<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 March 31, 2000
---------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _______________________
Commission File Number 0-28070
--------------------------
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
--- ---
As of May 10, 2000, the latest practicable date, 2,675,972 shares of the
registrant's common stock, $.01 par value, were issued and 2,017,712 shares were
outstanding.
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JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
INDEX
PART I. Financial Information
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Page
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Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of March 31, 2000
(Unaudited) and September 30, 1999 (Audited) 3
Consolidated Statements of Earnings for the
Six and Three Months Ended March 31, 2000
and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for
the Six Months Ended March 31, 2000 and
1999 (Unaudited) 5
Consolidated Statement of Changes in
Stockholders' Equity for the Six Months Ended
March 31, 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 Six and Three Months Ended March 31, 2000
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 13
PART II. Other Information
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Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures
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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>
March 31, September 30,
2000 1999
------------- -------------
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 2,162 $ 2,996
Interest-bearing deposits 3,745 3,572
Investment securities:
Held-to-maturity, at cost 5,500 6,999
Available-for-sale, at estimated market value 12,029 11,712
Mortgage-backed certificates:
Held-to-maturity, at cost 4,058 4,658
Available-for-sale, at estimated market value 31,058 32,983
Loans receivable, net 220,821 216,267
Accrued interest receivable 2,289 2,254
Foreclosed real estate, net 248 346
Premises and equipment, net 4,867 4,583
Stock in Federal Home Loan Bank of Dallas, at cost 2,062 1,974
Investment in real estate at cost 1,066 713
Mortgage servicing rights 614 588
Other assets 781 747
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Total assets $ 291,300 $ 290,392
============= =============
LIABILITIES
Deposits $ 215,766 $ 215,209
FHLB Advances 39,000 35,000
Advances from borrowers for taxes and insurance 2,095 4,096
Accrued expenses and other liabilities 1,333 1,722
------------- -------------
Total liabilities 258,194 256,027
DEFERRED INCOME
Gain on sale of real estate owned 78 146
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 25,000,000
shares authorized; 2,675,972 shares issued; 27 27
2,027,712 and 2,180,212 shares outstanding at
March 31, 2000 and September 30, 1999, respectively
Additional paid in capital 22,734 22,723
Retained earnings, substantially restricted 22,750 21,507
Less:
Treasury shares, at cost (9,940) (7,772)
(648,260 & 495,760 shares, respectively)
Shares acquired by Employee Stock Ownership Plan (1,087) (1,117)
Shares acquired by Management Recognition Plan (264) (348)
Accumulated other comprehensive income (loss) (1,192) (801)
-------------- -------------
Total stockholders' equity 33,028 34,219
------------- -------------
Total liabilities and stockholders' equity $ 291,300 $ 290,392
============= =============
</TABLE>
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JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31, March 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 9,071 $ 8,250 $ 4,502 $ 4,188
Mortgage-backed securities 1,210 903 597 423
Investment securities 542 533 264 252
Other 114 154 59 61
-------- -------- -------- --------
Total interest income 10,937 9,840 5,422 4,924
INTEREST EXPENSE
Other 1,056 391 556 193
Deposits 4,939 4,775 2,466 2,346
-------- -------- -------- --------
Total interest expense 5,995 5,166 3,022 2,539
-------- -------- -------- --------
Net interest income 4,942 4,674 2,400 2,385
PROVISION FOR LOSSES ON LOANS 33 30 18 15
-------- -------- -------- --------
Net interest income after
provision for losses on loans 4,909 4,644 2,382 2,370
NONINTEREST INCOME
Fees and deposit service charges 730 665 342 319
Real estate operations, net 54 123 6 78
Other 74 124 38 64
Mortgage servicing assets 26 - 10 -
-------- -------- -------- -------
Total noninterest income 884 912 396 461
NONINTEREST EXPENSE
Compensation and benefits 2,024 1,894 995 965
Occupancy and equipment 353 314 191 160
Insurance expense 68 82 24 42
Other 710 622 349 324
-------- -------- -------- --------
Total noninterest expense 3,155 2,912 1,559 1,491
INCOME BEFORE TAXES ON INCOME 2,638 2,644 1,219 1,340
TAXES ON INCOME 902 897 429 451
-------- -------- -------- --------
Net earnings $ 1,736 $ 1,747 $ 790 $ 889
======== ======== ======== ========
EARNINGS PER SHARE
Basic $ .87 $ .78 $ .40 $ .40
======== ======== ======== ========
Diluted $ .84 $ .75 $ .39 $ .39
======== ======== ======== ========
</TABLE>
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JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31 2000 AND 1999
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,736 $ 1,747
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 145 128
Amortization/Accretion of securities 5 7
Provision for losses on loans and real estate 33 30
Loans originated for sale (10,823) (15,118)
Loans sold 10,823 15,118
Gain on sale of other real estate (72) (155)
Gain on loans sold (26) (57)
Accrual of MRP awards 84 83
ESOP compensation accrued 41 135
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable (35) 67
(Increase) decrease in prepaid expenses and
other assets (36) 78
Increase in Federal income taxes receivable - (6)
Decrease in accrued expenses and other liabilities (389) (473)
Decrease in deferred income (68) (26)
---------- ----------
Net cash provided by operating activities 1,418 1,558
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on maturity of investment securities 1,287 9,399
Purchase of investment securities (500) (5,537)
Net principal payments (origination) on loans (4,509) (10,970)
Proceeds from sale of foreclosed real estate 92 109
Purchase of mortgage-backed securities (569) -
Principal paydowns on mortgage-backed securities 3,094 4,431
Capital expenditures (429) (96)
Purchase of stock in FHLB Dallas (87) (223)
Investment in real estate (353) (321)
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Net cash used in investing activities (1,974) (3,208)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 557 3,969
Net decrease in advances for taxes and insurance (2,001) (1,743)
Proceeds from Note payable - -
Dividends paid (493) (560)
Advances from FHLB 10,000 -
Payment of FHLB advances (6,000) (2,000)
Purchase of Treasury stock (2,168) (930)
Proceeds from exercise of stock options - -
---------- ----------
Net cash provided by (used in) financing
activities (105) (1,264)
----------- ---------
Net increase in cash and cash equivalents (661) (2,914)
----------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,568 10,868
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,907 $ 7,954
========== ==========
</TABLE>
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JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
----------
<S> <C>
BALANCE AT SEPTEMBER 30, 1999 $ 34,219
Net earnings 1,736
Other comprehensive income - net change in
unrealized gain on securities available for sale (391)
--------
Comprehensive income 1,345
Accrual of MRP awards 84
Accrual of ESOP compensation 41
Cash dividends (493)
Treasury shares purchased (2,168)
BALANCE AT MARCH 31, 2000 $ 33,028
==========
</TABLE>
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JACKSONVILLE BANCORP, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 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 six-month and three-month periods ended March 31, 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 six and three month periods ended March 31,
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>
Six Months Ended Three Months Ended
March 31, March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic EPS - Average
shares outstanding 2,005,149 2,244,262 1,971,900 2,229,533
Effect of dilutive
stock options 56,581 75,578 46,064 75,860
--------- --------- --------- ---------
Diluted EPS - Average
shares outstanding 2,061,730 2,319,840 2,017,964 2,305,393
========= ========= ========= =========
</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.
8
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Item 2., Management's Discussion and Analysis
of Financial Condition and Results of Operations
Jacksonville Bancorp, Inc.
Management Discussion and Analysis
of Financial Condition and Results of Operation
Discussion of Changes in Financial Condition from September 30, 1999 to March
31, 2000.
At March 31, 2000 the assets of Jacksonville Bancorp, Inc., (the
"Company") totaled $291.3 million up from the September 30, 1999 totals of
$290.4 million.
Cash on hand decreased from $3.0 million at September 30, 1999 to $2.2
million at March 31, 2000 and interest bearing deposits increased from $3.6
million to $3.7 million for the same six month period. Interest bearing deposits
are primarily deposits at the Federal Home Loan Bank of Dallas ("FHLB") with
daily closing balances being paid overnight rates.
Investment securities, held-to-maturity, decreased by $1.5 million from $
7.0 million at September 30, 1999 to $5.5 million at March 31, 2000. Investment
securities, available-for-sale, increased by $317,000 from $11.7 million to
$12.0 million for the same period. The net decrease in investment securities was
primarily due to maturities of investment securities with the proceeds used for
funding of loans and meeting cash flow needs.
Mortgage-backed securities, held-to-maturity and available-for-sale,
decreased from $37.6 million at September 30, 1999 to $35.1 million at March
31,2000, primarily representing principal reductions for the period.
Loans receivable, net increased by $4.6 million from $216.3 million at
September 30, 1999 to $220.8 million at March 31, 2000. The increase was
primarily funded with investment securities' maturities, from payments in the
mortgage-backed securities portfolio, decreases in cash on hand and from Federal
Home Loan Bank advances.
Foreclosed real estate, net decreased from $346,000 at September 30, 1999
to $248,000 at March 31, 2000 a reduction of $98,000. Premises and equipment,
net increased from $4.6 million to $4.9 million primarily as a result of the
purchase of additional ATM machines, the purchase of a voice response system and
costs associated with opening a second branch in Tyler, Texas.
All other asset classifications for March 31, 2000 remained relatively
comparable to those numbers disclosed at September 30, 1999 with the exception
of investment in real estate at cost which increased from $713,000 at September
30, 1999 to $1.1 million at March 31, 2000, representing an investment in a
Hallsville Texas subdivision development.
At March 31, 2000 liabilities of the Company totaled $258.2 million
compared to $256.0 million at September 30, 1999. Deposits grew $557,000 for the
six month period from $215.2 million at September 30, 1999 to $215.8 million at
March 31, 2000 principally as a result of interest credited to accounts less
withdrawals for the period. FHLB advances increased from $35.0 million to $39.0
million for the six month
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period to fund loan originations, meet withdrawals demands, and to meet cash
flow demands.
Advances from borrowers for taxes and insurance decreased from $4.1
million at September 30, 1999 to $2.1 million at March 31, 2000. This decrease
is the result of the payment from customer's escrow accounts of all amounts due
to taxing agencies for 1999 during the quarter ended December 31, 1999.
Accrued expenses and other liabilities decreased from $1.7 million at
September 30, 1999 to $1.3 million at March 31, 2000.
Deferred income, gain on sale of real estate owned, decreased from
$146,000 at September 30, 1999 to $78,000 at March 31, 2000. This decrease was
primarily the result of the recognition of income from the sale of real estate
owned.
Stockholder's equity decreased from $34.2 million at September 30, 1999
to $33.0 million at March 31, 2000. Retained earnings increased from $21.5
million to $22.8 million for the six month period primarily as a result of net
income after dividends. Treasury shares increased for the six month period from
$7.8 million to $9.9 million due to the repurchase of 152,500 shares during the
period bringing total treasury shares to 648,260.
Shares acquired by the Employee Stock Ownership Plan decreased by $30,000
due to the release of ESOP shares during the six month period ended March 31,
2000. Shares acquired by the Management Recognition Plan decrease by $84,000
from $348,000 at September 30, 1999 to $264,000 at March 31, 2000, due primarily
to accrual of Management Recognition Plan awards.
Net unrealized gain/loss on securities, available for sale, increased
from a $801,000 unrealized loss at September 30, 1999 to a $1.2 million
unrealized loss at March 31, 2000. These gains/losses were based on "marked-to
market" values of the available-for-sale portfolios at the respective periods in
accordance with FASB 115.
Comparison of Operating Results for the three and six months ended March 31,
2000 and 1999.
Net income for the three months ended March 31, 2000 totaled $790,000
compared to $889,000 for the three months ended March 31, 1999. The decrease was
primarily due to a decrease in fee income from real estate operations and an
increase in noninterest expense. Total interest income increased by $498,000
from $4.9 million at March 31, 1999 to $5.4 million at March 31, 2000, offset by
an increase in total interest expense from $2.5 million to $3.0 million for the
comparable period. Provisions for losses on loans increased from $15,000 at
March 31, 1999 to $18,000 at March 31, 2000.
Non-interest income decreased $65,000 from $461,000 for the quarter ended
March 31, 1999 to $396,000 for the March 31, 2000 quarter. While fees and
deposit services charges and mortgage servicing assets increased by $33,000 for
the three months ended March 31, 2000 compared to the same period in 1999, real
estate operations, net and other noninterest income decreased by $98,000 for the
comparable periods.
Non-interest expense increased from $1.5 million for the quarter ended
March 31, 1999 to $1.6 million for the March 31, 2000 period primarily as a
result of the cost of staffing and other expenses associated with opening our
second branch in Tyler, Texas.
Federal income taxes were lower by $22,000 at March 31, 2000 and amounted
to $429,000 compared
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<PAGE> 11
to $451,000 for the comparable period in 1999.
Net income for the six months ended March 31, 2000 was $1.74 million
compared to $1.75 million for the same period in 1999. While net income was
virtually unchanged, net interest income after provisions for loan losses
increased by $265,000, offset by a decrease of $28,000 in total non-interest
income, an increase of $243,000 in total non-interest expense, and an increase
in federal income taxes of $5,000.
Net Interest Income
The Company's net interest income before provisions for loan losses was
$2.4 million for the three months ended March 31, 2000, the same amount as
reported for the three month period ended March 31, 1999.
For the six months ended March 31, 2000 net interest income before
provision for loan losses increased by $268,000 to $4.9 million from the
comparable period ended March 31, 1999. While net interest income before
provision for loan losses remained at $2.4 million for the three months ended
March 31, 2000, the same amount reported for March 31, 1999, total interest
income increased to $5.4 million from $4.9 million for the comparable periods.
However, in an escalating interest rate environment, total interest expense also
increased from $2.5 million to $3.0 million for the reporting quarters.
For the six month period ended March 31, 2000 net interest income before
provisions for loan losses increased to $4.9 million compared to $4.7 million
for the six months ended March 31, 1999.
Provisions for Losses on Loans
The provisions for losses on loans are the result of management's
decision to have adequate 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 was increased by $3,000 from $15,000
at March 31, 1999 to $18,000 at March 31, 2000. For the six month period ended
March 31, 2000 the provision was $33,000 compared to $30,000 at March 31, 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 decreased $65,000 from $461,000 for the three month
period ended March 31, 1999 to $396,000 for the comparable period in 2000. This
decrease was primarily due to a decrease in real estate operations of $72,000,
and a decrease in other non-interest income of $26,000, offset by an increase in
fees and deposit service charges of $23,000 and an increase in mortgage
servicing assets of $10,000.
For the six month period, non-interest income decreased from $912,000 at
March 31, 1999 to $884,000 at March 31, 2000 primarily due to a decrease in
income from real estate operations of $69,000, a decrease of other non-interest
income of $50,000 offset by an increase in fees and deposit service charges of
$65,000 and an increase in mortgage servicing assets of $26,000.
Non-Interest Expense
For the three months ended March 31, 2000 non-interest expense increased
to $1.6 million from $1.5 million for the three months ended March 31, 1999.
Compensation and benefits increased $30,000,
11
<PAGE> 12
occupancy and equipment increased $31,000 other non-interest expenses increased
$25,000, offset by a decrease in insurance expense of $18,000.
Non-interest expenses increased by $243,000 for the six month period from
$2.9 million at March 31, 1999 to $3.2 million at March 31, 2000. This increase
was primarily due to an increase in compensation and benefits of $130,000; an
increase of $39,000 in occupancy and equipment, an increase in other
non-interest expense of $88,000 offset by a reduction in insurance expense of
$14,000.
Taxes
The provision for income tax amounted to $429,000 and $902,000 for the
three and six months ended March 31, 2000 respectively, compared to $451,000 and
$897,000 for the three and six months ended March 31, 1999, respectively, based
on earnings for the period.
Liquidity
The State of Texas regulations require the Company's wholly owned
subsidiary, Jacksonville Savings Bank, SSB ("the 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 March 31, 2000 the Bank's liquidity was $60.6
million with a liquidity ratio of 27.6%.
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 March 31,2000, the
Bank had Tier 1 leveraged capital, Tier 1 risk-based capital and total
risk-based capital levels of 10.93%, 18.62%,19.33%, respectively, which levels
exceed all current regulatory capital standards. These capital levels exceeded
the minimum requirements at that date by approximately $20.1 million, $24.9
million, and $19.3 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.
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Year 2000 Statement
The costs associated with Year 2000 compliance were minimal to
Jacksonville since the in-house staff was able to perform the majority of the
necessary steps toward Y2K compliance. The Company experienced no difficulties
concerning the transition to the Year 2000 during the quarter ended March 31,
2000.
Item 3., 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 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
13
<PAGE> 14
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 March 31, 2000, would result in a 11.8 % decrease
in net interest income over the next twelve months, while a 200 basis point
decrease in rates would result in a 4.4 % decrease 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 March 31, 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 2.83%. While
management does not believe the 2.83% to be material, management and the Board
of Directors are 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.
Recent Developments
During the quarter ended March 31, 2000 a decision was made by the Board
of Directors to upgrade its existing AS400-200 mainframe computer system to a
larger and faster AS400-170 model to better handle the demand from an increased
customer base and a second branch in Tyler, Texas.
Although weather conditions and a problem of unexpected underground
spring water has delayed the completion of the Company's subdivision in
Hallsville, Texas the project is scheduled to be completed no later than June
30, 2000. There are currently have 38 contingency contracts pending for
developed lots to residential builders out of a total 75 lots in the subdivision
subject to completion of the project.
14
<PAGE> 15
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
(a) An Annual Meeting of Stockholders ("Annual Meeting") was
held on January 25, 2000 at 10:00AM.
(b) Not Applicable
(c) Two matters were voted upon at the Annual Meeting. The
stockholders approved matters brought before the Annual
Meeting. The matters voted upon together with the
applicable voting results were as follows:
(1) Proposal to elect three directors for a three-year
term or until their successors are elected and
qualified -Jerry Chancellor received votes for
1,843,566; withheld 2,200; and not voted 287,946.
Joe Tollett received votes for 1,843,366; withheld
2,400; and not voted 287,946. Bill Taylor received
votes for 1,844,566; withheld 1,200 and not voted
287,946.
(2) Proposal to ratify the appointment by the Board of
Directors of Henry & Peters, P.C., as the Company's
independent auditors for the fiscal year ending
September 30, 2000; received votes for 1,843,168;
against 1,500; abstain 1,098; and not voted 287,946.
(d) Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27: Financial Data Schedule
(b) 8K dated January 11, 2000 - Announces First Quarter
Earnings
8K dated February 9, 2000 - Stock Repurchase Announcement
8K dated March 15, 2000 - Announces Declaration of Cash
Dividend
16
<PAGE> 17
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: May 10, 2000 By: /s/ Jerry Chancellor
---------------------------------
Jerry Chancellor, President
DATE: May 10, 2000 By: /s/ Bill W. Taylor
---------------------------------
Bill W. Taylor
Exec. Vice President
Chief Financial Officer
17
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