SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSMISSION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ________________
Commission File No. 001-14853
JACKSONVILLE BANCORP, INC.
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(Name of small business issuer in its charter)
Florida 59-3472981
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(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
76 S. Laura Street, Suite 104, Jacksonville, Florida 32202
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(Address of principal executive offices) Zip Code
Issuer's telephone number: (904) 421-3040
Securities registered under Section 12(b) of the Securities Exchange Act of
1934: None.
Securities registered under Section 12(g) of the Securities Exchange Act of
1934: Common Stock.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $453,251.
The aggregate market value, calculated on the basis of the closing price of such
stock on the over-the-counter Bulletin Board of the voting stock held by
nonaffiliates of the Registrant at December 31, 1999 was approximately
$6,394,127.
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There were 1,017,066 shares of common stock outstanding at March 10, 2000.
Documents incorporated by reference: The Registrant's 2000 Annual Meeting Proxy
Statement is incorporated by reference in this report in Part III, pursuant to
Instruction E of Form 10-KSB, except for the information relating to executive
officers and key employees. The Company will file its definitive Proxy Statement
with the Commission prior to April 29, 2000.
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TABLE OF CONTENTS
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Description Page Number
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PART I
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ITEM 1. DESCRIPTION OF THE BUSINESS......................................5
1.0 Forward-Looking Statements..........................................5
1.1 General.............................................................5
1.2 Regulation and Supervision..........................................6
1.3 Market Area and Competition.........................................9
1.4 Deposits...........................................................10
1.5 Loan Portfolio.....................................................10
1.6 Investments........................................................11
1.7 Employees..........................................................11
1.8 Data Processing....................................................11
ITEM 2. DESCRIPTION OF THE PROPERTIES...................................12
ITEM 3. LEGAL PROCEEDINGS...............................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............12
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS ...............................................................13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS............................15
ITEM 7. FINANCIAL STATEMENTS............................................25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................................45
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PART III
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF
THE REGISTRANT.........................................................45
ITEM 10. EXECUTIVE COMPENSATION.........................................45
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................................45
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................45
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.........................46
SIGNATURES..............................................................48
EXHIBITS
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PART I
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ITEM 1. BUSINESS
1.0 Forward-Looking Statements
This report may contain certain "forward-looking" statements as such
term is defined in the Private Securities Litigation Reform Act of 1995 or by
the Securities and Exchange Commission in its rules, regulations and releases,
which represent the Company's expectations or beliefs, including but not limited
to statements concerning the Company's operations, economic performance,
financial condition, growth and acquisition strategies, investments, and future
operational plans. For this purpose, any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may", "will", "expect", "believe", "anticipate", "intend", "could", "estimate",
"might", or "continue" or the negative or other variations thereof or comparable
terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors. The
risks and uncertainties and factors affecting actual results include those
discussed in this and other Company filings with the Securities and Exchange
Commission, including but not limited to (i) the risks associated with new
businesses, including initial unplanned lack of profitability, greater than
usual financial sensitivity to adverse economic conditions, and the potential
inability to raise additional capital when needed, (ii) general economic and
political conditions, both domestic and international, and governmental monetary
policies, (iii) competitive conditions in the Florida and Jacksonville banking
markets, (iv) changes in legislation and banking regulatory policy, including
bank deregulation and interstate expansion, which could adversely affect the
banking industry, (v) the ability of the Company to attract and retain talented
and experienced senior management and employees, (vi) changes in the interest
rate environment; (vii) the Company's ability to attract deposits and make loans
on favorable terms, (viii) the Company's ability to minimize credit risk and
nonperforming assets; (ix) the Company's ability to forecast revenues and timely
reduce operating expenses; and (x) the pace of technological change in the
banking and financial industry and the Company's capacity to adapt to such
technological changes.
1.1 General
Jacksonville Bancorp, Inc. (the "Company") was incorporated under the
laws of the State of Florida on October 24, 1997, for the purpose of organizing
The Jacksonville Bank (the "Bank") and purchasing 100% of the outstanding
capital stock of the Bank. The Company's only business is the ownership and
operation of the Bank. The Company's fiscal year ends December 31. The Bank is a
Florida state-chartered commercial bank and its deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC"). The Bank opened for business on
May 28, 1999 and provides a variety of community banking services to businesses
and individuals in Jacksonville, Florida.
The Bank provides a variety of competitive banking services, including
Internet banking. In order to compete with the financial institutions in the
market, the Bank uses its independent status to the fullest extent. This
includes an emphasis on specialized services for the small business owner and
professional and personal contacts by the officers, directors and employees of
the Bank. Loan participations are arranged for customers whose loan demands
exceed the Bank's lending limits.
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Substantial consolidation of the Florida banking market has occurred
since the early 1980's. According to the Federal Deposit Insurance Corporation
(the "FDIC"), the number of commercial banking entities operating in Florida
declined from approximately 550 as of December 31, 1980, to approximately 200 as
of June 30, 1998, or approximately 64% over the 17 year period. Management
believes Florida has been particularly attractive to regional bank holding
companies because it is the fourth largest state in the country in terms of
total population (14.7 million) and is among the ten fastest growing states in
the country (approximately 2% annually). As more out-of-state bank holding
companies enter the Florida market, the Company believes that the number of
depository institutions headquartered and operating in Florida will continue to
decline. The recent consolidation also has dislocated qualified banking
professionals who have strong ties to, and an understanding of, their local
markets. The Bank concentrates its marketing effort on the advantages of local
ownership and management, as well as, fiscal responsibility, personal service
and customer relations at the local level. The Bank's marketing program is
directed primarily towards small and medium-size businesses (annual sales up to
$20 million), professional firms and active affluent consumers. Particular
emphasis is placed on building personal face-to-face relationships. The Bank's
management and business development teams have extensive experience with
individuals and companies within these targeted market segments in the
Jacksonville area. Based on their experience, management believes the Bank will
be effective in gaining market share in a banking environment generally
characterized by a high level of customer discontent.
1.2 Regulation and Supervision
The Bank and the Company operate in a highly regulated environment, and
statute, regulation and administrative policies govern their business
activities. The business activities of the Bank and the Company are supervised
by a number of regulatory agencies, including the Federal Reserve Board of
Governors (the "Federal Reserve"), the Florida Department of Banking and Finance
("Department") and the FDIC.
The Company is regulated by the Federal Reserve under the Federal Bank
Holding Company Act, which requires every bank holding company to obtain the
prior approval of the Federal Reserve before acquiring more than 5% of the
voting shares of any bank or all or substantially all of the assets of a bank,
and before merging or consolidating with another bank holding company. The
Federal Reserve (pursuant to regulation and published policy statement) has
maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the Federal Reserve policy, the
Company may be required to provide financial support for a subsidiary bank at a
time when, absent such Federal Reserve policy, the Company may not deem it
advisable to provide such assistance.
A bank holding company is generally prohibited from acquiring control
of any company which is not a bank and from engaging in any business other than
the business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve to be so
closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies.
As a state bank and a subsidiary of the Company, the Bank is subject to
the supervision of the Department and the FDIC and the Federal Reserve. With
respect to expansion, the Bank may establish branch offices anywhere within the
State of Florida. The Bank is also subject to the Florida banking and usury laws
restricting the amount of interest which it may charge in making loans or other
extensions of credit. In addition, the Bank, as a subsidiary of the Company, is
subject to restrictions under federal law in dealing with the Company and other
affiliates, if any. These restrictions apply to extensions of credit to an
affiliate, investments in the securities of an affiliate and the purchase of
assets from an affiliate.
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Loans and extensions of credit by state banks are subject to legal
lending limitations. Under state law, a state bank may grant unsecured loans and
extensions of credit in an amount up to 15% of its unimpaired capital and
surplus to any person. In addition, a state bank may grant additional loans and
extensions of credit to the same person up to 10% of its unimpaired capital and
surplus, provided that the transactions are fully secured. This 10% limitation
is separate from, and in addition, to, the 15% limitation for unsecured loans.
Loans and extensions of credit may exceed the general lending limit if they
qualify under one of several exceptions.
The Bank and the Company are subject to regulatory capital requirements
imposed by the Federal Reserve, the FDIC and the Department. Both the Federal
Reserve and the FDIC have established risk-based capital guidelines for bank
holding companies and banks which make regulatory capital requirements more
sensitive to differences in risk profiles of various banking organizations. The
capital adequacy guidelines issued by the Federal Reserve are applied to bank
holding companies on a consolidated basis with the banks owned by the holding
company. The FDIC's risk capital guidelines apply directly to state banks
regardless of whether they are a subsidiary of a bank holding company. Both
agencies' requirements (which are substantially similar) provide that banking
organizations must have capital equivalent to 8% of risk-weighted assets. The
risk weights assigned to assets are based primarily on credit risks. Depending
upon the riskiness of a particular asset, it is assigned to a risk category. For
example, securities with an unconditional guarantee by the United States
government are assigned to the lowest risk category. A risk weight of 50% is
assigned to loans secured by owner-occupied one-to-four family residential
mortgages. The aggregate amount of assets assigned to each risk category is
multiplied by the risk weight assigned to that category to determine the
weighted values, which are added together to determine total risk-weighted
assets.
At December 31, 1999, the Bank's total risk-based capital and Tier 1
ratio were 58.1% and 57.3%, respectively.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (or
FDICIA), created five "capital categories" ("well capitalized, "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized") which are defined in the Act and which are used
to determine the severity of corrective action the appropriate regulator may
take in the event an institution reaches a given level of undercapitalization.
For example, an institution which becomes "undercapitalized" must submit a
capital restoration plan to the appropriate regulator outlining the steps it
will take to become adequately capitalized. Upon approving the plan, the
regulator will monitor the institution's compliance. Before a capital
restoration plan will be approved, an entity controlling a bank (i.e., the
holding company) must guarantee compliance with the plan until the institution
has been adequately capitalized for four consecutive calendar quarters. The
liability of the holding company is limited to the lesser of five percent of the
institution's total assets at the time it became undercapitalized or the amount
which is necessary to bring the institution into compliance with all capital
standards. Furthermore, in the event of the bankruptcy of the parent holding
company, such guarantee would take priority over the parent's general unsecured
creditors. In addition, "undercapitalized" institutions will be restricted from
paying management fees, dividends and other capital distributions, will be
subject to certain asset growth restrictions and will be required to obtain
prior approval from the appropriate regulator to open new branches or expand
into new lines of business. As an institution drops to lower capital levels, the
extent of action to be taken by the appropriate regulator increases, restricting
the types of transactions in which the institution may engage and ultimately
providing for the appointment of a receiver for certain institutions deemed to
be critically undercapitalized.
The FDICIA required each federal banking agency to prescribe for all
insured depository institutions and their holding companies standards relating
to internal controls, information systems and audit systems, loan documentation,
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credit underwriting, interest rate risk exposure, asset growth, and
compensation, fees and benefits and such other operational and managerial
standards as the agency deems appropriate. In addition, the federal banking
regulatory agencies were required to prescribe by regulation standards
specifying: (i) maximum classified assets to capital ratios; (ii) minimum
earnings sufficient to absorb losses without impairing capital; (iii) to the
extent feasible, a minimum ratio of market value to book value for publicly
traded shares of depository institutions or the depository institution holding
companies; and (iv) such other standards relating to asset quality, earnings and
valuation as the agency deems appropriate. Finally, each federal banking agency
was required to prescribe standards for employment contracts and other
compensation arrangements of executive officers, employees, directors and
principal stockholders of insured depository institutions that would prohibit
compensation and benefits and other arrangements that are excessive or that
could lead to a material financial loss for the institution. If an insured
depository institution or its holding company fails to meet any of the standards
described above, it will be required to submit to the appropriate federal
banking agency a plan specifying the steps that will be taken to cure the
deficiency. If an institution fails to submit an acceptable plan or fails to
implement a plan, the appropriate federal banking agency will require the
institution or holding company to correct the deficiency and until corrected,
may impose restrictions on the institution or the holding company including any
of the restrictions applicable under the prompt corrective action provisions of
the FDICIA.
In response to the directive issued under the Act, the regulators have
adopted regulations which, among other things, prescribe the capital thresholds
for each of the five capital categories established by the Act. The following
table reflects the capital thresholds:
<TABLE>
Total Risk-Based Tier 1 Risk-Based Tier 1 Leverage
Capital Ratio Capital Ratio Ratio
<S> <C> <C> <C> <C>
Well capitalized (1) 10% 6% 5%
Adequately capitalized (1) 8% 4% 4%(2)
Under capitalized (3) less than 8% less than 4% less than 4%
Significantly Undercapitalized (3) less than 6% less than 3% less than 3%
Critically Undercapitalized --- --- less than 2%
<FN>
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
</FN>
</TABLE>
Under these capital categories, the Company is classified as well-capitalized.
The Act also provided that banks must meet safety and soundness
standards. In order to comply with the Act, the Federal Reserve and the FDIC
adopted a final Rule which institutes guidelines defining operational and
managerial standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, director and officer
compensation, asset quality, earnings and stock valuation. Both the capital
standards and the safety and soundness standards which the Act implements were
designed to bolster and protect the deposit insurance fund.
As a state bank, the Bank is subject to examination and review by the
Department. The Bank submits to the FDIC quarterly reports of condition, as well
as such additional reports as may be required by the state banking laws which
are also reviewed by the Department.
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Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, existing restrictions on interstate acquisitions of banks by bank
holding companies were repealed on September 29, 1995, such that the Bank and
any other bank holding company located in Florida would be able to acquire any
Florida-based bank, subject to certain deposit percentage and other
restrictions. The legislation also provides that, unless an individual state
elects beforehand either (i) to accelerate the effective date, or (ii) to
prohibit out-of-state banks from operating interstate branches within its
territory, on or after June 1, 1997, adequately capitalized and managed bank
holding companies will be able to consolidate. De novo branching by an
out-of-state bank would be permitted only if is expressly permitted by the laws
of the host state. The authority of a bank to establish and operate branches
within a state will continue to be subject to applicable state branching laws.
Florida permits interstate branching by acquisition, but not by de novo
branching.
As a bank holding company, the Company is required to file with the
Federal Reserve an annual report of its operations at the end of each fiscal
year and such additional information as the Federal Reserve may require pursuant
to the Act. The Federal Reserve may also make examinations of the Company and
each of its subsidiaries.
The Bank is also subject to the Florida banking and usury laws
restricting the amount of interest which it may charge in making loans or other
extensions of credit. In addition, the Bank, as a subsidiary of the Company, is
subject to restrictions under federal law in dealing with the Company and other
affiliates, if any. These restrictions apply to extensions of credit to an
affiliate, investments in the securities of an affiliate and the purchase of
assets from an affiliate.
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. Accordingly, the scope of
regulation and permissible activities of the Bank and the Company is subject to
change by future federal and state legislation or regulation.
1.3 Market Area and Competition
The Bank's primary market area is all of Duval County (including
primarily the Southside, Arlington, Mandarin, Beaches and Downtown areas of
Jacksonville). Jacksonville is the largest city in the United States as measured
by land area. Jacksonville is home to the Jacksonville Jaguars, one of the
newest NFL franchises and is the corporate headquarters to a number of regional
and national companies. Duval County has a strong commercial and industrial base
which has been steadily expanding in recent years.
In its January, 1999 issue, Expansion Management Magazine rated
Jacksonville as the "Number One" city in America in terms of business climate,
quality and availability of workers, taxes, incentives, and quality of life.
Financial institutions primarily compete with one another for deposits.
In turn, a bank's deposit base directly affects such bank's loan activities and
general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts, the availability of
unique financial services products, a high level of personal service, and
personal relationships between Bank officers and Bank customers. The Bank will
be competing with financial institutions which have much greater financial
resources than the Bank, and which may be able to offer more services and unique
services and possibly better terms to their customers. The Directors and
management, however, believe that the Bank will be able to attract sufficient
deposits to enable the Bank to compete effectively with other area financial
institutions.
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The Bank is in competition with existing area financial institutions
other than commercial banks and thrift institutions, including insurance
companies, consumer finance companies, brokerage houses, mortgage banking
companies, credit unions and other business entities which target traditional
banking markets. Due to the growth of the Jacksonville area, it can be
anticipated that significant competition will continue from existing, as well
as, new entrants to the market.
1.4 Deposits
The Bank offers a wide range of interest-bearing and
noninterest-bearing deposit accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest-bearing statement savings accounts and certificates of deposit with
fixed rates and a range of maturity date options. The sources of deposits will
primarily be residents, businesses and employees of businesses within the Bank's
primary market areas, obtained through the personal solicitation of the Bank's
officers and directors, direct mail solicitation and advertisements published in
the local media. The Bank intends to pay competitive interest rates on time and
savings deposits. In addition, the Bank's service charge fee schedule is
competitive with other financial institutions in the Bank's primary market areas
covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts and returned check charges. The Bank is
part of the Star and Cirrus ATM networks.
1.5 Loan Portfolio
The Bank serves the financing needs of the Jacksonville community by
offering a variety of different loan products. Commercial loans include both
collateralized and uncollateralized loans for working capital (including
inventory and receivables), business expansion (including real estate
acquisitions and improvements), and purchase of equipment and machinery.
Consumer loans include collateralized and uncollateralized loans for financing
automobiles, boats, home improvements, and personal investments. The Bank
primarily enters into lending arrangements for its loans with individuals who
are familiar to management and who are residents of the Bank's primary market
areas.
The Bank's Board of Directors has adopted certain policies and
procedures to guide individual loan officers in carrying out the lending
function of the Bank. The Board of Directors has formed a Director's Loan
Committee and appointed six directors (including Directors Price Schwenck and
Gilbert J. Pomar, III) to provide the following oversight: (a) insure compliance
with the Bank's loan policy, procedures and guidelines; (b) approve loans above
an aggregate amount of $500,000 to any entity or related entities; (c) recommend
lending authority for individual officers to the Board of Directors; (d) monitor
the Bank's loan review systems; and (e) review the adequacy of the Bank's loan
loss reserve.
The Board of Directors realizes that occasionally loans need to be made
which fall outside the specific policy guidelines. Consequently, the Bank's CEO
has the authority to make certain policy exceptions to loans up to $500,000.
Policy exceptions on loans greater than $500,000 must be approved by the
Director's Loan Committee and, additionally, the Board of Directors reviews all
loans and all policy exceptions at its regularly scheduled monthly meetings. An
outside independent auditor also evaluates the quality of the loans being made
by the Bank and determines if they are being made in accordance with the
guidelines established by the Bank's Board of Directors.
Management recognizes that credit losses will be experienced and the
risk of loss will vary with, among other things, the type of loan being made,
the creditworthiness of the borrower over the term of the loan and, in the case
of a collateralized loan, the quality of the collateral for the loan, as well as
general economic conditions. Management intends to maintain an adequate
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allowance for loan losses based on, among other things, industry standards,
management's experience, the Bank's historical loan loss experience, evaluation
of economic conditions and regular reviews of delinquencies and loan portfolio
quality. The Bank follows a conservative lending policy, but one which permits
prudent risks to assist businesses and consumers primarily in the Bank's primary
market areas. Interest rates vary depending on the cost of funds to the Bank,
the loan maturity, and the degree of risk. Whenever possible, interest rates are
adjustable with fluctuations in the "prime" rate. The long-term target
loan-to-deposit ratio is approximately 89%. Management believes this ratio meets
the credit needs of customers while allowing prudent liquidity through the
investment portfolio.
The Bank's commercial loans are primarily underwritten on the basis of
the borrowers' ability to service such debt from income. As a general practice,
the Bank takes as collateral a security interest in any available real estate,
equipment, or other chattel although such loans may also be made on an
uncollateralized basis. Collateralized working capital loans primarily are
collateralized by short-term assets whereas long-term loans are primarily
collateralized by long-term assets.
Consumer loans made by the Bank include automobiles, recreation
vehicles, boats, second mortgages, home improvements, home equity lines of
credit, personal (collateralized and uncollateralized) and deposit account
collateralized loans. Loans to consumers are extended after a credit evaluation,
including the creditworthiness of the borrower, the purpose of the credit, and
the secondary source of repayment. Consumer loans are made at fixed and variable
interest rates and may be made based on up to a ten-year amortization schedule
but which become due and payable in full and are generally refinanced in 36 to
60 months.
1.6 Investments
The primary objective of the Bank's investment portfolio is to develop
a mixture of investments with maturities and compositions so as to earn an
acceptable rate of return while meeting the liquidity requirements of the Bank.
This is accomplished by matching the maturity of assets with liabilities to the
greatest extent possible.
The Bank invests primarily in obligations guaranteed by the U.S.
government and government sponsored agencies. The Bank also enters into federal
funds transactions through its principal correspondent banks and anticipates
that it will be a net seller of funds. All investments with a maturity in excess
of one year are generally readily salable on the open market.
1.7 Employees
As of December 31, 1999, the Bank and the Company had 19 full-time
employees.
1.8 Data Processing
The Bank currently has an agreement with M&I Data Services to provide
its core processing and certain customer products. The Company believes that M&I
Data Services will be able to provide state-of-the-art data processing and
customer service-related processing at a competitive price to support the
Company's future growth.
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ITEM 2 PROPERTIES
The Company leases 5,000 square feet of office space for its
headquarters in downtown Jacksonville. The five year lease calls for rent of $18
per square foot including common area maintenance fees and is subject to annual
rent increases of 4%.
On June 11, 1998, the Company purchased branch office quarters located
at 10325 San Jose Boulevard, Jacksonville, Florida and expanded the location
from 2,777 square feet to 3,015 square feet, with three drive-through teller
stations. The purchase price was $587,500 and the cost of renovation was
approximately $500,000.
On April 23, 1998, the Company entered into a lease agreement to lease
the Bank's temporary quarters at 13245 Atlantic Boulevard, Suite 5,
Jacksonville, Florida 32225. The five year lease calls for rent of $1,864 per
month plus common area maintenance fees.
On January 28, 2000, the Company purchased land to relocate its branch
on Atlantic Boulevard at Girven Road for a purchase price of $600,000. The
construction of the free-standing branch is under contract for $521,750 and is
expected to be completed by June 15, 2000.
ITEM 3 LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Bank or
the Company is a party of which any of their properties are subject; nor are
there material proceedings known to the Bank to be contemplated by any
governmental authority; nor are there material proceedings known to the Bank,
pending or contemplated, in which any director, officer, affiliate or any
principal security holder of the Bank or the Company, or any associate of any of
the foregoing is a party or has an interest adverse to the Bank or the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
EXECUTIVE OFFICERS
Cheryl L. Whalen, age 38, is the Executive President and Chief
Financial Officer for the Company and the Bank. From March 1990 until March
1999, Ms. Whalen was with the O'Neil Companies and Merchants and Southern Bank
in Gainesville, Florida; initially as Senior Vice President and Cashier, and
later as Executive Vice President and Chief Financial Officer. Ms. Whalen has a
Certified Internal Auditor designation and is a graduate of Florida State
University, where she received her Bachelor of Science Degree in Accounting.
Scott M. Hall, age 35, is Senior Vice President and Senior Loan Officer
of Commercial Banking. Mr. Hall has 13 years of experience in the financial
services industry. Prior to joining the Bank, he was employed with First Union
National Bank of Jacksonville for 8 years as Vice President/Commercial Banking
Relationship Manager. His community activities include the Jacksonville Chamber
of Commerce and Habitat for Humanity, and he is a member of the Clay County
General Government Committee. Mr. Hall is a graduate of the University of North
Florida, where he received his Bachelors of Business Administration Degree in
Finance.
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PART II
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ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company's common stock, $.01 par value (the "Common Stock") began
trading on the over-the-counter Bulletin Board on September 13, 1999 at $10.50
per share.
The following shows the high and low bid prices as reported on the
over-the-counter Bulletin Board for each quarter since September 13, 1999. The
prices quoted reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
High Low
Third Quarter 1999 $10.50 $10
Fourth Quarter 1999 $10.50 $8 5/8
The total number of holders of record of Common Stock as of March 10,
2000 was approximately 250. The Common Stock closed at $10.50 on that date.
Due to the fact that the Company and the Bank are both start-up
operations, it is the policy of the Board of Directors of the Company to
reinvest earnings for such period of time as is necessary to ensure the
successful operations of the Company and of the Bank. There are no current plans
to initiate payment of cash dividends, and future dividend policy will depend on
the Bank's earnings, capital requirements, financial condition and other factors
considered relevant by the Board of Directors of the Company.
The Company's ability to pay dividends on the Common Stock depends
significantly on the ability of the Bank to pay dividends to the Company in
amounts sufficient to service its obligations. Such obligations may include an
obligation to make any payments with respect to securities issued in the future
which have an equal or greater dividend preference to the Bank's common stock.
The Company may also issue additional capital stock or incur indebtedness.
In addition, the Bank will be restricted in its ability to make capital
distributions to the Company under Florida banking laws and by regulations of
the Department. All dividends must be paid out of current net profits then on
hand plus retained net profits of the preceding two years, after deducting bad
debts, depreciation and other worthless assets, and after making provision for
reasonably anticipated future losses on loans and other assets. A state bank may
not declare a dividend which would cause the capital accounts of a bank to fall
below the minimum amount required by law, regulation, order or any written
agreement with the Department or any Federal regulatory agency.
On February 9, 1999, the Company commenced its initial public offering
for a minimum of 800,000 shares and a maximum of 1,500,000 shares of Common
Stock. The shares of Common Stock sold in the Offering were registered under the
Securities Act of 1933, as amended (the "Securities Act"), on a Registration
Statement on Form SB-2, which was declared effective with the Securities and
Exchange Commission on September 30, 1998, Registration No. 333-64815 (the
"Registration Statement"). The Company registered 1,500,000 shares under the
Registration Statement. The Company engaged Keefe, Bruyette & Woods, Inc.
("KBW"), registered broker-dealer, to act as sales agent to the Company with
respect to the Offering. KBW agreed to use its best efforts to solicit
subscriptions and purchase orders for shares of Common Stock in the offering.
Neither KBW nor any selected broker-dealer had any obligation to take or
purchase any shares of Common Stock in the offering.
13
<PAGE>
The Company sold 1,017,066 shares during 1999 for an aggregate of $10.2
million. The price per share was $10. The offering closed on July 30, 1999 and
the remaining shares were deregistered. The Company incurred offering costs of
$455,283 consisting of the actual expenses incurred and shown on the table
below. After deducting the offering costs, the net proceeds to the Company were
$9,715,377.
SEC registration fee $ 4,425
Financial Advisor Fees $ 15,000
Sales Agent Payments $ 284,191
Printing and engraving expenses $ 46,291
Escrow fees $ 2,500
Blue Sky registration $ 14,542
Legal fees and expenses $ 53,107
Accounting fees and expenses $ 23,811
Miscellaneous $ 11,416
-----------
Total $ 455,283
Part of the proceeds were used to pay an advisory fee of $150,000 plus
expenses, to McAllen Capital Partners, Inc. This is in addition to the $15,000
of Financial Advisor Fees, as indicated above. John W. Rose, who is a Director
of the Company, is the President of McAllen Capital Partners, Inc.
During the period from the effectiveness of the Registration Statement
until December 31, 1999, the Company initially used the proceeds from the
offering as shown in the following table:
Repayment of Debt Incurred in Organization $ 2,059,000
Purchase of common stock of Bank $ 6,612,298
Reimbursement from Bank for Fixed Assets Purchased ($ 1,319,097)
Offering Expenses $ 455,283
Cash, investments and other assets $ 2,363,176
--------------
Total uses of capital $10,170,660
The Organization expenses include repayment of a revolving line of
credit of $450,000 at an interest rate of Prime minus 1% percent, a promissory
note payable to a Director of $150,000 at an interest rate of 8.5% and an
unsecured line of credit from Columbus Bank and Trust Company for $134,000. On
July 11, 1998, the Company borrowed $625,000 for the acquisition of the Bank's
office on San Jose Boulevard; $450,000 on December 1, 1998, to renovate such
office, and $250,000 on October 5, 1998, for the purpose of purchasing
equipment, furniture and fixtures. These loans matured March 24, 1999, March 24,
1999, and February 16, 1999, respectively, and required interest-only payments
until maturity. The primary use of these funds was to lend money to customers of
the Bank and for income producing investments. Any working capital not invested
in commercial loans is maintained in cash, over-night repurchase agreements
and/or short-term liquid investments which are the obligations of the U.S.
Treasury. The income from loans and investments have been used to pay general
operating expenses of the Bank. To the extent that income from the Bank's
operations is insufficient to pay operating expenses, operating expenses will be
paid from the liquidation of investments.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
SELECTED FINANCIAL DATA
At December 31, or for the Year then Ended
(Dollars in thousands, except per share figures)
1999 1998
----------- -----------
At Year End:
<S> <C> <C>
Cash and cash equivalents ............................................................ $ 1,479 29
Securities ........................................................................... 2,005 --
Loans, net ........................................................................... 7,968 --
All other assets ..................................................................... 3,116 1,602
----------- -----------
Total assets ................................................................ $ 14,568 1,631
=========== ===========
Deposit accounts ..................................................................... 6,012 --
All other liabilities ................................................................ 317 1,956
Stockholders' equity (deficit) ....................................................... 8,239 (325)
----------- -----------
Total liabilities and stockholders' equity .................................. $ 14,568 1,631
=========== ===========
For the Year:
Total interest income ................................................................ 398 2
Total interest expense ............................................................... 102 30
----------- -----------
Net interest income (expense) ........................................................ 296 (28)
Provision for loan losses ............................................................ 81 --
----------- -----------
Net interest income (expense) after provision for loan losses ........................ 215 (28)
----------- -----------
Noninterest income ................................................................... 55 26
Noninterest expenses ................................................................. 2,078 458
----------- -----------
Loss before income tax benefit ....................................................... (1,808) (460)
Income tax benefit ................................................................... (685) (173)
----------- -----------
Net loss ............................................................................. $ (1,123) 287
=========== ===========
Basic and diluted loss per share ..................................................... $ (1.84) --
=========== ===========
Ratios and Other Data:
Return on average assets ............................................................. (12.35)% --
Return on average equity ............................................................. (20.26)% --
Average equity to average assets ..................................................... 60.96% --
Interest-rate spread during the period ............................................... 1.46% --
Net yield on average interest-earning assets ......................................... 4.90% --
Noninterest expenses to average assets ............................................... 22.87% --
Ratio of average interest-earning assets to average
interest-bearing liabilities ................................................ 3.04 --
Nonperforming loans and foreclosed real estate as a percentage of
total assets at end of year ................................................. -- --
Allowance for credit losses as a percentage
of total loans at end of year ............................................... 1.00% --
Total number of banking offices ...................................................... 3 --
Total shares outstanding at end of year (1) .......................................... 1,017,066 --
Book value per share at end of year .................................................. $ 8.10 --
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
General
Jacksonville Bancorp, Inc. (the "Holding Company") was incorporated on October
24, 1997. The Holding Company owns 100% of the outstanding common stock of The
Jacksonville Bank (the "Bank") (collectively, the "Company"). The Holding
Company was organized simultaneously with the Bank and its primary business is
the ownership and operation of the Bank. The Bank is a Florida state-chartered
commercial bank and its deposits are insured by the FDIC . The Bank opened for
business on May 28, 1999, and provides a variety of community banking services
to businesses and individuals in Duval County, Florida.
Liquidity and Capital Resources
A state-chartered commercial bank is required to maintain a liquidity reserve of
at least 15% of its total transaction accounts and 8% of its total
nontransaction accounts subject to certain restrictions. The reserve may consist
of cash-on-hand, demand deposits due from correspondent banks, and other
investments and short-term marketable securities. At December 31, 1999, the Bank
exceeded its regulatory liquidity requirements.
The Company's primary source of cash during the year ended December 31, 1999 was
from net deposit inflows of $6.0 million and net proceeds from the sale of its
common stock of $9.7 million. Cash was used primarily to originate loans and
purchase securities. At December 31, 1999, the Company had outstanding
commitments to originate loans totaling $3.3 million and commitments to
borrowers for available lines of credit totaling $2.9 million.
Regulation and Legislation
As a state-chartered commercial bank, the Bank is subject to extensive
regulation by the Department and the FDIC. The Bank files reports with the
Department and the FDIC concerning its activities and financial condition, in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with or acquisitions of other financial
institutions. Periodic examinations are performed by the Department and the FDIC
to monitor the Bank's compliance with the various regulatory requirements. The
Holding Company and the Bank, as a wholly-owned subsidiary, are also subject to
regulation and examination by the Federal Reserve Board of Governors.
Year 2000 Compliance
The Company's operating and financial systems have been found to be compliant;
the "Y2K Problem" has not adversely affected the Company's operations nor does
management expect that it will. The Company did not spend any significant amount
of money during 1999 to ensure that its systems were Y2K compliant, other than
time spent by salaried employees working on Y2K issues.
Credit Risk
The Company's primary business is making commercial, business, consumer, and
real estate loans. That activity entails potential loan losses, the magnitude of
which depend on a variety of economic factors affecting borrowers which are
beyond the control of the Company. While the Company has instituted underwriting
guidelines and credit review procedures to protect the Company from avoidable
credit losses, some losses will inevitably occur. At December 31, 1999, the
Company had no nonperforming assets or loans delinquent 90 days or more, and has
no charge-off experience.
16
<PAGE>
The following table presents information regarding the Company's total allowance
for losses as well as the allocation of such amounts to the various categories
of loans (dollars in thousands):
At December 31, 1999
Loans
To
Total
Amount Loans
Commercial real estate loans .............. $26 32.4%
Residential real estate loans ............. 26 31.8
Commercial loans .......................... 21 26.0
Consumer and other loans .................. 8 9.8
--- ------
Total allowance for loan losses ........... $81 100.0%
=== ======
Allowance for credit losses as a percentage
of the total loans outstanding ......... 1.00%
======
Loan Portfolio Composition
Commercial real estate loans comprise the largest group of loans in the
Company's portfolio amounting to $2.6 million, or 32.4% of the total loan
portfolio as of December 31, 1999. Residential real estate loans comprise the
second largest group of loans in the Company's loan portfolio, amounting to $2.5
million or 31.5% of the total loan portfolio as of December 31, 1999. As of
December 31, 1999, commercial loans amounted to $2.1 million or 26.3% of the
total loan portfolio. The following table sets forth the composition of the
Company's loan portfolio:
At December 31, 1999
% of
Amount Total
------- -----
($ in thousands)
Commercial real estate ................................ $ 2,613 32.4%
Residential real estate ............................... 2,567 31.8
Commercial ............................................ 2,092 26.0
Consumer .............................................. 788 9.8
------- -----
8,060 100.0%
=====
Less:
Allowance for loan losses ............................. (81)
Net deferred fees ..................................... (11)
-----
Loans, net ............................................ $ 7,968
=====
17
<PAGE>
Securities
The securities portfolio is comprised of U.S. Government agency securities and a
State of Israel Bond. According to Financial Accounting Standards No. 115, the
securities portfolio is categorized as either "held to maturity", "available for
sale" or "trading". Securities held to maturity represent those securities which
the Company has the positive intent and ability to hold to maturity. Securities
available for sale represent those investments which may be sold for various
reasons including changes in interest rates and liquidity considerations. These
securities are reported at fair market value and unrealized gains and losses are
excluded from operations and reported in other comprehensive income (loss).
Trading securities are held primarily for resale and are recorded at their fair
values. Unrealized gains or losses on trading securities are included
immediately in earnings. At December 31, 1999, the Company had no securities
categorized as trading.
The following table sets forth the amortized costs and fair value of the
Company's securities portfolio:
At December 31, 1999
Amortized Fair
Cost Value
Securities available for sale-
U.S. Government agency securities.. $ 2,000,000 1,955,221
========= =========
Security held to maturity-
State of Israel Bond...... $ 50,000 50,000
========= ==========
The following table sets forth, by maturity distribution, certain information
pertaining to the securities (dollars in thousands):
<TABLE>
Available for Sale Held to Maturity
Carrying Average Carrying Average
Value Yield Value Yield
<S> <C> <C> <C>
Due after one year through five years $1,476 6.4% $ - -- %
Due after five through ten years .... -- -- 50 7.5
Due after ten years ................. 479 7.7 - --
---- ---
Total ........................... $1,955 6.7% $ 50 7.5%
===== ==== === ===
</TABLE>
Regulatory Capital Requirements
The Bank is required to meet certain minimum regulatory capital requirements.
This is not a valuation allowance and has not been created by charges against
earnings. It represents a restriction on stockholders' equity. Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and percentages (set forth in the table below) of
total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to
average assets (as each of such terms is defined in the regulations). Management
believes, as of December 31, 1999, that the Bank meets all capital adequacy
requirements to which it is subject.
<TABLE>
To Be Well
Capitalized
Minimum for Purposes
For Capital of Prompt and
Actual Adequacy Purposes: Corrective Action
Amount % Amount % Amount %
------ --- ------ --- ------ ----
(dollars in thousands)
Total capital (to Risk-
<S> <C> <C> <C> <C> <C> <C>
Weighted Assets) ............................... $ 6,102 58.1% $ 840 8.0% $1,050 10.0%
Tier I Capital (to Risk-
Weighted Assets) ............................... 6,022 57.3 420 4.0 630 6.0
Tier I Capital
(to Average Assets) ............................ 6,022 46.2 521 4.0 651 5.0
</TABLE>
18
<PAGE>
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest-rate risk inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages its interest-rate risk exposure. The measurement of market
risk associated with financial instruments is meaningful only when all related
and offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 7 of Notes to Consolidated Financial Statements.
The Company's primary objective in managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Bank's net interest
income and capital, while adjusting the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest-rate risk.
However, a sudden and substantial change in interest rates may adversely impact
the Company's earnings, to the extent that the interest rates borne by assets
and liabilities do not change at the same speed, to the same extent, or on the
same basis. The Company does not engage in trading activities.
Asset - Liability Structure
As part of its asset and liability management, the Company has emphasized
establishing and implementing internal asset-liability decision processes, as
well as communications and control procedures to aid in managing the Company's
earnings. Management believes that these processes and procedures provide the
Company with better capital planning, asset mix and volume controls,
loan-pricing guidelines, and deposit interest-rate guidelines which should
result in tighter controls and less exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest-rate sensitivity
gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period.
The gap ratio is computed as rate sensitive assets less rate sensitive
liabilities as a percentage of total assets. A gap is considered positive when
the amount of interest-rate sensitive assets exceeds interest-rate sensitive
liabilities. A gap is considered negative when the amount of interest-rate
sensitive liabilities exceeds interest-rate sensitive assets. During a period of
rising interest rates, a negative gap would adversely affect net interest
income, while a positive gap would result in an increase in net interest income.
During a period of falling interest rates, a negative gap would result in an
increase in net interest income, while a positive gap would adversely affect net
interest income.
In order to minimize the potential for adverse effects of material and prolonged
changes in interest rates on the results of operations, the Company's management
continues to monitor asset and liability management policies to better match the
maturities and repricing terms of its interest-earning assets and
interest-bearing liabilities. Such policies have consisted primarily of: (i)
emphasizing the origination of adjustable-rate loans; (ii) maintaining a stable
core deposit base; and (iii) maintaining a significant portion of liquid assets
(cash and short-term securities).
19
<PAGE>
The following table sets forth certain information relating to the Company's
interest-earning assets and interest-bearing liabilities at December 31, 1999
that are estimated to mature or are scheduled to reprice within the period shown
(dollars in thousands):
<TABLE>
More
Than More
Less Three Than Six More
Than Months Months Than One More Than Over
Three to Six to One Year to Five Years Ten
Months Months Year Five Years to Ten Years Years Total
------- ------ ------- ---------- ------------ ------ -------
Loans (1):
<S> <C> <C> <C>
Variable rate .................... $4,190 -- 211 -- -- -- 4,401
Fixed rate ....................... 67 79 174 1,985 839 515 3,659
------ ------ ------ ------ ------ ------ ------
Total loans ................. 4,257 79 385 1,985 839 515 8,060
Federal funds sold ................... 32 -- -- -- -- -- 32
Securities (2) ....................... -- -- -- 1,476 50 479 2,005
------ ------ ------ ------ ------ ------ ------
Total rate-sensitive assets . 4,289 79 385 3,461 889 994 10,097
------ ------ ------ ------ ------ ------ ------
Deposit accounts (3):
Savings and NOW deposits ......... 849 -- -- -- -- -- 849
Money market deposits ............ 2,689 -- -- -- -- -- 2,689
Time deposits .................... 121 249 54 7 -- -- 431
------ ------ ------ ------ ------ ------ ------
Total rate-sensitive
liabilities ............. 3,659 249 54 7 -- -- 3,969
====== ====== ====== ====== ====== ====== ======
GAP repricing differences ............ $ 630 (170) 331 3,454 889 994 6,128
====== ====== ====== ====== ====== ====== ======
Cumulative GAP ....................... 630 460 791 4,245 5,134 6,128
====== ====== ====== ====== ====== ======
Cumulative GAP/total assets .......... 4.3% 3.2% 5.4% 29.1% 35.2% 42.1%
====== ====== ====== ====== ====== ======
<FN>
(1) In preparing the table above, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather than
in the period in which the loans mature. Fixed-rate loans are scheduled,
including repayment, according to their maturities.
(2) Securities are scheduled through the maturity dates.
(3) Money-market, NOW, and savings deposits are regarded as ready accessible
withdrawable accounts. Time deposits are scheduled through the maturity
dates.
</FN>
</TABLE>
20
<PAGE>
The following table reflects the contractual principal repayments by period of
the Company's loan portfolio at December 31, 1999 (in thousands):
<TABLE>
Commercial
Real Residential
Years Ending Estate Mortgage Commercial Consumer
December 31, Loans Loans Loans Loans Total
<S> <C> <C> <C> <C> <C>
2000 ........................................ $ 629 24 1,434 328 2,415
2001 ........................................ 235 29 -- 112 376
2002 ........................................ 296 31 -- 193 520
2003 ........................................ 194 33 -- 73 300
2004 ........................................ 420 33 634 41 1,128
2005-2009 ................................... 713 1,831 -- 41 2,555
2010 and beyond ............................. 126 586 54 -- 766
------ ------ -------- ------ ------
Total ....................................... $2,613 2,567 2,092 788 8,060
====== ====== ======== ====== ======
</TABLE>
Of the $5.6 million of loans due after 2000, 59% of such loans have fixed
interest rates and 41% have adjustable interest rates.
Scheduled contractual principal repayments of loans do not reflect the actual
life of such assets. The average life of loans is substantially less than their
average contractual terms due to prepayments. In addition, due-on-sale clauses
on loans generally give the Company the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan rates are substantially higher than rates on existing mortgage loans and,
conversely, decrease when rates on existing mortgages are substantially higher
than current mortgage loan rates.
Origination, Sale and Repayment of Loans. The Company generally originates loans
in its primary geographical lending area in Northeast Florida. The following
table sets forth total loans originated and repaid:
Year Ended
December 31, 1999
(in thousands)
Originations:
Commercial loans.......................... $ 5,171
Commercial real estate loans.............. 2,617
Residential mortgage loans................ 3,320
Consumer loans............................ 1,078
------
Total loans originated................ 12,186
Less -
Principal reductions...................... 4,126
------
Increase in total loans................... $ 8,060
======
21
<PAGE>
Deposits and Other Sources of Funds
General. In addition to deposits, the sources of funds available for lending and
other business purposes include loan repayments, loan sales, and securities sold
under agreements to repurchase. Loan repayments are a relatively stable source
of funds, while deposit inflows and outflows are influenced significantly by
general interest rates and money market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in other sources, such as deposits
at less than projected levels.
Deposits. Deposits are attracted principally from the Company's primary
geographic market areas in Duval County, Florida. The Company offers a broad
selection of deposit instruments including demand deposit accounts, NOW
accounts, money market accounts, regular savings accounts, term certificate
accounts and retirement savings plans (such as IRA accounts). Certificate of
deposit rates are set to encourage longer maturities as cost and market
conditions will allow. Deposit account terms vary, with the primary differences
being the minimum balance required, the time period the funds must remain on
deposit and the interest rate.
The Company has emphasized commercial banking relationships in an effort to
increase demand deposits as a percentage of total deposits.
Management sets the deposit interest rates weekly based on a review of deposit
flows for the previous week and a survey of rates among competitors and other
financial institutions in Florida.
The following table shows the distribution of, and certain other information
relating to, the Company's deposit accounts by type (dollars in thousands):
<TABLE>
At December 31, 1999
% of
Amount Deposits
<S> <C> <C>
Demand deposits ........................................................................................ $2,043 34.0%
Savings and NOW deposits ............................................................................... 849 14.1
Money-market deposits .................................................................................. 2,689 44.7
------ -----
Subtotal ...................................................................................... 5,581 92.8
------ -----
Certificate of deposits:
3.00% - 3.99% ................................................................................. 75 1.3
4.00% - 4.99% ................................................................................. 161 2.7
5.00% - 5.99% ................................................................................. 195 3.2
------ -----
Total certificates of deposit (1) ..................................................................... 431 7.2
------ -----
Total deposits ......................................................................................... $6,012 100.0%
====== =====
<FN>
(1) Includes individual retirement accounts ("IRAs") totaling $67 at
December 31, 1999, all of which are in the form of certificates of deposit.
</FN>
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows (in thousands):
At December 31, 1999
Due over three months to six months... 100
---
$ 100
===
22
<PAGE>
Results of Operations
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities, consisting
primarily of deposits. Net interest income is determined by the difference
between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest-rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. The Company's
interest-rate spread is affected by regulatory, economic, and competitive
factors that influence interest rates, loan demand, and deposit flows. In
addition, the Company's net earnings are also affected by the level of
nonperforming loans and foreclosed real estate, as well as the level of its
noninterest income, and its noninterest expenses, such as salaries and employee
benefits, occupancy and equipment costs and income taxes.
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yield; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average costs; (iii) net interest/dividend income; (iv) interest rate spread;
(v) net interest margin. Average balances are based on average daily balances.
<TABLE>
1999
Interest Average
Average and Yield/
Balance Dividends Rate
Interest-earning assets:
<S> <C> <C> <C>
Loans .......................................................................... $1,696 158 9.32%
Securities ..................................................................... 1,024 68 6.64
Other interest-earning assets (1) .............................................. 3,320 172 5.18
------ ----
Total interest-earning assets .............................................. 6,040 398 6.59
----
Noninterest-earning assets .......................................................... 3,051
------
Total assets ............................................................... $9,091
======
Interest-bearing liabilities:
Savings and NOW deposits ....................................................... 359 10 2.79
Money market deposits .......................................................... 896 38 4.24
Time deposits .................................................................. 194 9 4.64
Other borrowings ............................................................... 538 45 8.36
------ ----
Total interest-bearing liabilities ......................................... 1,987 102 5.13
----
Noninterest-bearing deposits ........................................................ 1,327
Noninterest-bearing liabilities ..................................................... 235
Stockholders' equity ................................................................ 5,542
------
Total liabilities and
stockholders' equity ..................................................... $9,091
======
Net interest/dividend income ........................................................ $ 296
====
Interest-rate spread (2) ............................................................ 1.46%
====
Net interest margin (3) ............................................................. 4.90%
====
Ratio of average interest-earning assets to
average interest-bearing liabilities ........................................... 3.04
====
<FN>
(1) Includes interest-bearing deposits and federal funds sold.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
</FN>
</TABLE>
23
<PAGE>
Years Ended December 31, 1999
General. Net loss for the year ended December 31, 1999 was $1,123,333 or
$1.84 per basic and diluted share. During the year ended December 31,
1999, the Bank had not achieved the average asset size necessary to
operate profitably.
Interest Income and Expense. Interest income totaled $398,003 for the year
ended December 31, 1999. Interest earned on loans was $158,145. The
average loan portfolio balance for the year ended December 31, 1999 was
$1.7 million and the weighted average yield was 9.32%.
Interest on securities was $67,714. The average investment securities
portfolio was $1.0 million with a weighted-average yield of 6.64%.
Interest on federal funds sold and deposits in banks totaled $172,144.
The average balance of these assets was $3.3 million with a weighted
average yield of 5.18%.
Interest expense on deposit accounts amounted to $57,319 for the year
ended December 31, 1999. The weighted-average cost of interest-earning
deposits was 3.9%. Interest on other borrowings amounted to $44,876 for
the year ended December 31, 1999 and the weighted-average cost of other
borrowings was 8.36%.
Provision for Loan Losses. The provision for loan losses is charged to
earnings to bring the total allowance to a level deemed appropriate by
management and is based upon the volume and type of lending conducted
by the Company, industry standards, the amount of nonperforming loans
and general economic conditions, particularly as they relate to the
Company's market areas, and other factors related to the collectibility
of the Company's loan portfolio. The provision for the year ended
December 31, 1999 was $80,485. Management believes that the allowance
for loan of $80,485 at December 31, 1999 is adequate.
Other Expense. Other expense totaled $2,078,727 for the year ended
December 31, 1999. Compensation and benefits was the largest,
amounting to $1,034,396.
Income Taxes. The Company recognized an income tax benefit as well as a
deferred tax asset because management believes it is more likely than
not the Company will be able to generate taxable income in the future
to offset these amounts.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with GAAP, which requires the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Bank's performance than the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
Future Accounting Requirements
SFAS 133 - Accounting for Derivative Investments and Hedging Activities requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivatives
and whether they qualify for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. The Company will be
required to adopt this SFAS January 1, 2001. Management does not anticipate that
this SFAS will have a material impact on the Company.
24
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
Board of Directors
Jacksonville Bancorp, Inc.
Jacksonville, Florida:
We have audited the accompanying consolidated balance sheets of
Jacksonville Bancorp, Inc. and Subsidiary (the "Company") at December 31, 1999
and 1998, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for the years then ended. These
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 the Company
at December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
February 25, 2000
25
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
December 31,
1999 1998
--------- -------
Assets
<S> <C> <C>
Cash and due from banks .................................................. $ 1,446,648 29,186
Federal funds sold ....................................................... 32,000 --
--------- -------
Total cash and cash equivalents ............................ 1,478,648 29,186
Securities available for sale ............................................ 1,955,221 --
Securities held to maturity .............................................. 50,000 --
Loans, net of allowance for loan losses of $80,485 ....................... 7,967,853 --
Accrued interest receivable .............................................. 104,288 --
Premises and equipment, net .............................................. 1,996,782 1,334,288
Deferred income taxes .................................................... 874,167 172,494
Other assets ............................................................. 141,308 95,293
--------- -------
Total assets ............................................... $ 14,568,267 1,631,261
========== =======
Liabilities and Stockholders' Equity (Deficit)
Liabilities:
Noninterest-bearing demand deposits .................................. 2,042,688 --
Savings and NOW deposits ............................................. 849,496 --
Money-market deposits ................................................ 2,689,388 --
Time deposits ........................................................ 430,758 --
--------- -------
Total deposits ............................................. 6,012,330 --
Other borrowings ..................................................... -- 1,615,000
Accrued interest payable and other liabilities ....................... 316,904 341,343
--------- ---------
Total liabilities .......................................... 6,329,234 1,956,343
--------- ---------
Commitments and contingencies (Notes 4, 7, 11 and 17)
Stockholders' equity (deficit):
Preferred stock, $.01 value; 2,000,000 shares authorized,
none issued or outstanding in 1999 or 1998 ...................... -- --
Common stock, $.01 par value; 8,000,000 shares authorized,
1,017,066 shares issued and outstanding in 1999 and none in 1998 10,171 --
Additional paid-in capital ........................................... 9,705,206 --
Accumulated deficit .................................................. (1,448,415) (325,082)
Accumulated other comprehensive income (loss) ........................ (27,929) --
--------- -------
Total stockholders' equity (deficit) ....................... 8,239,033 (325,082)
--------- -------
Total liabilities and stockholders' equity (deficit) ...... $ 14,568,267 1,631,261
=========== =========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
26
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Operations
Year Ended December 31,
1999 1998
-------- ------
Interest income:
<S> <C> <C>
Loans receivable ...................................................... $ 158,145 --
Securities .............................................................. 67,714 --
Other interest-earning assets ........................................... 172,144 1,928
-------- ------
Total interest income ......................................... 398,003 1,928
-------- ------
Interest expense:
Deposits ................................................................ 57,319 --
Other borrowings ........................................................ 44,876 29,582
-------- ------
Total interest expense ........................................ 102,195 29,582
-------- ------
Net interest income (expense) ................................. 295,808 (27,654)
Provision for loan losses ................................................... 80,485 --
-------- ------
Net interest income (expense) after provision for loan losses . 215,323 (27,654)
-------- ------
Noninterest income:
Service charges on deposit accounts ..................................... 30,050 --
Other .................................................................. 25,198 25,750
-------- ------
Total noninterest income ...................................... 55,248 25,750
-------- ------
Noninterest expense:
Salaries and employee benefits .......................................... 1,034,396 291,850
Occupancy expense ....................................................... 204,898 37,195
Professional fees ....................................................... 389,623 38,017
Data processing ......................................................... 122,073 --
Travel and entertainment ................................................ 89,102 23,333
Printing and office supplies ............................................ 45,167 5,251
Telephone expenses ...................................................... 32,359 8,854
Advertising ............................................................. 27,057 --
Other ................................................................... 134,052 53,580
--------- ------
Total noninterest expense ..................................... 2,078,727 458,080
--------- -------
Loss before income tax benefit .............................................. (1,808,156) (459,984)
Income tax benefit ............................................ (684,823) (172,494)
--------- -------
Net loss .................................................................... $(1,123,333) (287,490)
========= =======
Loss per share, basic and diluted............................................ $ (1.84) --
========= =======
Weighted-average number of common shares outstanding for basic and diluted .. 610,365 --
========= =======
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
27
<PAGE>
<TABLE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Accumulated Total
Additional Other Stockholders'
Preferred Common Paid-In Accumulated Comprehensive Equity
Stock Stock Capital Deficit Income(Loss) (Deficit)
-------- ------ -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 .. $ -- -- -- (37,592) -- (37,592)
Net loss ...................... -- -- -- (287,490) -- (287,490)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 .. -- -- -- (325,082) -- (325,082)
-----------
Comprehensive income:
Net loss ...................... -- -- -- (1,123,333) -- (1,123,333)
Change in unrealized loss
on securities available
for sale, net of tax
of $16,850 .................. -- -- -- -- (27,929) (27,929)
-----------
Comprehensive income
(loss) ...................... (1,151,262)
-----------
Issuance of 1,017,066 shares of
common stock, net of offering
expenses of $455,283 .......... -- 10,171 9,705,206 -- -- 9,715,377
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 .. $ -- 10,171 9,705,206 (1,448,415) (27,929) 8,239,033
=========== =========== =========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
28
<PAGE>
<TABLE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Year Ended December 31,
1999 1998
----------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net loss.................................................................... $ (1,123,333) (287,490)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .......................................... 81,017 --
Provision for loan losses .............................................. 80,485 --
Credit for deferred income taxes ....................................... (684,823) (172,494)
Increase in accrued interest receivable ................................ (104,288) --
Increase in other assets ............................................... (46,015) (95,293)
(Decrease) increase in accrued interest payable and other liabilities .. (24,439) 339,218
----------- -----------
Net cash used in operating activities ......................... (1,821,396) (216,059)
----------- -----------
Cash flows from investing activities:
Purchases of securities available for sale .................................. (2,000,000) --
Purchases of securities held to maturity .................................... (50,000) --
Net increase in loans ....................................................... (8,048,338)
Purchases of premises and equipment ......................................... (743,511) (1,334,288)
----------- -----------
Net cash used in investing activities ......................... (10,841,849) (1,334,288)
----------- -----------
Cash flows from financing activities:
Net increase in deposits .................................................... 6,012,330 --
Net (decrease) increase in other borrowings ................................. (1,615,000) 1,465,000
Net proceeds from sale of common stock ...................................... 9,715,377 --
----------- -----------
Net cash provided by financing activities ..................... 14,112,707 1,465,000
----------- -----------
Net increase (decrease) in cash and cash equivalents ............................ 1,449,462 (85,347)
Cash and cash equivalents at beginning of year .................................. 29,186 114,533
----------- -----------
Cash and cash equivalents at end of year ......................................$ 1,478,648 29,186
=========== ===========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest ...............................................................$ 123,382 34,933
=========== ===========
Income taxes........................................................... $ -- --
=========== ===========
Noncash transaction -
Accumulated other comprehensive income (loss), change in unrealized
Loss on securities available for sale, net of tax ......................$ (27,929) --
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
29
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) Summary of Significant Accounting Policies
Organization. Jacksonville Bancorp, Inc. (the "Holding Company") was
incorporated on October 24, 1997 in the State of Florida. The Holding
Company is a one-bank holding company and owns 100% of the outstanding
shares of The Jacksonville Bank (the "Bank") (together, the "Company").
The Holding Company's only business is the ownership and operation of
the Bank. The Bank is a state (Florida)-chartered commercial bank which
opened for business May 28, 1999. Its deposits are insured by the
Federal Depository Insurance Corporation. The Bank provides a variety
of community banking services to businesses and individuals through its
three offices in Jacksonville, Florida. The Company's fiscal year ends
December 31.
Basis of Presentation. The accompanying consolidated financial statements of
the Company include the accounts of the Holding Company and the Bank.
All significant intercompany accounts and transactions have been
eliminated in consolidation. The accounting and reporting practices of
the Company conform to generally accepted accounting principles and to
general practices within the banking industry.
Use of Estimates. In preparing consolidated financial statements in
conformity with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance sheet
and 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 in
the near term relate to the determination of the allowance for loan
losses and deferred tax assets.
Cash and Cash Equivalents. For purposes of the consolidated statements of
cash flows, cash and cash equivalents include cash and balances due
from banks and federal funds sold all of which mature within ninety
days.
Securities. The Company may classify its securities as either trading, held
to maturity or available for sale. Trading securities are held
principally for resale and recorded at their fair values. Unrealized
gains and losses on trading securities are included immediately in
earnings. Held-to-maturity securities are those which the Company has
the positive intent and ability to hold to maturity and are reported at
amortized cost. Available-for-sale securities consist of securities not
classified as trading securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are excluded from operations and reported in other
comprehensive income (loss). Gains and losses on the sale of
available-for-sale securities are recorded on the trade date and are
determined using the specific-identification method. Premiums and
discounts on securities are recognized in interest income using the
interest method over the period to maturity.
Loans Receivable. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or
costs on originated loans and unamortized premiums or discounts on
purchased loans.
Loan origination fees are deferred and certain direct origination costs
are capitalized, both are recognized as an adjustment of the yield of
the related loan.
(continued)
30
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Loans Receivable, Continued. The accrual of interest on loans is
discontinued at the time the loan is ninety days delinquent unless the
loan is well-secured and in process of collection. In all cases, loans
are placed on nonaccrual or charged-off at an earlier date if
collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged-off is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are
reasonably assured.
Allowance for Loan Losses. The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan
losses charged to operations. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan
balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, industry
standards, the nature and volume of the loan portfolio, adverse
situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that
are susceptible to significant revision as more information becomes
available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower's prior
payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan
basis for significant commercial loans by either the present value of
expected future cash flows discounted at the loan's effective interest
rate, the loan's obtainable market price, or the fair value of the
collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately
identify individual consumer and residential loans for impairment
disclosures.
(continued)
31
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Income Taxes. Deferred income tax assets and liabilities are recorded to
reflect the tax consequences on future years of temporary differences
between revenues and expenses reported for financial statement and
those reported for income tax purposes. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be realized or settled. Valuation allowances are provided
against assets which are not likely to be realized.
Premises and Equipment. Land is carried at cost. Building and leasehold
improvements, furniture, fixtures and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line basis over the
estimated useful life of each type of asset. The Company will
capitalize interest during the construction period of major capital
developments such as the construction of office facilities. During the
years ended December 31, 1999 and 1998, the Company capitalized $25,449
and $27,637 in interest expense, respectively.
Stock-Based Compensation. Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, encourages all
entities to adopt a fair value based method of accounting for employee
stock compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. However, it also
allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, whereby compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date (or other
measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the Company's stock option plan have
no intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them. The Company has elected to
continue with the accounting methodology in Opinion No. 25 and, as a
result, has provided proforma disclosures of net loss and loss per
share and other disclosures, as if the fair value based method of
accounting had been applied.
Transfer of Financial Assets. Transfers of financial assets are accounted
for as sales, when control over the assets has been surrendered.
Control over transferred assets is deemed to be surrendered when (1)
the assets have been isolated from the Company, (2) the transferee
obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets,
and (3) the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their
maturity.
Off-Balance-Sheet Instruments. In the ordinary course of business the
Company has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, unused lines of credit and
standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded.
Fair Values of Financial Instruments. The fair value of a financial
instrument is the current amount that would be exchanged between
willing parties, other than in a forced liquidation. Fair value is best
determined based upon quoted market prices. However, in many instances,
there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of
future cash flows. Accordingly, the fair value estimates may not be
realized in an immediate settlement of the instrument. SFAS 107
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Accordingly, the aggregate fair value
amounts presented may not necessarily represent the underlying fair
value of the Company. The following methods and assumptions were used
by the Company in estimating fair values of financial instruments:
Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents
approximate their fair value.
(continued)
32
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Fair Values of Financial Instruments, Continued.
Securities. Fair values for securities held to maturity and available
for sale are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market
prices of comparable instruments.
Loans. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for fixed-rate mortgage (e.g. one-to-four family
residential), commercial real estate and commercial loans are estimated
using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar
credit quality.
Accrued Interest Receivable. Book value approximates fair value.
Deposit Liabilities. The fair values disclosed for demand, NOW,
money-market and savings deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Borrowed Funds. The carrying amounts of other borrowings approximate
their fair values.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Advertising. The Company expenses all media advertising as incurred.
Loss Per Share. Loss per share is calculated by dividing net loss by the
weighted-average number of shares of common stock outstanding during
the year. The Company's common stock equivalents are not dilutive due
to the net losses incurred by the Company.
Future Accounting Requirements. SFAS 133 - Accounting for Derivative
Investments and Hedging Activities requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the
derivatives and whether they qualify for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash
flows. The Company will be required to adopt this SFAS January 1, 2001.
Management does not anticipate that this SFAS will have a material
impact on the Company.
(continued)
33
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Securities
Securities have been classified according to management's intent. The
carrying amount of securities and their approximate fair values at
December 31, 1999 are as follows:
<TABLE>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale -
<S> <C> <C> <C>
U.S. Government agencies ......................... $ 2,000,000 -- (44,779) 1,955,221
============ ========== ======= =========
Held to Maturity -
State of Israel bond ............................. $ 50,000 -- -- 50,000
============ ========== ======= =========
</TABLE>
There were no sales of securities in 1999 or 1998.
The scheduled maturities of securities at December 31, 1999 are as follows:
<TABLE>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C>
Due after one through five years $1,500,000 1,475,962 -- --
Due after five through ten years -- -- 50,000 50,000
Due after ten years ............ 500,000 479,259 -- --
---------- ---------- ---------- ----------
$2,000,000 1,955,221 50,000 50,000
========== ========== ========== ==========
</TABLE>
(3) Loans
The components of loans are as follows:
At December 31, 1999
Commercial real estate...................... $ 2,613,117
Residential real estate...................... 2,567,242
Commercial................................... 2,092,088
Consumer and other........................... 787,389
----------
8,059,836
Less:
Allowance for loan losses................... (80,485)
Net deferred fees.......................... (11,498)
----------
Loans, net................................... $ 7,967,853
==========
(continued)
34
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
An analysis of the change in the allowance for loan losses follows:
Year Ended
December 31, 1999
Beginning balance.............................. $ -
Provision for loan losses...................... 80,485
------
Ending balance................................. $ 80,485
======
The Company had no impaired loans in 1999.
(4) Premises and Equipment
A summary of premises and equipment follows:
At December 31,
1999 1998
----------- -----------
Land.......................................... $ 475,000 475,000
Building and leasehold improvements .......... 694,397 --
Construction in progress ..................... 236,651 432,752
Furniture, fixtures and equipment ............ 671,751 426,536
----------- -----------
Total, at cost ........................... 2,077,799 1,334,288
Less accumulated depreciation and amortization (81,017) --
----------- -----------
Premises and equipment, net .............. $ 1,996,782 1,334,288
=========== ===========
In January 2000, the Company purchased land in Jacksonville, Florida for
$600,000 for a future office site. The Company expects to expend
approximately $522,000 in costs to construct this facility. The Company
intends to sublease its existing facility upon completion of the new
facility.
The Company leases two of its office facilities under operating leases.
Both leases contain annual escalation clauses and have five year terms
with renewal options. Rental expense under these leases was $38,835 and
$21,000 during the years ended December 31, 1999 and 1998,
respectively. Future minimum rental commitments under these
noncancellable leases at December 31, 1999 are as follows (in
thousands) :
Year Ending
December 31, Amount
2000 ............................................ $119
2001 ............................................ 123
2002 ............................................ 128
2003 ............................................ 121
2004 ............................................ 93
----
$584
====
(continued)
35
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Deposits
The total of time deposits with a minimum denomination of $100,000 at
December 31, 1999 was $100,000.
A schedule of maturities of time deposits follows:
Year Ending December 31, Amount
2000................................. $ 424,091
2004................................. 6,667
---------
$ 430,758
=========
(6) Borrowings
In April 1998, the Company obtained a line of credit of $450,000 from a
financial institution at an interest rate of Prime minus 1%. At December
31, 1998, $450,000 was outstanding under this line of credit. These
amounts were used to fund organizational and other costs incurred by the
Company. Amounts outstanding under this line of credit were repaid from
the proceeds of the Company's common stock offering during 1999.
In May 1998, the Company obtained credit availability from another
financial institution, which provided for a short-term line of credit, a
loan for the acquisition of the Bank's main office, and a loan for the
purchase of furniture, fixtures and equipment. The arrangement provided
for: (i) a $250,000 line of credit with interest at prime minus 1/2%,
with an additional $500,000 line of credit, with a term of 180 days;
(ii) a loan of up to $850,000 for the purchase and renovation of the
Bank's main office, with provisions for a first lien on the underlying
real estate and an interest rate of prime minus 1/2%; and, (iii), a loan
of up to $250,000 to purchase furniture, fixtures and equipment, bearing
interest at prime minus 1/2% and a term of 180 days. At December 31,
1998, $1,015,000 was outstanding under this credit facility. Each of
these loans was repaid from the proceeds of the Company's common stock
offering during 1999.
The Company also had a $150,000 note payable to one of its organizers at
December 31, 1998. The note, dated October 10, 1997, bore interest at an
annual rate of 8.5% and was repaid from the proceeds of the stock
offering during 1999.
(7) Financial Instruments
The Company is a 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 are commitments to extend
credit, unused lines of credit and standby letters of credit and may
involve, to varying degrees, elements of credit and interest-rate risk
in excess of the amount recognized in the balance sheet. The contract
amounts of these instruments reflect the extent of involvement the
Company has in these 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 as it
does for on-balance-sheet instruments.
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 some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future 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 on management's credit
evaluation of the counterparty.
(continued)
36
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Financial Instruments, Continued
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
At December 31, 1999 At December 31, 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ........................... $1,479 1,479 29 29
Securities available for sale ....................... 1,955 1,955 -- --
Securities held to maturity ......................... 50 50 -- --
Loans receivable .................................... 7,968 7,954 -- --
Accrued interest receivable ......................... 104 104 -- --
Financial liabilities:
Deposits ............................................ 6,012 6,008 -- --
Other borrowings .................................... -- -- 1,615 1,615
</TABLE>
A summary of the notional amounts of the Company's financial instruments,
with off-balance-sheet risk at December 31, 1999 follows:
Commitments to extend credit........ $ 3,345
=====
Unused lines of credit............. $ 2,860
=====
Standby letters of credit.......... $ 75
=====
(8) Credit Risk
The Company grants the majority of its loans to borrowers throughout Duval
County, Florida. Although the Company has a diversified loan portfolio,
a significant portion of its borrowers' ability to honor their
contracts is dependent upon the economy in Duval County, Florida.
(9) Income Taxes
The income tax benefit consisted of the following:
Year Ended December 31,
1999 1998
---- ----
Deferred:
Federal............................ $(584,729) (147,283)
State.............................. (100,094) (25,211)
------- -------
Total deferred benefit.......... $(684,823) (172,494)
======= =======
(continued)
37
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) Income Taxes, Continued
The income tax benefit is different than that computed by applying the
Federal statutory rate of 34%, as indicated in the following analysis:
<TABLE>
Year Ending December 31,
1999 1998
-------------------- -----------------------
% of % of
Pretax Pretax
Amount Loss Amount Loss
Income tax benefit at statutory Federal
<S> <C> <C> <C> <C>
income tax rate ....................... $(614,773) (34.0)% $(156,395) (34.0)%
Increase resulting from
State taxes, net of Federal tax benefit (66,062) (3.7) (16,099) (3.5)
Other ................................. (3,988) (.2) -- --
--------- ---- --------- ----
$(684,823) (37.9)% $(172,494) (37.5)%
========= ==== ========= ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below.
<TABLE>
At December 31,
1999 1998
-------- --------
Deferred tax assets:
<S> <C>
Unrealized loss on securities available for sale .................. $ 16,850 --
Allowance for loan losses ......................................... 6,569 --
Organizational and preopening costs ............................... 329,888 135,494
Accrual to cash adjustments ....................................... -- 18,250
Net operating loss carryforwards .................................. 542,758 18,750
-------- --------
Gross deferred tax asset .......................................... 896,065 172,494
-------- --------
Deferred tax liabilities:
Premises and equipment ............................................ 7,068 --
Accrual to cash adjustments ....................................... 11,421 --
Other ............................................................. 3,409 --
-------- --------
Gross deferred tax liabilities .................................... 21,898 --
-------- --------
Net deferred tax asset .......................................... $874,167 172,494
======== ========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards for
federal and state income tax purposes as follows:
Year Expires
2012.................... $ 1,500
2018.................... 48,000
2019.................... 1,393,000
---------
$ 1,442,500
(continued)
38
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) Related Party Transactions
The Company has entered into transactions with its executive officers,
directors and their affiliates in the ordinary course of business. Loans
to such related parties amounted to approximately $578,000 and deposits
from such related parties were approximately $1.0 million at December 31,
1999.
(11) Commitments and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements.
(12) Stock Option Plan
The Company established a stock option plan (the "Plan") for its
directors, officers and employees. The Plan is subject to shareholder
approval. The total number of options which can be granted under this
plan is 152,599. Both qualified and nonqualified options can be granted
and all options have ten year terms and vest over periods up to five
years. As of December 31, 1999, 40 shares remain available to be
granted under the Plan. A summary of stock option transactions follows:
Average Range Aggregate
Number of Per Share of Option
Shares Prices Prices Price
Options granted .................. 152,559 $ 10.00 $ 10.00 $1,525,590
---------- ------ ------ ---------
Outstanding at December 31, 1999 . 152,559 $ 10.00 $ 10.00 $1,525,590
========== ====== ====== =========
These options are exercisable as follows:
Weighted-Average
Year Ending December 31, Price
Currently exercisable...... 65,000 $ 10.00
2000....................... 21,512 10.00
2001....................... 21,512 10.00
2002....................... 21,512 10.00
2003....................... 11,512 10.00
2004....................... 11,511 10.00
-------
152,559 $ 10.00
======= =====
The weighted-average remaining contractual life of the options at December
31, 1999 was 9.8 years.
(continued)
39
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(12) Stock Option Plan, Continued
In order to calculate the fair value of the options, it was assumed that the
risk-free interest rate was 6.0%, there would be no dividends paid by the
Company over the exercise period, the expected life of the options would
be the entire exercise period and stock volatility would be zero due to
the lack of an active market for the stock. As for the proforma
disclosures, expense is allocated over the period in which vesting
occurs. The following information pertains to the stock options granted
under the Plan:
Year Ended
December 31,
1999
Weighted-average grant-date fair value of options
issued during the year .................................. $ 556,067
=============
Fair value per share of options issued during the year ........ $ 4.32
=============
Net loss as reported .......................................... $ (1,123,333)
=============
Proforma loss ................................................. $ (1,428,666)
=============
Basic and diluted loss per share as reported ................. $ (1.84)
=============
Proforma loss per share ....................................... $ (2.34)
=============
(13) Profit Sharing Plan
During 1999, the Company began sponsoring a 401(k) profit sharing plan. The
profit sharing plan is available to all employees electing to
participate after meeting certain length-of-service requirements. The
Company's contributions to the profit sharing plan are discretionary
and are determined annually prior to the end of the calendar year.
Expense relating to the Company's contributions to the profit sharing
plan was $19,262 for the year ended December 31, 1999.
(14) Stockholders' Equity
During 1999, the Company sold 1,017,066 shares of common stock for an
aggregate of $9,715,377 net of $455,283 in offering expenses. Offering
expenses were deducted from the proceeds received from the sale of the
Common Stock.
(15) Regulatory Matters
Banking regulations place certain restrictions on dividends and loans or
advances made by the Bank to the Holding Company.
The Bank is subject to various regulatory capital requirements administered
by the regulatory 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 Company'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 their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk
weightings, and other factors.
(continued)
40
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15) Regulatory Matters, Continued
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and percentages (set forth
in the following table) of total and Tier 1 capital to risk-weighted
assets and of Tier 1 capital to average assets (as such terms are defined
in the regulations). Management believes, as of December 31, 1999, the
Bank met all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the regulatory
authorities categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage percentages as set forth in the
following tables. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Bank's actual capital amounts and percentages are also presented in
the table (dollars in thousands).
<TABLE>
Minimum
To Be Well
Minimum Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes: Action Provisions:
Amount % Amount % Amount %
-------- ---- ------ --- ------ ----
As of December 31, 1999:
Total capital to Risk-
<S> <C> <C> <C> <C> <C> <C>
Weighted Assets.................................... $ 6,102 58.1% $ 840 8.0% $1,050 10.0%
Tier 1 Capital to Risk-
Weighted Assets ................................... 6,022 57.3 420 4.0 630 6.0
Tier 1 Capital to
Total Average Assets .............................. 6,022 46.2 521 4.0 651 5.0
</TABLE>
(continued)
41
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16) Parent Company Only Financial Information
The Holding Company's financial information at December 31, or for the year
then ended is as follows:
<TABLE>
Condensed Balance Sheets
1999 1998
----------- -----------
Assets
<S> <C> <C>
Cash...................................................... $ 1,379,328 29,186
Investment in subsidiary ................................. 6,522,880 --
Premises and equipment, net .............................. 13,419 1,334,288
Other assets ............................................. 348,256 267,787
----------- -----------
Total assets ......................................... $ 8,263,883 1,631,261
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Other borrowings ......................................... -- 1,615,000
Other liabilities ........................................ 24,850 341,343
Stockholders' equity (deficit) .......................... 8,239,033 (325,082)
----------- -----------
Total liabilities and stockholders' equity (deficit) . $ 8,263,883 1,631,261
=========== ===========
Condensed Statements of Operations
1999 1998
----------- -----------
Revenues ................................................. $ 56,762 27,678
Expenses ................................................. (618,606) (315,168)
----------- -----------
Loss before loss of subsidiary ....................... (561,844) (287,490)
Loss of subsidiary ................................... (561,489) --
----------- -----------
Net loss ............................................. $(1,123,333) (287,490)
=========== ===========
</TABLE>
(continued)
42
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
<TABLE>
(16) Parent Company Only Financial Information, Continued
Condensed Statements of Cash Flows
1999 1998
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss ..................................................... $(1,123,333) (287,490)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation ............................................. 1,772 --
Equity in undistributed loss of subsidiaries ............. 561,489 --
Net increase in other assets ............................. (80,469) (267,787)
(Decrease) increase in other liabilities ................. (316,493) 339,218
----------- -----------
Net cash used in operating activities .................... (957,034) (216,059)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment ........................... -- (1,334,288)
Net proceeds from sale of premises and equipment to subsidiary 1,319,097 --
Net investment in subsidiary ................................. (7,112,298) --
----------- -----------
Net cash used in investing activities .................... (5,793,201) (1,334,288)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock ................... 9,715,377 --
Net (decrease) increase on other borrowings .................. (1,615,000) 1,465,000
----------- -----------
Net cash provided by financing activities ................ 8,100,377 1,465,000
----------- -----------
Net increase (decrease) in cash and cash equivalents .............. 1,350,142 (85,347)
Cash and cash equivalents at beginning of the year ................ 29,186 114,533
----------- -----------
Cash and cash equivalents at end of year .......................... $ 1,379,328 29,186
=========== ===========
</TABLE>
(17) Year 2000 Issues
The Company's operating and financial systems have been found to be
compliant; the "Y2K Problem" has not adversely affected the Company's
operations nor does management expect that it will.
(continued)
43
<PAGE>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(18) Selected Quarterly Results (Unaudited)
The following table presents summarized quarterly data (in thousands,
except per share amounts):
<TABLE>
Year Ended December 31, 1999
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Interest income ...................................................... $ -- 77 135 186 398
Interest expense ..................................................... 20 27 16 39 102
------ ------ ------ ------ ------
Net interest (expense) income ................................... (20) 50 119 147 296
Provision for loan losses ............................................ -- -- 39 42 81
------ ------ ------ ------ ------
Net interest (expense) income after
provision for loan losses ....................................... (20) 50 80 105 215
Noninterest income ................................................... -- 23 5 27 55
Noninterest expense .................................................. 249 408 718 703 2,078
------ ------ ------ ------ ------
Loss before income tax benefit ....................................... (269) (335) (633) (571) (1,808)
Income tax benefit ................................................... (101) (130) (237) (217) (685)
------ ------ ------ ------ ------
Net loss ............................................................. $ (168) (205) (396) (354) (1,123)
====== ====== ====== ====== ======
Basic and diluted loss per
common share .................................................... -- (.48) (.40) (.96) (1.84)
====== ====== ====== ====== ======
Year Ended December 31, 1998
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Interest income ...................................................... $ 1 -- -- 1 2
Interest expense ..................................................... 4 6 20 -- 30
------ ------ ------ ------ ------
Net interest (expense) income ................................... (3) (6) (20) 1 (28)
Noninterest income ................................................... -- -- 5 21 26
Noninterest expense .................................................. 74 94 114 176 458
------ ------ ------ ------ ------
Loss before income tax benefit ....................................... (77) (100) (129) (154) (460)
Income tax benefit ................................................... (29) (37) (48) (59) (173)
------ ------ ------ ------ ------
Net loss ............................................................. $ (48) (63) (81) (95) (287)
====== ====== ====== ====== ======
Basic and diluted loss per
common share .................................................... -- -- -- -- --
====== ====== ====== ====== ======
</TABLE>
44
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE MATTERS
None.
PART III
---------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
The information regarding directors contained under the caption
"Proposal 1: Election of Directors" in the Company's Proxy Statement for the
2000 Annual Meeting of Shareholders, which will be filed with the Securities and
Exchange Commission prior to April 29, 2000, is incorporated herein by
reference.
The information regarding executive officers who are not directors of
the Company is set forth in Part 1 of this report under the caption "Executive
Officers."
The information regarding reports required under Section 16(a) of the
Securities Exchange Act of 1934 contained under caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's proxy statement for
the 2000 Annual Meeting of Shareholders, which will be filed with Securities and
Exchange Commission prior to April 29, 2000 is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation" in
the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission prior to April 29,
2000, is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the Company's Proxy Statement for
the 2000 Annual Meeting of Shareholders, which will be filed with the Securities
and Exchange Commission prior to April 29, 2000, is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the captions "Certain Relationships and
Related Transactions" and "Compensation Committee Interlocks and Insider
45
<PAGE>
Participation" in the Company's Proxy Statement for the 2000 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
prior to April 29, 2000, is incorporated herein by reference.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits were filed with or incorporated by
reference into this report.
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form SB-2, as
effective with the Securities and Exchange
Commission on September 30, 1998, Registration No.
333-64815).
3.2 Bylaws of Registrant (incorporated by reference to
Exhibit 3.2 of the Company's Registration
Statement on Form SB-2, as effective with the
Securities and Exchange Commission on September
30, 1998, Registration No. 333-64815).
4.1 Specimen Common Stock Certificate of Registrant
(incorporated by reference to Exhibit 4.0 of the
Company's Registration Statement on Form SB-2, as
effective with the Securities and Exchange
Commission on September 30, 1998, Registration No.
333-64815).
10.1 Stock Option Plan (incorporated by reference to
Exhibit 99.1 to the Company's Registration
Statement on Form S-8 filed as of November 9,
1999).
10.2 Servicing Agreement with M&I Data Services
(incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form SB-2, as
effective with the Securities and Exchange
Commission on September 30, 1998, Registration No.
333-64815).
10.3 Employment Agreement with Gilbert J. Pomar
(incorporated by reference to Exhibit 10.5 to the
Company's Form 10-QSB for the quarter ended June
30, 1999).
46
<PAGE>
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27.0 Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K. The Company did not file a Form 8-K during the
last quarter of 1999.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act
of1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
JACKSONVILLE BANCORP, INC.
Dated: March 25, 2000 By: /s/ Price W. Schwenck
---------------------
Price W. Schwenck
Chief Executive Officer
Dated: March 25, 2000 By: /s/Cheryl L. Whalen
-------------------
Cheryl L. Whalen
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1934, this Form 10-KSB has
been signed by the following persons in the capacities and as of the dates
indicated:
Signature Title Date
/s/---------------------------- Director. March __, 2000
D. Michael Carter
/s/Melvin Gottlieb Director. March 22, 2000
- -------------------------------
Melvin Gottlieb
/s/James M. Healey Director March 22, 2000
- -------------------------------
James M. Healey
/s/John C. Kowkabany Director March 22, 2000
- -------------------------------
John C. Kowkabany
/s/Rudolph A. Kraft Director March 22, 2000
- -------------------------------
Rudolph A. Kraft
/s/---------------------------- Chairman of the
R.C. Mills Board of Directors March __, 2000
48
<PAGE>
/s/Gilbert J. Pomar, III Director March 22, 2000
- -------------------------------
Gilbert J. Pomar, III
/s/John W. Rose Director March 22, 2000
- -------------------------------
John W. Rose
/s/Donald E. Roller Director March 22, 2000
- -------------------------------
Donald E. Roller
/s/---------------------------- Director March __, 2000
John R. Schultz
/s/Price W. Schwenck Chief Executive Officer March 22, 2000
- ------------------------------
Price W. Schwenck
/s/--------------------------- Director March __, 2000
Charles F. Spencer
/s/--------------------------- Director March __, 2000
Bennett A. Tavar
/s/Gary L. Winfield, M.D. Director March 22, 2000
- ------------------------------
Gary L. Winfield, M.D.
49
EXHIBIT 21
Subsidiaries of the Registrant.
The Jacksonville Bank, a Florida state
chartered commercial bank.
50
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 1,447
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 32
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,955
<INVESTMENTS-CARRYING> 50
<INVESTMENTS-MARKET> 0
<LOANS> 8,047
<ALLOWANCE> 80
<TOTAL-ASSETS> 14,568
<DEPOSITS> 6,012
<SHORT-TERM> 0
<LIABILITIES-OTHER> 317
<LONG-TERM> 0
<COMMON> 10
0
0
<OTHER-SE> 8,229
<TOTAL-LIABILITIES-AND-EQUITY> 14,568
<INTEREST-LOAN> 158
<INTEREST-INVEST> 68
<INTEREST-OTHER> 172
<INTEREST-TOTAL> 398
<INTEREST-DEPOSIT> 57
<INTEREST-EXPENSE> 102
<INTEREST-INCOME-NET> 296
<LOAN-LOSSES> 80
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,079
<INCOME-PRETAX> (1,808)
<INCOME-PRE-EXTRAORDINARY> (1,123)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,123)
<EPS-BASIC> (1.84)
<EPS-DILUTED> (1.84)
<YIELD-ACTUAL> 4.90
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 80
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
