Attached files
file | filename |
---|---|
EX-32.1 - EXHIBIT 32.1 - Jacksonville Bancorp, Inc. | ex32-1.htm |
EX-31.1 - EXHIBIT 31.1 - Jacksonville Bancorp, Inc. | ex31-1.htm |
EX-31.2 - EXHIBIT 31.2 - Jacksonville Bancorp, Inc. | ex31-2.htm |
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 March 31,
2010
|
||
OR
|
||
o
|
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.
(Exact
name of registrant as specified in its charter)
Federal
|
33-1002258
|
(State
or other jurisdiction of incorporation)
|
(I.R.S.
Employer Identification Number)
|
1211
West Morton Avenue
|
|
Jacksonville,
Illinois
|
62650
|
(Address
of principal executive office)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (217) 245-4111
Indicate
by check 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
|
o No
|
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period the registrant was required to submit and
post such filings).
o Yes
|
o No
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
o Large
Accelerated Filer
|
o Accelerated
Filer
|
|
o Non-Accelerated
Filer
|
x Smaller
Reporting Company
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o Yes
|
x No
|
As of May
14, 2010, there were 1,920,817 shares (*) of the Registrant’s common stock
issued and outstanding.
(*) As
of May 14, 2010, 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
March
31, 2010
TABLE
OF CONTENTS
Page
|
||
PART
I
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Financial
Statements
|
|
Condensed
Consolidated Balance Sheets
|
1
|
|
Condensed
Consolidated Statements of Income
|
2
|
|
Condensed
Consolidated Statement of Stockholders’ Equity
|
3
|
|
Condensed
Consolidated Statements of Cash Flows
|
4-5
|
|
Notes
to the Condensed Consolidated Financial Statements
|
6-18
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19-30
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
31-32
|
Item
4.T
|
Controls
and Procedures
|
33
|
PART
II
|
OTHER
INFORMATION
|
34
|
Item
1.
|
Legal
Proceedings
|
|
Item
1.A.
|
Risk
Factors
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
Item
4.
|
Removed
and Reserved
|
|
Item
5.
|
Other
Information
|
|
Item
6.
|
Exhibits
|
|
Signatures
|
35
|
|
EXHIBITS
|
||
Section
302 Certifications
|
||
Section
906 Certification
|
PART
I – FINANCIAL INFORMATION
JACKSONVILLE
BANCORP, INC.
|
||||||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
||||||||
March
31,
|
December
31,
|
|||||||
ASSETS
|
2010
|
2009
|
||||||
(Unaudited)
|
||||||||
Cash
and cash equivalents
|
$ | 14,792,417 | $ | 15,696,474 | ||||
Investment
securities - available for sale
|
46,563,366 | 37,196,298 | ||||||
Mortgage-backed
securities - available for sale
|
36,641,884 | 40,984,395 | ||||||
Federal
Home Loan Bank stock
|
1,108,606 | 1,108,606 | ||||||
Other
investment securities
|
146,836 | 149,902 | ||||||
Loans
receivable - net of allowance for loan losses of $2,555,330 and $2,290,001
as of
|
||||||||
March
31, 2010 and December 31, 2009
|
170,668,909 | 173,683,310 | ||||||
Loans
held for sale - net
|
149,542 | 814,074 | ||||||
Premises
and equipment - net
|
5,676,830 | 5,766,858 | ||||||
Cash
surrender value of life insurance
|
4,145,470 | 4,094,663 | ||||||
Accrued
interest receivable
|
2,071,770 | 1,988,394 | ||||||
Goodwill
|
2,726,567 | 2,726,567 | ||||||
Capitalized
mortgage servicing rights, net of valuation allowance of $139,924 and
$156,442
|
||||||||
as
of March 31, 2010 and December 31, 2009
|
848,475 | 850,313 | ||||||
Real
estate owned
|
628,672 | 382,879 | ||||||
Deferred
income taxes
|
764,427 | 724,139 | ||||||
Income
taxes receivable
|
175,848 | 269,260 | ||||||
Other
assets
|
2,322,146 | 2,410,340 | ||||||
Total
Assets
|
$ | 289,431,765 | $ | 288,846,472 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Deposits
|
$ | 255,138,465 | $ | 254,700,223 | ||||
Other
borrowings
|
3,280,319 | 3,789,453 | ||||||
Advance
payments by borrowers for taxes and insurance
|
852,043 | 508,356 | ||||||
Accrued
interest payable
|
671,079 | 734,903 | ||||||
Deferred
compensation payable
|
2,864,456 | 2,826,227 | ||||||
Other
liabilities
|
1,037,978 | 1,023,890 | ||||||
Total
liabilities
|
263,844,340 | 263,583,052 | ||||||
Commitments
and contingencies
|
- | - | ||||||
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
|
||||||||
1,987,904
shares as of March 31, 2010 and December 31, 2009
|
19,879 | 19,879 | ||||||
Additional
paid-in-capital
|
6,634,591 | 6,634,591 | ||||||
Retained
earnings
|
18,832,207 | 18,399,506 | ||||||
Less:
Treasury stock of 67,087 shares, at cost, as of March 31, 2010 and
December 31, 2009
|
(486,381 | ) | (486,381 | ) | ||||
Accumulated
other comprehensive income
|
587,129 | 695,825 | ||||||
Total
stockholders' equity
|
25,587,425 | 25,263,420 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 289,431,765 | $ | 288,846,472 | ||||
See
accompanying notes to the unaudited condensed consolidated financial
statements.
|
1
JACKSONVILLE
BANCORP, INC.
|
||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
||||||||
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
||||||||
INTEREST
INCOME:
|
||||||||
Loans
|
$ | 2,671,261 | $ | 2,977,876 | ||||
Investment
securities
|
399,634 | 462,045 | ||||||
Mortgage-backed
securities
|
160,878 | 329,321 | ||||||
Other
|
2,449 | 4,375 | ||||||
Total
interest income
|
3,234,222 | 3,773,617 | ||||||
INTEREST
EXPENSE:
|
||||||||
Deposits
|
1,052,574 | 1,439,296 | ||||||
Other
borrowings
|
2,180 | 51,764 | ||||||
Total
interest expense
|
1,054,754 | 1,491,060 | ||||||
NET
INTEREST INCOME
|
2,179,468 | 2,282,557 | ||||||
PROVISION
FOR LOAN LOSSES
|
275,000 | 350,000 | ||||||
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
1,904,468 | 1,932,557 | ||||||
NON-INTEREST
INCOME:
|
||||||||
Fiduciary
activities
|
42,421 | 47,527 | ||||||
Commission
income
|
260,943 | 137,439 | ||||||
Service
charges on deposit accounts
|
231,219 | 149,097 | ||||||
Mortgage
banking operations, net
|
48,503 | 281,941 | ||||||
Net
realized gains on sales of available-for-sale securities
|
140,028 | 59,315 | ||||||
Loan
servicing fees
|
92,608 | 85,986 | ||||||
Other
|
135,408 | 144,276 | ||||||
Total
non-interest income
|
951,130 | 905,581 | ||||||
NON-INTEREST
EXPENSE:
|
||||||||
Salaries
and employee benefits
|
1,389,110 | 1,351,640 | ||||||
Occupancy
and equipment
|
260,035 | 271,806 | ||||||
Data
processing
|
98,805 | 73,488 | ||||||
Professional
|
37,065 | 42,085 | ||||||
Marketing
|
28,144 | 30,808 | ||||||
Postage
and office supplies
|
68,634 | 76,575 | ||||||
Deposit
insurance premium
|
103,030 | 106,301 | ||||||
Other
|
262,800 | 262,879 | ||||||
Total
non-interest expense
|
2,247,623 | 2,215,582 | ||||||
INCOME
BEFORE INCOME TAXES
|
607,975 | 622,556 | ||||||
INCOME
TAXES
|
109,118 | 121,306 | ||||||
NET
INCOME
|
$ | 498,857 | $ | 501,250 | ||||
NET
INCOME PER COMMON SHARE - BASIC
|
$ | 0.26 | $ | 0.26 | ||||
NET
INCOME PER COMMON SHARE - DILUTED
|
$ | 0.26 | $ | 0.26 | ||||
See
accompanying notes to the unaudited condensed consolidated financial
statements.
|
2
JACKSONVILLE
BANCORP, INC.
|
||||||||||||||||||||||||||||
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||||||
Common
|
Paid-in
|
Treasury
|
Retained
|
Comprehensive
|
Stockholders'
|
Comprehensive
|
||||||||||||||||||||||
(Unaudited)
|
Stock
|
Capital
|
Stock
|
Earnings
|
Income
|
Equity
|
Income
|
|||||||||||||||||||||
BALANCE,
DECEMBER 31, 2009
|
$ | 19,879 | $ | 6,634,591 | $ | (486,381 | ) | $ | 18,399,506 | $ | 695,825 | $ | 25,263,420 | |||||||||||||||
Net
Income
|
- | - | 498,857 | - | 498,857 | $ | 498,857 | |||||||||||||||||||||
Other
comprehensive income(loss) - change in
|
||||||||||||||||||||||||||||
net
unrealized gains on securities available-
|
||||||||||||||||||||||||||||
for-sale,
net of taxes of $(103,604)
|
- | - | - | - | (201,114 | ) | (201,114 | ) | (201,114 | ) | ||||||||||||||||||
Less:
reclassification adjustment for gains
|
||||||||||||||||||||||||||||
included
in net income, net of tax of $47,610
|
- | - | - | 92,418 | 92,418 | 92,418 | ||||||||||||||||||||||
Comprehensive
Income
|
- | $ | 390,161 | |||||||||||||||||||||||||
Dividends
($0.075 per share)
|
- | - | - | (66,156 | ) | - | (66,156 | ) | ||||||||||||||||||||
BALANCE,
MARCH 31, 2010
|
$ | 19,879 | $ | 6,634,591 | $ | (486,381 | ) | $ | 18,832,207 | $ | 587,129 | $ | 25,587,425 | |||||||||||||||
See
accompanying notes to unaudited condensed consolidated financial
statements.
|
3
JACKSONVILLE
BANCORP, INC.
|
||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 498,857 | $ | 501,250 | ||||
Adjustments
to reconcile net income to net cash provided
|
||||||||
by
operating activities:
|
||||||||
Depreciation,
amortization and accretion:
|
||||||||
Premises
and equipment
|
92,980 | 102,146 | ||||||
Amortization
of investment premiums and discounts, net
|
316,339 | 58,135 | ||||||
Net
realized gains on sales of available-for-sale securities
|
(140,028 | ) | (59,315 | ) | ||||
Compensation
expense related to stock options
|
- | 240 | ||||||
Provision
for loan losses
|
275,000 | 350,000 | ||||||
Mortgage
banking operations, net
|
(48,503 | ) | (281,941 | ) | ||||
Loss
(gain) on sale of real estate owned
|
3,304 | (10,390 | ) | |||||
Changes
in income taxes payable
|
93,412 | 1,842 | ||||||
Changes
in assets and liabilities
|
(41,789 | ) | 598,810 | |||||
Net
cash provided by operations before loan sales
|
1,049,572 | 1,260,777 | ||||||
Origination
of loans for sale to secondary market
|
(4,178,138 | ) | (32,569,702 | ) | ||||
Proceeds
from sales of loans to secondary market
|
4,893,011 | 32,592,843 | ||||||
Net
cash provided by operating activities
|
1,764,445 | 1,283,918 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of investment and mortgage-backed securities
|
(25,500,252 | ) | (16,269,304 | ) | ||||
Maturity
or call of investment securities available-for-sale
|
3,500,000 | 5,580,000 | ||||||
Sale
of investment securities available-for-sale
|
12,555,212 | 8,276,567 | ||||||
Principal
payments on mortgage-backed and investment securities
|
4,082,547 | 1,659,333 | ||||||
Proceeds
from sale of real estate owned
|
94,386 | 276,107 | ||||||
Net
decrease in loans
|
2,395,918 | 1,967,375 | ||||||
Additions
to premises and equipment
|
(2,952 | ) | (7,287 | ) | ||||
Net
cash provided by (used in) investing activities
|
(2,875,141 | ) | 1,482,791 | |||||
(Continued)
|
4
JACKSONVILLE
BANCORP, INC.
|
||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
|
||||||||
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net
increase in deposits
|
$ | 438,242 | $ | 19,118,107 | ||||
Net
decrease in other borrowings
|
(509,134 | ) | (10,450,066 | ) | ||||
Increase
in advance payments by borrowers for taxes and insurance
|
343,687 | 256,564 | ||||||
Purchase
of treasury stock
|
- | (486,381 | ) | |||||
Dividends
paid - common stock
|
(66,156 | ) | (66,231 | ) | ||||
Net
cash provided by financing activities
|
206,639 | 8,371,993 | ||||||
NET
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
|
(904,057 | ) | 11,138,702 | |||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
15,696,474 | 7,145,288 | ||||||
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$ | 14,792,417 | $ | 18,283,990 | ||||
ADDITIONAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
on deposits
|
$ | 1,113,398 | $ | 1,420,633 | ||||
Interest
on other borrowings
|
5,180 | 73,264 | ||||||
Income
taxes paid
|
- | 100,000 | ||||||
NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Real
estate acquired in settlement of loans
|
$ | 343,483 | $ | - | ||||
Loans
to facilitate sales of real estate owned
|
- | 188,500 | ||||||
See
accompanying notes to unaudited condensed consolidated financial
statements
|
5
JACKSONVILLE
BANCORP, INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
FINANCIAL
STATEMENTS
|
The
accompanying interim condensed 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, Inc. collectively (the
“Company”). All significant intercompany accounts and
transactions have been eliminated.
|
|
In
the opinion of management, the preceding unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial condition of
the Company as of March 31, 2010 and December 31, 2009 and the results of
its operations for the three month periods ended March 31, 2010 and
2009. The results of operations for the three month period
ended March 31, 2010 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, 2009
filed as an exhibit to the Company’s Form 10-K filed in March,
2010. The accounting and reporting policies of the Company
conform to accounting principles generally accepted in the United States
of America (GAAP) and to prevailing practices within the
industry.
|
|
Certain
amounts included in the 2009 consolidated statements have been
reclassified to conform to the 2010 presentation.
|
|
2.
|
NEW
ACCOUNTING PRONOUNCEMENTS
|
In
June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140” which was
codified into ASC Topic 860. Topic 860 seeks to improve the
relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements
about a transfer of financial assets; the effects of a transfer on its
financial position, financial performance, and cash flows; and a
transferor’s continuing involvement, if any, in transferred financial
assets. Topic 860 addresses (1) practices that have developed
since the issuance of SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,”
that are not consistent with the original intent and key requirements of
that Statement and (2) concerns of financial statement users that many of
the financial assets (and related obligations) that have been derecognized
should continue to be reported in the financial statements of
transferors. This standard must be applied as of the beginning
of each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods
thereafter. Earlier application is prohibited. This
standard must be applied to transfers occurring on or after the effective
date. We adopted ASC Topic 860 on January 1, 2010, and there
was no impact to our financial statements.
|
|
In
June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R) ,” which was codified into ASC Topic
810. Topic 810 seeks to improve financial reporting by
enterprises involved with variable interest entities by addressing (1) the
effects on certain provisions of FASB Interpretation No. 46 (revised
December 2003), “Consolidation of Variable
Interest Entities,” as a result of the elimination of the
qualifying special-purpose entity concept in SFAS No. 166, and (2)
constituent concerns about the application of certain key provisions of
Interpretation 46(R), including those in which the accounting and
disclosures under the Interpretation do not always provide timely and
useful information about an enterprise’s involvement in a variable
interest entity. This Statement shall be effective as of the beginning of
each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. We
adopted ASC Topic 810 on January 1, 2010, and there was no impact to our
financial statements.
|
6
In
January 2010, the Financial Standards Accounting Board issued Accounting
Standards Update (“ASU”) No. 2010-06, Improving Disclosures About
Fair Value Measurements, which added disclosure requirements about
transfers in and out of Levels 1 and 2, clarified existing fair value
disclosure requirements about the appropriate level of disaggregation, and
clarified that a description of valuation techniques and inputs used to
measure fair value was required for recurring and nonrecurring Level 2 and
Level 3 fair value measurements. The Company adopted these
provisions of the ASU in preparing the Consolidated Financial Statements
for the period ended March 31, 2010. The adoption of these
provisions of the ASU, which was subsequently codified into Accounting
Standards Codification Topic 820, Fair Value Measurements and
Disclosures, only affected the disclosure requirements for fair
value measurements and as a result had no impact on the Company’s
statements of income and condition. See Note 7 to the
Consolidated Financial Statements for the disclosures required by this
ASU.
|
|
This
ASU also requires that Level 3 activity about purchases, sales, issuances,
and settlements be presented on a gross basis rather than as a net number
as currently permitted. This provision of the ASU is effective
for the Company’s reporting period ending March 31, 2011. As
this provision amends only the disclosure requirements for fair value
measurements, the adoption will have no impact on the Company’s statements
of income and condition.
|
7
3.
|
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.
|
|
The
following reflects earnings per share calculations for basic and diluted
methods:
|
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2010
|
2009
|
|||||||
Net
income available to common shareholders
|
$ | 498,857 | $ | 501,250 | ||||
Basic
average shares outstanding
|
1,920,817 | 1,946,906 | ||||||
|
||||||||
Diluted
potential common shares:
|
||||||||
Stock
option equivalents
|
3,559 | - | ||||||
Diluted
average shares outstanding
|
1,924,376 | 1,946,906 | ||||||
Basic
earnings per share
|
$ | 0.26 | $ | 0.26 | ||||
Diluted
earnings per share
|
$ | 0.26 | $ | 0.26 |
Stock
options for 4,500 shares of common stock and 33,345 shares of common stock
were not considered in computing diluted earnings per share for the three
month periods ending March 31, 2010 and 2009, respectively, because they
were anti-dilutive.
|
8
4.
|
LOAN
PORTFOLIO COMPOSITION
|
At
March 31, 2010 and December 31, 2009, the composition of the Company’s
loan portfolio is shown below.
|
March 31, 2010
|
December 31, 2009
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
Real
estate loans:
|
||||||||||||||||
One-to-four
family residential
|
$ | 38,720,165 | 22.7 | % | $ | 38,580,967 | 22.2 | % | ||||||||
Commercial
and agricultural
|
54,461,463 | 31.9 | 56,650,264 | 32.6 | ||||||||||||
Multi-family
residential
|
4,304,176 | 2.5 | 4,343,531 | 2.5 | ||||||||||||
Total
real estate loans
|
97,485,804 | 57.1 | 99,574,762 | 57.3 | ||||||||||||
Commercial
and agricultural business loans
|
33,468,425 | 19.6 | 34,393,456 | 19.8 | ||||||||||||
Consumer
loans:
|
||||||||||||||||
Home
equity/home improvement
|
27,261,577 | 16.0 | 28,119,373 | 16.2 | ||||||||||||
Automobile
|
6,160,782 | 3.6 | 6,117,802 | 3.5 | ||||||||||||
Other
|
8,849,544 | 5.2 | 7,836,674 | 4.5 | ||||||||||||
Total
consumer loans
|
42,271,903 | 24.8 | 42,073,849 | 24.2 | ||||||||||||
Total
loans receivable
|
173,226,132 | 101.5 | 176,042,067 | 101.3 | ||||||||||||
Less:
|
||||||||||||||||
Net
deferred loan fees, premiums and discounts
|
1,893 | - | 68,756 | - | ||||||||||||
Allowance
for loan losses
|
2,555,330 | 1.5 | 2,290,001 | 1.3 | ||||||||||||
Total
loans receivable, net
|
$ | 170,668,909 | 100.0 | % | $ | 173,683,310 | 100.0 | % |
Activity
in the allowance for loan losses was as
follows:
|
March 31, 2010
|
March 31, 2009
|
|||||||
Balance,
beginning of year
|
$ | 2,290,001 | $ | 1,934,072 | ||||
Provision
charged to expense
|
275,000 | 350,000 | ||||||
Losses
charged off, net of recoveries of $36,526
|
||||||||
and
$7,519 for March 31, 2010 and 2009
|
(9,671 | ) | (1,605 | ) | ||||
Balance,
end of period
|
$ | 2,555,330 | $ | 2,282,467 |
9
5.
|
INVESTMENTS
|
The
amortized cost and approximate fair value of securities, all of which are
classified as available-for-sale, are as
follows:
|
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
||||||||||||||
Cost
|
Gains
|
Losses
|
Fair
Value
|
|||||||||||||
March
31, 2010:
|
||||||||||||||||
U.S.
government and agencies
|
$ | 15,971,843 | $ | 50,306 | $ | (61,188 | ) | $ | 15,960,961 | |||||||
Mortgage-backed
securities (government-
|
||||||||||||||||
sponsored
enterprises - residential)
|
36,066,701 | 632,483 | (57,300 | ) | 36,641,884 | |||||||||||
Municipal
bonds
|
30,277,116 | 467,407 | (142,118 | ) | 30,602,405 | |||||||||||
$ | 82,315,660 | $ | 1,150,196 | $ | (260,606 | ) | $ | 83,205,250 | ||||||||
December
31, 2009:
|
||||||||||||||||
U.S.
government and agencies
|
$ | 9,036,752 | $ | 70,820 | $ | (27,556 | ) | $ | 9,080,016 | |||||||
Mortgage-backed
securities (government-
|
||||||||||||||||
sponsored
enterprises - residential)
|
40,428,279 | 610,634 | (54,518 | ) | 40,984,395 | |||||||||||
Municipal
bonds
|
27,661,381 | 531,363 | (76,462 | ) | 28,116,282 | |||||||||||
$ | 77,126,412 | $ | 1,212,817 | $ | (158,536 | ) | $ | 78,180,693 |
The
amortized cost and fair value of available-for-sale securities at March
31, 2010, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
|
Amortized
|
Fair
|
|||||||
Cost
|
Value
|
|||||||
Within
one year
|
$ | 316,037 | $ | 317,094 | ||||
One
to five years
|
7,766,149 | 7,898,798 | ||||||
Five
to ten years
|
24,489,600 | 24,613,610 | ||||||
After
ten years
|
13,677,173 | 13,733,864 | ||||||
46,248,959 | 46,563,366 | |||||||
Mortgage-backed
securities (government-
|
||||||||
sponsored
enterprises - residential)
|
36,066,701 | 36,641,884 | ||||||
$ | 82,315,660 | $ | 83,205,250 |
The
carrying value of securities pledged as collateral, to secure public
deposits and for other purposes, was $27,549,000 at March 31, 2010 and
$31,178,000 at December 31, 2009.
|
|
The
book value of securities sold under agreement to repurchase amounted to
$3,280,000 at March 31, 2010 and $3,789,000 at December 31,
2009.
|
|
Gross
gains of $140,000 and $59,000 and gross losses of $0 resulting from sales
of available-for-sale securities were realized during the three months
ended March 31, 2010 and 2009, respectively.
|
|
Certain
investments in debt securities are reported in the financial statements at
an amount less than their historical cost. Total fair value of
these investments at March 31, 2010 was $27,095,000, which is
approximately 33% of the Company’s available-for-sale investment
portfolio.
|
10
Management
believes the declines in fair value for these securities are
temporary. Should the impairment of any of these securities
become other than temporary, the cost basis of the investment will be
reduced and the resulting loss recognized in net income in the period the
other-than-temporary impairment is identified.
|
|
The
following table shows the gross unrealized losses and fair value,
aggregated by investment category and length of time that individual
securities have been in a continuous loss position, at March 31,
2010.
|
Less
Than Twelve Months
|
Twelve
Months or More
|
Total
|
||||||||||||||||||||||
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
|||||||||||||||||||
Losses
|
Value
|
Losses
|
Value
|
Losses
|
Value
|
|||||||||||||||||||
Municipal
bonds
|
$ | (142,118 | ) | $ | 9,777,119 | $ | - | $ | - | $ | (142,118 | ) | $ | 9,777,119 | ||||||||||
U.S.
government and agencies
|
(61,188 | ) | 8,864,013 | - | - | (61,188 | ) | 8,864,013 | ||||||||||||||||
Subtotal
|
(203,306 | ) | 18,641,132 | - | - | (203,306 | ) | 18,641,132 | ||||||||||||||||
Mortgage-backed
securities
|
||||||||||||||||||||||||
(government
sponsored
|
||||||||||||||||||||||||
enterprises
- residential)
|
(57,300 | ) | 8,454,016 | - | - | (57,300 | ) | 8,454,016 | ||||||||||||||||
Total
|
$ | (260,606 | ) | $ | 27,095,148 | $ | - | $ | - | $ | (260,606 | ) | $ | 27,095,148 |
The
unrealized losses on the Company’s investments in municipal bonds, U.S.
government and agencies, and mortgage-backed securities were caused by
interest rate increases. The contractual terms of these
investments do not permit the issuer to settle the securities at a price
less than the amortized cost bases of the investments. Because
the Company does not intend to sell the investments and it is not more
likely than not the Company will be required to sell the investments
before recovery of their amortized cost bases, which may be maturity, the
Company does not consider these investments to be other-than-temporarily
impaired at March 31, 2010.
|
11
6.
|
ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
|
Other
comprehensive income (loss) components and related taxes were as
follows:
|
March 31, 2010
|
March 31, 2009
|
|||||||
Net
unrealized gain (loss) on securities available-for-sale
|
$ | (24,663 | ) | $ | 135,871 | |||
Less
reclassification adjustment for realized (gains)
|
||||||||
losses
included in income
|
140,028 | 59,315 | ||||||
Other
comprehensive income (loss) before tax effect
|
(164,691 | ) | 76,556 | |||||
Tax
expense (benefit)
|
55,995 | (25,435 | ) | |||||
Other
comprehensive income (loss)
|
$ | (108,696 | ) | $ | 51,121 |
The
components of accumulated other comprehensive income, included in
stockholders’ equity, are as
follows:
|
March 31, 2010
|
March 31, 2009
|
|||||||
Net
unrealized gain on securities available-for-sale
|
$ | 889,590 | $ | 588,683 | ||||
Tax
effect
|
(302,461 | ) | (200,152 | ) | ||||
Net-of-tax
amount
|
$ | 587,129 | $ | 388,531 |
7.
|
DISCLOSURES
ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
|
|
The
components of accumulated other comprehensive income, included in
stockholders’ equity, are as follows:
|
||
ASC
Topic 820, Fair Value
Measurements defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Topic 820
also specifies a fair value hierarchy which requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. The standard describes three levels
of inputs that may be used to measure fair value:
|
||
Level
1
|
Quoted
prices in active markets for identical assets or
liabilities
|
|
Level
2
|
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or
liabilities
|
|
Level
3
|
Unobservable
inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or
liabilities
|
|
Following
is a description of the valuation methodologies used for assets and
liabilities measured at fair value on a recurring basis and recognized in
the accompanying consolidated balance sheets, as well as the general
classification of such assets and liabilities pursuant to the valuation
hierarchy.
|
12
Available-for-Sale Securities
- Where quoted market prices are available in an active market,
securities are classified within Level 1 of the valuation
hierarchy. The Company has no Level 1 securities. If
quoted market prices are not available, then fair values are estimated by
using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows. For those
investments, the inputs used by the pricing service to determine fair
value may include one, or a combination of, observable inputs such as
benchmark yields, reported trades, broker/dealer quotes, issuer spreads,
two-sided markets, benchmark securities, bids, offers, and reference data
market research publications are classified within Level 2 of the
valuation hierarchy. Level 2 securities include U.S. Government
and agencies, mortgage-backed securities (Government-sponsored enterprises
– residential) and municipal bonds. In certain cases where
Level 1 or Level 2 inputs are not available, securities are classified
within Level 3 of the hierarchy. The Company did not have
securities considered Level 3 as of March 31, 2010.
|
|
The
following table presents the fair value measurements of assets and
liabilities recognized in the accompanying balance sheets measured at fair
value on a recurring basis and the level within the fair value hierarchy
in which the fair value measurements fall at March 31, 2010 and December
31, 2009:
|
March
31, 2010
|
Fair
Value Measurements Using
|
|||||||||||||||
Quoted
Prices
|
||||||||||||||||
in
Active
|
Significant
|
|||||||||||||||
Markets for
|
Other
|
Significant
|
||||||||||||||
Identical
|
Observable
|
Unobservable
|
||||||||||||||
Assets
|
Inputs
|
Inputs
|
||||||||||||||
Fair
Value
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
U.S.
Government and
|
||||||||||||||||
agencies
|
$ | 15,960,961 | $ | - | $ | 15,960,961 | $ | - | ||||||||
Mortgage-backed
securities
|
||||||||||||||||
(Government
sponsored
|
||||||||||||||||
enterprises
- residential)
|
30,602,405 | - | 30,602,405 | - | ||||||||||||
Municipal
bonds
|
36,641,884 | - | 36,641,884 | - |
December
31, 2009
|
Fair
Value Measurements Using
|
|||||||||||||||
Quoted
Prices
|
||||||||||||||||
in
Active
|
Significant
|
|||||||||||||||
Markets for
|
Other
|
Significant
|
||||||||||||||
Identical
|
Observable
|
Unobservable
|
||||||||||||||
Assets
|
Inputs
|
Inputs
|
||||||||||||||
Fair
Value
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
U.S.
Government and
|
||||||||||||||||
agencies
|
$ | 9,080,016 | $ | - | $ | 9,080,016 | $ | - | ||||||||
Mortgage-backed
securities
|
||||||||||||||||
(Government
sponsored
|
||||||||||||||||
enterprises
- residential)
|
40,984,395 | - | 40,984,395 | - | ||||||||||||
Municipal
bonds
|
28,116,282 | - | 28,116,282 | - |
13
Following
is a description of the valuation methodologies used for assets and
liabilities measured at fair value on a nonrecurring basis and recognized
in the accompanying balance sheets, as well as the general classification
of such assets and liabilities pursuant to the valuation
hierarchy.
|
|
Impaired Loans (Collateral
Dependent) - Loans for which it is probable that the Company will
not collect all principal and interest due according to contractual terms
are measured for impairment. Allowable methods for determining
the amount of impairment include estimating fair value using the fair
value of the collateral for collateral dependent loans.
|
|
If
the impaired loan is identified as collateral dependent, then the fair
value method of measuring the amount of impairment is
utilized. This method requires obtaining a current independent
appraisal of the collateral and applying a discount factor to the
value.
|
|
Impaired
loans that are collateral dependent are classified within Level 3 of the
fair value hierarchy when impairment is determined using the fair value
method.
|
|
Mortgage Servicing Rights
- The fair value used to determine the valuation allowance is
estimated using discounted cash flow models. Due to the nature
of the valuation inputs, mortgage servicing rights are classified within
Level 3 of the hierarchy.
|
|
Foreclosed Assets –
Foreclosed assets consist primarily of real estate owned. Real
estate owned acquired through loan foreclosure is initially recorded at
fair value less costs to sell when acquired, establishing a new cost
basis. The adjustment at the time of foreclosure is recorded
through the allowance for loan losses. Due to the subjective
nature of establishing the fair value when the asset is acquired, the
actual fair value of the real estate owned or foreclosed asset could
differ from the original estimate and are classified within Level 3 of the
fair value hierarchy. If it is determined the fair value
declines subsequent to foreclosure, a valuation allowance is recorded
through non-interest expense. Operating costs associated with
the assets after acquisition are also recorded as non-interest
expense. Gains and losses on the disposition of real estate
owned and foreclosed assets are netted and posted to non-interest
expense.
|
|
The
following table presents the fair value measurement of assets and
liabilities measured at fair value on a nonrecurring basis and the level
within the fair value hierarchy in which the fair value measurements fall
at March 31, 2010 and December 31,
2009:
|
March
31, 2010
|
Fair
Value Measurements Using
|
|||||||||||||||
Quoted
Prices
|
||||||||||||||||
in
Active
|
Significant
|
|||||||||||||||
Markets for
|
Other
|
Significant
|
||||||||||||||
Identical
|
Observable
|
Unobservable
|
||||||||||||||
Assets
|
Inputs
|
Inputs
|
||||||||||||||
Fair
Value
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
Impaired
loans
|
||||||||||||||||
(collateral
dependent)
|
$ | 2,645,461 | $ | - | $ | - | $ | 2,645,461 | ||||||||
Mortgage
servicing rights
|
848,475 | 848,475 | ||||||||||||||
Foreclosed
assets
|
628,672 | - | - | 628,672 |
14
December
31, 2009
|
Fair
Value Measurements Using
|
|||||||||||||||
Quoted
Prices
|
||||||||||||||||
in
Active
|
Significant
|
|||||||||||||||
Markets for
|
Other
|
Significant
|
||||||||||||||
Identical
|
Observable
|
Unobservable
|
||||||||||||||
Assets
|
Inputs
|
Inputs
|
||||||||||||||
Fair
Value
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
Impaired
loans
|
||||||||||||||||
(collateral
dependent)
|
$ | 3,145,003 | $ | - | $ | - | $ | 3,154,003 | ||||||||
Mortgage
servicing rights
|
850,313 | 850,313 | ||||||||||||||
Foreclosed
assets
|
382,879 | - | - | 382,879 |
The
following methods were used to estimate the fair value of all other
financial instruments recognized in the accompanying balance sheets at
amounts other than fair value.
|
|
Cash and Cash Equivalents and
Federal Home Loan Bank Stock - The carrying amount approximates
fair value.
|
|
Other Investments - The
carrying amount approximates fair value.
|
|
Loans Held for Sale -
For homogeneous categories of loans, such as mortgage loans held for sale,
fair value is estimated using the quoted market prices for securities
backed by similar loans, adjusted for differences in loan
characteristics.
|
|
Loans - The fair value
of loans is estimated by discounting the future cash flows using the
market rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining
maturities. Loans with similar characteristics were aggregated
for purposes of the calculations. The carrying amount of
accrued interest approximates its fair value.
|
|
Deposits - Deposits
include demand deposits, savings accounts, NOW accounts and certain money
market deposits. The carrying amount approximates fair
value. The fair value of fixed-maturity time deposits is
estimated using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining
maturities.
|
|
Short-term Borrowings, Interest
Payable, and Advances from Borrowers for Taxes and Insurance - The
carrying amount approximates fair value.
|
|
Federal Home Loan Bank Advances
- Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate the fair value of
existing debt. Fair value of long-term debt is based on quoted
market prices or dealer quotes for the identical liability when traded as
an asset in an active market. If a quoted market price is not
available, an expected present value technique is used to estimate fair
value.
|
|
Commitments to Originate Loans,
Letters of Credit, and Lines of Credit - The fair value of
commitments to originate loans is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value
also considers the difference between current levels of interest rates and
the committed rates. The fair values of letters of credit and
lines of credit are based on fees currently charged for similar agreements
or on the estimated cost to terminate or otherwise settle the obligations
with the counterparties at the reporting
date.
|
15
The
following table presents estimated fair values of the Company’s financial
instruments at March 31, 2010 and December 31,
2009:
|
March 31, 2010
|
December 31, 2009
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
Financial
Assets
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 14,792,417 | $ | 14,792,417 | $ | 15,696,474 | $ | 15,696,474 | ||||||||
Available-for-sale
securities
|
83,205,250 | 83,205,250 | 78,180,693 | 78,180,693 | ||||||||||||
Other
investments
|
146,836 | 146,836 | 149,902 | 149,902 | ||||||||||||
Loans,
held for sale
|
149,542 | 149,542 | 814,074 | 814,074 | ||||||||||||
Loans,
net of allowance for loan losses
|
170,668,909 | 168,686,394 | 173,683,310 | 171,479,887 | ||||||||||||
Federal
Home Loan Bank stock
|
1,108,606 | 1,108,606 | 1,108,606 | 1,108,606 | ||||||||||||
Interest
receivable
|
2,071,770 | 2,071,770 | 1,988,394 | 1,988,394 | ||||||||||||
Financial
Liabilities
|
||||||||||||||||
Deposits
|
255,138,465 | 258,223,470 | 254,700,223 | 257,948,804 | ||||||||||||
Short-term
borrowings
|
3,280,319 | 3,280,319 | 3,789,453 | 3,789,453 | ||||||||||||
Advances
from borrowers for taxes
|
||||||||||||||||
and
insurance
|
852,043 | 852,043 | 508,356 | 508,356 | ||||||||||||
Interest
payable
|
671,079 | 671,079 | 734,903 | 734,903 | ||||||||||||
Unrecognized
financial instruments (net
|
||||||||||||||||
of
contract amount)
|
||||||||||||||||
Commitments
to originate loans
|
- | - | - | - | ||||||||||||
Letters
of credit
|
- | - | - | - | ||||||||||||
Lines
of credit
|
- | - | - | - |
8.
|
FEDERAL
HOME LOAN BANK STOCK
|
The
Company owns $1,108,606 of Federal Home Loan Bank stock as of March 31,
2010. The Federal Home Loan Bank of Chicago (FHLB) is operating
under a Cease and Desist Order from their regulator, the Federal Housing
Finance Board. The order prohibits capital stock repurchases
and redemptions until a time to be determined by the Federal Housing
Finance Board. The FHLB will continue to provide liquidity and
funding through advances. With regard to dividends, the FHLB
will continue to assess their dividend capacity each quarter and make
appropriate request for approval. The FHLB did not pay a
dividend during 2010 or 2009. Management performed an analysis
and deemed the cost method investment in FHLB stock is ultimately
recoverable and therefore not
impaired.
|
16
9.
|
MORTGAGE
SERVICING RIGHTS
|
Activity
in the balance of mortgage servicing rights, measured using the
amortization method, for the three month period ending March 31, 2010 and
the year ended December 31, 2009 was as
follows:
|
March 31, 2010
|
December 31, 2009
|
|||||||
Balance,
beginning of year
|
$ | 850,313 | $ | 545,494 | ||||
Servicing
rights capitalized
|
25,322 | 391,746 | ||||||
Amortization
of servicing rights
|
(43,678 | ) | (358,515 | ) | ||||
Change
in valuation allowance
|
16,518 | 271,588 | ||||||
Balance,
end of period
|
$ | 848,475 | $ | 850,313 |
Activity
in the valuation allowance for mortgage servicing rights for the three
month period ending March 31, 2010 and the year ended December 31, 2009
was as follows:
|
March 31, 2010
|
December 31, 2009
|
|||||||
Balance,
beginning of year
|
$ | 156,442 | $ | 428,030 | ||||
Additions
|
- | - | ||||||
Reductions
|
(16,518 | ) | (271,588 | ) | ||||
Balance,
end of period
|
$ | 139,924 | $ | 156,442 |
10.
|
INCOME
TAXES
|
A
reconciliation of income tax expense at the statutory rate to the
Company’s actual income tax expense for the three months ended March 31,
2010 and 2009 is shown below.
|
March 31, 2010
|
March 31, 2009
|
|||||||
Computed
at the statutory rate (34%)
|
$ | 206,712 | $ | 211,669 | ||||
Increase
(decrease) resulting from
|
||||||||
Tax
exempt interest
|
(94,004 | ) | (83,950 | ) | ||||
State
income taxes, net
|
25,192 | 22,163 | ||||||
Increase
in cash surrender value
|
(30,820 | ) | (30,450 | ) | ||||
Other,
net
|
2,038 | 1,874 | ||||||
Actual
tax expense
|
$ | 109,118 | $ | 121,306 |
17
11.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company is a defendant in legal actions arising from normal business
activities. Management, after consultation with legal counsel,
believes that the resolution of these actions will not have any material
adverse effect on the Company's consolidated financial
statements.
|
|
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
in the way of commitments to extend credit. 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 many 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 creditworthiness on a case-by-case
basis. Substantially all of the Company's loans are to
borrowers located in Cass, Morgan, Macoupin, Montgomery, and surrounding
counties in Illinois.
|
18
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
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, the effect of
the current severe disruption in financial markets and the United States
government programs introduced to restore stability and liquidity, changes in
interest rates, general economic conditions and the weakening state of the
United States economy, 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.
Critical
Accounting Policies and Use of Significant Estimates
In the
ordinary course of business, we have made a number of estimates and assumptions
relating to the reporting of results of operations and financial condition in
preparing our financial statements in conformity with accounting principles
generally accepted in the United States of America. Actual results
could differ significantly from those estimates under different assumptions and
conditions. Management believes the following discussion addresses
our most critical accounting policies and significant estimates, which are those
that are most important to the portrayal of our financial condition and results
and require management’s most difficult, subjective and complex judgements,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.
Allowance for Loan Losses -
The Company believes the allowance for loan losses is the critical accounting
policy that requires the most significant judgments and assumptions used in the
preparation of the consolidated financial statements. The allowance
for loan losses is a material estimate that is particularly susceptible to
significant changes in the near term and is established through a provision for
loan losses. The allowance is based upon past loan experience and
other factors which, in management’s judgement, deserve current recognition in
estimating loan losses. The evaluation includes a review of all loans
on which full collectibility may not be reasonably assured. Other
factors considered by management include the size and character of the loan
portfolio, concentrations of loans to specific borrowers or industries, existing
economic conditions and historical losses on each portfolio
category. In connection with the determination of the allowance for
loan losses, management obtains independent appraisals for significant
properties, which collateralize loans. Management uses the available
information to make such determinations. If circumstances differ
substantially from the assumptions used in making determinations, future
adjustments to the allowance for loan losses may be necessary and results of
operations could be affected. While we believe we have established
our existing allowance for loan losses in conformity with accounting principles
generally accepted in the United States of America, there can be no assurance
that regulators, in reviewing the Company’s loan portfolio, will not request an
increase in the allowance for loan losses. Because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that increases to the allowance will not be necessary if loan
quality deteriorates.
19
Other Real Estate Owned -
Other real estate owned acquired through loan foreclosures are initially
recorded at fair value less costs to sell when acquired, establishing a new cost
basis. The adjustment at the time of foreclosure is recorded through
the allowance for loan losses. Due to the subjective nature of
establishing fair value when the asset is acquired, the actual fair value of the
other real estate owned could differ from the original estimate. If
it is determined that fair value declines subsequent to foreclosure, the asset
is written down through a charge to non-interest expense. Operating
costs associated with the assets after acquisition are also recorded as
non-interest expense. Gains and losses on the disposition of other
real estate owned are netted and posted to non-interest expense.
Deferred Income Tax
Assets/Liabilities – Our net deferred income tax asset arises from
differences in the dates that items of income and expense enter into our
reported income and taxable income. Deferred tax assets and
liabilities are established for these items as they arise. From an
accounting standpoint, deferred tax assets are reviewed to determine that they
are realizable based upon the historical level of our taxable income, estimates
of our future taxable income and the reversals of deferred tax
liabilities. In most cases, the realization of the deferred tax asset
is based on our future profitability. If we were to experience net
operating losses for tax purposes in a future period, the realization of our
deferred tax assets would be evaluated for a potential valuation
reserve.
Impairment of Goodwill -
Goodwill, an intangible asset with an indefinite life, was recorded on
our balance sheet in prior periods as a result of acquisition
activity. Goodwill is evaluated for impairment annually, unless there
are factors present that indicate a potential impairment, in which case, the
goodwill impairment test is performed more frequently.
Mortgage Servicing Rights -
Mortgage servicing rights are very sensitive to movements in interest rates as
expected future net servicing income depends on the projected outstanding
principal balances of the underlying loans, which can be greatly reduced by
prepayments. Prepayments usually increase when mortgage interest
rates decline and decrease when mortgage interest rates rise.
Fair Value Measurements – The
fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The Company estimates the
fair value of financial instruments using a variety of valuation
methods. Where financial instruments are actively traded and have
quoted market prices, quoted market prices are used for fair
value. When the financial instruments are not actively traded, other
observable market inputs, such as quoted prices of securities with similar
characteristics, may be used, if available, to determine fair
value. When observable market prices do not exist, the Company
estimates fair value. Other factors such as model assumptions and
market dislocations can affect estimates of fair value. Imprecision
in estimating these factors can impact the amount of revenue or loss
recorded.
ASC Topic
820, Fair Value Measurements, establishes a framework for measuring the fair
value of financial instruments that considers the attributes specific to
particular assets or liabilities and establishes a three-level hierarchy for
determining fair value based upon transparency of inputs to each valuation as of
the fair value measurement date. The three levels are defined as
follows:
●
|
Level
1 – quoted prices (unadjusted) for identical assets or liabilities in
active markets
|
|
●
|
Level
2 – inputs include quoted prices for similar assets and liabilities in
active markets, quoted prices of identical or similar assets or
liabilities in markets that are not active, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
●
|
Level
3 – inputs that are unobservable and significant to the fair value
measurement.
|
20
At the
end of each quarter, the Company assesses the valuation hierarchy for each asset
or liability measured. From time to time, assets or liabilities may
be transferred within hierarchy levels due to changes in availability of
observable market inputs to measure fair value at the measurement
date. Transfers into or out of a hierarchy are based upon the fair
value at the beginning of the reporting period.
The above
listing is not intended to be a comprehensive list of all our accounting
policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by accounting principles generally accepted
in the United States of America, with no need for management’s judgement in
their application. There are also areas in which management’s
judgement in selecting any available alternative would not produce a materially
different result.
Federal
Deposit Insurance Corporation Insurance Coverage
As with all banks insured by the FDIC,
the Company’s depositors are protected against the loss of their insured
deposits by the FDIC. The FDIC recently made two changes to the rules
that broadened the FDIC insurance. The FDIC has temporarily increased
basic FDIC insurance coverage from $100,000 to $250,000 per depositor until
December 31, 2013. In addition, the FDIC has instituted a Temporary
Liquidity Guaranty Program (“TLGP”) which provides full deposit insurance
coverage for non-interest bearing transaction deposit accounts, regardless of
dollar amount, until December 31, 2010. The FDIC defines a
“non-interest bearing transaction account” as a transaction account on which the
insured depository institution pays no interest and does not reserve the right
to require advance notice of intended withdrawals. This coverage is
over and above the $250,000 in deposit insurance otherwise provided to a
customer. The Company opted into the TLGP. The additional
cost of this program, assessed on a quarterly basis, is a 10 basis point
annualized surcharge on balances in non-interest bearing transaction
accounts that exceed $250,000.
Recent
Developments
On
January 19, 2010, Jacksonville Bancorp, Inc. announced that the Boards of
Directors of Jacksonville Bancorp, MHC, Jacksonville Bancorp, Inc. and
Jacksonville Savings Bank unanimously adopted a Plan of Conversion and
Reorganization. Under the terms of the Plan of Conversion and
Reorganization, we will undertake a “second-step” conversion, and reorganize
from a two-tier mutual holding company structure to a stock holding company
structure. As a result of the conversion, Jacksonville Savings Bank
will become a wholly owned subsidiary of a new Maryland holding company and
shares of common stock of Jacksonville Bancorp, Inc. held by persons other than
Jacksonville Bancorp, MHC (whose shares will be canceled) will be converted into
shares of common stock of the new holding company pursuant to an exchange ratio
designed to preserve the percentage ownership interests of such
persons. The new holding company will offer and sell shares of its
common stock to members of Jacksonville Bancorp, MHC, stockholders of
Jacksonville Bancorp, Inc. and others in the manner and subject to the
priorities set forth in the Plan of Conversion and Reorganization. The
transactions contemplated by the Plan of Conversion and Reorganization are
subject to approval of Jacksonville Bancorp, Inc.’s stockholders, the members of
Jacksonville Bancorp, MHC and the Office of Thrift Supervision. We anticipate
that the second-step conversion will be completed in the third quarter of the
2010 calendar year.
21
Financial Condition
March
31, 2010 Compared to December 31, 2009
Total
assets increased by $585,000 to $289.4 million at March 31, 2010 from $288.8
million at December 31, 2009. Net loans decreased $3.0 million, or
1.7%, to $170.7 million at March 31, 2010 from $173.7 million at December 31,
2009. The decrease in net loans reflected decreases of $2.2 million
in commercial and agricultural real estate loans and $925,000 in commercial and
agricultural business loans, due to both payoffs and the seasonal nature of
agricultural business loan originations. Available-for-sale
investment securities increased $9.4 million, or 25.2%, to $46.6 million at
March 31, 2010 from $37.2 million at December 31, 2009 primarily due to
reinvestment of funds from calls, payments on mortgage-backed securities and
decreased loan volume. Mortgage-backed securities decreased $4.4
million, or 10.6%, to $36.6 million at March 31, 2010 from $41.0 million at
December 31, 2009 due primarily to principal payments. In order to
increase variable interest rate securities in our investment portfolio during
the first quarter of 2010, we increased the balance of our variable rate
mortgage-backed securities portfolio by $5.2 million to $8.3 million as of March
31, 2010. Cash and cash equivalents decreased $904,000 to $14.8
million at March 31, 2010 from $15.7 million at December 31, 2009.
Total
deposits increased $438,000 to $255.1 million at March 31, 2010, primarily due
to a $1.8 million increase in transaction accounts, which was partially offset
by a $1.2 million decrease in time deposits. Other borrowings, which
consisted of overnight repurchase agreements, decreased $509,000 to $3.3 million
at March 31, 2010.
Stockholders’
equity increased $324,000 to $25.6 million at March 31, 2010. The
increase in stockholders’ equity was the result of net income of $499,000, which
was partially offset by the payment of $66,000 in dividends and $109,000 in
other comprehensive loss. Other comprehensive loss consisted of the
decrease in net unrealized gains, net of tax, on available-for-sale securities
reflecting changes in market prices for securities in our portfolio. Other
comprehensive loss does not include changes in the fair value of other financial
instruments included on the balance sheet.
Results
of Operations
Comparison
of Operating Results for the Three Months Ended March 31, 2010 and
2009
General: Net
income for the three months ended March 31, 2010 was $499,000, or $0.26 per
common share, basic and diluted, compared to net income of $501,000, or $0.26
per common share, basic and diluted, for the three months ended March 31,
2009. The $2,000 decrease in net income was due to a $103,000
decrease in net interest income and a $32,000 increase in non-interest expense,
partially offset by a $75,000 decrease in the provision for loan losses, a
$12,000 decrease in income taxes and a $46,000 increase in non-interest
income. Our net interest income continues to benefit from a steep
yield curve. Low short-term market interest rates have resulted in
our cost of funds decreasing faster than the yield on our loans. Our
interest income has been negatively affected by a decrease in interest income
from mortgage-backed securities.
Interest
Income: Total interest income for the three months ended March
31, 2010 decreased $539,000, or 14.3%, to $3.2 million from $3.8 million for the
same period of 2009. The decrease in interest income reflected a
$307,000 decrease in interest income on loans, a $62,000 decrease in interest
income on investment securities, a $168,000 decrease in interest income on
mortgage-backed securities and a $2,000 decrease in other interest-earning
assets.
Interest
income on loans decreased $307,000 to $2.7 million for the first quarter of 2010
from $3.0 million for the first quarter of 2009 due to decreases in the average
yield on loans and the average balance of loans. The average yield
decreased to 6.11% during the first quarter of 2010 from 6.46% during the first
quarter of 2009. The 35 basis point decrease primarily reflected the
low interest rate environment. The average balance of the loan
portfolio decreased $9.6 million to $174.9 million for the first quarter of
2010. The decrease in the average balance of the loan portfolio
reflected a decrease in residential real estate loans due to higher loan sales
to the secondary market during 2009.
22
Interest
income on investment securities decreased $62,000 to $400,000 for the first
quarter of 2010 from $462,000 for the first quarter of 2009. The decrease
reflected a $6.3 million decrease in the average balance of the investment
securities portfolio to $40.3 million during the first quarter of 2010, compared
to $46.6 million for the first quarter of 2009. The decrease in the
average balance was primarily due to calls of U.S. agency securities, the
majority of which were reinvested in tax-free municipal bonds, as well as
mortgage-backed securities. The average yield of investment
securities was unchanged at 3.97% during the first quarters of 2010 and
2009. The average yield does not reflect the benefit of the higher
tax-equivalent yield of our municipal bonds, which is reflected in income tax
expense.
Interest
income on mortgage-backed securities decreased $168,000 to $161,000 for the
first quarter of 2010, compared to $329,000 for the first quarter of
2009. The decrease reflected a 306 basis point decrease in the
average yield of mortgage-backed securities to 1.66% for the first quarter of
2010, compared to 4.72% for the first quarter of 2009. The average
yield has been affected by accelerated premium amortization resulting from
higher national prepayment speeds on mortgage-backed securities. The
amortization of premiums on mortgage-backed securities, which reduces the
average yield, increased to $330,000 during the first quarter of 2010, compared
to $40,000 during the first quarter of 2009. The decrease in the
average yield was partially offset by a $10.9 million increase in the average
balance of mortgage-backed securities to $38.9 million during the first quarter
of 2010.
Interest
income on other interest-earning assets, which consisted of interest-earning
deposit accounts and federal funds sold, decreased $2,000 during the first
quarter of 2010 primarily due to a decrease in the average yield. The
average yield on other interest-earning assets decreased to 0.10% during the
first quarter of 2010 from 0.19% during the first quarter of
2009. The average balance of these accounts increased $139,000 to
$9.4 million for the three months ended March 31, 2010 compared to $9.2 million
for the three months ended March 31, 2009.
Interest
Expense: Total interest expense decreased $436,000, or 29.3%,
to $1.1 million for the three months ended March 31, 2010 compared to $1.5
million for the three months ended March 31, 2009. The lower interest
expense was due to a $387,000 decrease in the cost of deposits and a $49,000
decrease in the cost of borrowed funds.
Interest
expense on deposits decreased $387,000 to $1.1 million for the three months
ended March 31, 2010 compared to $1.4 million for the three months ended March
31, 2009. The decrease in interest expense on deposits was primarily
due to a 72 basis point decrease in the average rate paid to 1.81% during the
first quarter of 2010 from 2.53% during the first quarter of
2009. The decrease reflected low short-term market interest rates
which continued during the first quarter of 2010. The decrease in the
average rate paid was partially offset by a $5.7 million increase in the average
balance of deposits to $233.2 million for the first quarter of
2010. The increase was primarily due to a $7.7 million increase in
the average balance of transaction accounts.
Interest
paid on borrowed funds decreased $49,000 to $2,200 for the first quarter of 2010
due to decreases in the average cost and in the average balance of
borrowings. The average rate paid on borrowed funds decreased to
0.27% during the first quarter of 2010 compared to 1.52% during the first
quarter of 2009, reflecting the decrease in market rates. The average
balance of borrowed funds also decreased to $3.2 million during the first
quarter of 2010 compared to $13.6 million during the same period of
2009. The decrease was primarily due to the repayment of all our FHLB
advances which had an average balance in the first quarter of 2009 of $7.4
million. We had no FHLB advances during the first quarter of
2010.
23
Net Interest
Income. As a result of the changes in interest income and
interest expense noted above, net interest income decreased by $103,000, or
4.5%, to $2.2 million for the three months ended March 31, 2010 from $2.3
million for the three months ended March 31, 2009. Our interest rate
spread decreased by two basis points to 3.13% during the first quarter of 2010
from 3.15% during the first quarter of 2009. Our net interest margin
decreased nine basis points to 3.31% for the first quarter of 2010 from 3.40%
for the first quarter of 2009. The decrease in our interest rate
spread and net interest margin reflected the negative impact of accelerated
premium amortization on our mortgage-backed securities resulting from higher
national prepayment speeds.
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 following
table shows the activity in the allowance for loan losses for the three months
ended March 31, 2010 and 2009.
Three
Months Ended
|
||||||||
March 31, 2010
|
March 31, 2009
|
|||||||
(In
thousands)
|
||||||||
Balance
at beginning of period
|
$ | 2,290 | $ | 1,934 | ||||
Charge-offs:
|
||||||||
One-to-four
family residential
|
16 | 4 | ||||||
Home
equity/home improvement
|
30 | - | ||||||
Other
Consumer
|
- | 5 | ||||||
Total
|
46 | 9 | ||||||
Recoveries:
|
||||||||
One-to-four
family residential
|
20 | - | ||||||
Commercial
and agricultural real estate
|
3 | 1 | ||||||
Home
equity/home improvement
|
10 | 1 | ||||||
Automobile
|
1 | 4 | ||||||
Other
Consumer
|
2 | 1 | ||||||
Total
|
36 | 7 | ||||||
Net
loan charge-offs
|
10 | 2 | ||||||
Additions
charged to operations
|
275 | 350 | ||||||
Balance
at end of period
|
$ | 2,555 | $ | 2,282 |
24
The
provision for loan losses totaled $275,000 during the first quarter of 2010,
compared to $350,000 during the first quarter of 2009. The decrease
in the provision for loan losses reflected the decline in loan volume during the
first quarter of 2010 and a lower level of specific allocations to the allowance
for loan losses related to impaired loans. The allowance for loan losses
increased $273,000 to $2.6 million at March 31, 2010 from $2.3 million at March
31, 2009. Loans delinquent 30 days or more decreased $1.1 million
during the first quarter of 2010 to $2.7 million, or 1.54% of total loans as of
March 31, 2010 from $3.8 million, or 2.14% of total loans as of December 31,
2009. Loans delinquent 30 days or more totaled $2.6 million, or 1.44% of total
loans at March 31, 2009.
Provisions
for loan losses have been 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. This review
also considered the local economy and the level of bankruptcies and foreclosures
in our market area. The following table sets forth information
regarding nonperforming assets at the dates indicated.
March 31, 2010
|
December 31, 2009
|
|||||||
(Dollars
in thousands)
|
||||||||
Non-accruing
loans:
|
||||||||
One-to-four
family residential
|
$ | 707 | $ | 484 | ||||
Commercial
and agricultural real estate
|
630 | 98 | ||||||
Multi-family
residential
|
128 | 132 | ||||||
Commercial
and agricultural business
|
301 | 416 | ||||||
Home
equity/Home improvement
|
447 | 407 | ||||||
Automobile
|
8 | 8 | ||||||
Other
consumer
|
19 | 52 | ||||||
Total
|
$ | 2,240 | $ | 1,597 | ||||
Accruing
loans delinquent more than 90 days:
|
||||||||
One-to-four
family residential
|
$ | 63 | $ | 349 | ||||
Automobile
|
- | 3 | ||||||
Other
consumer
|
7 | 5 | ||||||
Total
|
$ | 70 | $ | 357 | ||||
Foreclosed
assets:
|
||||||||
One-to-four
family residential
|
$ | 377 | $ | 324 | ||||
Commercial
and agricultural real estate
|
252 | 59 | ||||||
Automobiles
|
- | - | ||||||
Total
|
$ | 629 | $ | 383 | ||||
Total
nonperforming assets
|
$ | 2,939 | $ | 2,337 | ||||
Total
as a percentage of total assets
|
1.02 | % | 0.81 | % |
25
Nonperforming
assets increased $602,000 to $2.9 million, or 1.02% of total assets, as of March
31, 2010, compared to $2.3 million, or 0.81% of total assets, as of December 31,
2009. The increase in nonperforming assets was due to a $356,000
increase in nonperforming loans and a $246,000 increase in real estate
owned. Within nonperforming assets, nonperforming loans increased to
$2.3 million as of March 31, 2010, from $2.0 million at December 31,
2009. The increase in nonperforming loans primarily reflected the
non-accruing status of one commercial real estate loan totaling
$493,000. This loan is secured by a mortgage on a new hotel and
management believes the loan has been adequately reserved. The increase in real
estate owned reflected the addition of two properties totaling $311,000 during
the first quarter of 2010. Both of these properties are under
contract for sale and no additional losses are expected.
The
following table shows the aggregate principal amount of potential problem
credits on the Company’s watch list at March 31, 2010 and December 31,
2009. All non-accruing loans are automatically placed on the watch
list. The decrease in Special Mention credits and subsequent increase
in Substandard credits reflect the downgrade of six commercial borrowers
totaling $2.6 million. With the exception of the non-accruing loan
noted above, the remaining five borrowers are current and performing as
agreed.
March 31, 2010
|
December 31, 2009
|
|||||||
(In
thousands)
|
||||||||
Special
Mention credits
|
$ | 3,709 | $ | 6,489 | ||||
Substandard
credits
|
7,563 | 4,865 | ||||||
Total
watch list credits
|
$ | 11,272 | $ | 11,354 |
Non-Interest
Income: Non-interest income increased $46,000, or 5.0%, to
$951,000 for the three months ended March 31, 2010 from $905,000 for the same
period in 2009. The increase in non-interest income resulted
primarily from increases of $124,000 in commission income, $82,000 in service
charges on deposits, and $80,000 in gains on the sale of available-for-sale
securities, partially offset by a decrease of $233,000 in income from mortgage
banking operations. The increase in commission income reflected
improved market conditions and growth in customer accounts. Service
charges on deposits benefitted from the increase in insufficient fund fees
related to the overdraft privilege program implemented during the second quarter
of 2009. The gains on the sale of securities reflected a higher
volume of sales during the first quarter of 2010 as we changed the composition
of a portion of the securities portfolio to include a greater percentage of
variable-rate mortgage-backed securities and shorter term U.S. Agency
securities. The decrease in mortgage banking income was due to a
lower volume of loan sales in 2010, as we sold $4.9 million of loans to the
secondary market during the first quarter of 2010, compared to $32.6 million
during the same period of 2009. The decrease in loan sales in 2010
reflected higher loan originations for sale in 2009 as the decline in mortgage
interest rates in 2009 resulted in a higher level of mortgage originations
during the first quarter of 2009.
Non-Interest
Expense: Total non-interest expense increased $32,000 to $2.25
million for the three months ended March 31, 2010 from $2.22 million for the
same period of 2009. The increase in non-interest expense consisted
mainly of increases of $37,000 in compensation and benefits expense and $25,000
in data processing expense, partially offset by a $12,000 decrease in occupancy
and equipment expense. The increase in compensation and benefits
expense resulted from normal salary and benefits increases. Data
processing expense increased due to a higher cost of software maintenance
agreements. Occupancy expense decreased due to lower depreciation
expense during the first quarter of 2010, compared to the first quarter of
2009.
26
Income
Taxes: The provision for income taxes decreased $12,000 to
$109,000 during the first quarter of 2010 compared to the same period of
2009. The decrease in the income tax provision reflected a decrease
in taxable income due to lower income and an increase in the benefit of
tax-exempt income. The effective tax rate was 17.9% and 19.5% for the
first quarters of 2010 and 2009, respectively.
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 March 31, 2010 and December 31, 2009, cash
and cash equivalents totaled $14.8 million and $15.7 million,
respectively. The Company’s primary sources of funds include
principal and interest repayments on loans (both scheduled payments and
prepayments), maturities of investment securities and principal repayments from
mortgage-backed securities (both scheduled payments and
prepayments). During the past three months, the most significant
sources of funds have been growth in deposits, calls and sales of investment
securities, and principal repayments on loans and mortgage-backed
securities. These funds have been used primarily for purchases of
U.S. Agency and mortgage-backed securities.
While
scheduled loan repayments and proceeds from maturing investment securities and
principal repayments on mortgage-backed securities are relatively predictable,
deposit flows and 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.
Liquidity
management is both a short- 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 March 31, 2010, the Company had no
outstanding FHLB advances and approximately $22.2 million remaining 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 liquidity ratios at March 31, 2010 and
December 31, 2009 were 33.3% and 30.7%, 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. 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. The following table summarizes
these commitments at March 31, 2010 and December 31, 2009.
March 31, 2010
|
December 31, 2009
|
|||||||
(In
thousands)
|
||||||||
Commitments
to fund loans
|
$ | 39,161 | $ | 36,946 | ||||
Standby
letters of credit
|
493 | 488 |
Quantitative
measures established by regulation to ensure capital adequacy require the
Company 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 that at March 31, 2010, the Company met
all its capital adequacy requirements.
27
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 March 31, 2010, the Bank’s core
capital ratio was 7.79% of total average assets, which substantially exceeded
the required amount.
The Bank
is also required to maintain regulatory capital requirements imposed by the
Federal Deposit Insurance Corporation. The Bank must
have: (i) Tier 1 Capital to Average Assets of 4.0%, (ii) Tier 1
Capital to Risk-Weighted Assets of 4.0%, and (iii) Total Capital to
Risk-Weighted Assets of 8.0%. At March 31, 2010, minimum requirements
and the Bank's actual ratios are as follows:
March
31, 2010
|
December
31, 2009
|
Minimum
|
||||||||||
Actual
|
Actual
|
Required
|
||||||||||
Tier
1 Capital to Average Assets
|
7.79 | % | 7.44 | % | 4.00 | % | ||||||
Tier
1 Capital to Risk-Weighted Assets
|
10.98 | % | 10.70 | % | 4.00 | % | ||||||
Total
Capital to Risk-Weighted Assets
|
12.23 | % | 11.83 | % | 8.00 | % |
Effect
of Inflation and Changing Prices
The
consolidated financial statements and related financial data presented herein
have been prepared in accordance with GAAP which require the measurement of
financial position and operating results in terms of historical dollars, without
considering the change in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the 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.
28
The
following table sets forth the average balances and interest rates (costs) on
the Company’s assets and liabilities during the periods presented.
Consolidated
Average Balance Sheet and Interest Rates
|
||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
Three
Months Ended March 31,
|
||||||||||||||||||||||||
2010
|
2009
|
|||||||||||||||||||||||
Average
|
Average
|
|||||||||||||||||||||||
Balance
|
Interest
|
Yield/Cost
|
Balance
|
Interest
|
Yield/Cost
|
|||||||||||||||||||
Interest-earnings
assets:
|
||||||||||||||||||||||||
Loans
|
$ | 174,874 | $ | 2,671 | 6.11 | % | $ | 184,516 | $ | 2,978 | 6.46 | % | ||||||||||||
Investment
securities
|
40,286 | 400 | 3.97 | % | 46,590 | 462 | 3.97 | % | ||||||||||||||||
Mortgage-backed
securities
|
38,853 | 161 | 1.66 | % | 27,912 | 329 | 4.72 | % | ||||||||||||||||
Other
|
9,357 | 2 | 0.10 | % | 9,218 | 5 | 0.19 | % | ||||||||||||||||
Total
interest-earning assets
|
263,370 | 3,234 | 4.91 | % | 268,236 | 3,774 | 5.63 | % | ||||||||||||||||
Non-interest
earnings assets
|
22,435 | 24,901 | ||||||||||||||||||||||
Total
assets
|
$ | 285,805 | $ | 293,137 | ||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Deposits
|
$ | 233,160 | $ | 1,053 | 1.81 | % | $ | 227,481 | $ | 1,439 | 2.53 | % | ||||||||||||
Other
borrowings
|
3,185 | 2 | 0.27 | % | 13,580 | 52 | 1.52 | % | ||||||||||||||||
Total
interest-bearing liabilities
|
236,345 | 1,055 | 1.78 | % | 241,061 | 1,491 | 2.48 | % | ||||||||||||||||
Non-interest
bearing liabilities
|
24,037 | 27,817 | ||||||||||||||||||||||
Stockholders'
equity
|
25,423 | 24,259 | ||||||||||||||||||||||
Total
liabilities/stockholders' equity
|
$ | 285,805 | $ | 293,137 | ||||||||||||||||||||
Net
interest income
|
$ | 2,179 | $ | 2,283 | ||||||||||||||||||||
Interest
rate spread (average yield earned
|
||||||||||||||||||||||||
minus
average rate paid)
|
3.13 | % | 3.15 | % | ||||||||||||||||||||
Net
interest margin (net interest income
|
||||||||||||||||||||||||
divided
by average interest-earning assets)
|
3.31 | % | 3.40 | % |
29
The
following table sets forth the changes in rate and changes in volume of the
Company’s interest earning assets and liabilities.
Analysis
of Volume and Rate Changes
|
||||||||||||
(In
thousands)
|
||||||||||||
Three
Months Ended March 31,
|
||||||||||||
2010
Compared to 2009
|
||||||||||||
Increase(Decrease)
Due to
|
||||||||||||
Rate
|
Volume
|
Net
|
||||||||||
Interest-earnings
assets:
|
||||||||||||
Loans
|
$ | (155 | ) | $ | (152 | ) | $ | (307 | ) | |||
Investment
securities
|
- | (62 | ) | (62 | ) | |||||||
Mortgage-backed
securities
|
(266 | ) | 98 | (168 | ) | |||||||
Other
|
(2 | ) | - | (2 | ) | |||||||
Total
net change in income on
|
||||||||||||
interest-earning
assets
|
(423 | ) | (116 | ) | (539 | ) | ||||||
Interest-bearing
liabilities:
|
||||||||||||
Deposits
|
(422 | ) | 35 | (387 | ) | |||||||
Other
borrowings
|
(25 | ) | (24 | ) | (49 | ) | ||||||
Total
net change in expense on
|
||||||||||||
interest-bearing
liabilities
|
(447 | ) | 11 | (436 | ) | |||||||
Net
change in net interest income
|
$ | 24 | $ | (127 | ) | $ | (103 | ) |
30
JACKSONVILLE
BANCORP, INC.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Company’s policy in recent years has been to reduce its 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 15 years or more to the secondary market, originating adjustable rate
loans, balloon loans with terms ranging from three to five years and originating
consumer and commercial business loans, which typically are for a shorter
duration and at higher rates of interest than one-to-four family
loans. Our portfolio of mortgage-backed securities, including both
fixed and variable rates, also provides monthly cash flow. The
remaining investment portfolio has been structured to better match the
maturities and rates of its interest-bearing liabilities. During the
first quarter of 2010, the Company increased its holdings of variable-rate
mortgage-backed securities and shorter term U.S. Agency securities in order to
help protect the balance sheet from a potential rising rate
environment. 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 (ALCO), which is responsible for reviewing the Company’s
asset and liability policies. The ALCO meets quarterly to review
interest rate risk and trends, as well as liquidity and capital ratio
requirements.
The
Company uses a comprehensive asset/liability software package provided by a
third-party vendor to perform interest rate sensitivity analysis for all product
categories. The primary focus of the Company’s analysis is on the
effect of interest rate increases and decreases on net interest
income. Management believes that this analysis reflects the potential
effects on current earnings of interest rate changes. Call criteria
and prepayment assumptions are taken into consideration for investment
securities and loans. All of the Company’s interest sensitive assets
and liabilities are analyzed by product type and repriced based upon current
offering rates. The software performs interest rate sensitivity
analysis by performing rate shocks of plus or minus 300 basis points in 100
basis point increments.
The
following table shows projected results at March 31, 2010 and December 31, 2009
of the impact on net interest income from an immediate change in interest rates,
as well as the benchmarks established by the ALCO. The results are
shown as a dollar and percentage change in net interest income over the next
twelve months.
Change
in Net Interest Income
|
|||||||||||||||||||
(Dollars
in thousands)
|
|||||||||||||||||||
March
31, 2010
|
December
31, 2009
|
ALCO
|
|||||||||||||||||
Rate
Shock:
|
$
Change
|
%
Change
|
$
Change
|
%
Change
|
Benchmark
|
||||||||||||||
+
200 basis points
|
228 | 2.20 | % | 220 | 2.16 | % |
>
(20.00)%
|
||||||||||||
+
100 basis points
|
233 | 2.25 | % | 184 | 1.80 | % |
>
(12.50)%
|
||||||||||||
-
100 basis points
|
(30 | ) | -0.29 | % | (271 | ) | -2.66 | % |
>
(12.50)%
|
||||||||||
-
200 basis points
|
(181 | ) | -1.75 | % | (412 | ) | -4.05 | % |
>
(20.00)%
|
The
foregoing computations are based upon numerous assumptions, including relative
levels of market interest rates, prepayments, and deposit mix. The
computed estimates should not be relied upon as a projection of actual
results. Despite the limitations on precision inherent in these
computations, management believes that the information provided is reasonably
indicative of the effect of changes in interest rate levels on the net earning
capacity of the Company’s current mix of interest earning assets and interest
bearing liabilities. Management continues to use the results of these
computations, along with the results of its computer model projections, in order
to maximize current earnings while positioning the Company to minimize the
effect of a prolonged shift in interest rates that would adversely affect future
results of operations.
31
At the
present time, the most significant market risk affecting the Company is interest
rate risk. Other market risks such as foreign currency exchange risk
and commodity price risk do not occur in the normal business of the
Company. The Company also is not currently using trading activities
or derivative instruments to control interest rate risk.
32
JACKSONVILLE
BANCORP, INC.
CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Company’s management, including the Company’s principal executive officer and
principal financial officer, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Based upon their evaluation, the principal executive officer and
principal financial officer concluded that, as of the end of the period covered
by this report, the Company’s disclosure controls and procedures were effective
for the purpose of ensuring that the information required to be disclosed in the
reports that the Company files or submits under the Exchange Act with the
Securities and Exchange Commission (the “SEC”) (1) is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms and (2) is accumulated and communicated to the Company’s management,
including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required
disclosure.
Changes
in Internal Controls
There
have been no changes in the Company’s internal control over financial reporting
identified in connection with the evaluation required by Rule 13(a)-15(e) that
occurred during the Company’s last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
33
PART
II - OTHER INFORMATION
Item
1.
|
Legal Proceedings
|
|
None.
|
||
Item
1.A.
|
Risk Factors
|
|
There
have been no material changes in the Company’s risk factors from those
disclosed in its annual report on Form 10-K.
|
||
Item
2.
|
Unregistered Sales of Equity Securities and Use of
Proceeds
|
|
None.
|
||
Item
3.
|
Defaults Upon Senior
Securities
|
|
None.
|
||
Item
4.
|
Removed and Reserved | |
Item
5.
|
Other Information
|
|
None.
|
||
Item
6.
|
Exhibits
|
|
31.1
-
|
Certification
of the Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a)
|
|
31.2
-
|
Certification
of the Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a)
|
|
32.1
-
|
Certification
of the Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
34
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:
05/17/2010
|
/s/ Richard A. Foss
|
|
Richard
A. Foss
|
||
President
and Chief Executive Officer
|
||
/s/ Diana S. Tone
|
||
Diana
S. Tone
|
||
Chief
Financial Officer
|
35