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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period of _________ to _________
Commission File Number 000-49792
Jacksonville Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Federal 33-1002258
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(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification Number)
1211 West Morton Avenue,Jacksonville, Illinois 62650
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (217) 245-4111
Check here whether issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
[X] Yes [ ] No
As of October 31, 2002, there were 1,921,304 shares (*) of the Registrant's
common stock issued and outstanding.
(*) As of October 31, 2002, 1,038,738 shares were owned by Jacksonville Bancorp,
M.H.C., the Company's mutual holding company parent.
JACKSONVILLE BANCORP, INC.
FORM 10-Q
SEPTEMBER 30, 2002
TABLE OF CONTENTS
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Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2002 (Unaudited)
and December 31, 2001 1
Consolidated Statements of Income and Comprehensive Income for the
Three Months and Nine Months Ended September 30, 2002 and 2001
(Unaudited) 2
Consolidated Statement of Stockholders' Equity for the Nine Months
Ended September 30, 2002 (Unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001 (Unaudited) 4-5
Notes to Unaudited Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 19
PART II OTHER INFORMATION 20
Signatures 21
Section 302 Certifications 22-25
EXHIBITS
Section 906 Certification 99.1
PART I - FINANCIAL INFORMATION
JACKSONVILLE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
- ------------------------------------------------------------------------------------------------------------
September 30, December 31,
ASSETS 2002 2001
--------------- --------------
Cash and cash equivalents $10,536,981 $13,397,002
Federal funds sold 2,000,000 1,010,000
Investment securities - available for sale 62,800,544 44,433,726
Mortgage-backed securities - available for sale 3,087,716 4,264,448
Federal Home Loan Bank stock 1,263,300 1,215,100
Other investment securities 766,625 710,804
Loans receivable - net of allowance for loan loss
of $2,125,562 and $1,106,647 as of September 30, 2002
and December 31, 2001, respectively 148,628,722 156,280,173
Loans held for sale - net 4,007,505 4,801,717
Premises and equipment - net 5,372,204 5,442,675
Accrued interest receivable 2,273,502 1,845,536
Goodwill 2,726,567 2,726,567
Core deposit intangible 458,411 518,203
Capitalized mortgage servicing rights 1,031,742 951,375
Income taxes receivable 1,420,711 1,550,403
Real estate owned 488,937 945,364
Other assets 1,056,154 1,208,034
------------ ------------
TOTAL ASSETS $247,919,621 $241,301,127
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $220,587,594 $216,898,771
Other borrowings 3,758,389 1,395,455
Advance payments by borrowers for taxes and insurance 90,323 129,238
Accrued interest payable 1,033,506 1,251,676
Deferred compensation payable 1,909,443 1,736,726
Other liabilities 810,308 725,575
------------ ------------
Total liabilities $228,189,563 $222,137,441
------------ ------------
Stockholders' Equity
Preferred stock, $0.01 par value - authorized 10,000,000 shares;
none issued and outstanding - -
Common stock, $0.01 par value - authorized 20,000,000 shares;
issued and outstanding, 1,921,304 and 1,909,304 shares at September
30, 2002 and December 31, 2001, respectively 19,213 19,093
Additional paid-in-capital 6,374,463 6,268,623
Retained earnings - substantially restricted 13,014,344 12,738,711
Accumulated other comprehensive income 322,038 137,259
------------ ------------
Total stockholders' equity 19,730,058 19,163,686
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $247,919,621 $241,301,127
============ ============
See accompanying notes to unaudited consolidated financial statements.
1
JACKSONVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
------------------------------- -------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2002 2001 2002 2001
INTEREST INCOME:
Loans $2,940,303 $3,640,994 $8,972,208 $11,155,776
Mortgage-backed securities 47,553 85,558 165,980 308,025
Investment securities 753,621 539,429 2,222,135 1,593,340
Other 37,971 77,656 119,626 320,113
----------- ---------- ----------- ----------
Total interest income 3,779,448 4,343,637 11,479,949 13,377,254
----------- ---------- ----------- ----------
INTEREST EXPENSE
Deposits 1,803,529 2,370,581 5,636,604 7,272,222
Other borrowings 16,122 6,464 22,214 72,628
----------- ---------- ----------- ----------
Total interest expense 1,819,651 2,377,045 5,658,818 7,344,850
----------- ---------- ----------- ----------
NET INTEREST INCOME 1,959,797 1,966,592 5,821,131 6,032,404
PROVISION FOR LOAN LOSSES 1,300,000 220,000 1,675,000 505,000
---------- ---------- ----------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 659,797 1,746,592 4,146,131 5,527,404
---------- ---------- ----------- ---------
OTHER INCOME:
Service charges on deposit accounts 189,452 170,283 521,516 514,009
Loan servicing fees 90,278 80,367 266,008 227,563
Commission income 125,450 67,294 323,733 247,713
Gains on sales of loans 159,944 141,054 322,516 331,641
Gains on sales of securities 185,960 13,494 292,214 13,494
Other 9,989 37,939 59,374 80,518
--------- --------- ---------- ---------
Total other income 761,073 510,431 1,785,361 1,414,938
--------- --------- ---------- ---------
OTHER EXPENSES:
Salaries and employee benefits 1,008,679 958,194 3,012,977 2,885,211
Occupancy and equipment expense 276,478 291,533 795,330 857,895
Data processing expense 58,009 42,796 155,497 134,620
Advertising expense 42,257 32,430 115,568 100,256
Real estate owned expense 74,369 32,445 163,759 90,426
Amortization of intangible assets 19,931 56,776 59,792 170,329
Loss due to loan defalcation 11,597 1,586,410 62,330 3,198,633
Other 275,850 274,602 845,017 825,143
--------- --------- ---------- ---------
Total other expenses 1,767,170 3,275,186 5,210,270 8,262,513
--------- --------- ---------- ---------
Income (Loss) Before Income Tax Expense (Benefit) (346,300) (1,018,163) 721,222 (1,320,171)
Income Tax (Benefit) (138,487) (765,722) 249,708 (901,842)
---------- ---------- --------- -----------
NET INCOME (LOSS) $(207,813) $(252,441) $ 471,514 $(418,329)
OTHER COMPREHENSIVE INCOME - Unrealized gain
on securities available-for-sale (Net of tax of
$30,709, $127,721, $116,852, and $157,769,
respectively) 48,561 201,966 184,779 249,482
---------- ---------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ (159,252) $ (50,475) $ 656,293 $(168,847)
========== ========== ========= ==========
NET INCOME(LOSS) PER COMMON SHARE, BASIC $ (0.11) $ (0.13) $ 0.25 $ (0.22)
========== ========== ========= ==========
NET INCOME(LOSS) PER COMMON SHARE, DILUTED $ (0.11) $ (0.13) $ 0.24 $ (0.22)
========== ========== ========= ==========
See accompanying notes to unaudited consolidated financial statements.
2
JACKSONVILLE BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
BALANCE, DECEMBER 31, 2001 19,093 6,268,623 12,738,711 137,259 19,163,686
Net Income - - 471,514 - 471,514 471,514
Other comprehensive income -change
in net unrealized gains and losses
on securities available for sale
(net of tax) - - - 184,779 184,779 184,779
--------
Comprehensive Income - - - - - 656,293
========
Exercise of stock options 120 105,840 - - 105,960
Dividends ($0.225 per share) - - (195,881) - (195,881)
---------- ----------- ------------ --------- -----------
BALANCE, SEPTEMBER 30, 2002 $ 19,213 $ 6,374,463 $ 13,014,344 $ 322,038 $19,730,058
========== =========== ============ ========= ===========
See accompanying notes to unaudited consolidated financial statements.
3
JACKSONVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------------------------
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 471,514 $ (418,329)
----------- -----------
Adjustments to reconcile net income(loss) to net cash provided
by (used in) operating activities:
Depreciation, amortization and accretion:
Premises and equipment 340,946 446,083
Accretion of loan fees and discounts, net (42,699) (42,696)
Amortization of investment premiums and discounts, net 21,821 (380,245)
Amortization of intangible assets 59,792 170,329
Provision for loan losses 1,675,000 505,000
Gains on sales of loans (322,516) (331,641)
Loss on sale of real estate owned 67,576 21,891
Writedowns on real estate owned 95,713 32,500
Origination of loans for sale to Freddie Mac (45,852,971) (40,824,725)
Proceeds from sales of loans to Freddie Mac 46,889,332 38,083,681
Gains on sales of securities (292,214) (13,494)
Stock dividends on FHLB stock (48,200) (61,700)
Changes in assets and liabilities, net
Income taxes receivable 129,692 (1,330,945)
Other, net (319,858) (312,198)
----------- -----------
Net adjustments 2,401,414 (4,038,160)
----------- -----------
Net cash provided (used in) operating activities 2,872,928 (4,456,489)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in federal funds sold, net (990,000) 3,959,000
Maturity or call of investment securities available-for-sale 31,775,000 14,800,000
Proceeds from sale of securities 17,066,102 1,264,062
Principal payments received on mortgage-backed securities 1,099,007 2,179,156
Proceeds from sale of other real estate owned 781,538 136,044
Loan originations, net of repayments 5,505,040 11,714,527
Purchases of investment securities available-for-sale (66,622,082) (28,341,858)
Additions to premises and equipment (270,475) (475,103)
----------- -----------
Net cash provided by (used in) investing activities (11,655,870) 5,235,828
----------- -----------
4
JACKSONVILLE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
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Nine Months Ended
September 30,
--------------------------------------
2002 2001
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 3,688,823 $ 7,062,219
Increase in (repayment of) other borrowings 2,362,934 (4,667,318)
Exercise of stock options 105,960 -
Decrease in advance payments by borrowers for taxes and insurance (38,915) (72,259)
Dividends paid - common stock (195,881) (195,882)
----------- -----------
Net cash provided by financing activities 5,922,921 2,126,760
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,860,021) 2,906,099
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,397,002 9,475,973
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $10,536,981 $12,382,072
=========== ===========
ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits $ 5,854,774 $ 7,293,453
Interest on other borrowings 22,214 102,554
Income taxes paid 120,016 621,953
NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired in settlement of loans $ 641,145 $ 927,185
Loans to facilitate sales of real estate owned 127,035 -
See accompanying notes to unaudited consolidated financial statements
(Concluded)
5
JACKSONVILLE BANCORP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements include the accounts of
Jacksonville Bancorp, Inc. and its wholly-owned subsidiary,
Jacksonville Savings Bank (the "Bank") and its wholly-owned subsidiary,
Financial Resources Group collectively (the "Company"). All significant
intercompany accounts and transactions have been eliminated.
In the opinion of management, the preceding unaudited financial
statements contain all adjustments necessary for a fair presentation of
the consolidated financial condition of the Company as of September 30,
2002 and December 31, 2001 and the results of operations for the three
and nine month periods ended September 30, 2002 and 2001. The results
of operations for the three and nine month periods ended September 30,
2002 are not necessarily indicative of the results which may be
expected for the entire year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements of the Company for the year ended December 31, 2001 filed as
an exhibit to the Company's 10-K for the year ended December 31, 2001.
The accounting and reporting policies of the Company and its subsidiary
conform to accounting principles generally accepted in the United
States of America and to the prevailing practices within the banking
industry.
Certain amounts included in the 2001 consolidated statements have been
reclassified to conform to the 2002 presentation.
2. EARNINGS PER SHARE
Earnings Per Share - Basic earnings per share is determined by dividing
net income for the period by the weighted average number of common
shares. Diluted earnings per share considers the potential effects of
the exercise of the outstanding stock options under the Company's Stock
Option Plans.
6
The following reflects earnings per share calculations for the basic and
diluted methods:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
Net income(loss) available to common shareholders $ (207,813) $ (252,441) $ 471,514 $ (418,329)
Basic potential common shares:
Weighted average shares outstanding 1,909,434 1,909,304 1,909,348 1,909,304
----------- ----------- ----------- -----------
Diluted potential common shares:
Stock option equivalents 23,715 18,719 27,231 9,238
----------- ----------- ----------- -----------
Diluted average shares outstanding 1,933,149 1,928,023 1,936,579 1,918,542
Basic earnings (loss) per share $ (0.11) $ (0.13) $ 0.25 $ (0.22)
=========== =========== =========== ===========
Diluted earnings (loss) per share $ (0.11) $ (0.13) $ 0.24 $ (0.22)
=========== =========== =========== ===========
The loss for the three and nine months ended September 30, 2001 was due
to a loan defalcation discovered during the second quarter of 2001.
This nonrecurring expense totalled $1,586,000 and $3,199,000 during the
three and nine months ended September 30, 2001. Excluding this
nonrecurring expense and a one-time $193,000 tax adjustment related to
the Chapin State Bank acquisition, the Company's operations would have
resulted in net income of $527,000, or $0.28 per share of common stock,
basic, and $0.27 per common share, diluted, for the three months ended
September 30, 2001. Excluding this nonrecurring expense and the
one-time tax adjustment, net income for the nine months ended September
30, 2001, from the Company's operations would have equalled $1,348,000,
or $0.71 per common share, basic, and $0.70 per common share, diluted.
3. REORGANIZATION INTO MID-TIER MUTUAL HOLDING COMPANY
On May 3, 2002, Jacksonville Savings Bank and Jacksonville Bancorp,
M.H.C., the mutual holding company parent, reorganized into the
two-tier mutual holding company form of ownership by establishing a
mid-tier, federally-chartered stock holding company, Jacksonville
Bancorp, Inc. All outstanding shares of Jacksonville Savings Bank
common stock were converted on a one for one basis into shares of
Jacksonville Bancorp, Inc. common stock in the reorganization.
Jacksonville Bancorp, Inc. now owns 100% of the outstanding shares of
Jacksonville Savings Bank.
4. IDENTIFICATION OF LOAN DEFALCATION
During the second quarter of 2001, management uncovered loan
irregularities at its branch in Virden, Illinois. The Company's
investigation of these irregularities has been completed and the
identified losses have been recorded on the Company's financial
statements. While management believes that all significant losses have
been identified, there can be no assurance that additional losses will
not be recognized; however, management does not believe that any such
amount would be material. For the year ended December 31, 2001, the
Company recognized a nonrecurring expense associated with the loan
defalcation of $4,458,000, consisting of identified losses of
$4,016,000 and $442,000 in legal and accounting expenses. For the nine
months ended September 30, 2002, expenses related to the loan
defalcation totalled $62,000. These losses are exclusive of any tax
effect or potential recovery from the Company's insurance carrier. The
Company filed its proof of loss claim with its insurance carrier on
October 11, 2001; however, there can be no assurance as to the amount
that the Company will ultimately obtain from its insurance carrier.
7
5. ACCOUNTING CHANGE
Effective January 1, 2002, the Company adopted FASB Statement No. 142,
Goodwill and Other Intangible Assets. Among its provisions is a
requirement to disclose what reported net income would have been in all
periods presented, exclusive of amortization expense (net of related
tax effects) recognized in those periods, related to goodwill,
intangible assets no longer being amortized, and changes in
amortization periods for intangible assets that will continue to be
amortized together with related per share amounts. The Company has
continued to amortize the core deposit intangible at approximately
$20,000 per quarter during 2002 and 2001.
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- --------------------------
2002 2001 2002 2001
Reported net income (loss) ($207,813) ($252,441) $471,514 ($418,329)
Add goodwill amortization, net of tax - -
22,571 67,714
------------------------------ --------------------------
Adjusted net income (loss) ($207,813) ($229,870) $471,514 ($350,615)
============================== ==========================
Basic earnings (loss) per share:
Reported net income (loss) ($0.11) ($0.13) $0.25 ($0.22)
Goodwill amortization - $0.01 - $0.04
------------------------------ --------------------------
Adjusted net income (loss) ($0.11) ($0.12) $0.25 ($0.18)
============================== ==========================
Diluted earnings (loss) per share:
Reported net income (loss) ($0.11) ($0.13) $0.24 ($0.22)
Goodwill amortization - $0.01 - $0.04
------------------------------ --------------------------
Adjusted net income (loss) ($0.11) ($0.12) $0.24 ($0.18)
============================== ==========================
* * * * * *
8
JACKSONVILLE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of the Company. The information contained in this section should be read
in conjunction with the unaudited consolidated financial statements and
accompanying notes thereto.
FORWARD-LOOKING STATEMENTS
Statements contained in this Form 10-Q, which are not historical facts, are
forward-looking statements, as the term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those currently anticipated due to a number of factors, which include, but
are not limited to, factors discussed in documents filed by the Company with the
Securities Exchange Commission from time to time.
This Form 10-Q contains certain "forward-looking statements" which may be
identified by the use of words such as "believe," "expect," "anticipate,"
"should," "planned," "estimated," and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors that could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage and other loans,
real estate values, and competition; changes in accounting principles, policies,
or guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing of products and services.
MID-TIER REORGANIZATION
On May 3, 2002, Jacksonville Savings Bank and Jacksonville Bancorp, M.H.C., the
mutual holding company parent, reorganized into the two-tier mutual holding
company form of ownership by establishing a mid-tier stock holding company,
Jacksonville Bancorp, Inc. All outstanding shares of Jacksonville Savings Bank
common stock were converted on a one for one basis into shares of Jacksonville
Bancorp, Inc. common stock in the reorganization. Jacksonville Bancorp, Inc. now
owns 100% of the outstanding shares of Jacksonville Savings Bank.
FINANCIAL CONDITION
September 30, 2002 Compared to December 31, 2001
Total assets grew $6,618,000 to $247,920,000 at September 30, 2002, from the
$241,301,000 at December 31, 2001. This increase is primarily due to an increase
in investment securities of $18,471,000. Total loans decreased $8,446,000 due to
increased loan sales to the secondary market. Cash and cash equivalents
decreased by $2,860,000 and mortgage-backed securities decreased by $1,177,000
due to principal payments that were invested into U.S. Treasury and Agency
securities.
9
Deposits increased $3,689,000 to $220,588,000 at September 30, 2002 from
$216,899,000 at December 31, 2001. Other changes included a $456,000 decrease in
other real estate owned due to the sale of several properties during this
period. Other borrowings increased $2,363,000 due to higher balances on
overnight repurchase agreements.
Stockholders' equity increased $566,000 to $19,730,000 at September 30, 2002.
The increase resulted from net income of $472,000 offset by the payment of
$196,000 in dividends, and a $185,000 increase in unrealized gains, net of tax,
on available-for-sale securities. The exercise of stock options during the third
quarter of 2002 contributed an additional $106,000.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three and Nine Months Ended
September 30, 2002 and 2001
General: The Company reported a net loss for the three months ended September
30, 2002, of $(208,000), or $(0.11) per share of common stock, basic and
diluted, compared to a net loss of $(252,000), or $(0.13) per share of common
stock, basic and diluted, for the three months ended September 30, 2001. The
loss for the quarter ended September 30, 2002, resulted from an increase of
$1,080,000 to the provision for loan losses. The increased provision was made to
bring the allowance for loan losses to a level deemed adequate following
management's evaluation of potential problem credits and consideration of recent
increases in loan delinquencies and charge-offs, as well as the current economic
downturn, which has resulted in a larger volume of bankruptcies and foreclosures
in the Company's market area. The Company experienced an increase in problem
loans to $4.3 million at September 30, 2002, from $3.0 million at September 30,
2001. We view problem loans as those accounts which are inadequately protected
by the repayment capacity of the borrower and/or the pledged collateral.
The loss for the quarter ended September 30, 2001 included a nonrecurring
expense of $1,586,000 related to a loan defalcation discovered during 2001.
Excluding this nonrecurring expense and tax adjustments, normal operations
resulted in net income of $527,000, or $0.28 per common share, basic, and $0.27
per common share, diluted, for the three months ended September 30, 2001. The
Company's operations resulted in a decrease of $7,000 in net interest income and
increases of $251,000 in other income, $67,000 in other expenses excluding the
loan defalcation, and $627,000 in income tax expense for the quarter ended
September 30, 2002, compared to the third quarter of 2001.
The Company reported net income for the nine months ended September 30, 2002, of
$472,000, or $0.25 per share, basic, and $0.24 per share, diluted, compared to a
net loss of $(418,000), or $(0.22) per share, basic and diluted, for the nine
months ended September 30, 2001. The increase of $890,000 in net income is
mostly due to the $3,199,000 nonrecurring expense related to the loan
defalcation realized during the first nine months of 2001 compared to the
$62,000 realized during the first nine months of 2002, partially offset by a
$1,152,000 increase in income tax expense. Excluding this nonrecurring expense
and the related tax effect, operations resulted in net income of $1,348,000, or
$0.71 per common share, basic and diluted, for the nine months ended September
30, 2001. The Company's operations for the nine months ended September 30, 2002
included a $1,170,000 increase in the provision for loan losses, as well as a
decrease of $211,000 in net interest income. Other income increased $370,000 and
other expense excluding the loan defalcation increased $84,000 during this same
time frame.
10
Interest Income: Total interest income decreased $564,000 and $1,897,000 during
the three and nine months ended September 30, 2002, compared to the same periods
of 2001. The primary reason for the decreases is $701,000 and $2,184,000 in
lower interest income on loans during the respective three and nine month
periods. The average balance of the loan portfolio decreased $13,073,000 and
$15,734,000 during the three and nine months ended September 30, 2002 compared
to the same periods of 2001. The decrease in the average balance of loans is
mostly due to increased sales of loans to the secondary market. In addition, the
loan portfolio's weighted average yield decreased to 7.68% from 8.76% for the
three months and decreased to 7.75% from 8.74% for the nine months ended
September 30, 2002 and 2001, respectively. Refer to the Consolidated Average
Balance Sheet and Interest Rate tables at the end of this section.
Interest income on investment securities increased $214,000 and $629,000 during
the three and nine months ended September 30, 2002, compared to the same period
in 2001. The additional income is primarily due to an increase in the portfolio
resulting from the investment of cash generated by loan sales. The average
balance of the investment portfolio increased $27,982,000 and $28,375,000 during
the three and nine months ended September 30, 2002, compared to the same periods
of 2001. The weighted average yield decreased to 5.22% from 7.24% for the three
months and decreased to 5.58% from 8.61% for the nine months ended September 30,
2002 and 2001, respectively. On July 3, 2000, when the Company acquired Chapin
State Bank, many of the acquired investments were carrying unrealized losses,
which are being amortized over the life of the investments in accordance with
purchase accounting rules. As market rates of interest have declined, many of
these investments have been called or sold, resulting in gains and losses from
securities transactions. These adjustments resulted in an additional $75,000 and
$259,000 in interest income during the nine months ended September 30, 2002 and
2001, respectively. Without these adjustments, the weighted average yield on
investments would have equalled 5.40% and 7.21% for the nine months ended
September 30, 2002 and 2001, respectively.
Interest income on mortgage-backed securities decreased $38,000 and $142,000
during the three and nine months ended September 30, 2002, compared to the same
periods of 2001. The decrease is due to a decrease in the average balance of
mortgage-backed securities of $1,758,000 and $2,113,000 during the three and
nine months ended September 30, 2002, compared to the same periods of 2001, as
well as a decrease in the weighted average yield to 5.99% from 6.93% during the
three months and to 6.22% from 7.24% for the nine months ended September 30,
2002 and 2001, respectively.
Interest income on other investments, which include federal funds sold and
interest bearing deposit accounts, decreased $39,000 and $200,000 during the
three and nine months ended September 30, 2002, compared to the same periods of
2001. The decreased interest income from other investments is primarily due to a
lower weighted average yield to 1.61% from 3.51% for the three months and to
1.58% from 4.45% for the nine months ended September 30, 2002 and 2001,
respectively, due to the unprecedented low interest rate environment. The
average balance of these investments increased $594,000 and $520,000 during the
three and nine months ended September 30, 2002, compared to the same periods of
2001.
Interest Expense: Total interest expense for the three and nine months ended
September 30, 2002 decreased $557,000 and $1,686,000, respectively, from the
same periods of 2001. The decrease in interest expense was primarily due to
$567,000 and $1,635,000 decreases in the cost of deposits for the three and nine
months ended September 30, 2002, compared to the same in 2001. The average
balance of deposits increased $13,143,000 and $15,107,000 during the three and
nine months ended September 30, 2002, compared to the same periods of 2001, due
to normal deposit growth. The weighted average cost of deposits decreased to
3.47% from 4.87% during the three months and decreased to 3.63% from 5.05%
during the nine months ended September 30, 2002 and 2001, respectively. The
decreased cost of funds is attributed to declining market rates of interest.
11
Interest paid on borrowings increased $10,000 and decreased $51,000 during the
three and nine months ended September 30, 2002, compared to the same period of
2001. The Company repaid all advances from the Federal Home Loan Bank on
February 28, 2001. The only outstanding borrowed funds consist of securities
sold under agreement to repurchase. The average balance of borrowed funds
increased $2,286,000 during the three months and decreased $237,000 during the
nine months ended September 30, 2002, compared to the same periods of 2001. The
cost of these funds decreased to 2.04% from 2.98% for the three months and
decreased to 1.86% from 5.36% for the nine months ended September 30, 2002 and
2001, respectively.
Provision for Loan Losses: The provision for loan losses is determined by
management as the amount needed to replenish the allowance for loan losses,
after net charge-offs have been deducted, to a level considered adequate to
absorb inherent losses in the loan portfolio, in accordance with accounting
principles generally accepted in the United States of America.
The Company recorded a $1,300,000 provision for loan losses during the third
quarter of 2002. The provision was made to bring the allowance for loan losses
to a level deemed adequate following management's evaluation of the repayment
capacity and collateral protection afforded by each problem credit identified by
management. This review also considered the current economic downturn, which has
resulted in increased bankruptcies and foreclosures in the Company's market
area, which have further contributed to the recent increases in delinquencies
and charge-offs. With the help of an outside consultant, management is currently
reviewing all of its lending policies and procedures, as well as staffing
levels, in order to strengthen collection and underwriting practices. The
Company's officer loan committee is meeting on a daily basis to address these
issues and attempt to prevent any deterioration in asset quality.
The provision for loan losses increased $1,080,000 and $1,170,000 for the three
and nine months ended September 30, 2002 compared to the same periods of 2001.
The allowance for loan losses increased to $2,126,000 at September 30, 2002 from
$1,107,000 at December 31, 2001. The increase in the allowance is the result of
the provision for loan losses exceeding net charge-offs. Net charge-offs
decreased to $257,000 during the third quarter of 2002 from the $428,000
recognized during the third quarter of 2001. Net charge-offs increased to
$656,000 during the first nine months of 2002 compared to net charge-offs of
$536,000 during the first nine months of 2001. The increased charge-offs reflect
the current economic conditions and changing mix of the loan portfolio with a
continued emphasis on consumer loans, which typically involve greater risk than
residential lending. Also contributing to the increase are the charge-offs
totalling $188,000 during the first nine months of 2002 attributed to a former
loan officer and identified during the investigation of loan irregularities. The
level of nonperforming loans decreased to $3,884,000, or 2.61% of net loans, at
September 30, 2002, from $4,092,000, or 2.57% of net loans, at September 30,
2001. The volume of loans identified by management on the Company's problem loan
list increased to $4,305,000, or 2.90% of net loans, at September 30, 2002 from
$3,024,000, or 1.90% of net loans, at September 30, 2001.
The allowance for loan losses is maintained to absorb potential losses inherent
in the loan portfolio. The balance of the allowance is based on ongoing,
quarterly assessments of the probable estimated losses in the loan portfolio.
The Company's methodology for assessing the appropriateness of the allowance
consists of applying several methods to identified problem loan and portfolio
segments. The allowance for loan losses is calculated by estimating the exposure
on identified problem loans and applying loss factors to the remainder of the
portfolio based upon an internal risk grade of such loans or pools of loans.
Changes in risk grades of both performing and nonperforming loans affect the
amount of the allowance. Loss factors are based primarily on historical loss
experience over the past three years, and may be adjusted for other significant
conditions that, in management's judgement, affect the collectability of the
loan portfolio.
12
Since the allowance for loan losses is based upon estimates of probable losses,
the amount actually observed can vary significantly from the estimated amounts.
The historical loss factors attempt to reduce this variance by taking into
account recent loss experience. Management evaluates several other conditions in
connection with the allowance, including general economic and business
conditions, credit quality trends, collateral values, loan volumes and
concentrations, seasoning of the portfolio, and regulatory examination results.
The formulas used in the analysis were changed in 2002 to reflect the changing
mix of the loan portfolio and increased loan losses. Management will continue to
monitor the loan portfolio and assess the adequacy of the allowance at least
quarterly.
Other Income: Total other income increased $251,000 and $370,000 during the
three and nine months ended September 30, 2002, compared to the same periods of
2001. The increase in other income is primarily due to increases in gains on the
sale of securities of $172,000 and $279,000 during the comparative periods.
Approximately $17.1 million of available-for-sale securities have been sold
during 2002 in anticipation of potential calls and to realize gains. Brokerage
commissions increased $58,000 and $76,000 during the three and nine months ended
September 30, 2002, compared to the same periods in 2001. Loan servicing fees
were $10,000 and $38,000 higher during the three and nine months ended September
30, 2002 compared to 2001, due to a larger volume of loans serviced for Freddie
Mac.
Other Expenses: Total other expenses decreased $1,508,000 and $3,052,000 during
the three and nine months ended September 30, 2002 compared to the comparative
three and nine months ended September 30, 2001. The decrease in other expenses
is primarily due to the decreases of $1,575,000 and $3,136,000 in the
nonrecurring expense related to the loan defalcation realized during the three
and nine months ended September 30, 2002, as compared to the same periods of
2001. The remaining changes in other expenses for the third quarter of 2002
compared to 2001 were increases of $50,000 in salaries and $42,000 in real
estate owned expenses partially offset by decreases of $37,000 in amortization
of intangible assets and $15,000 in occupancy expenses. Changes for the nine
months ended September 30, 2002 compared to the comparative period in 2001
include increases of $128,000 in salaries and $73,000 in other real estate owned
expenses offset by decreases of $111,000 in amortization of intangible assets
and $63,000 in occupancy expenses.
Income Taxes: The provision for income taxes increased $627,000 and $1,152,000
during the three and nine months ended September 30, 2002, compared to the same
periods of 2001. The increase is directly attributable to the increase in net
income of $44,000 and $890,000 for the three and nine months ended September 30,
2002, compared to the same periods of 2001.
Liquidity and Capital Resources: The Company's most liquid assets are cash and
cash equivalents. The levels of these assets are dependent on the Company's
operating, financing, and investing activities. At September 30, 2002 and
December 31, 2001, cash and cash equivalents totalled $10,537,000 and
$13,397,000, respectively. The Company's primary sources of funds include
principal and interest repayments on loans (both scheduled and prepayments),
maturities of investment securities and principal repayments from
mortgage-backed securities (both scheduled and prepayments). During the past
twelve months, the most significant sources of funds have been deposit growth
and loan sales to the secondary market. These funds have been used for new loan
originations and the purchase of investment securities.
While scheduled loan repayments and proceeds from maturing investment securities
and principal repayments on mortgage-backed securities are relatively
predictable, deposit flows and early prepayments are more influenced by interest
rates, general economic conditions, and competition. The Company attempts to
price its deposits to meet asset-liability objectives and stay competitive with
local market conditions.
13
Liquidity management is both a short-term and long-term responsibility of
management. The Company adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) projected purchases of
investment and mortgage-backed securities, (iii) expected deposit flows, (iv)
yields available on interest-bearing deposits, and (v) liquidity of its
asset-liability management program. Excess liquidity is generally invested in
interest-earning overnight deposits and other short-term U.S. Agency
obligations. If the Company requires funds beyond its ability to generate them
internally, it has the ability to borrow funds from the FHLB. The Company may
borrow from the FHLB under a blanket agreement, which assigns all investments in
FHLB stock as well as qualifying first mortgage loans equal to 150% of the
outstanding balance as collateral to secure the amounts borrowed. This borrowing
arrangement is limited to a maximum of 30% of the Company's total assets or
twenty times the balance of FHLB stock held by the Company. At September 30,
2002, the Company had no outstanding advances and approximately $25,300,000
available to it under the above-mentioned borrowing arrangement.
The Company maintains minimum levels of liquid assets as established by the
Board of Directors. The Company's year-to-date liquidity ratios at September 30,
2002 and December 31, 2001 were 30.0% and 23.2%, respectively. This ratio
represents the volume of short-term liquid assets as a percentage of net
deposits and borrowings due within one year.
The Company must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments. At September 30, 2002, the
Company has outstanding commitments to originate loans of approximately
$27,300,000, including $12,100,000 committed for sale in the secondary market.
The Company anticipates that it will have sufficient funds available to meet its
current commitments principally through the use of current liquid assets and
through its borrowing capacity discussed above.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and Tier 1 capital (as
defined) to average assets (as defined). Management believes, at September 30,
2002, that the Bank meets all its capital adequacy requirements.
Under Illinois law, Illinois-chartered savings banks are required to maintain a
minimum core capital to total assets ratio of 3%. The Illinois Commissioner of
Savings and Residential Finance (the Commissioner) is authorized to require a
savings bank to maintain a higher minimum capital level if the Commissioner
determines that the savings bank's financial condition or history, management or
earnings prospects are not adequate. If a savings bank's core capital ratio
falls below the required level, the Commissioner may direct the savings bank to
adhere to a specific written plan established by the Commissioner to correct the
savings bank's capital deficiency, as well as a number of other restrictions on
the savings bank's operations, including a prohibition on the declaration of
dividends by the savings bank's board of directors. At September 30, 2002, the
Bank's core capital ratio was 6.61% of total average assets, which exceeded the
required amount.
The Bank is also required to maintain regulatory capital requirements imposed by
the Federal Deposit Insurance Corporation. The Bank `s actual ratios at
September 30, 2002 and the required minimums to be considered adequately
capitalized are shown in the table below. In order to be considered
well-capitalized, the Bank must maintain: (i) Tier 1 Capital to Average Assets
of 5.0%, (ii) Tier 1 Capital to Risk-Weighted Assets of 6.0%, and (iii) Total
Capital to Risk-Weighted Assets of 10.0%.
14
To Be Well- Minimum
Capitalized Required Actual
Tier 1 Capital to Average Assets 5.00% 4.00% 6.61%
Tier 1 Capital to Risk-Weighted Assets 6.00% 4.00% 9.95%
Total Capital to Risk-Weighted Assets 10.00% 8.00% 11.20%
Future capital levels should benefit from the decision of the Company's parent
company, Jacksonville Bancorp, MHC, to waive its right to receive dividends,
subject to the receipt of regulatory non-objection.
Effect of Inflation and Changing Prices: The consolidated financial statements
and related financial data presented herein have been prepared in accordance
with accounting principles generally accepted in the United States of America,
which require the measurement of financial position and operating results in
terms of historical dollars, without considering the change in relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in increased cost of the Company's operations. Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
15
Consolidated Average Balance Sheet and Interest Rates
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Three Months Ended September 30,
-----------------------------------------------------------------------------------
----------------------------------------- -----------------------------------------
2002 2001
----------------------------------------- -----------------------------------------
Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
----------------------------------------- -----------------------------------------
Interest-earnings assets:
Loans $ 153,117 $ 2,940 7.68% $ 166,190 $ 3,641 8.76%
Investment securities 57,802 753 5.22% 29,820 539 7.24%
Mortgage-backed securities 3,178 48 5.99% 4,936 86 6.93%
Other 9,436 39 1.61% 8,842 78 3.51%
----------- --------- ----- ----------- ---------- -----
Total interest-earning assets 223,533 3,780 6.76% 209,788 4,344 8.28%
Non-interest earnings assets 20,574 17,409
----------- -----------
Total assets $ 244,107 $ 227,197
=========== ===========
Interest-bearing liabilities:
Deposits $ 208,020 $ 1,804 3.47% $ 194,877 2,371 4.87%
Short-term borrowings 3,154 16 2.04% 868 6 2.98%
----------- ---------- ----- ----------- --------- -----
Total interest-bearing liabilities 211,174 1,820 3.45% 195,745 2,377 4.86%
Non-interest bearing liabilities 13,492 11,180
Stockholders' equity 19,441 20,272
----------- -----------
Total liabilities/stockholders'
equity $ 244,107 $ 227,197
=========== ===========
Net interest income $ 1,960 $ 1,967
========== ===========
Interest rate spread (average yield earned
minus average average rate paid) 3.35% 3.42%
===== =====
Net interest margin (net interest income
divided by average interst-earning assets) 3.51% 3.75%
===== =====
Analysis of Volume and Rate Changes
(in thousands)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Three Months Ended September 30,
- ----------------------------------------------------------------------------
2002 Compared to 2001
Increase(Decrease) Due to
----------------------------------------
Rate Volume Net
----------------------------------------
Interest-earnings assets:
Loans $ (428) $ (273) $ (701)
Investment securities (183) 397 214
Mortgage-backed securities (10) (28) (38)
Other (45) 6 (39)
------ ------ ------
Total net change in income on
interest-earning assets (666) 102 (564)
------ ------ ------
Interest-bearing liabilities:
Deposits (718) 151 (567)
Other borrowings (2) 12 10
Total net change in expense on
interest-bearing liabilities (720) 163 (557)
Net change in net interest income 54 (61) (7)
16
Consolidated Average Balance Sheet and Interest Rates
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------
Nine Months Ended September 30,
---------------------------------------------------------------------------
--------------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------------
Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
---------------------------------------------------------------------------
Interest-earnings assets:
Loans $154,412 $ 8,972 7.75% $170,146 $ 11,156 8.74%
Investment securities 53,052 2,222 5.58% 24,677 1,593 8.61%
Mortgage-backed securities 3,557 166 6.22% 5,670 308 7.24%
Other 10,114 120 1.58% 9,594 320 4.45%
-------- ------- ----- -------- ------- -----
Total interest-earning assets 221,135 11,480 6.92% 210,087 13,377 8.49%
Non-interest earnings assets 19,981 18,241
-------- --------
Total assets $241,116 $228,328
======== ========
Interest-bearing liabilities:
Deposits $207,037 $ 5,637 3.63% $191,930 $ 7,272 5.05%
Short-term borrowings 1,579 22 1.86% 1,816 73 5.36%
-------- ------- ----- -------- ------- -----
Total interest-bearing liabilities 208,616 5,659 3.62% 193,746 7,345 5.05%
Non-interest bearing liabilities 13,160 13,990
Stockholders' equity 19,340 20,592
-------- --------
Total liabilities/stockholders'
equity $241,116 $228,328
======== ========
Net interest income $ 5,821 $ 6,032
------- -------
Interest rate spread (average yield earned
minus average rate paid) 3.31% 3.44%
===== =====
Net interest margin (net interest income
divdied by average interst-earning assets) 3.51% 3.83%
===== =====
Analysis of Volume and Rate Changes
(in thousands)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Nine Months Ended September 30,
- ----------------------------------------------------------------------------
2002 Compared to 2001
Increase(Decrease) Due to
----------------------------------------
Rate Volume Net
----------------------------------------
Interest-earnings assets:
Loans $ (1,205) $ (979) $ (2,184)
Investment securities (710) 1,339 629
Mortgage-backed securities (39) (103) (142)
Other (217) 17 (200)
-------- ------- --------
Total net change in income on
interest-earning assets (2,171) 274 (1,897)
-------- ------- --------
Interest-bearing liabilities:
Deposits (2,173) 538 (1,635)
Other borrowings (42) (9) (51)
-------- ------- --------
Total net change in expense on
interest-bearing liabilities (2,215) 529 (1,686)
Net change in net interest income $ 44 $ (255) $ (211)
======== ======= ========
17
JACKSONVILLE BANCORP, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The Company's policy in recent years has been to reduce its exposure to interest
rate risk by better matching the maturities of its interest rate sensitive
assets and liabilities, selling its long-term fixed-rate residential mortgage
loans with terms of fifteen years or more to Freddie Mac, originating adjustable
rate loans, balloon loans with maturities ranging from three to five years, and
originating consumer, commercial, and agricultural loans which typically are for
a shorter duration and at higher rates of interest than one-to-four family
loans. The Company also maintains a portfolio of mortgage-backed securities,
virtually all of which have adjustable interest rates. The remaining investment
portfolio has been laddered to better match the interest-bearing liabilities.
With respect to liabilities, the Company has attempted to increase its savings
and transaction deposit accounts, which management believes are more resistant
to changes in interest rates than certificate accounts. The Board of Directors
appoints the Asset Liability Management Committee, which is responsible for
reviewing the Company's asset and liability policies. The Committee meets
quarterly to review interest rate risk and trends, as well as liquidity, capital
ratios, and requirements. The Board's policy establishes a goal for the
cumulative gap ratio within 15% for the one and three-year time frames. However,
the policy is meant to be flexible and allow the Committee to exceed these
limits to deal with rapidly changing conditions, such as the recent declines in
market interest rates. The following table illustrates the Company's estimated
interest rate sensitivity and cumulative gap positions as calculated as of
September 30, 2002.
Time to Maturity or
Repricing
< 1 Year 1-3 Years 3-5 Years > 5 Years Total
-----------------------------------------------------------------
(Dollars in Thousands)
Rate Sensitive Assets:
Net loans (1) $ 44,848 $ 65,725 $ 20,829 $ 15,780 $147,182
Loans held for sale 4,008 - - - 4,008
Mortgage-backed securities 3,051 7 30 - 3,088
Investment securities 8,496 4,736 9,953 41,645 64,830
Federal funds sold 2,000 - - - 2,000
Interest bearing deposits 5,389 - - - 5,389
-------- -------- -------- -------- --------
Total $ 67,792 $ 70,468 $ 30,812 $ 57,425 $226,497
======== ======== ======== ======== ========
Rate Sensitive Liabilities
NOW and MMDA 3,360 6,721 6,721 16,807 33,609
Savings 2,520 5,040 5,040 12,600 25,200
Time deposits 109,200 37,704 3,735 - 150,639
Repurchase agreements 3,758 - - - 3,758
Total $118,838 $ 49,465 $ 15,496 $ 29,407 $213,206
Cumulative Gap (RSA-RSL) $(51,046) $(30,043) $(14,727) $ 13,291 $ 13,291
=================================================================
Cum. Gap / Total Assets -20.59% -12.12% -5.94% 5.36%
===========================================================
(1) Excludes nonaccrual loans
18
JACKSONVILLE BANCORP, INC.
CONTROLS AND PROCEDURES
- --------------------------------------------------------------------------------
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation within 90 days prior to filing date of this
report, that the Company's disclosure controls and procedures (as defined by the
Securities Exchange Act Rules 13a-14(c) and 15d-14(c)) are effective to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commissions' rules and forms.
CHANGES IN INTERNAL CONTROLS
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of the foregoing
evaluation.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
None.
Item 6. Exhibits
99.1 Section 906 Certification
Reports on Form 8-K
None.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JACKSONVILLE BANCORP, INC.
Registrant
Date: November 12, 2002 /s/ Richard A. Foss
-------------------------------------
Richard A. Foss
President and Chief Executive Officer
Date: November 12, 2002 /s/ Diana S. Tone
-------------------------------------
Diana S. Tone
Chief Financial Officer
21
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Richard A. Foss, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jacksonville
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
22
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002 /s/ Richard A. Foss
-------------------------------------
Richard A. Foss
President and Chief Executive Officer
23
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Diana S. Tone, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jacksonville
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
24
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002 /s/ Diana S. Tone
-------------------------------------
Diana S. Tone
Chief Financial Officer
25
EXHIBITS
Exhibit 99.1
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Richard A. Foss, President and Chief Executive Officer, and Diana S. Tone, Chief
Financial Officer of Jacksonville Bancorp, Inc. (the "Company"), each certify in
his/her capacity as an officer of the Company that he/she has reviewed the
Quarterly Report of the Company on Form 10-Q for the quarter ended September 30,
2002 and that to the best of his/her knowledge:
1. the report fully complies with the requirements of Sections 13(a) of the
Securities Exchange Act of 1934; and
2. the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
Date: November 12, 2002 /s/ Richard A. Foss
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Richard A. Foss
President and Chief Executive Officer
Date: November 12, 2002 /s/ Diana S. Tone
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Diana S. Tone
Chief Financial Officer