<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-28070
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Jacksonville Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Texas 75-2632781
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Commerce at Neches
Jacksonville, Texas 75766
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(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (903) 586-9861
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13, or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of August 3, 2000, the latest practicable date, 2,675,972 shares of the
registrant's common stock, $.01 par value, were issued and 1,997,712 shares were
outstanding.
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JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information
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Page
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Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of June 30, 2000
(Unaudited)and September 30, 1999(Audited) 3
Consolidated Statements of Earnings for the
Nine and Three Months Ended June 30, 2000
and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for
the Nine Months Ended June 30, 2000 and
1999 (Unaudited) 5
Consolidated Statement of Changes in
Stockholders' Equity for the Nine Months Ended
June 30, 2000 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
for the Nine and Three Months Ended June 30, 2000
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 13
<CAPTION>
PART II. Other Information
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<S> <C>
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures
</TABLE>
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Part I - Financial Information
Item 1., Financial Statements
JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, September 30,
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2000 1999
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<S> <C> <C>
(Unaudited) (Audited)
ASSETS
Cash on hand and in banks $ 2,153 $ 2,996
Interest-bearing deposits 4,741 3,572
Investment securities:
Held-to-maturity, at cost 5,000 6,999
Available-for-sale, at estimated market value 14,591 11,712
Mortgage-backed certificates:
Held-to-maturity, at cost 3,864 4,658
Available-for-sale, at estimated market value 30,225 32,983
Loans receivable, net 226,215 216,267
Accrued interest receivable 2,271 2,254
Foreclosed real estate, net 139 346
Premises and equipment, net 4,884 4,583
Stock in Federal Home Loan Bank of Dallas, at cost 2,127 1,974
Investment in real estate at cost 1,153 713
Mortgage servicing rights 615 588
Other assets 699 747
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Total assets $ 298,677 $ 290,392
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LIABILITIES
Deposits $ 218,438 $ 215,209
FHLB Advances 42,000 35,000
Advances from borrowers for taxes and insurance 3,155 4,096
Accrued expenses and other liabilities 1,393 1,722
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Total liabilities 264,986 256,027
DEFERRED INCOME
Gain on sale of real estate owned 75 146
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 25,000,000
shares authorized; 2,675,972 shares issued; 27 27
2,007,712 and 2,180,212 shares outstanding at
June 30, 2000 and September 30, 1999, respectively
Additional paid in capital 22,738 22,723
Retained earnings, substantially restricted 23,414 21,507
Less:
Treasury shares, at cost (10,200) (7,772)
(668,260 & 495,760 shares, respectively)
Shares acquired by Employee Stock Ownership Plan (1,071) (1,117)
Shares acquired by Management Recognition Plan (223) (348)
Accumulated other comprehensive income (loss) (1,069) (801)
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Total stockholders' equity 33,616 34,219
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Total liabilities and stockholders' equity $ 298,677 $ 290,392
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</TABLE>
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JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 13,806 $ 12,606 $ 4,735 $ 4,356
Mortgage-backed securities 1,794 1,433 584 530
Investment securities 825 786 283 253
Other 202 217 88 63
-------- -------- -------- --------
Total interest income 16,627 15,042 5,690 5,202
INTEREST EXPENSE
Other 1,631 733 575 342
Deposits 7,478 7,161 2,539 2,386
-------- -------- -------- --------
Total interest expense 9,109 7,894 3,114 2,728
-------- -------- -------- --------
Net interest income 7,518 7,148 2,576 2,474
PROVISION FOR LOSSES ON LOANS 51 45 18 15
-------- -------- -------- --------
Net interest income after
provision for losses on loans 7,467 7,103 2,558 2,459
NONINTEREST INCOME
Fees and deposit service charges 1,083 1,021 353 356
Real estate operations, net 61 127 7 4
Other 133 154 33 30
-------- ------- ------- -------
Total noninterest income 1,277 1,302 393 390
NONINTEREST EXPENSE
Compensation and benefits 3,029 2,810 1,005 916
Occupancy and equipment 545 468 192 154
Insurance expense 93 124 25 42
Other 1,062 925 352 303
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Total noninterest expense 4,729 4,327 1,574 1,415
INCOME BEFORE TAXES ON INCOME 4,015 4,078 1,377 1,434
TAXES ON INCOME 1,375 1,384 473 487
-------- -------- -------- --------
Net earnings $ 2,640 $ 2,694 $ 904 $ 947
======== ======= ======== ========
EARNINGS PER SHARE
Basic $ 1.33 $ 1.21 $ .47 $ .43
======== ======== ======== ========
Diluted $ 1.30 $ 1.17 $ .46 $ .42
======== ======== ======== ========
</TABLE>
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JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30 2000 AND 1999
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,640 $ 2,694
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 220 196
Amortization/Accretion of securities 7 10
Provision for losses on loans and real estate 51 45
Loans originated for sale (14,769) (18,343)
Loans sold 14,769 18,343
Gain on sale of other real estate (82) (168)
Gain on loans sold (28) (46)
Accrual of MRP awards 125 125
ESOP compensation accrued 61 157
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable (17) (85)
(Increase) decrease in prepaid expenses and
other assets 49 35
Increase in Federal income taxes receivable - (296)
Decrease in accrued expenses and other liabilities (330) (499)
Decrease in deferred income (70) (30)
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Net cash provided by operating activities 2,626 2,138
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on maturity of investment securities 1,830 14,134
Purchase of investment securities (2,986) (13,535)
Net principal payments (origination) on loans (9,802) (22,176)
Proceeds from sale of foreclosed real estate 92 109
Purchase of mortgage-backed securities (569) (14,867)
Principal paydowns on mortgage-backed securities 4,120 7,002
Capital expenditures (520) (408)
Purchase of stock in FHLB Dallas (152) (328)
Investment in real estate (440) (502)
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Net cash used in investing activities (8,427) (30,571)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 3,229 6,540
Net decrease in advances for taxes and insurance (941) (730)
Proceeds from Note payable - -
Dividends paid (733) (834)
Advances from FHLB 14,000 24,000
Payment of FHLB advances (7,000) (2,000)
Purchase of Treasury stock (2,428) (1,588)
Proceeds from exercise of stock options - -
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Net cash provided by (used in) financing
activities 6,127 25,388
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Net increase in cash and cash equivalents 326 (3,045)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,568 10,868
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,894 $ 7,823
======== ========
</TABLE>
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JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
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<S> <C> <C>
BALANCE AT SEPTEMBER 30, 1999 $ 34,219
Net earnings 2,640
Other comprehensive income - net change in
unrealized gain on securities available for sale (268)
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Comprehensive income 2,372
Accrual of MRP awards 125
Accrual of ESOP compensation 61
Cash dividends (733)
Treasury shares purchased (2,428)
BALANCE AT JUNE 30, 2000 $ 33,616
==========
</TABLE>
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JACKSONVILLE BANCORP, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements were prepared in accordance with
instructions for Form 10-Q and, therefore, do not include information or
footnotes necessary for a complete presentation of financial position,
results of operations, and cash flows in conformity with generally accepted
accounting principles. However, all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of management, are necessary for
a fair presentation of the financial statements have been included. The
results of operations for the nine-month and three-month periods ended June
30, 2000 and 1999 are not necessarily indicative of the results which may be
expected for an entire fiscal year.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share for the nine and three month periods ended June 30,
2000 and 1999 have been computed by dividing net earnings by the weighted
average number of shares outstanding. Shares controlled by the ESOP are
accounted for in accordance with Statement of Position 93-6 under which
unallocated shares are not considered in the weighted average number of
shares of common stock outstanding. Diluted earnings per share have been
computed, giving effect to outstanding stock purchase options by application
of the treasury stock method.
Following is a summary of shares used for calculating basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Basic EPS - Average
shares outstanding 1,980,380 2,227,100 1,920,295 2,204,347
Effect of dilutive
stock options 51,039 75,360 38,751 74,879
--------- --------- --------- ---------
Diluted EPS - Average
shares outstanding 2,031,419 2,302,460 1,959,046 2,279,226
========= ========= ========= =========
</TABLE>
NOTE 3 - RECLASSIFICATION OF PREVIOUS STATEMENTS
Certain items previously reported have been reclassified to conform with the
current period's reporting format.
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NOTE 4 -RECENT ACCOUNT 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) 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.
Statement No. 137 deferred the effective date of Statement No. 133 to all
fiscal years beginning after June 15, 2000. The Statement may not be applied
retroactively to financial statements of prior periods. The Statement's
adoption is not expected to have a material impact on the Corporation's
financial condition or result of operations.
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Item 2., Management's Discussion and Analysis
of Financial Condition and Results of Operations
JACKSONVILLE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Discussion of Changes in Financial Condition from September 30, 1999 to June
30, 2000.
At June 30, 2000, the assets of Jacksonville Bancorp, Inc., (the "Company")
totaled $298.7 million, which represented an increase of $8.29 million from the
$290.4 million held on September 30, 1999.
Investments in interest-bearing deposits increased by $1.2 million to $4.7
million during the period primarily due to an increase in normal flow of funds
for daily operation on deposits at Federal Home Loan Bank )"FHLB") of Dallas,
where daily closing balances are paid overnight rates.
Investment securities, held-to-maturity, decreased by $2.0 million to $5.0
million at June 30, 2000. This decrease was primarily due to calls and
maturities of investment securities with the proceeds used primarily for
funding of loans, buying available-for-sale securities and meeting cash flow
needs. Investment securities, available-for-sale, increased by $2.9 million to
$14.6 million at June 30, 2000, primarily due to management's decision to
purchase securities at current favorable rates. Most purchases of investment
securities were placed in the available-for-sale category during the period.
Mortgage-backed certificates, held-to-maturity, decreased by $794,000 from
September 30, 1999, to June 30, 2000, due primarily to principal reductions.
Mortgage-backed certificates, available-for-sale, decreased by $2.8 million
also primarily due to principal reductions in the portfolio.
Loans receivable, net increased during the period by $9.9 million to $226.2
million at June 30, 2000. This increase was primarily due to management's
decision to hold in portfolio a portion of Jacksonville Savings Bank's ("Bank")
fixed rate loans rather than sell them on the secondary market. In addition,
the Company continued to originate small commercial real estate loans, home
equity loans, and consumer loans which were placed in its portfolio.
Foreclosed real estate, net decreased from $346,000 at September 30, 1999, to
$139,000 at June 30, 2000. This decrease was primarily due to the sale of
foreclosed properties during the period.
Premises and equipment, net increased by $301,000 from $4.6 million at
September 30, 1999, to $4.9 million at June 30, 2000, primarily as a result of
the remaining costs associated with the
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construction of a second branch in Tyler, Texas.
Stock in Federal Home Loan Bank of Dallas increased from $2.0 million at
September 30, 1999 to $2.1 million at June 30, 2000 due primarily to the
purchase of additional shares of stock.
Investment in real estate at cost amounted to $1.2 million at June 30, 2000
as a result of the investment to date of the development of a residential
subdivision in Hallsville, Texas.
The increase of $27,000 in mortgage servicing rights during the nine month
period ended June 30, 2000 reflects management's decision to hold more mortgage
loans in portfolio rather than sell them into the secondary market.
Other assets decreased from $747,000 at September 30, 1999, to $699,000 at
June 30, 2000.
At June 30, 2000, the liabilities of the Company totaled $265.0 million as
compared to $256.0 million at September 30, 1999. Deposits grew $3.2 million
for the nine month period from $215.2 million to $218.4 million at June 30,
2000, principally as a result of interest credited to accounts and growth in
savings deposits for the period. FHLB advances increased from $35.0 million at
September 30, 1999 to $42.0 million at June 30, 2000 with the increased amount
being used to fund loans and to meet cash flow demands.
Advances from borrowers for taxes and insurance decreased from $4.1 million
at September 30, 1999 to $3.2 million at June 30, 2000. This decrease is the
result of the payment from customer escrow accounts all amounts due to taxing
agencies for the year 1999 and the refunding of any excess escrow to loan
customers in accordance with regulations, offset by monthly tax and insurance
payments credited to individual escrow accounts.
Accrued expenses and other liabilities decreased from $1.7 million at
September 30, 1999, to $1.4 million at June 30, 2000. This $329,000 decrease
was primarily due to a decrease in the liability for federal income taxes
payable and accrued interest payable on loans sold. Deferred Income, gain on
sale of real estate owned, decreased from $146,000 at September 30, 1999, to
$75,000 at June 30, 2000. This decrease was primarily the result of the
recognition of deferred profits from the sale of real estate owned as payments
were received on the related loans.
Stockholder's equity decreased during the period by $603,000 from $34.2
million at September 30, 1999, to $33.6 million at June 30, 2000. Additional
paid-in-capital increased $15,000 as the result of recognizing the difference
in the current market price and cost of the Employee Stock Ownership Plan
shares released during the period.
Retained earning increased by $1.9 million primarily as a result of net
income for the nine month period after dividends. Treasury shares increased
from $7.8 million at September 30, 1999 to $10.2 million at June 30, 2000 due
to the repurchase by the Company of 172,500 treasury shares during the period
bringing the total shares held in treasury to 668,260 shares.
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Shares acquired by the Employee Stock Ownership Plan decreased by $46,000 due
to the release of ESOP shares during the nine month period ended June 30, 2000.
Shares acquired by the Management Recognition Plan decreased by $125,000 from
$348,000 at September 30, 1999 to $223,000 at June 30, 2000, due primarily to
accrual of Management Recognition Plan awards.
Net unrealized gain/loss on securities, available for sale, increased from an
unrealized loss of $801,000 at September 30, 1999, to a $1.1 million unrealized
loss at June 30, 2000. This loss was based on "marked-to-market" values of the
portfolio at June 30, 2000, in accordance with FASB 115.
Comparison of Operating Results for the three and nine months ended June 30,
1999 and 2000.
Net income for the three months ended June 30, 2000, totaled $904,000 as
compared to $947,000 for the comparable period ended June 30, 1999. The
decrease of $43,000 in net income was primarily the result of an increase in
net interest income after provisions for loan losses of $99,000, an increase in
non interest income of $3,000; a decrease in taxes on income of $14,000, offset
by an increase of $159,000 in non interest expenses.
Net income for the nine months ended June 30, 2000, totaled $2.6 million
compared to $2.7 million for the same period in 1999. Net interest income after
provision for losses on loans increased by $364,000 to $7.5 million, reflecting
a $370,000 increase in net interest income and an increase of $6,000 in
provision for losses on loans. Non-interest income decreased in an amount of
$25,000 to $1.3 million, reflecting primarily a $62,000 increase in fees and
deposit service charges, offset by a $66,000 decrease in real estate
operations, net and a decrease in other non-interest income of $21,000.
Non-interest expense increased by $402,000, primarily as a result of a $219,000
increase in compensation and benefits expense; an increase of $77,000 in
occupancy and equipment; and an increase of $137,000 in other non-interest
expenses, offset by a reduction in insurance expense of $31,000. Taxes on
income decreased by $9,000 in the nine month period ended June 30, 2000
compared to the prior nine month period.
Net Interest Income
The Company's net interest income before provisions for loan losses was $2.6
million for the three months ended June 30, 2000. This amount represents an
increase of $102,000 from the $2.5 million of net interest income before
provisions for loan losses for the three month period ended June 30, 1999. The
increase of $102,000 was primarily due to an increase of $488,000 in total
interest income, offset by an increase of $386,000 in total interest expense.
The increase in net interest income before provision for loan losses for the
nine month period ended June 30, 2000 of $370,000 to $7.5 million as compared
to the prior period was primarily due to an increase of $1.6 million in
interest income from larger loans receivable and mortgage-backed securities
portfolios, an increase in other investment securities income of $39,000;
offset by an increase in total interest expense of $1.2 million, and a decrease
of $15,000 in other interest income.
Provisions for Losses on Loans
The provisions for losses on loans are the result of management's decision to
have adequate
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reserves based on historical experience, industry standards, the amount of
non-performing assets, general economic conditions in the Company's market
area, and the collectability of the loan portfolio. Based on these factors, the
loan loss provision for the three month period ended June 30, 2000 increased to
$18,000, an increase of $3,000 from the amount reported June 30, 1999. For the
nine month period ended June 30, 2000 the loan loss provision was $51,000
compared to $45,000 for June 30, 1999.
Non-Interest Income
Non-interest income consists primarily of fees collected on mortgage and
consumer loans, service charges on deposit accounts and income from real estate
operations. This income increased $3,000 for the three month period ended June
30, 2000, as compared to the three month period ended June 30, 1999, amounting
to $393,000 and $390,000 for the respective periods. This increase was
primarily due to an increase in real estate operations net of $3,000, an
increase of $3,000 in other non-interest income, offset by a decrease in fees
and deposit service charges of $3,000.
For the nine months ended June 30, 2000, non-interest income decreased by
$25,000 from $1.30 million at June 30, 1999 to $1.28 million. This decrease was
primarily due to an increase in fees and deposit service charges of $62,000, a
decrease of $21,000 in other non-interest income, and a decrease in real estate
operations, net of $66,000.
Non-Interest Expense
For the three months ended June 30, 2000, non-interest expense increased by
$159,000 over the comparable period ended June 30, 1999. The increase was
primarily due to an increase in other compensation and benefits of $89,000;
occupancy and equipment of $38,000; other non-interest expense of $49,000
offset by a decrease in insurance expense of $17,000.
Non-interest expenses increased by $402,000 for the nine month period ended
June 30, 2000, to $4.70 million over the $4.30 million for the comparable
period in 1999. The increase was primarily due to an increase in compensation
and benefits of $219,000; an increase in occupancy and equipment of $77,000, an
increase of $137,000 in other non-interest expenses, partially offset by a
decrease in insurance expense of $31,000.
Taxes
The provision for income tax amounted to $473,000 and $1.4 million for the
three and nine months ended June 30, 2000, respectively, compared to $487,000
and $1.4 million during the three and nine months ended June 30, 1999,
respectively, based on earnings for the period.
Liquidity
The State of Texas regulations require the Company's wholly owned subsidiary,
Jacksonville Savings Bank to maintain liquidity in an amount not less than 10%
of an amount equal to its average daily deposits for the most recently
completed calendar quarter in cash and readily marketable investments. For the
quarter ended June 30, 2000 the Bank's liquidity was $62.7 million with a
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liquidity ratio of 29.0 %.
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 June 30, 2000, Jacksonville Savings
Bank had Tier 1 leveraged capital, and Tier 1 risk based capital and total risk
based capital levels of 10.64%, 18.09% and 18.79%, respectively, which levels
exceed all current regulatory capital standards. These capital levels exceeded
the minimum requirements at that date by approximately $19.6 million and $24.5
million, and $18.7 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-Q 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.
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,
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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 on the sale of such
assets and (v) the carrying value of investment securities classified as
available-for-sale and the resultant adjustments to shareholder's 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 June 30,
2000, would result in a 11.77% decrease in net interest income over the next
twelve months, while a 200 basis point decrease in rates would result in a
4.32% 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 June 30, 2000, the Bank slightly exceeded the policy range set forth in
the Bank's Interest Rate Risk Policy. With an immediate 200 point increase in
interest rates the results would exceed policy limits of 25% by 1.99%, which is
an improvement over the quarter ended March 31, 2000 of 2.83%. While management
does not believe the 1.99% to be material, management and the Board of
Directors will continue reviewing the existing risk limits and may elect to
either revise these limits or adopt an acceptable plan for an orderly return to
compliance with the limits.
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Recent Developments
Early heavy spring rains through June and unexpected ground spring water
continued to delay completion of the Hallsville Subdivision project. Dry
weather in July has permitted work to continue and at this time street curbing
is nearing completion with street paving to begin within two to three weeks. It
is management's opinion that the project will be complete by the end of summer
and construction of homes will begin at that time on lots that have been sold
on contingency contracts.
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JACKSONVILLE BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Jacksonville Bancorp, Inc., is involved only in routine legal
proceedings occurring in the ordinary course of business which in the
aggregate are believed by management to be immaterial to the
financial condition of the Association.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27: Financial Data Schedule
(b) 8K dated April 27, 2000 - Announces Second Quarter Earnings
8K dated June 14, 2000 - Announces Declaration of Cash
Dividend
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JACKSONVILLE BANCORP, INC.
DATE: August 3, 2000 By: Jerry Chancellor
-----------------------------------
Jerry Chancellor, President
DATE: August 3, 2000 By: Bill W. Taylor
-----------------------------------
Bill W. Taylor
Exec. Vice President
Chief Financial Officer
17
