securities 1,077,837 880,071 1,260,766
Other 268,419 270,598 336,885
------------ ----------- -----------
Total interest income 22,349,889 20,465,325 18,541,181
INTEREST EXPENSE
Deposits 10,058,508 9,488,048 9,348,433
Interest on borrowings 2,269,766 1,223,328 279,894
------------ ----------- -----------
Total interest expense 12,328,274 10,711,376 9,628,327
------------ ----------- -----------
Net interest income 10,021,615 9,753,949 8,912,854
PROVISION FOR LOSSES ON LOANS 69,000 60,000 35,000
Net interest income after provision for ------------ ----------- -----------
losses on loans 9,952,615 9,693,949 8,877,854
NONINTEREST INCOME
Fees and deposit service charges 1,369,985 1,322,649 1,116,117
Real estate operations, net 109,850 135,196 135,315
Other 222,529 176,271 162,171
Mortgage servicing rights 37,952 53,090 140,394
------------ ----------- -----------
Total noninterest income 1,740,316 1,687,206 1,553,997
NONINTEREST EXPENSE
Compensation and benefits 4,061,053 3,829,581 3,759,893
Occupancy and equipment 751,964 650,676 529,524
Insurance expense 115,889 165,849 167,851
Other 1,280,162 1,229,471 1,181,225
------------ ----------- -----------
Total noninterest expense 6,209,068 5,875,577 5,638,493
------------ ----------- -----------
INCOME BEFORE TAXES ON INCOME 5,483,863 5,505,578 4,793,358
TAXES ON INCOME
Current 1,818,796 1,759,347 1,428,256
Deferred (6,000) 108,000 40,000
------------ ----------- -----------
Total income tax expense 1,812,796 1,867,347 1,468,256
------------ ----------- -----------
Net earnings $ 3,671,067 $ 3,638,231 $ 3,325,102
============ =========== ===========
EARNINGS PER COMMON SHARE
Basic $ 1.87 $ 1.65 $ 1.44
============ =========== ===========
Diluted $ 1.82 $ 1.60 $ 1.38
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
JACKSONVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Accumulated
Additional Compre- Other
Common Paid-in hensive Comprehensive Retained Treasury
Stock Capital Income Income (Loss) Earnings Stock
---------- ----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 $ 26,747 $22,471,258 $ (14,175) $16,788,491 $(3,423,528)
Shares issued under
stock option plan 13 9,180 - - -
ESOP shares released - 169,410 - - -
Accrual of management
recognition plan awards - - - - -
Comprehensive income:
Net earnings - - $3,325,102 - 3,325,102 -
Other comprehensive income,
net of tax, unrealized
gains on securities
available-for-sale - - 89,057 89,057 - -
----------
Comprehensive income $3,414,159
==========
Dividends declared - - - (1,150,460) -
Purchase of 54,825
Treasury shares - - - - (989,738)
---------- ----------- ---------- ----------- ------------
BALANCE AT SEPTEMBER 30, 1998 26,760 22,649,848 74,882 18,963,133 (4,413,266)
ESOP shares released - 72,864 - - -
Accrual of management
recognition plan awards - - - - -
Comprehensive income:
Net earnings - - $3,638,231 - 3,638,231 -
Other comprehensive income,
net of tax, unrealized
(loss) on securities
available-for-sale - - (876,083) (876,083) - -
----------
Comprehensive income $2,762,148
==========
Dividends declared - - - (1,094,080) -
Purchase of 209,835
Treasury shares - - - - (3,358,620)
---------- ----------- ---------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1999 26,760 22,722,712 (801,201) 21,507,284 (7,771,886)
</TABLE>
<TABLE>
<CAPTION>
Shares Shares
Acquired Acquired Total
by by Stockholders'
ESOP MRP Equity
------------ ----------- ---------------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 $(1,378,106) $(682,483) $33,788,204
Shares issued under
stock option plan - - 9,193
ESOP shares released 154,174 - 323,584
Accrual of management
recognition plan awards - 167,139 167,139
Comprehensive income:
Net earnings - - 3,325,102
Other comprehensive income,
net of tax, unrealized
gains on securities
available-for-sale - - 89,057
Comprehensive income
Dividends declared - - (1,150,460)
Purchase of 54,825
Treasury shares - - (989,738)
----------- --------- -----------
BALANCE AT SEPTEMBER 30, 1998 (1,223,932) (515,344) 35,562,081
ESOP shares released 107,395 - 180,259
Accrual of management
recognition plan awards - 167,138 167,138
Comprehensive income:
Net earnings - - 3,638,231
Other comprehensive income,
net of tax, unrealized
(loss) on securities
available-for-sale - - (876,083)
Comprehensive income
Dividends declared - - (1,094,080)
Purchase of 209,835
Treasury shares - - (3,358,620)
----------- --------- -----------
BALANCE AT SEPTEMBER 30, 1999 (1,116,537) (348,206) 34,218,926
</TABLE>
F-4
<PAGE>
JACKSONVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(CONTINUED)
<TABLE>
<CAPTION>
Accumulated
Additional Compre- Other
Common Paid-in hensive Comprehensive Retained Treasury
Stock Capital Income Income (Loss) Earnings Stock
---------- ----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1999 $26,760 $22,722,712 $(801,201) $21,507,284 $ (7,771,886)
ESOP shares released - 20,072 - - -
Accrual of management
recognition plan awards - - - - -
Comprehensive income:
Net earnings - - $3,671,067 - 3,671,067 -
Other comprehensive income,
net of tax, unrealized
(loss) on securities
available-for-sale - - (99,651) (99,651) - -
----------
Comprehensive income $3,571,416
==========
Dividends declared - - - (967,395) -
Purchase of 212,500
Treasury shares - - - - (2,982,082)
---------- ----------- ---------- ------------ ------------
BALANCE AT SEPTEMBER 30, 2000 $ 26,760 $22,742,784 $(900,852) $24,210,956 $(10,753,968)
========== =========== ========= =========== ============
</TABLE>
<TABLE>
<CAPTION>
Shares Shares
Acquired Acquired Total
by by Stockholders'
ESOP MRP Equity
------------ ----------- ---------------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1999 $(1,116,537) $(348,206) $34,218,926
ESOP shares released 60,991 - 81,063
Accrual of management
recognition plan awards - 167,139 167,139
Comprehensive income:
Net earnings - - 3,671,067
Other comprehensive income,
net of tax, unrealized
(loss) on securities
available-for-sale - - (99,651)
Comprehensive income
Dividends declared - - (967,395)
Purchase of 212,500
Treasury shares - - (2,982,082)
------------ --------- -----------
BALANCE AT SEPTEMBER 30, 2000 $ (1,055,546) $(181,067) $34,089,067
============ ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
JACKSONVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,671,067 $ 3,638,231 $ 3,325,102
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 317,868 259,416 165,233
Amortization/accretion of securities 79,783 175,132 166,145
Provision for losses on loans and on real estate 69,000 60,000 35,144
Loans originated for sale (20,875,987) (23,866,321) (28,189,992)
Loans sold 20,875,987 23,866,321 28,189,992
Net gain on sale of equipment - - (11,640)
Net gain on sale of other real estate (27,508) (187,400) (132,794)
Accrual of MRP awards 167,139 167,138 167,139
Release of ESOP shares 81,063 180,259 323,584
Change in assets and liabilities:
(Increase) decrease in other assets (28,755) 250,647 (103,661)
(Decrease) increase in accrued expenses and other liabilities (256,844) (409,027) 149,543
Decrease in deferred income (73,116) (23,925) (47,932)
Increase in mortgage servicing rights (37,952) (53,090) (96,882)
Increase in accrued interest receivable (269,591) (163,688) (138,457)
------------ ------------ -----------
Net cash provided by operating activities 3,692,154 3,893,693 3,800,524
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on maturity of investment securities 3,082,075 13,965,068 18,456,288
Purchase of investment securities (6,388,617) (12,998,125) (12,493,297)
Net principal payments/originations on loans (10,598,344) (24,934,510) (17,145,410)
Proceeds from sale of foreclosed real estate 192,610 132,693 129,520
Proceeds from sale of equipment 5,500 - 33,735
Purchase of mortgage-backed securities (569,446) (14,751,466) (17,662,769)
Principal paydowns on mortgage-backed securities 5,252,444 7,809,676 6,937,889
Capital expenditures (586,145) (906,536) (734,574)
Purchase of stock in FHLB Dallas (182,100) (352,500) (24,500)
Sale of stock in FHLB Dallas - - 247,000
Investment in real estate (533,174) (712,796) -
------------ ------------ -----------
Net cash used in investing activities (10,325,197) (32,748,496) (22,256,118)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,557,040 10,719,286 12,456,620
(Decrease) increase in advance payments by
borrowers for property taxes and insurance (21,508) 288,257 (116,420)
Advances from FHLB 15,000,000 49,500,000 20,000,000
Payment of FHLB advances (9,000,000) (31,500,000) (5,000,000)
Proceeds from exercise of stock options - - 9,193
Purchase of Treasury stock (2,982,082) (3,358,620) (989,738)
Dividends paid (967,395) (1,094,080) (1,150,460)
------------ ------------ -----------
Net cash provided by financing activities 7,586,055 24,554,843 25,209,195
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents 953,012 (4,299,960) 6,753,601
CASH AND CASH EQUIVALENTS
Beginning of year 6,567,686 10,867,646 4,114,045
------------ ------------ -----------
End of year $ 7,520,698 $ 6,567,686 $10,867,646
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1 - BASIS OF PRESENTATION AND REORGANIZATION
The accompanying consolidated financial statements include the accounts of
Jacksonville Bancorp, Inc. (Company), and its wholly-owned subsidiary
Jacksonville IHC, Inc. (IHC), and its wholly-owned subsidiary Jacksonville
Savings Bank, SSB (Bank), and its wholly-owned subsidiary JS&L Corporation
(JS&L). The Company, through its principal subsidiary, the Bank, is
primarily engaged in attracting deposits from the general public and using
those and other available sources of funds to originate loans secured by
single-family residences located in the East Texas area. To a lesser
extent, the Bank also originates construction loans, land loans, and
consumer loans. IHC's main activity is holding an intercompany loan
receivable from the Bank in connection with the Bank's employee stock
ownership plan. JS&L's main activity is the servicing of purchased
residential mortgage notes receivable. All significant intercompany
transactions and balances are eliminated in consolidation.
On July 2, 1997, the Bank consummated its conversion to a state-chartered
savings bank, Jacksonville Savings Bank, SSB. The main purpose of the
conversion was to reduce the duplication associated with meeting the
regulatory requirements of three regulators. With the conversion to a state
savings bank, the Bank will be regulated by the Texas Savings and Loan
Department as its primary regulator, and the insurer of its deposits will
be the FDIC. Prior to the conversion, the Association's primary federal
regulator had been the Office of Thrift Supervision.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Association classifies and accounts for debt and equity securities as
follows:
HELD-TO-MATURITY
Debt and equity securities that management has the positive intent and
ability to hold until maturity are classified as held-to-maturity and are
carried at their remaining unpaid principal balance, net of unamortized
premiums or unaccreted discounts. Premiums are amortized and discounts are
accreted using the level interest yield method over the estimated remaining
term of the underlying security.
AVAILABLE-FOR-SALE
Debt and equity securities that will be held for indefinite periods of
time, including securities that may be sold in response to changes in
market interest or prepayment rates, needs for liquidity and changes in the
availability of and the yield of alternative investments are classified as
available-for-sale. These assets are carried at market value. Market value
is determined using published quotes as of the close of business.
Unrealized gains and losses are excluded from earnings and reported net of
tax as a separate component of retained earnings until realized.
TRADING SECURITIES
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at market value, with unrealized gains and losses
included in earnings.
PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements, and furniture,
fixtures, and equipment are carried at cost, less accumulated depreciation
and amortization. Buildings and furniture, fixtures and equipment are
depreciated using the straight-line method over the estimated useful lives
of the assets. The cost of leasehold improvements is being amortized using
the straight-line method over the terms of the related leases.
FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax
return. The tax provision or benefit is based on income or loss reported
for financial statement purposes, and differs from amounts currently
payable or refundable because certain revenues and expenses are recognized
for financial reporting purposes differently than they are recognized for
tax reporting purposes. The cumulative effects of any temporary differences
are reflected as deferred income taxes using the liability method (see Note
11).
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses, and net deferred loan origination fees and
discounts. Discounts on loans are recognized over the lives of the loans
using the interest method.
F-7
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience known, and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, estimated value
of any underlying collateral, and current economic conditions. Currently,
the allowance for loan losses is formally reevaluated on a quarterly basis.
In management's opinion there are no material loans, either individually or
in the aggregate, which are impaired as defined by Statement of Financial
Accounting Standards No. 114, as amended by Statement No. 118. While
management uses available information to recognize losses on loans, further
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies as an integral part of
their examinations, periodically review the allowance for loan losses.
Uncollectible interest on loans that are contractually past due is
charged-off or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments is back to normal, in which case the loan is returned to
accrual status.
LOANS HELD-FOR-SALE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate.
Net unrealized losses are recognized by charges to earnings.
LOAN ORIGINATION AND COMMITMENT FEES AND RELATED COSTS
Loan fees received are accounted for substantially in accordance with FASB
Statement No. 91, "ACCOUNTING FOR NONREFUNDABLE FEES AND COSTS ASSOCIATED
WITH ORIGINATING OR ACQUIRING LOANS AND INITIAL DIRECT COSTS OF LEASES."
Loan fees and certain direct loan origination costs are deferred, and the
net fee is recognized as an adjustment to interest income over the
contractual life of the loans. Commitment fees and costs relating to
commitments whose likelihood of exercise is remote are recognized over the
commitment period on a straight-line basis. If the commitment is
subsequently exercised during the commitment period, the remaining
unamortized commitment fee at the time of exercise is recognized over the
life of the loan as an adjustment of yield.
REAL ESTATE
Real estate properties acquired through loan foreclosure are initially
recorded at the lower of cost (loan balance) or fair value, less estimated
costs of disposition, at the date of foreclosure. Investment in real estate
is recorded at cost. Costs relating to development and improvement of
property are capitalized, whereas costs relating to holding property are
expensed.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its estimated net realizable value. Currently, all major
foreclosed real estate properties are formally reevaluated on a quarterly
basis to determine the adequacy of the allowance for losses.
Gains on sale of real estate are accounted for in accordance with Statement
of Financial Accounting Standards No. 66. When the borrower's initial cash
down payment does not meet the minimum requirements, the gain on sale is
deferred and recorded on the installment basis until such time as
sufficient principal payments are received to meet the minimum down payment
requirements. Losses on sale of real estate are recognized at the date of
sale.
ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
F-8
<PAGE>
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on
loans and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for losses on loans and foreclosed real
estate, management obtains independent appraisals for significant
properties.
MORTGAGE SERVICING RIGHTS
The cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the estimated fair value of those
rights. Fair values are estimated using discounted cash flows based on
current market interest rates and market data regarding sales of mortgage
servicing rights. The Bank sells predominately single-family first mortgage
loans with simple risk characteristics and uses a single stratum for purposes
of measuring impairment. The amount of impairment recognized is the amount by
which the capitalized mortgage servicing rights exceed their fair value.
EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "EARNINGS PER SHARE" (FAS 128). The standard requires a
dual presentation of basic and diluted EPS. This statement provides for a
"basic" EPS computation based upon weighted-average shares outstanding.
Shares issued to its Employee Stock Ownership Plan (ESOP) are accounted for
in accordance with AICPA Statement of Position 93-6. The new standard
requires a dual presentation of basic and diluted EPS. Diluted EPS is similar
to fully diluted EPS required under APB 15 for entities with complex capital
structures.
Earnings per share on a basic and diluted basis is calculated as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Basic net earnings per share
Net income $3,671,067 $3,638,231 $3,325,102
Weighted-average shares outstanding 1,963,050 2,202,425 2,304,567
---------- ---------- ----------
Per share $ 1.87 $ 1.65 $ 1.44
========== ========== ==========
Diluted net earnings per share
Net income $3,671,067 $3,638,231 $3,325,102
Weighted-average shares outstanding
plus assumed conversions 2,013,660 2,278,965 2,412,993
---------- ---------- ----------
Per share $ 1.82 $ 1.60 $ 1.38
========== ========== ==========
Calculation of weighted average shares
outstanding plus assumed conversions
Weighted-average shares outstanding $1,963,050 $2,202,425 $2,304,567
Effect of dilutive stock options 50,610 76,540 108,426
---------- ---------- ----------
$2,013,660 $2,278,965 $2,412,993
========== ========== ==========
</TABLE>
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,"
and related Interpretations. Accordingly, compensation cost for stock
options is measured as
F-9
<PAGE>
the excess, if any, of the quoted market price of the company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
F-10
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "REPORTING COMPREHENSIVE INCOME" (FAS
130). This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The standard requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. The Company adopted the provisions
of FAS 130, effective October 1, 1998, and reclassified financial statements
for earlier periods.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES" (FAS 133). FAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. FAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Initial application of FAS 133
should be as of the beginning of an entity's fiscal quarter; on that date,
hedging relationships must be designated anew and documented pursuant to the
provisions of FAS 133. Earlier application of FAS 133 is encouraged but is
permitted only as of the beginning of any fiscal quarter that begins after
issuance of FAS 133. The Company has not yet determined the impact on its
results of operations, financial position or cash flows as a result of
implementing FAS 133.
CASH FLOWS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months
or less to be cash equivalents. A summary of cash and cash equivalents
follows at September 30:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash on hand and in banks $ 2,701,637 $ 2,995,572 $ 3,086,417
Interest bearing deposits 4,819,061 3,572,114 7,781,229
----------- ----------- -----------
Cash and cash equivalents $ 7,520,698 $ 6,567,686 $10,867,646
=========== =========== ===========
Supplemental disclosure:
Cash paid for:
Interest $12,325,178 $10,644,167 $ 9,567,381
=========== =========== ===========
Income taxes $ 1,837,052 $ 2,090,000 $ 1,441,000
=========== =========== ===========
Non-cash operating activities:
Change in deferred taxes on net unrealized gains
and losses on securities available-for-sale $ 51,335 $ 451,315 $ (45,878)
=========== =========== ===========
Non-cash investing activities:
Change in net unrealized gains and losses
on securities available-for-sale $ (150,986) $(1,327,398) $ 134,935
=========== =========== ===========
Transfer from loans to real estate acquired
through foreclosure $ 231,000 $ 391,000 $ 353,000
=========== =========== ===========
Loans made relating to sale of foreclosed real estate $ 289,000 $ 630,000 $ 384,000
=========== =========== ===========
</TABLE>
F-11
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and estimated market values of investments in debt
securities are as follows as of September 30, 2000:
<TABLE>
<CAPTION>
Available-for-sale
--------------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Agency securities $17,332,099 $ - $ 315,079 $17,017,020
=========== ============== =========== ===========
<CAPTION>
Held-to-maturity
--------------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
U. S. Agency securities $5,000,000 $ - $ 207,500 $ 4,792,500
----------- -------------- ----------- -----------
$5,000,000 $ - $ 207,500 $ 4,792,500
=========== ============== =========== ===========
</TABLE>
The amortized cost and estimated market values of investments in debt
securities are as follows as of September 30, 1999:
<TABLE>
<CAPTION>
Available-for-sale
--------------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Agency securities $12,026,229 $ - $ 314,624 $1,711,605
============ ============== =========== ===========
<CAPTION>
Held-to-maturity
--------------------------------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
U. S. Agency securities $ 6,999,329 $ 1,821 $ 108,250 $ 6,892,900
------------ -------------- ----------- -----------
$ 6,999,329 $ 1,821 $ 108,250 $ 6,892,900
============ ============== =========== ===========
</TABLE>
The scheduled maturities of securities at September 30, 2000, were as
follows:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
securities securities
---------------------------------- ----------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 500,000 $ 493,750
Due from one to five years 5,000,000 4,792,500 15,873,745 15,578,270
Due from five to ten years - - 958,354 945,000
------------ -------------- ----------- -----------
$ 5,000,000 $ 4,792,500 $17,332,099 $17,017,020
============ ============== =========== ===========
</TABLE>
F-12
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 3 - INVESTMENT SECURITIES - CONTINUED
The scheduled maturities of securities at September 30, 1999, were as
follows:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
securities securities
------------------------------ -------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,999,329 $ 2,001,150 $ 1,000,000 $ 992,500
Due from one to five years 5,000,000 4,891,750 10,026,969 9,759,905
Due from five to ten years - - 999,260 959,200
------------ ------------ ------------ -------------
$ 6,999,329 $ 6,892,900 $12,026,229 $11,711,605
============ ============ ============ =============
</TABLE>
NOTE 4 - MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed securities
are summarized as follows:
<TABLE>
<CAPTION>
Held-to-maturity
------------------------------------------------------------------
Estimated
September 30, Amortized Unrealized Unrealized Market
2000 Cost Gains Losses Value
---- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
GNMA certificates $ 422,663 $ 11,594 $ 8,484 $ 425,773
FHLMC certificates 866,497 4,353 17,358 853,492
FNMA certificates 2,411,181 - 22,390 2,388,791
------------ ------------ ------------ -------------
$ 3,700,341 $ 15,947 $ 48,332 $ 3,668,056
============ ============ ============ =============
<CAPTION>
Available-for-sale
------------------------------------------------------------------
Estimated
September 30, Amortized Unrealized Unrealized Market
2000 Cost Gains Losses Value
---- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
GNMA certificates $ 3,528,200 $ - $ 115,746 $ 3,412,454
FHLMC certificates 1,693,415 - 20,821 1,672,594
FNMA certificates 11,597,655 - 354,143 11,243,512
Private label 13,257,237 - 559,137 12,698,100
------------ ------------ ------------ -------------
$ 30,076,507 $ - $ 1,049,847 $29,026,660
============ ============ ============ =============
<CAPTION>
Held-to-maturity
------------------------------------------------------------------
Estimated
September 30, Amortized Unrealized Unrealized Market
1999 Cost Gains Losses Value
---- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
GNMA certificates $ 528,190 $ 15,547 $ 8,325 $ 535,411
FHLMC certificates 1,263,090 6,293 22,276 1,247,107
FNMA certificates 2,866,299 5,834 11,726 2,860,407
------------ ------------ ------------ -------------
$ 4,657,579 $ 27,674 $ 42,327 $ 4,642,925
============ ============ ============ =============
<CAPTION>
Available-for-sale
------------------------------------------------------------------
Estimated
September 30, Amortized Unrealized Unrealized Market
1999 Cost Gains Losses Value
---- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
GNMA certificates $ 4,085,032 $ - $ 116,134 $ 3,968,898
FHLMC certificates 2,141,045 - 8,968 2,132,077
FNMA certificates 13,008,451 3,415 290,867 12,720,999
Private label 14,647,522 - 486,763 14,160,759
------------ ------------ ------------ -------------
$ 33,882,050 $ 3,415 $ 902,732 $32,982,733
============ ============ ============ =============
</TABLE>
F-13
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 4 - MORTGAGE-BACKED SECURITIES - CONTINUED
The scheduled maturities of mortgage-backed securities as of September 30,
2000, were as follows:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
Securities Securities
------------------------------ ------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ - $ -
Due from one to five years - - - -
Due from five to ten years 1,260,203 1,245,330 4,179,743 4,064,322
Due after ten years 2,440,138 2,422,726 25,896,764 24,962,338
------------ ------------ ----------- -----------
$ 3,700,341 $ 3,668,056 $30,076,507 $29,026,660
============ ============ =========== ===========
</TABLE>
The scheduled maturities of mortgage-backed securities at September 30, 1999,
were as follows:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
Securities Securities
------------------------------ ------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 254,271 $ 249,744 $ - $ -
Due from one to five years - - - -
Due from five to ten years 1,811,971 1,818,815 4,316,525 4,214,101
Due after ten years 2,591,337 2,574,366 29,565,525 28,768,632
------------ ------------ ----------- -----------
$ 4,657,579 $ 4,642,925 $33,882,050 $32,982,733
============ ============ =========== ===========
</TABLE>
NOTE 5 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------------
2000 1999
-------------------------------------
<S> <C> <C>
Mortgage loans (principally conventional):
Single family residential $171,041,329 $164,660,709
Multi-family residential 769,895 818,933
Commercial 14,499,004 12,000,070
Construction 25,116,466 21,171,094
Land 2,741,027 3,172,273
--------------- ---------------
214,167,721 201,823,079
Business and Consumer loans:
Commercial business 515,191 5,717
Consumer:
Secured by deposits 2,350,074 2,182,615
Secured by vehicles 12,462,234 12,413,881
Personal real estate loans 5,468,922 5,398,994
Other 3,826,534 4,019,559
-------------- ---------------
24,622,955 24,020,766
-------------- --------------
Total loans 238,790,676 225,843,845
Less:
Undisbursed portion of loans in process (10,224,002) (7,835,438)
Unearned discounts (29,881) (33,746)
Net deferred loan-origination fees (455,373) (496,032)
Allowance for loan losses (1,227,480) (1,211,602)
-------------- --------------
Net loans $226,853,940 $216,267,027
============== ==============
</TABLE>
F-14
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 5 - LOANS RECEIVABLE - CONTINUED
The Bank at September 30, had mortgage loan commitments outstanding
substantially all of which are at rates to be determined at closing (rates
range from 7.75% to 12.00%) as follows:
<TABLE>
<CAPTION>
2000 1999
-------------- -------------
<S> <C> <C>
Variable-rate $ 144,870 $ 245,300
Fixed-rate 4,095,784 3,676,098
----------- -----------
$4,240,654 $3,921,398
=========== ===========
</TABLE>
The Bank had committed to sell a substantial portion of fixed-rate loans when
funded.
Activity in the allowance for loan losses is summarized as follows as of
September 30:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of period $1,211,602 $1,170,321 $1,191,977
Provision charged to income 69,000 60,000 35,000
Charge-offs (54,329) (18,719) (56,656)
Recoveries 1,207 - -
------------- ------------- -------------
Balance at end of period $1,227,480 $1,211,602 $1,170,321
============= ============= =============
</TABLE>
At September 30, 2000 and 1999, there were no material loans which were
impaired as defined by FASB Statement No. 114, as amended by FASB
Statement No. 118. However, the Bank did have non-accrual loans,
for which FASB Statement No. 114 does not apply, of $472,000
and $544,000, at September 30, 2000 and 1999, respectively. The Bank
is not committed to lend additional funds to debtors whose loans
have been modified.
Loans to executive officers and directors totaled $780,000 and $375,000,
at September 30, 2000 and 1999, respectively.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal
balances of these loans are summarized as follows as of September 30:
<TABLE>
<CAPTION>
2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage loans underlying FHLMC
pass-through securities $87,993,036 $82,417,319 $77,445,977
=========== =========== ===========
</TABLE>
Custodial escrow balances maintained in connection with the foregoing
loan servicing were approximately $1,920,000 and $1,734,000, at
September 30, 2000 and 1999, respectively.
NOTE 6 - REAL ESTATE
An analysis of the activity in the allowance for losses in real estate
acquired in settlement of loans at September 30, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------- -------------- ----------------
<S> <C> <C> <C>
Balance at beginning of period $ 1,304,828 $ 1,304,828 $ 1,304,972
Provisions for losses -- -- (144)
Charge-offs (94,305) -- --
Recoveries -- -- --
---------------- -------------- ----------------
Balance at end of period $1,210,523 $1,304,828 $1,304,828
================ ============== ================
</TABLE>
For regulatory reporting purposes the above amounts are reported as
"specific" reserves and are allocated to specific properties. The
Bank carries its "general valuation allowance" as an allowance for loan
losses (see Note 5).
F-15
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 7 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows as of September 30:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Investment securities $ 383,835 $ 290,330
Mortgage-backed securities 204,576 230,137
Loans receivable 1,935,338 1,733,691
----------- -----------
$2,523,749 $2,254,158
=========== ===========
</TABLE>
NOTE 8 - PREMISES AND EQUIPMENT Premises and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------------ Estimated
2000 1999 Useful Lives
--------- ------------ -------------
<S> <C> <C> <C>
Land $1,073,779 $1,046,057 -
Building and improvements 4,196,536 4,078,547 5 to 40 years
Furniture, fixtures and equipment 2,739,980 2,298,227 3 to 15 years
----------- -----------
8,010,295 7,422,831
Less accumulated depreciation 3,164,620 2,839,933
----------- -----------
$4,845,675 $4,582,898
=========== ===========
</TABLE>
NOTE 9 - DEPOSITS
Deposits at September 30, are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------ ----------------------------------
Amount Percent Amount Percent
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Transaction accounts:
Demand and NOW $ 32,885,268 14.89 $ 27,909,374 12.97
Money market 10,487,201 4.76 12,933,426 6.01
Passbook savings 13,315,561 6.03 13,981,896 6.50
------------- --------- ------------- ---------
56,688,030 25.68 54,824,696 25.48
------------- --------- ------------- ---------
Certificates of deposit:
4% to 5% 23,597,831 10.69 70,521,467 32.77
5% to 6% 80,437,436 36.44 72,890,759 33.87
6% to 7% 59,189,331 26.81 16,749,804 7.78
7% to 8% 715,550 .32 72,420 .03
8% to 9% 138,066 .06 150,058 .07
------------- --------- ------------- ---------
164,078,214 74.32 160,384,508 74.52
------------- --------- ------------- ---------
$220,766,244 100.00 $215,209,204 100.00
============ ======== ============ ========
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with
a minimum denomination of $100,000 was approximately $32,312,000
and $27,895,000, at September 30, 2000 and 1999, respectively.
Scheduled maturities of certificates of deposit were as follows as of
September 30, 2000:
<TABLE>
<CAPTION>
Term to maturity Amount Percent
------------------ ------------ -----------
<S> <C> <C>
Within 12 months $149,778,865 91.29
12 to 24 months 12,311,903 7.50
24 to 36 months 1,518,940 .93
Greater than 36 months 468,506 .28
------------ -----------
$164,078,214 100.00
============ ========
</TABLE>
F-16
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 9 - DEPOSITS - CONTINUED
Interest expense on deposits at September 30 is summarized as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------------- ------------- -------------
<S> <C> <C> <C>
Money Market $ 747,523 $ 703,551 $ 648,031
Passbook savings 400,232 395,352 370,980
NOW 177,534 189,723 198,448
Certificates of deposit 8,733,219 8,199,422 8,130,974
------------ ----------- -----------
$10,058,508 $9,488,048 $9,348,433
=========== ========== ==========
</TABLE>
The Federal Reserve Board requires all depository institutions
to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time
deposits. Required reserves must be maintained in the form of vault
cash or a non-interest-bearing account at a Federal Reserve Bank.
NOTE 10 - BORROWINGS
Information related to Federal Home Loan Bank borrowings as of September 30,
is provided in the table below:
<TABLE>
<CAPTION>
2000 1999
------------- --------------
<S> <C> <C>
Balance at end of period $41,000,000 $35,000,000
Average amount outstanding during the period 39,416,667 24,541,667
Maximum amount outstanding during the period 42,000,000 39,000,000
Weighted average interest rate during the period 5.76% 4.98%
Interest rates at end of period 5.21% - 6.65% 4.93% - 5.66%
</TABLE>
These borrowings are payable at maturity and may be subject to earlier call
by Federal Home Loan Bank.
Scheduled repayments and potential calls of Federal Home
Loan Bank borrowings at September 30, 2000 were as follows:
<TABLE>
<CAPTION>
Maturing Callable
-------- --------
<S> <C> <C>
Under 1 year $23,500,000 $ 5,000,000
1 to 5 years 12,500,000 5,000,000
6 to 10 years 5,000,000 -
Over 10 years - -
------------ -------------
$41,000,000 $10,000,000
============ =============
</TABLE>
The advances are collateralized by a blanket lien on first mortgage loans.
NOTE 11 - FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated
federal income tax return.
The provision for Federal income taxes differs from that computed at the
statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Computed "expected" tax expense $1,864,513 $1,871,897 $1,629,742
Adjustments:
SFAS No. 122 mortgage servicing rights (12,904) (18,051) (32,940)
Bad-debt deduction and real estate losses (22,377) (43,316) (33,299)
Other (16,436) 56,817 (95,247)
------------ ------------- ------------
$1,812,796 $1,867,347 $1,468,256
========== ========== ==========
</TABLE>
F-17
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 11 - FEDERAL INCOME TAXES - CONTINUED
Deferred taxes are provided for timing differences in the recognition of
income and expense for tax and financial statement purposes. The sources and
effects of these differences are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Deferred loan fees $ 14,144 $ 18,668 $20,842
FHLB stock dividends 52,875 32,893 -
Deferred compensation and other employee benefits (75,591) 19,426 14,116
Deferred loan costs 561 2,492 (428)
Other, net 2,011 34,521 5,170
---------- ---------- ---------
$ (6,000) $108,000 $40,000
========= ======== =======
</TABLE>
The components of the net deferred tax assets (included
in other assets) at September 30, were comprised of the following:
<TABLE>
<CAPTION>
2000 1999
------------- ---------
<S> <C> <C>
Deferred income tax assets:
Net unrealized loss on available-for-sale securities $ 464,075 $412,740
Deferred loan fees 171,356 185,501
Deferred compensation and other employee benefits 376,223 300,633
Deferred loan costs 63,831 63,270
------------ ----------
Total deferred income tax assets 1,075,485 962,144
Deferred income tax liabilities:
FHLB stock dividends 251,387 198,511
Book/tax depreciation difference 180,023 180,893
------------ ---------
Total deferred income tax liabilities 431,410 379,404
------------ ---------
Net deferred income tax assets $ 644,075 $582,740
=========== ========
</TABLE>
Stockholders' equity at September 30, 2000 and 1999,
includes approximately $3,000,000, for which no deferred Federal income tax
liability (approximately $1,020,000) has been recognized. These amounts
represent an allocation of bad-debt deductions for tax purposes only (base
year bad debt reserve). Reduction of amounts so allocated for purposes other
than tax bad-debt losses would create income for tax purposes only, which
would be subject to the then-current corporate income tax rate.
NOTE 12 - PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION
The Bank has a qualified defined benefit retirement plan
covering substantially all of its employees. The benefits are based on each
employee's years of service and the average of the highest compensation for
sixty consecutive completed calendar months. The benefits are reduced by a
specified percentage of the employee's social security benefit. An employee
becomes fully vested upon completion of five years of qualifying service. It
is the policy of the Bank to fund an amount between the minimum and the
maximum amount that can be deducted for Federal income tax purposes.
F-18
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 12 - PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION - CONTINUED
The following table sets forth the plan's funded status and amounts
recognized in the Bank's consolidated statements of financial condition at
September 30:
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Accumulated benefit obligation:
Vested $1,173,742 $1,421,986
Nonvested 21,295 21,857
-------------
1,195,037 1,443,843
Effect of projected future compensation 458,664 762,416
----------- ------------
Projected benefit obligation for service rendered to date 1,653,701 2,206,259
Plan assets at fair value; primarily cash and short-term investments 2,200,517 2,081,287
---------- -----------
Plan assets in excess of (less than) projected benefit obligation $ 546,816 $ (124,972)
========== ===========
</TABLE>
The components of computed net pension expense for the years ended
September 30, are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned during the year $110,952 $120,801 $ 89,998
Interest cost on projected benefit obligation 91,601 141,472 116,967
Actual return on plan assets (124,558) (105,165) (102,787)
Net amortization and deferral 1,884 (3,046) (11,786)
----------- ---------- ----------
Net pension expense $ 79,879 $154,062 $ 92,392
========= ======== ==========
</TABLE>
Assumptions used to develop the net periodic pension cost were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Discount rate 6.50% 6.50% 6.50%
Expected long-term rate of return on assets 6.00% 6.00% 6.00%
Rate on increase in compensation levels 5.00% 5.00% 5.00%
</TABLE>
The Bank has a defined contribution thrift plan in effect
for substantially all employees. Compensation and benefits expense includes
$50,271 in 2000, $49,679 in 1999, and $43,870 in 1998 for such plan. The
thrift plan permits employee contributions in the amount of 1% to 6% of
compensation. The Bank contributes for each thrift plan participant a
matching contribution equal to 50% of the participant's contribution. In
addition to the required matching contributions, the Bank may contribute an
additional amount of matching contributions determined by the Board of
Directors at its discretion.
In addition to the aforementioned benefit plans, the Bank has deferred
compensation arrangements with key officers and certain directors.
The deferred compensation is funded through life insurance contracts and
calls for annual payments for a period of ten years. The Bank funds the cost
of the insurance for the officers while the cost of directors' insurance is
funded through a reduction in their normal directors' fees. Vesting occurs
after specified years of service and payments begin upon retirement. Expense
reported in the statement of earnings under these arrangements totaled
approximately $112,000 in 2000, $112,000 in 1999, and $112,000 in 1998. At
September 30, 2000 and 1999, the Bank had recorded a net liability of
$300,000, related to such arrangements.
F-19
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 13 - EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has established an Employee Stock Ownership Plan
(ESOP) for employees age 21 or older who have at least one year of credited
service with the Bank. The ESOP will be funded by the Bank's contributions
made in cash (which primarily will be invested in Company common stock) or
common stock. Benefits may be paid either in shares of common stock or in
cash. The Bank accounts for its ESOP in accordance with the AICPA's Statement
of Position 93-6.
In prior years the ESOP acquired 202,048 shares of Company stock
through borrowings from IHC. The Bank makes annual contributions
to the ESOP equal to the debt service, less dividends received on the
unallocated shares. The ESOP shares have been pledged as collateral for the
loan. As the loan is repaid, shares are released from collateral and
committed for allocation to active employees, based on the proportion of debt
service paid in the year. The shares pledged as collateral are reported as
stock acquired by the ESOP plan in the statement of financial condition. As
shares are released from collateral, the Bank reports compensation expense
equal to the average fair value of the shares over the period in which the
shares were earned. Also, the shares become outstanding for earnings per
share computations. Dividends on allocated shares are recorded as a reduction
of retained earnings, and dividends on unallocated shares are recorded as a
reduction of the loan and accrued interest. ESOP compensation expense was
$27,000, $131,000, and $285,000, for the years ended September 30, 2000,
1999, and 1998, respectively. At September 30, 2000 and 1999, 111,419 and
102,787 ESOP shares, respectively, have been released for allocation, of
which 104,943 and 93,327 were allocated to participants at September 30, 2000
and 1999, respectively. The fair value of the unreleased shares of 97,105 and
99,261 at September 30, 2000 and 1999, was approximately $1,396,000 and
$1,514,000, respectively.
NOTE 14 - MANAGEMENT RECOGNITION PLAN
In prior years, the Bank has adopted a Management Recognition Plan (MRP)
to provide officers and employees with a proprietary
interest in the Association as incentive to contribute to its success.
The Bank contributed $292,500 to the MRP Trust, and the
MRP Trust purchased 41,472 shares of common stock, all of which were
awarded to officers. The shares granted were in the form of restricted stock
to be earned and payable over a three-year period at the rate of one-third
per year beginning, March 31, 1995.
In October 1996, the Bank adopted a second MRP Trust.
The Bank contributed $835,700 to the MRP Trust, and the MRP Trust purchased
55,028 shares of common stock. The shares granted were in the form of
restricted stock to be earned and payable over a five-year period at twenty
percent (20%) per year, beginning on October 22, 1997.
Compensation expense in the amount of the fair market value of the common
stock at the date of the grant to the officer or employee is
being recognized pro rata over the period during which the shares are earned
and payable. MRP expense included in compensation and benefits in the
accompanying consolidated statements of earnings totaled $167,000, $167,000,
and $167,000 for the years ended September 30, 2000, 1999, and 1998,
respectively.
NOTE 15 - STOCK OPTION PLANS
Certain directors and officers have options to purchase
shares of the Bank' common stock under its 1994 and 1996 Stock Incentive
Plans. The option price is the fair market value at the date of grant and
all shares have been granted. The option price ranges from $7.05 to $12.63
per share and expire between March 2004 and October 2007.
F-20
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 15 - STOCK OPTION PLANS - CONTINUED
A summary of activity in the Company's stock incentive plans follows:
<TABLE>
<CAPTION>
Number Aggregate Weighted Average
of Option Price
Shares Price Per share
------- --------- --------
<S> <C> <C> <C>
Options outstanding at September 30, 1998 244,618 $2,627,086 $ 10.74
Options granted - - -
Options exercised - - -
------- --------- --------
Options outstanding at September 30, 1999 244,618 2,627,086 10.74
Options granted - - -
Options exercised - - -
------- --------- --------
Options outstanding at September 30, 2000
(exercise price of $7.05 to $12.63 per share) 244,618 $2,627,086 $10.74
======= ========== ======
Exercisable at September 30, 2000 179,874 $1,401,200 $ 9.50
======= ========== =======
</TABLE>
The weighted average fair value at date of grant for options granted
under the 1996 Stock Incentive Plans was approximately $4.10 per
option. The fair value of options at date of grant was estimated using a
binomial model with the following assumptions:
Expected life (years) 8
Interest rate 6.6%
Volatility 20%
Dividend yield 3%
Stock-based compensation costs would have reduced net income and earnings
per share on a proforma basis for 2000 and 1999, by approximately
$88,000 each year, respectively, had the fair values of options
granted in that year been recognized as compensation expense on a
straight-line basis over the vesting period of the grant. The proforma effect
on net income for 2000 and 1999 is not representative of the proforma effect
on net income for future years, because it does not take into effect grants
made in prior years.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company and subsidiaries have various
outstanding commitments and contingent liabilities that are not reflected in
the accompanying consolidated financial statements. In addition, the Company
and subsidiaries are defendants in certain claims and legal actions arising
in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material adverse effect on the consolidated financial
position of the Company and subsidiaries.
The Bank is obligated under noncancelable operating leases for
certain computer equipment. Leases are generally short-term and the
remaining commitment at September 30, 2000, is not significant to the
Company's operations or financial condition.
The Bank leases office space for a branch location under an operating lease
expiring August 2002. Rent expense was $30,000 for the years ended September
30, 2000 and 1999. The Bank has the option to extend the term of this lease
for up to two consecutive terms of five years. In the normal course of
business, operating leases are generally renewed or replaced by other leases.
F-21
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 17 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk-weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes that, as of September 30, 2000 and 1999,
the Bank met all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual: Adequacy Purposes: Action Provisions:
-----------------------------------------------------------------------------
AS OF SEPTEMBER 30, 2000: Amount Ratio Amount Ratio Amount Ratio
----------- ---- ------------ ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Risk-based capital
(to risk-weighted assets) $33,680,000 19.2% $14,015,920 8.0% $17,519,000 10.0%
Tier I capital
(to risk-weighted assets) $32,453,000 18.5% $ 7,007,960 4.0% $10,511,940 6.0%
Tier I capital
(to average assets) $32,453,000 10.8% $11,982,880 4.0% $14,978,600 5.0%
AS OF SEPTEMBER 30, 1999:
Risk-based capital
(to risk-weighted assets) $33,163,000 19.7% $13,453,290 8.0% $16,817,400 10.0%
Tier I capital
(to risk-weighted assets) $31,952,000 19.0% $6,726,960 4.0% $10,090,440 6.0%
Tier I capital
(to average assets) $31,952,000 11.0% $11,575,600 4.0% $14,469,500 5.0%
</TABLE>
NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit.
Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements. The contractual amounts of those instruments reflect the extent
of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to
extend credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet instruments. Unless
noted otherwise, the Company generally requires collateral to support
financial instruments with credit risk.
F-22
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -
CONTINUED
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since the majority of
the commitments are expected to be funded, the total commitment amounts
represent future expected cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Company upon extension of
credit is based in part on management's credit evaluation of the
counter-part. Collateral held varies, but consists principally of residential
real estate and deposits.
NOTE 19 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Although the Bank has a diversified loan portfolio, a significant portion
of its loans are secured by real estate. Repayment of these loans is
in part dependent upon the economic conditions in the market area. Part of
the risk associated with real estate loans has been mitigated, since much of
this group represents loans secured by residential dwellings that are
primarily owner-occupied. Losses on this type of loan have historically been
less than those on speculative and commercial properties. The Bank's loan
policy requires appraisal prior to funding any real estate loans and outlines
the appraisal requirements on those renewing.
NOTE 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
CASH AND INTEREST-BEARING DEPOSITS
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
For securities held as investments, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
ACCRUED INTEREST
The carrying amounts of accrued interest approximates their fair values.
LOANS RECEIVABLE
For certain homogeneous categories of loans, such as residential mortgages,
fair value is estimated using the quoted market prices for securities backed
by similar loans, adjusted for differences in loan characteristics. The fair
value of other types of loans is estimated by discounting the future cash
flows, using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
BORROWINGS
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS-OF-CREDIT
At September 30, 2000 and 1999, the Bank had not issued any standby
letters-of-credit. Commitments to extend credit totaled $4,240,654
and $3,921,398, at September 30, 2000 and 1999, respectively, and consisted
primarily of agreements to fund mortgage loans at the prevailing rates based
upon acceptable collateral. Fees charged for these commitments are not
significant to the operations or financial position of the Bank and primarily
represent a recovery of underwriting costs. The Company has not been required
to perform on any financial guarantees during the past two years. The Company
has not incurred any losses on its commitments in the last three years.
F-23
<PAGE>
JACKSONVILLE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
CONTINUED
NOTE 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
The estimated fair values of the Company's financial instruments at
September 30, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and interest-bearing deposits $ 7,520,698 $ 7,520,698 $ 6,567,686 $ 6,567,686
============== ============== ============== ==============
Investment securities $ 22,017,020 $ 21,809,520 $ 18,710,934 $ 18,604,505
============= ============= ============= =============
Accrued interest receivable $ 2,523,749 $ 2,523,749 $ 2,254,158 $ 2,254,158
============== ============== ============== ==============
Loans and mortgage-backed securities $260,808,421 $255,118,941
Less: Allowance for loan losses 1,227,480 1,211,602
------------ -------------
$259,580,941 $259,200,000 $253,907,339 $253,606,198
============ ============ ============ ============
Financial liabilities:
Deposits $220,766,244 $215,265,000 $215,209,204 $208,817,490
============ ------------ ============ ============
Borrowings $ 41,000,000 $ 40,675,000 $ 35,000,000 $ 35,000,000
============= ============= ============= =============
</TABLE>
NOTE 21 - CONDENSED FINANCIAL STATEMENTS OF JACKSONVILLE BANCORP, INC. (PARENT
COMPANY ONLY)
Jacksonville Bancorp, Inc., was organized in December 1995, and began
operations on March 29, 1996, effective with the Reorganization.
The Company's condensed balance sheets as of September 30, and, related
condensed statements of earnings for the years ended September 30, are as
follows:
<TABLE>
<CAPTION>
2000 1999
----------- -------------
BALANCE SHEETS
ASSETS
<S> <C> <C>
Cash in Bank $ 555,926 $ 1,162,127
Investment in subsidiary 33,752,855 33,324,014
Other assets 69,412 32,781
------------ ------------
Total assets $ 34,378,193 $ 34,518,922
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 10,800 $ 7,200
Dividends payable 245,977 272,539
Stockholders' equity 34,121,416 34,239,183
------------ ------------
Total liabilities and stockholders' equity $ 34,378,193 $ 34,518,922
============ ============
STATEMENTS OF EARNINGS
General and administrative expenses $ 109,200 $ 110,876
------------ ------------
Loss before income taxes and equity in undistributed
earnings of subsidiaries 109,200 110,876
Income tax (benefit) (36,630) (37,537)
------------ ------------
Loss before equity in earnings of subsidiaries 72,570 73,339
Dividends from subsidiaries 3,475,438 4,955,746
Equity in undistributed earnings of subsidiaries 280,291 (1,223,920)
------------ ------------
Net earnings $ 3,683,159 $ 3,658,487
============ ============
</TABLE>
F-24
<PAGE>
STOCK INFORMATION
Shares of Jacksonville Bancorp, Inc.'s common stock are traded
nationally under the symbol "JXVL" on the NASDAQ National Market System. At
December 8, 2000, the Company had 1,952,712 shares of common stock outstanding
and had 1,436 stockholders of record.
The following table sets forth the reported high and low sale prices of
a share of the Company's common stock as reported by NASDAQ (the common stock
commenced trading on the NASDAQ National Market System on March 29, 1996) and
cash dividends paid per share of common stock during the periods indicated. Data
prior to that date is given with respect to Jacksonville Savings & Loan
Association.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
<S> <C> <C> <C>
Quarter ended December 31, 1995(1) $11.90 $10.57 $0.10
Quarter ended March 31, 1996(1) 11.63 10.40 0.10
Quarter ended June 30, 1996 10.88 9.13 0.125
Quarter ended September 30, 1996 13.13 10.00 0.125
Quarter ended December 31, 1996 15.00 12.50 0.125
Quarter ended March 31, 1997 15.75 13.94 0.125
Quarter ended June 30, 1997 15.13 13.25 0.125
Quarter ended September 30, 1997 17.25 14.75 0.125
Quarter ended December 31, 1997 24.75 16.88 0.125
Quarter ended March 31, 1998 23.00 19.13 0.125
Quarter ended June 30, 1998 22.00 18.00 0.125
Quarter ended September 30, 1998 18.50 14.50 0.125
Quarter ended December 31, 1998 17.50 14.13 0.125
Quarter ended March 31, 1999 16.75 14.75 0.125
Quarter ended June 30, 1999 16.13 13.25 0.125
Quarter ended September 30, 1999 16.50 15.00 0.125
Quarter ended December 31, 1999 15.75 13.125 0.125
Quarter ended March 31, 2000 14.00 12.50 0.125
Quarter ended June 30, 2000 13.875 12.313 0.125
Quarter ended September 30, 2000 14.50 12.438 0.125
</TABLE>
(1) Amounts previously reported for Jacksonville stock have been restated to
reflect the exchange of 1.41785 shares of the Company stock for each share
of Jacksonville stock during the second quarter of fiscal 1996.
19
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
W. G. BROWN JERRY M. CHANCELLOR
Chairman of the Board of the Company; Director, President and Chief
Retired, Owner of Brown Lumber Industries Executive Officer of the Company
RAY W. BEALL BILL W. TAYLOR
Director of the Company; Retired senior Director, Executive Vice
executive for Beall's Department Store President and C.F.O. of the Company
CHARLES BROADWAY DR. JOE TOLLETT
Director of the Company, Retired Chief Director of the Company; Retired
Executive Officer of the Company Pediatrician
ROBERT BROWN JERRY HAMMONS
Vice Chairman of the Company; C.E.O., Director and Senior Vice President
Brown Lumber Industries of the Company
20
<PAGE>
BANKING LOCATIONS
MAIN OFFICE
Commerce and Neches Streets
Jacksonville, Texas 75766
(903) 586-9861
BRANCH OFFICES
1015 North Church Street 617 South Palestine Street
Palestine, Texas 75801 Athens, Texas 75751
(903) 729-3228 (903) 677-2511
107 East Fourth Street 5620 Old Bullard Road
Rusk, Texas 75785 Tyler, Texas 75703
(903) 683-2287 (903) 534-9144
1412 Judson Road 515 E. Loop 281
Longview, Texas 75601 Longview, Texas 75608
(903) 758-0118 (903) 663-9271
2507 University Boulevard
Tyler, Texas 75707
(903) 566-5575
21
<PAGE>
STOCKHOLDER INFORMATION
Jacksonville Bancorp, Inc. is a Texas-chartered corporation and
savings and loan holding company. Its primary asset, Jacksonville Savings Bank,
SSB is a Texas-chartered stock savings bank which conducts business from its
main office in Jacksonville, Texas and seven branch offices in the neighboring
communities.
TRANSFER AGENT/REGISTRAR
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
1-800-635-9270
SHAREHOLDER REQUESTS
Requests for annual reports, quarterly reports and related stockholder
literature should be directed to Corporate Secretary, Jacksonville Bancorp,
Inc., Commerce and Neches Streets, Jacksonville, Texas 75766.
Shareholders needing assistance with stock records, transfers or lost
certificates, please contact the Company's transfer agent, Mellon Investor
Services.
22
