UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-K
  (Mark
One)
 x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
fiscal ended December 31, 2009.
 or
 o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
transition period from ______________ to ______________.
  Commission
file number: 000-49792
  JACKSONVILLE BANCORP,
INC.
 (Exact
name of registrant as specified in its charter)
 Federal
              
              33-1002258(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      Number)
  1211 West Morton Avenue, Jacksonville,
      Illinois
              
              62650(Address
      of principal executive offices)
              
              (Zip
      Code)
  Registrant’s
telephone number, including area code: (217)
245-4111
  Securities
registered pursuant to Section 12(b) of the Act:
 Title of each class
              
              Name of each exchange on which
      registeredCommon
      Stock, $0.01 par value
              The
      NASDAQ Stock Market, LLC
  Securities
registered pursuant to Section 12(g) of the Act: None
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 YES
      o
                NO
      x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
 YES
      o
                NO
      x
  Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 YES
      x
                NO
      o
  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 that the Registrant was required to submit
and post such files).
 YES
      o
                NO
      o
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form
10-K.          x
  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
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer o
              Smaller
      reporting company x
  (Do not
check if a smaller reporting company)
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). YES o    NO
x
  The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the last sale price
on June 30, 2009, as reported by the Nasdaq Capital Market, was approximately
$8.5 million.
  As of
March 1, 2010, there was issued and outstanding 1,920,817 shares of the
Registrant’s Common Stock.
  DOCUMENTS
INCORPORATED BY REFERENCE:
 (1)
      Proxy Statement for the 2010 Annual Meeting of Stockholders of the
      Registrant (Part III).(2)
      Annual Report to Stockholders (Parts II and
IV).
  
 
 TABLE
OF CONTENTS
 ITEM 1.
              
              Business
              
              2ITEM 1A.
              
              Risk Factors
              
              38ITEM 1B.
              
              Unresolved Staff
    Comments
              
              44ITEM 2.
              
              Properties
              
              45ITEM 3.
              
              Legal Proceedings
              
              45ITEM 4.
              
              Reserved
              
              45ITEM 5.
              
              Market for Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
              
              45ITEM 6.
              
              Selected Financial Data
              
              46ITEM 7.
              
              Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
              
              46ITEM 7A.
              
              Quantitative and Qualitative Disclosures about
      Market Risk
              
              46ITEM 8.
              
              Financial Statements and Supplementary
      Data
              
              46ITEM 9.
              
              Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure
              
              46ITEM 9A.(T)
              
              Controls and Procedures
              
              46ITEM 9B.
              
              Other Information
              
              47ITEM 10.
              
              Directors, Executive Officers and Corporate
      Governance
              
              47ITEM 11.
              
              Executive Compensation
              
              47ITEM 12.
              
              Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters
              
              48ITEM 13.
              
              Certain Relationships and Related Transactions and
      Director Independence
              
              48ITEM 14.
              
              Principal Accountant Fees and
      Services
              
              48ITEM 15.
              
              Exhibits and Financial Statement
      Schedules
              
              48


PART I




ITEM
1.             Business






Jacksonville
Bancorp, Inc.





Jacksonville
Bancorp, Inc. is a Federal corporation.  On May 3, 2002, Jacksonville
Savings Bank completed its reorganization into the two-tier form of mutual
holding company ownership.  At that time each outstanding share of
Jacksonville Savings Bank’s common stock was converted into a share of
Jacksonville Bancorp, Inc.’s common stock.  Our only significant asset
is our investment in Jacksonville Savings Bank.  We are majority owned
by Jacksonville Bancorp, MHC, a Federally-chartered mutual holding
company.  At December 31, 2009, Jacksonville Bancorp, Inc. had
consolidated assets of $288.8 million, total deposits of $254.7 million, and
stockholders’ equity of $25.3 million.




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.





Jacksonville
Savings Bank





Jacksonville Savings Bank is an
Illinois-chartered savings bank headquartered in Jacksonville,
Illinois.  We conduct our business from our main office and six
branches, two of which are located in Jacksonville and one of which is located
in each of the following Illinois communities: Virden, Litchfield, Chapin, and
Concord.  We were originally chartered in 1916 as an
Illinois-chartered mutual savings and loan association and converted to a mutual
savings bank in 1992.  In 1995, Jacksonville Savings Bank converted to
an Illinois chartered stock savings bank and reorganized from the mutual to the
mutual holding company form of organization. In 1997 and 2000, Jacksonville
Savings Bank acquired Litchfield Community Savings, S.B.and Chapin State Bank,
respectively. In 2002, Jacksonville Savings Bank reorganized into the two-tiered
mutual holding company form of organization.  We have been a member of
the Federal Home Loan Bank System since 1932.  Our deposits are
insured by the Federal Deposit Insurance Corporation.





We are a community-oriented savings
bank engaged primarily in the business of attracting retail deposits from the
general public in our market area and using such funds, together with borrowings
and funds from other sources, to originate mortgage loans secured by one- to
four-family residential real estate, commercial and agricultural real estate and
consumer loans. We also originate commercial and agricultural business loans and
multi-family real estate loans.  Additionally, we invest in United
States Government agency securities, bank-qualified, general obligation
municipal issues, and mortgage-backed securities issued or guaranteed by the
United States Government or agencies thereof.  We maintain a portion
of our assets in liquid investments, such as overnight funds at the Federal Home
Loan Bank.




2




Our principal sources of funds are
customer deposits, proceeds from the sale of loans, funds received from the
repayment and prepayment of loans and mortgage-backed securities, and the sale,
call, or maturity of investment securities.  Principal sources of
income are interest income on loans and investments, sales of loans and
securities, service charges, commissions, loan servicing fees and other
fees.  Our principal expenses are interest paid on deposits, employee
compensation and benefits, occupancy and equipment expense and Federal Deposit
Insurance Corporation insurance premiums.


We operate an investment center at our
main office.  The investment center is operated through Financial
Resources Group, Inc., Jacksonville Savings Bank’s wholly-owned
subsidiary.





Our principal executive office is
located at 1211 W. Morton, Jacksonville, Illinois, and our telephone number at
that address is (217) 245-4111. Our website address is
www.jacksonvillesavings.com.  Information on this website is not and
should not be considered to be a part of this Annual Report.





Market
Area




Our market area is Morgan, Macoupin,
Montgomery and Cass counties, Illinois.  Our offices are located in
communities that can generally be characterized as stable to low growth
residential communities of predominantly one- to four-family
residences.  Our market for deposits is concentrated in the
communities surrounding our main office and six branch offices.  We
are the largest independent financial institution headquartered in our market
area.





The economy of our market area consists
primarily of agriculture and related businesses, light industry and state and
local government.  The largest employers in our market area are Pactiv
Corporation, Passavant Area Hospital, and the State of
Illinois.  During 2008 and continuing into 2009, the local economy
experienced a downturn, although not as severe as the nationwide recession. As
of December 2009, unemployment rates in our market area were: 8.0% in Cass
County, 11.1% in Macoupin County, 14.1% in Montgomery County and 9.5% in Morgan
County. This compared with unemployment rates of 10.8% in Illinois and 9.7 % in
the United States as a whole.  While increased layoffs have resulted
in higher unemployment levels, we have not seen a significant impact on our
business.





Competition





We encounter significant competition
both in attracting deposits and in originating real estate and other
loans.  Our most direct competition for deposits historically has come
from commercial banks, other savings banks, savings associations and credit
unions in our market area, and we expect continued strong competition from such
financial institutions in the foreseeable future.  We compete for
deposits by offering depositors a high level of personal service and expertise
together with a wide range of financial services. Our deposit sources are
primarily concentrated in the communities surrounding our banking offices
located in Morgan, Macoupin and Montgomery counties, Illinois.  As of
June 30, 2009, we ranked first in FDIC-insured deposit market share (out of 33
bank and thrift institutions with offices in Morgan, Macoupin and Montgomery
Counties, Illinois) with a 11.2% market share. Such data does not reflect
deposits held by credit unions.





The competition for real estate and
other loans comes principally from commercial banks, mortgage banking companies,
government sponsored entities and other savings banks and savings
associations.  This competition for loans has increased substantially
in recent years as a result of the large number of institutions competing in our
market areas as well as the increased efforts by commercial banks to increase
mortgage loan originations.





We compete for loans primarily through
the interest rates and loan fees we charge and the efficiency and quality of
services we provide to borrowers and home builders.  Factors that
affect competition include general and local economic conditions, current
interest rate levels and the volatility of the mortgage markets.




3





Lending
Activities





General.  Historically,
our principal lending activity has been the origination of mortgage loans
secured by one- to four-family residential properties in our local market
area.  Over the past several years, we have increased our emphasis on
originating loans secured by commercial and agricultural real estate. We also
originate commercial and agricultural business loans secured by collateral other
than real estate as well as unsecured commercial and agricultural business
loans.  We also originate consumer loans, primarily home equity loans
and loans secured by automobiles. At December 31, 2009, our loans receivable
totaled $176.0 million, of which $38.6 million, or 22.2%, consisted of one- to
four-family residential mortgage loans.  One- to four-family
residential mortgage loans decreased $8.2 million, or 17.6%, during 2009
primarily due to the refinancing of loans in our portfolio which were
subsequently sold in the secondary mortgage market.  The remainder of
our loans receivable at December 31, 2009 consisted of commercial and
agricultural real estate loans totaling $56.7 million, or 32.6% of total loans,
consumer loans totaling $42.1 million, or 24.2% of total loans, commercial and
agricultural business loans totaling $34.4 million, or 19.8% of total loans, and
multi-family residential loans totaling $4.3 million, or 2.5% of total
loans.  Of the amount included in consumer loans, $28.1 million, or
16.2% of total loans consisted of home equity and home improvement loans, and
$6.1 million, or 3.5% of total loans, consisted of automobile
loans.





We have made our interest-earning
assets more interest rate sensitive by, among other things, originating variable
interest rate loans, such as adjustable-rate mortgage loans and balloon loans
with terms ranging from three to five years, as well as medium-term consumer
loans and commercial business loans.  Our ability to originate
adjustable-rate mortgage loans is substantially affected by market interest
rates.





We originate fixed-rate residential
mortgage loans secured by one- to four-family residential properties with terms
up to 30 years.  We sell a significant portion of our one- to
four-family fixed-rate residential mortgage loan originations directly to
Freddie Mac.  We also sold one- to four-family fixed-rate residential
mortgage loan originations to the Federal Home Loan Bank Mortgage Partnership
Finance Program until the program was discontinued as of October 31,
2008.  During the years ended December 31, 2009 and 2008, we sold
$66.7 million and $30.1 million of fixed-rate residential mortgage loans,
respectively.  Loans are generally sold without recourse and with
servicing retained.





At
December 31, 2009, we were servicing $148.0 million in loans for which we
received servicing income of $360,000 for the year ended December 31, 2009.
Servicing fee income is recorded for fees earned for servicing
loans.  The fees are based on a contractual percentage of the
outstanding principal and are recorded as income when earned as loan servicing
fees in non-interest income.  The amortization of mortgage servicing
rights is netted from the gains on sale of loans, both cash gains as well as the
capitalized gains, and is included in mortgage banking operations, net, in
non-interest income. As a result of the low interest rate environment in 2008,
we recognized an impairment of $428,000 against the value of our mortgage
servicing income. Subsequently, as long term interest rates began to rise, we
were able to recognize a partial recovery of $123,000 during 2009.


4


Loan Portfolio
Composition.Set forth below are
selected data relating to the composition of our loan portfolio, by type of loan
as of the dates indicated, excluding loans held for sale of $814,000, $1.4
million, $1.9 million, $426,000 and $499,000 for the years ended December 31,
2009, 2008, 2007, 2006 and 2005, respectively.




At
      December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
      in Thousands)Real
      estate loans:One-
      to four-family residential (1)
            
            $
            38,581
            
            
            
            22.2
            %
            
            $
            46,807
            
            
            
            25.6
            %
            
            $
            50,459
            
            
            
            28.7
            %
            
            $
            40,635
            
            
            
            26.2
            %
            
            $
            40,126
            
            
            
            28.2
            %Commercial
      and agricultural (2)
            
            
            56,650
            
            
            
            32.6
            
            
            
            56,516
            
            
            
            30.9
            
            
            
            44,100
            
            
            
            25.1
            
            
            
            39,592
            
            
            
            25.6
            
            
            
            33,859
            
            
            
            23.8Multi-family
      residential
            
            
            4,344
            
            
            
            2.5
            
            
            
            4,518
            
            
            
            2.5
            
            
            
            4,741
            
            
            
            2.7
            
            
            
            5,877
            
            
            
            3.8
            
            
            
            6,010
            
            
            
            4.2Total
      real estate loans
            
            
            99,575
            
            
            
            57.3
            
            
            
            107,841
            
            
            
            59.0
            
            
            
            99,300
            
            
            
            56.5
            
            
            
            86,104
            
            
            
            55.6
            
            
            
            79,995
            
            
            
            56.2Commercial
      and agricultural business loans
            
            
            34,393
            
            
            
            19.8
            
            
            
            35,356
            
            
            
            19.3
            
            
            
            36,539
            
            
            
            20.8
            
            
            
            32,837
            
            
            
            21.2
            
            
            
            28,679
            
            
            
            20.2Consumer
      loans:Home
      equity/home improvement (3)
            
            
            28,119
            
            
            
            16.2
            
            
            
            30,002
            
            
            
            16.4
            
            
            
            30,087
            
            
            
            17.1
            
            
            
            27,202
            
            
            
            17.6
            
            
            
            26,382
            
            
            
            18.5Automobile
            
            
            6,118
            
            
            
            3.5
            
            
            
            5,842
            
            
            
            3.2
            
            
            
            5,334
            
            
            
            3.0
            
            
            
            5,275
            
            
            
            3.4
            
            
            
            4,580
            
            
            
            3.2Other
            
            
            7,837
            
            
            
            4.5
            
            
            
            5,950
            
            
            
            3.2
            
            
            
            6,402
            
            
            
            3.6
            
            
            
            5,313
            
            
            
            3.4
            
            
            
            4,657
            
            
            
            3.3Total
      consumer loans
            
            
            42,074
            
            
            
            24.2
            
            
            
            41,794
            
            
            
            22.8
            
            
            
            41,823
            
            
            
            23.7
            
            
            
            37,790
            
            
            
            24.4
            
            
            
            35,619
            
            
            
            25.0Total
      loans receivable
            
            
            176,042
            
            
            
            101.3
            
            
            
            184,991
            
            
            
            101.1
            
            
            
            177,662
            
            
            
            101.0
            
            
            
            156,731
            
            
            
            101.2
            
            
            
            144,293
            
            
            
            101.4Less:Unearned
      premium on purchased loans,unearned
      discount and deferred loanfees,
      net
            
            
            69
            
            
            
            —
            
            
            
            109
            
            
            
            —
            
            
            
            29
            
            
            
            —
            
            
            
            29
            
            
            
            —
            
            
            
            175
            
            
            
            0.1Allowance
      for loan losses
            
            
            2,290
            
            
            
            1.3
            
            
            
            1,934
            
            
            
            1.1
            
            
            
            1,766
            
            
            
            1.0
            
            
            
            1,864
            
            
            
            1.2
            
            
            
            1,846
            
            
            
            1.3Total
      loans receivable, net
            
            $
            173,683
            
            
            
            100.0
            %
            
            $
            182,948
            
            
            
            100.0
            %
            
            $
            175,867
            
            
            
            100.0
            %
            
            $
            154,838
            
            
            
            100.0
            %
            
            $
            142,272
            
            
            
            100.0
            %


_________________________________


(1)
            Includes
      one- to four-family real estate construction loans of $54,000, $596,000,
      $352,000, $183,000 and $546,000for the years ended
      December 31, 2009, 2008, 2007, 2006 and 2005,
  respectively.


(2)
            Includes
      commercial and agricultural real estate construction loans of $4.2
      million, $2.5 million, $472,000, $0 and $193,000for the years ended
      December 31, 2009, 2008, 2007, 2006 and 2005,
  respectively.


(3)
            Includes
      real estate construction loans of $3.6 million, $1.1 million, $1.4
      million, $370,000 and $1.9 millionfor the years ended
      December 31, 2009, 2008, 2007, 2006 and 2005,
  respectively.




5


One- to
Four-Family Mortgage Loans.  Historically our
primary lending origination activity has been one- to four-family,
owner-occupied, residential mortgage loans secured by property located in our
market area.  We generate loans through our marketing efforts,
existing customers and referrals, real estate brokers, builders and local
businesses.  We generally limit our one- to four-family loan
originations to the financing of loans secured by properties located within our
market area.  At December 31, 2009, $38.6 million, or 22.2% of our net
loan portfolio, was invested in mortgage loans secured by one- to four-family
residences.





Our fixed-rate one- to four-family
residential mortgage loans are generally conforming loans, underwritten
according to Freddie Mac guidelines. We generally originate both fixed- and
adjustable-rate mortgage loans in amounts up to the maximum conforming loan
limits established by the Federal Housing Finance Agency for Freddie Mac, which
is currently $417,000 for single-family homes. At December 31, 2009, we had no
one- to four-family residential mortgage loans with principal balances in excess
of $417,000, commonly referred to as jumbo loans.





We originate for resale to Freddie Mac
fixed-rate one- to four-family residential mortgage loans with terms of 15 years
or more.  Our fixed-rate mortgage loans amortize monthly with
principal and interest due each month.  Residential real estate loans
often remain outstanding for significantly shorter periods than their
contractual terms because borrowers may refinance or prepay loans at their
option.  We offer fixed-rate one- to four-family residential mortgage
loans with terms of up to 30 years without prepayment penalty.





We currently offer adjustable-rate
mortgage loans for terms ranging up to 30 years.  We generally offer
adjustable-rate mortgage loans that adjust between one and five years on the
anniversary date of origination.  Interest rate adjustments are up to
two hundred basis points per year, with a cap of up to six hundred basis points
on interest rate increases over the life of the loan.  In a rising
interest rate environment, such rate limitations may prevent adjustable-rate
mortgage loans from repricing to market interest rates, which would have an
adverse effect on our net interest income.  In the low interest rate
environment that has existed over the past two years, our adjustable-rate
portfolio has repriced downward resulting in lower interest income from this
portion of our loan portfolio.  We have used different interest
indices for adjustable-rate mortgage loans in the past such as the average yield
on U.S. Treasury securities, adjusted to a constant maturity of either one year,
three years or five years.  Adjustable-rate mortgage loans secured by
one- to four-family residential real estate totaled $11.8 million, or 30.6% of
our total one- to four-family residential real estate loans receivable at
December 31, 2009.  The origination of fixed-rate mortgage loans
versus adjustable-rate mortgage loans is monitored on an ongoing basis and is
affected significantly by the level of market interest rates, customer
preference, our interest rate risk position and our competitors’ loan
products.  During 2009, we originated $66.8 million of fixed-rate
residential mortgage loans which were all subsequently sold in the secondary
mortgage market and $5.3 million of adjustable-rate mortgage and balloon loans
which were held in our portfolio.





The primary purpose of offering
adjustable-rate mortgage loans is to make our loan portfolio more interest rate
sensitive and to provide an alternative for those borrowers who meet our
underwriting criteria, but are unable to qualify for a fixed-rate
mortgage.  However, as the interest income earned on adjustable-rate
mortgage loans varies with prevailing interest rates, such loans do not offer
predictable cash flows in the same manner as long-term, fixed-rate
loans.  Adjustable-rate mortgage loans carry increased credit risk
associated with potentially higher monthly payments by borrowers as general
market interest rates increase.  It is possible that during periods of
rising interest rates that the risk of delinquencies and defaults on
adjustable-rate mortgage loans may increase due to the upward adjustment of
interest costs to the borrower, resulting in increased loan losses.





Our residential first mortgage loans
customarily include due-on-sale clauses, which give us the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells or otherwise disposes of the underlying real property serving as
collateral for the loan.  Due-on-sale clauses are a means of imposing
assumption fees and increasing the interest rate on our mortgage portfolio
during periods of rising interest rates.




6





When underwriting residential real
estate loans, we review and verify each loan applicant’s income and credit
history.  Management believes that stability of income and past credit
history are integral parts in the underwriting process.  Generally,
the applicant’s total monthly mortgage payment, including all escrow amounts, is
limited to 28% of the applicant’s total monthly income.  In addition,
total monthly obligations of the applicant, including mortgage payments, should
not generally exceed 38% of total monthly income.  Written appraisals
are generally required on real estate property offered to secure an applicant’s
loan.  For one- to four-family real estate loans with loan to value
ratios of over 80%, we require private mortgage insurance. We require fire and
casualty insurance on all properties securing real estate loans.  We
may require title insurance, or an attorney’s title opinion, as circumstances
warrant.





We do not
offer an “interest only” mortgage loan product on one- to four-family
residential properties (where the borrower pays interest for an initial period,
after which the loan converts to a fully amortizing loan). We also do not offer
loans that provide for negative amortization of principal, such as “Option ARM”
loans, where the borrower can pay less than the interest owed on the loan,
resulting in an increased principal balance during the life of the
loan.  We do not offer a “subprime loan” program (loans that generally
target borrowers with weakened credit histories typically characterized by
payment delinquencies, previous charge-offs, judgments, bankruptcies, or
borrowers with questionable repayment capacity as evidenced by low credit scores
or high debt-burden ratios) or Alt-A loans (traditionally defined as loans
having less than full documentation).





Commercial and
Agricultural Real Estate and Multi-Family Residential Real Estate
Loans.  We originate and purchase commercial and agricultural
real estate and multi-family residential real estate loans.  At
December 31, 2009, $56.7 million, or 32.6%, of our total loan portfolio
consisted of commercial and agricultural real estate loans and $4.3 million, or
2.5%, consisted of multi-family real estate loans.  During 2009, loan
originations secured by commercial and agricultural real estate totaled $9.2
million, as compared to $23.0 million in 2008. In 2008, commercial and
agricultural real estate loan originations were greater than our historical
levels. The increase in originations in 2008 was due to greater demand in our
market area whereby we could make more loans to borrowers who were already known
to us.  Our commercial and agricultural real estate loans are secured
primarily by improved properties such as farms, retail facilities and office
buildings, churches and other non-residential buildings.  At December
31, 2009, our commercial and agricultural real estate loan portfolio included
$26.2 million in loans secured by farmland and $30.5 million in loans secured by
other commercial properties.  The maximum loan-to-value ratio for
commercial and agricultural real estate loans we originate is generally 80%. Our
commercial and agricultural real estate loans are generally written up to terms
of five years with adjustable interest rates.  The rates are generally tied
to the prime rate and generally have a specified floor. Many of our
adjustable-rate commercial real estate loans are not fully amortizing and
therefore require a “balloon” payment at maturity. We have $2.4 million of
interest only commercial and agricultural real estate loans. We purchase from
time to time commercial real estate loan participations primarily from outside
our market area where we are not the lead lender. All participation loans are
approved following a review to ensure that the loan satisfies our underwriting
standards. At December 31, 2009, commercial real estate loan participations
totaled $10.8 million, or 19.1% of the commercial and agricultural real estate
loan portfolio consisting primarily of loan participations outside of our market
area which totaled $9.8 million, or 17.3% of the commercial and agricultural
real estate loan portfolio. At December 31, 2009, loan participations delinquent
60 days or more totaled $493,000.





At December 31, 2009, our largest
agricultural real estate loan was secured by farmland, had a principal balance
of $3.1 million and was performing in accordance with its terms.  At
the same date, the largest commercial real estate loan was secured by a funeral
home with a principal balance of $3.2 million and was performing in accordance
with its terms. At December 31, 2009, the largest multi-family residential real
estate loan was secured by an apartment building with a principal balance of
$2.2 million and was performing in accordance with its terms. At December 31,
2009, our largest commercial real estate loan participation was secured by
condominiums with a principal balance of $2.3 million and was performing in
accordance with its terms.





Our underwriting standards for
commercial and agricultural real estate and multi-family residential real estate
loans include a determination of the applicant’s credit history and an
assessment of the applicant’s ability to meet existing obligations and payments
on the proposed loan.  The income approach is primarily utilized to
determine whether income generated from the applicant’s business or real estate
offered as collateral is adequate to repay the loan. We emphasize the ratio of
the property’s projected net cash flow to the loan’s debt service requirement
(generally requiring a minimum ratio of 120%).  In underwriting a
loan, we consider the value of the real estate offered as collateral in relation
to the proposed loan amount.  Generally, the loan amount cannot be
greater than 80% of the value of the real estate.  We usually obtain
written appraisals from either licensed or certified appraisers on all
multi-family, commercial, and agricultural real estate loans in excess of
$250,000.  We assess the creditworthiness of the applicant by
reviewing a credit report, financial statements and tax returns of the
applicant, as well as obtaining other public records regarding the
applicant.




7





Loans secured by commercial,
agricultural, and multi-family real estate generally involve a greater degree of
credit risk than one- to four-family residential mortgage loans and carry larger
loan balances.  This increased credit risk is a result of several
factors, including the effects of general economic conditions on income
producing properties and the successful operation or management of the
properties securing the loans.  Furthermore, the repayment of loans
secured by commercial, agricultural, and multi-family real estate is typically
dependent upon the successful operation of the related business and real estate
property.  If the cash flow from the project is reduced, the
borrower’s ability to repay the loan may be impaired.





Commercial and
Agricultural Business Loans.  We originate
commercial and agricultural business loans to borrowers located in our market
area which are secured by collateral other than real estate or which can be
unsecured.  We also purchase participations of commercial business
loans from other lenders, which may be made to borrowers outside our market
area. Commercial and agricultural business loans totaled $34.4 million, or
19.8%, of our total loan portfolio at December 31, 2009. Of this amount,
commercial business loan participations outside of our market area represented
$1.3 million, or 3.7% of the commercial and agricultural business loan
portfolio. At December 31, 2009, commercial business loan participations totaled
$1.8 million, or 5.3% of the commercial and agricultural business loan
portfolio.  Commercial and agricultural business loans are generally
secured by equipment and inventory and generally are offered with adjustable
rates tied to the prime rate or the average yield on U.S. Treasury securities,
adjusted to a constant maturity of either one year, three years or five years
and various terms of maturity generally from three years to five
years.  On a limited basis, we will originate unsecured business loans
in those instances where the applicant’s financial strength and creditworthiness
has been established.  Commercial and agricultural business loans
generally bear higher interest rates than residential loans, but they also may
involve a higher risk of default since their repayment is generally dependent on
the successful operation of the borrower’s business.  We generally
obtain personal guarantees from the borrower or a third party as a condition to
originating its business loans.  During the year ended December 31,
2009, we originated $27.3 million in commercial and agricultural business
loans.  At that date, our largest commercial business loan was a $5.0
million line of credit with a principal balance of $1.5 million.  This
loan was performing in accordance with its terms at December 31,
2009.  At December 31, 2009, our largest agricultural business loan
was a line of credit of $4.5 million with no principal balance
outstanding.





Our
underwriting standards for commercial and agricultural business loans include a
determination of the applicant’s ability to meet existing obligations and
payments on the proposed loan from normal cash flows generated in the
applicant’s business.  We assess the financial strength of each
applicant through the review of financial statements and tax returns provided by
the applicant.  The creditworthiness of an applicant is derived from a
review of credit reports as well as a search of public records.  We
periodically review business loans following origination. We request financial
statements at least annually and review them for substantial deviations or
changes that might affect repayment of the loan.  Our loan officers
also visit the premises of borrowers to observe the business premises,
facilities, and personnel and to inspect the pledged
collateral.  Underwriting standards for business loans are different
for each type of loan depending on the financial strength of the applicant and
the value of collateral offered as security.




Consumer
Loans.As
of December 31, 2009, consumer loans totaled $42.1million, or 24.2%, of our
total loan portfolio.  The principal types of consumer loans we offer
are home equity loans and lines of credit and automobile loans. We also
originate loans secured by deposit accounts, unsecured loans and mobile home
loans.  We generally offer consumer loans on a fixed-rate
basis.  At December 31, 2009, home equity and home improvement loans
totaled $28.1 million, or 16.2%, of our total loan portfolio. Our home equity
loans and lines of credit are generally secured by the borrower’s principal
residence.  The maximum amount of a home equity loan or line of credit
is generally 95% of the appraised value of a borrower’s real estate collateral
less the amount of any prior mortgages or related liabilities.  Home
equity loans and lines of credit are approved with both fixed and adjustable
interest rates which we determine based upon market conditions.  Such
loans may be fully amortized over the life of the loan or have a balloon
feature.  Generally, the maximum term for home equity loans is 10
years.




8





At December 31, 2009, consumer loans
secured by automobiles totaled $6.1 million, or 3.5% of  our total
loan portfolio.  We offer automobile loans with maturities of up to 60
months for new automobiles.  Loans secured by used automobiles will
have maximum terms which vary depending upon the age of the
automobile.  We generally originate automobile loans with a
loan-to-value ratio below the greater of 80% of the purchase price or 100% of
NADA loan value, although in the case of a new car loan the loan-to-value ratio
may be greater or less depending on the borrower’s credit history, debt to
income ratio, home ownership and other banking relationships with
us.





Our underwriting standards for consumer
loans include a determination of the applicant’s credit history and an
assessment of the applicant’s ability to meet existing obligations and payments
on the proposed loan.  The stability of the applicant’s monthly income
may be determined by verification of gross monthly income from primary
employment, and additionally from any verifiable secondary income.  We
also consider the length of employment with the borrower’s present employer as
well as the amount of time the borrower has lived in the local
area.  Creditworthiness of the applicant is of primary consideration;
however, the underwriting process also includes a comparison of the value of the
collateral in relation to the proposed loan amount.  Of the consumer
loans 90 days or more delinquent at December 31, 2009, 85.3% are home equity
loans or lines of credit.  The largest loan in this category at
December 31, 2009 had a principal balance of $44,000 and was secured by a
residential mortgage.  No assurance can be given, however, that our
delinquency rate or loss experience on consumer loans will not increase in the
future.





Consumer loans entail greater risks
than one- to four-family residential mortgage loans, particularly consumer loans
secured by rapidly depreciating assets such as automobiles or loans that are
unsecured.  In such cases, collateral repossessed after a default may
not provide an adequate source of repayment of the outstanding loan balance
because of damage, loss or depreciation.  Further, consumer loan
payments are dependent on the borrower’s continuing financial stability, and
therefore are more likely to be adversely affected by job loss, divorce, illness
or personal bankruptcy.  Such events would increase our risk of loss
on unsecured loans.  Finally, the application of various Federal and
state laws, including Federal and state bankruptcy and insolvency laws, may
limit the amount which can be recovered on such loans in the event of a
default.  At December 31, 2009, consumer loans 90 days or more
delinquent, including those for which the accrual of interest has been
discontinued, totaled $475,000, or 1.13%, of our total consumer
loans.


9


Loan Portfolio
Maturities and Yields.The following table summarizes the
scheduled repayments of our loan portfolio at December 31,
2009.  Demand loans, loans having no stated repayment schedule or
maturity, and overdraft loans are reported as being due in one year or
less.





One-
      to Four-Family Real Estate
            
            
            Commercial
      and Agricultural Real Estate
            
            
            Multi-Family
      Real Estate
            
            
            Commercial
      and Agricultural BusinessAmount
            
            
            Weighted
      Average Rate
            
            
            Amount
            
            
            Weighted
      Average Rate
            
            
            Amount
            
            
            Weighted
      Average Rate
            
            
            Amount
            
            
            Weighted
      Average Rate(Dollars
      in Thousands)Due
      During the YearsEnding December
      31,2010
            
            $
            3,748
            
            
            
            7.51
            %
            
            $
            11,647
            
            
            
            6.06
            %
            
            $
            15
            
            
            
            9.50
            %
            
            $
            14,906
            
            
            
            5.72
            %2011
            
            
            5,071
            
            
            
            7.23
            
            
            
            5,192
            
            
            
            4.77
            
            
            
            356
            
            
            
            6.84
            
            
            
            2,032
            
            
            
            6.422012
            
            
            4,051
            
            
            
            7.27
            
            
            
            1,809
            
            
            
            6.23
            
            
            
            167
            
            
            
            6.50
            
            
            
            3,462
            
            
            
            5.542013
      to 2014
            
            
            3,689
            
            
            
            7.10
            
            
            
            1,694
            
            
            
            6.21
            
            
            
            106
            
            
            
            6.00
            
            
            
            9,364
            
            
            
            5.852015
      to 2019
            
            
            3,641
            
            
            
            5.67
            
            
            
            2,515
            
            
            
            5.98
            
            
            
            37
            
            
            
            6.50
            
            
            
            1,717
            
            
            
            5.622020
      to 2024
            
            
            3,592
            
            
            
            6.35
            
            
            
            8,575
            
            
            
            5.34
            
            
            
            —
            
            
            
            —
            
            
            
            1,225
            
            
            
            5.662025
      and beyond
            
            
            14,789
            
            
            
            6.22
            
            
            
            25,218
            
            
            
            5.78
            
            
            
            3,663
            
            
            
            5.69
            
            
            
            1,687
            
            
            
            6.64Total
            
            $
            38,581
            
            
            
            6.63
            %
            
            $
            56,650
            
            
            
            5.71
            %
            
            $
            4,344
            
            
            
            5.84
            %
            
            $
            34,393
            
            
            
            5.82
            %





Home
      Equity/Home Improvement
            
            
            Automobile
            
            
            Other
      Consumer
            
            
            TotalAmount
            
            
            Weighted
      Average Rate
            
            
            Amount
            
            
            Weighted
      Average Rate
            
            
            Amount
            
            
            Weighted
      Average Rate
            
            
            Amount
            
            
            Weighted
      Average Rate(Dollars
      in Thousands)Due
      During the Years Ending December
      31,2010
            
            $
            4,730
            
            
            
            6.74
            %
            
            $
            368
            
            
            
            8.84
            %
            
            $
            2,451
            
            
            
            6.08
            %
            
            $
            37,865
            
            
            
            6.16
            %2011
            
            
            3,577
            
            
            
            7.37
            
            
            
            1,060
            
            
            
            8.28
            
            
            
            888
            
            
            
            7.61
            
            
            
            18,176
            
            
            
            6.532012
            
            
            4,217
            
            
            
            7.46
            
            
            
            1,502
            
            
            
            7.62
            
            
            
            833
            
            
            
            8.10
            
            
            
            16,041
            
            
            
            6.882013
      to 2014
            
            
            5,921
            
            
            
            6.88
            
            
            
            3,114
            
            
            
            7.25
            
            
            
            1,006
            
            
            
            7.84
            
            
            
            24,894
            
            
            
            6.552015
      to 2019
            
            
            7,359
            
            
            
            5.69
            
            
            
            74
            
            
            
            8.72
            
            
            
            551
            
            
            
            7.40
            
            
            
            15,894
            
            
            
            5.802020
      to 2024
            
            
            1,620
            
            
            
            7.15
            
            
            
            —
            
            
            
            —
            
            
            
            894
            
            
            
            8.12
            
            
            
            15,906
            
            
            
            5.942025
      and beyond
            
            
            695
            
            
            
            6.77
            
            
            
            —
            
            
            
            —
            
            
            
            1,214
            
            
            
            9.43
            
            
            
            47,266
            
            
            
            6.04Total
            
            $
            28,119
            
            
            
            6.71
            %
            
            $
            6,118
            
            
            
            7.63
            %
            
            $
            7,837
            
            
            
            7.54
            %
            
            $
            176,042
            
            
            
            6.23
            %




The
following table sets forth at December 31, 2009, the dollar amount of all
fixed-rate and adjustable-rate loans due after December 31, 2010.  At
December 31, 2009, fixed-rate loans include $12.9 million in fixed-rate balloon
payment loans with original maturities of five years or less.  The
total dollar amount of fixed-rate loans and adjustable-rate loans due after
December 31, 2010, was $69.9 million and $68.3 million,
respectively.




Due
      after December 31, 2010Fixed
            
            
            Adjustable
            
            
            Total(In
      Thousands)Real
      estate loans:One-
      to four-family
      residential
            
            $
            25,829
            
            
            $
            9,003
            
            
            $
            34,832Commercial
      and
      agricultural
            
            
            5,497
            
            
            
            39,507
            
            
            
            45,004Multi-family
      residential
            
            
            629
            
            
            
            3,700
            
            
            
            4,329Commercial
      and agricultural business loans
            
            
            13,186
            
            
            
            6,301
            
            
            
            19,487Consumer
      loansHome
      equity/home improvement
            
            
            14,180
            
            
            
            9,210
            
            
            
            23,390Automobile
            
            
            5,750
            
            
            
            —
            
            
            
            5,750Other
            
            
            4,803
            
            
            
            582
            
            
            
            5,385Total
      loans
            
            $
            69,874
            
            
            $
            68,303
            
            
            $
            138,177




10





Loan Origination,
Solicitation and Processing.  Loan originations are derived
from a number of sources such as real estate broker referrals, existing
customers, builders, attorneys and walk-in customers.  Upon receipt of
a loan application, a credit report is obtained to verify specific information
relating to the applicant’s employment, income, and credit
standing.  In the case of a real estate loan, an appraisal of the real
estate intended to secure the proposed loan is undertaken by an independent
appraiser approved by us.  A loan application file is first reviewed
by a loan officer in our loan department who checks applications for accuracy
and completeness, and verifies the information provided.  The
financial resources of the borrower and the borrower’s credit history, as well
as the collateral securing the loan, are considered an integral part of each
risk evaluation prior to approval.  The board of directors has
established individual lending authorities for each loan officer by loan
type.  Loans over an individual officer’s lending limits must be
approved by the officers’ loan committee consisting of the chairman of the
board, president, chief lending officer and all lending officers, which meets
three times a week, and has lending authority up to $500,000 depending on the
type of loan.  Loans with a principal balance over this limit, up to
$1.0 million, must be approved by the directors’ loan committee, which meets
weekly and consists of the chairman of the board, president, senior vice
president, chief lending officer and at least two outside directors, plus all
lending officers as non-voting members.  The board of directors
approves all loans with a principal balance over $1.0 million.  The
board of directors ratifies all loans we originate.  Once the loan is
approved, the applicant is informed and a closing date is
scheduled.  We typically fund loan commitments within 30
days.





If the loan is approved, the borrower
must provide proof of fire and casualty insurance on the property serving as
collateral which insurance must be maintained during the full term of the loan;
flood insurance is required in certain instances.  Title insurance or
an attorney’s opinion based on a title search of the property is generally
required on loans secured by real property.





Origination,
Purchase and Sale of Loans.  Set forth below is a table showing
our loan originations, purchases, sales and repayments for the years
indicated.  It is our policy to originate for sale into the secondary
market fixed-rate mortgage loans with maturities of 15 years or more and to
originate for retention in our portfolio adjustable-rate mortgage loans and
loans with balloon payments.  Purchased loans consist of
participations in commercial real estate and commercial business loans
originated by other financial institutions.  We usually obtain
commitments prior to selling fixed-rate mortgage loans.





For
      the Years Ended December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(In
      Thousands)Total
      loans receivable at beginning of year
            
            $
            184,991
            
            
            $
            177,662
            
            
            $
            156,731
            
            
            $
            144,293
            
            
            $
            127,855Originations:Real
      estate loans:One-
      to four-family residential
            
            
            72,109
            
            
            
            38,717
            
            
            
            30,104
            
            
            
            25,708
            
            
            
            31,551Commercial
      and agricultural
            
            
            9,163
            
            
            
            23,038
            
            
            
            8,897
            
            
            
            10,808
            
            
            
            16,826Multi-family
      residential
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,862
            
            
            
            5,076Commercial
      and agricultural business loans
            
            
            27,295
            
            
            
            31,027
            
            
            
            29,404
            
            
            
            31,510
            
            
            
            19,532Consumer
      loans:Home
      equity/home improvement
            
            
            11,698
            
            
            
            20,133
            
            
            
            19,309
            
            
            
            17,874
            
            
            
            19,021Automobile
            
            
            4,017
            
            
            
            4,188
            
            
            
            3,777
            
            
            
            4,336
            
            
            
            3,697Other
            
            
            7,206
            
            
            
            5,072
            
            
            
            6,360
            
            
            
            4,916
            
            
            
            4,560Total
      originations
            
            
            131,488
            
            
            
            122,175
            
            
            
            97,851
            
            
            
            97,014
            
            
            
            100,263Participation
      loans purchased
            
            
            2,113
            
            
            
            11,569
            
            
            
            6,231
            
            
            
            3,736
            
            
            
            4,634Transfer
      of mortgage loans to foreclosed real estate owned
            
            
            308
            
            
            
            667
            
            
            
            819
            
            
            
            329
            
            
            
            933Repayments
            
            
            75,542
            
            
            
            95,671
            
            
            
            72,176
            
            
            
            71,422
            
            
            
            66,258Loan
      sales to secondary market
            
            
            66,700
            
            
            
            30,077
            
            
            
            10,156
            
            
            
            16,561
            
            
            
            21,268Total
      loans receivable at end of year
            
            $
            176,042
            
            
            $
            184,991
            
            
            $
            177,662
            
            
            $
            156,731
            
            
            $
            144,293





Loan Origination
and Other Fees.In addition to interest earned on loans, we
may charge loan origination fees.  Our ability to charge loan
origination fees is influenced by the demand for mortgage loans and competition
from other lenders in our market area.  To the extent that loans are
originated or acquired for our portfolio, accounting standards require that we
defer loan origination fees and costs and amortize such amounts as an adjustment
of yield over the life of the loan by use of the level yield
method.  Fees deferred are recognized into income immediately upon the
sale of the related loan.  At December 31, 2009, we had $158,000 of
net deferred loan fees.  Loan origination fees are a volatile source
of income.  Such fees vary with the volume and type of loans and
commitments made and purchased and with competitive conditions in the mortgage
markets, which in turn respond to the demand and availability of
money.




11





In addition to loan origination fees,
we also receive other fees that consist primarily of extension fees and late
charges.  We recognized fees of $110,000, $54,000 and $93,000 for the
years ended December 31, 2009, 2008, and 2007, respectively.





Loan
Concentrations.With certain
exceptions, an Illinois-chartered savings bank may not make a loan or exceed
credit for secured and unsecured loans for business, commercial, corporate or
agricultural purposes to a single borrower in excess of 25% of the Jacksonville
Savings Bank’s total capital, as defined by regulation.  At December
31, 2009, our loans-to-one borrower limit was $6.0 million.  At
December 31, 2009 we had no lending relationships in excess of our loans-to-one
borrower limitation.  At December 31, 2009, we had 16 loans in excess
of $1.0 million totaling in the aggregate $41.6 million or 23.6% of our total
loan portfolio.





Delinquencies
and Classified Assets





Our
collection procedures provide that when a mortgage loan is either ten days (in
the case of adjustable-rate mortgage and balloon loans) or 15 days (in the case
of fixed-rate loans) past due, a computer-generated late charge notice is sent
to the borrower requesting payment and assessing a late charge. If the mortgage
loan remains delinquent, a telephone call is made or a letter is sent to the
borrower stressing the importance of reinstating the loan and obtaining reasons
for the delinquency. We also send a 30 day notice pursuant to Illinois law if a
borrower’s primary residence is the collateral at issue.  When a loan
continues in a delinquent status for 60 days or more, and a repayment schedule
has not been made or kept by the borrower, a notice of intent to foreclose upon
the underlying property is then sent to the borrower, giving 10 days to cure the
delinquency.  If not cured, foreclosure proceedings are
initiated.  Consumer loans receive a ten-day grace period before a
late charge is assessed.  Collection efforts begin after the grace
period expires.  At December 31, 2009, 2008, and 2007 the percentage
of non-performing loans to total loans receivable were 1.11%, 0.64% and 0.61%,
respectively. At December 31, 2009, 2008, and 2007, the percentage of
non-performing assets to total assets was 0.81%, 0.68%, and 0.51%,
respectively.




Non-performing
Assets and Delinquent Loans.  Loans are reviewed on a regular
basis and are placed on nonaccrual status when, in the opinion of management,
the collection of additional interest is doubtful.  The accrual of
interest on loans is discontinued at the time the loan is 90 days past due
unless the loan is well secured and in the process of collection. Interest
accrued and unpaid at the time a loan is placed on nonaccrual status is charged
against interest income.  Subsequent payments are either applied to
the outstanding principal balance or recorded as interest income, depending on
management’s assessment of the ultimate collectability of the loan.





Management monitors all past due loans
and non-performing assets.  Such loans are placed under close
supervision with consideration given to the need for additions to the allowance
for loan losses and (if appropriate) partial or full charge-off.  At
December 31, 2009, we had $357,000 of loans 90 days or more delinquent that were
still accruing interest. Non-performing assets increased by $368,000 to $2.3
million at December 31, 2009 as compared to $2.0 million at December 31,
2008.  The increase in the level of non-performing assets primarily
reflected the delinquency of three impaired commercial borrowers totaling
$719,000 as of December 31, 2009.





The first
borrower had loans with an aggregate principal balance of $2.6 million at
December 31, 2008 secured by commercial trailers and, to a lesser extent,
commercial real estate. During 2009, the borrower’s business experienced a
significant decline in financial condition and management determined that the
value of the remaining collateral was not sufficient to secure the balance of
the loans. We recognized
charge-offs totaling $1.7 million on loans to this borrower during
2009.  Principal reductions of approximately $545,000 were received
from this borrower during 2009, which reduced the outstanding principal balance
to $400,000 at December 31, 2009.  The non-performing portion of this
lending relationship was $144,000 at December 31, 2009. We have provided an
additional $138,000 to the allowance for loan losses during 2009 after the
charge-offs noted above for any further potential losses on this lending
relationship.





The
second borrower had loans with an aggregate principal balance of $1.3 million at
December 31, 2008 secured primarily by mobile homes. During 2009, the borrower’s
business experienced a significant decline in financial condition and management
determined that the value of the remaining collateral was not sufficient to
secure the balance of the loans.  We recognized
charge-offs totaling $224,000 on loans to this borrower during
2009.  Principal reductions of approximately $211,000 were received
from this borrower during 2009, which reduced the outstanding principal balance
to $901,000 as of December 31, 2009.  The non-performing portion of
this lending relationship was $99,000 at December 31, 2009. We have provided an
additional $242,000 to the allowance for loan losses during 2009 after the
charge-offs noted above for any further potential losses on this lending
relationship.




12


The third borrower had loans with an aggregate balance of $526,000 at December
31, 2008 secured by the borrower’s personal residence and commercial real
estate. Principal reductions of approximately $50,000 were received from this
borrower during 2009, which reduced the outstanding principal balance to
$476,000 as of December 31, 2009. The loans became non-performing in
2009.  The borrower has been involved in a business-related dispute
with his former partner and has been forced to file for
bankruptcy.  He is attempting to sell his personal residence and all
of the commercial properties in order to cure this delinquency.  We
have provided $29,000 during 2009 to the allowance for loan losses for potential
losses related to this lending relationship.





Management
believes the increase in non-performing assets can be partially attributed to
unique borrower circumstances as well as  the economy in general. We
have an experienced chief lending officer and collections and loan review
departments which monitor the loan portfolio and actively seek to prevent any
deterioration of asset quality.




Real
estate acquired through foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned until such time as it is sold.  When
real estate owned is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan, or its fair market value, less estimated
selling expenses.  Any further write-down of real estate owned is
charged against earnings.  At December 31, 2009, we owned $383,000 of
property classified as real estate owned.


13


Non-Performing
Assets.The table below sets forth the amounts and categories
of our non-performing assets at the dates indicated.  At December 31,
2009, 2008, 2007, 2006 and 2005, we had troubled debt restructurings (loans for
which a portion of interest or principal has been forgiven and loans modified at
interest rates materially less than current market rates) of $1.3 million,
$435,000, $323,000, $273,000 and $292,000, respectively.





At
      December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(Dollars
      in Thousands)Non-accrual
      loans:Real
      estate loans:One-
      to four-family residential
            
            $
            484
            
            
            $
            445
            
            
            $
            310
            
            
            $
            435
            
            
            $
            624Commercial
      and agricultural
            
            
            98
            
            
            
            34
            
            
            
            218
            
            
            
            100
            
            
            
            —Multi-family
      residential
            
            
            132
            
            
            
            152
            
            
            
            —
            
            
            
            —
            
            
            
            —Commercial
      and agricultural business loans
            
            
            416
            
            
            
            48
            
            
            
            82
            
            
            
            704
            
            
            
            290Consumer
      loans:Home
      equity/home improvement
            
            
            407
            
            
            
            318
            
            
            
            89
            
            
            
            100
            
            
            
            222Automobile
            
            
            8
            
            
            
            3
            
            
            
            12
            
            
            
            1
            
            
            
            1Other
            
            
            52
            
            
            
            5
            
            
            
            12
            
            
            
            8
            
            
            
            20Total
      non-accrual loans
            
            
            1,597
            
            
            
            1,005
            
            
            
            723
            
            
            
            1,348
            
            
            
            1,157Loans
      delinquent 90 days or greater and still accruing:Real
      estate loans:One-
      to four-family residential
            
            
            349
            
            
            
            163
            
            
            
            203
            
            
            
            —
            
            
            
            2Commercial
      and agricultural
            
            
            —
            
            
            
            —
            
            
            
            156
            
            
            
            —
            
            
            
            —Multi-family
      residential
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Commercial
      and agricultural business loans
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Consumer
      loans:Home
      equity/home improvement
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Automobile
            
            
            3
            
            
            
            18
            
            
            
            —
            
            
            
            —
            
            
            
            17Other
            
            
            5
            
            
            
            5
            
            
            
            9
            
            
            
            4
            
            
            
            2Total
      loans delinquent 90 days or greater and still accruing
            
            
            357
            
            
            
            186
            
            
            
            368
            
            
            
            4
            
            
            
            21Total
      non-performing loans
            
            
            1,954
            
            
            
            1,191
            
            
            
            1,091
            
            
            
            1,352
            
            
            
            1,178Other
      real estate owned and foreclosed assets:Real
      estate loans:One-
      to four-family residential
            
            
            324
            
            
            
            565
            
            
            
            115
            
            
            
            37
            
            
            
            276Commercial
      and agricultural
            
            
            59
            
            
            
            204
            
            
            
            249
            
            
            
            115
            
            
            
            180Multi-family
      residential
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Commercial
      and agricultural business loans
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Consumer
      loans:Home
      equity/home improvement
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Automobile
            
            
            —
            
            
            
            9
            
            
            
            23
            
            
            
            —
            
            
            
            15Other
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total  other
      real estate owned and foreclosed assets
            
            
            383
            
            
            
            778
            
            
            
            387
            
            
            
            152
            
            
            
            471Total
      non-performing assets
            
            $
            2,337
            
            
            $
            1,969
            
            
            $
            1,478
            
            
            $
            1,504
            
            
            $
            1,649Ratios:Non-performing
      loans to total loans
            
            
            1.11
            %
            
            
            0.64
            %
            
            
            0.61
            %
            
            
            0.86
            %
            
            
            0.82
            %Non-performing
      assets to totalassets
            
            
            0.81
            
            
            
            0.68
            
            
            
            0.51
            
            
            
            0.56
            
            
            
            0.65




For the
year ended December 31, 2009, gross interest income that would have been
recorded had our non-accruing loans and troubled debt restructurings been
current in accordance with their original terms was
$197,000.  Interest income recognized on such loans for the year ended
December 31, 2009 was $70,000.




14





At
December 31, 2009, we had no loans that were not currently classified as
nonaccrual, 90 days past due or troubled debt restructurings but where known
information about possible credit problems of borrowers caused management to
have serious concerns as to the ability of the borrowers to comply with present
loan repayment terms and that may result in disclosure as nonaccrual, 90 days
past due or troubled debt restructurings.





The
following table sets forth certain information with respect to our loan
portfolio delinquencies at the dates indicated.





Loans
      Delinquent For60-89
      Days
            
            
            90
      Days and Over
            
            
            TotalNumber
            
            
            Amount
            
            
            Number
            
            
            Amount
            
            
            Number
            
            
            Amount(Dollars
      in Thousands)At December 31, 2009Real
      estate loans:One-
      to four-family residential
            
            
            6
            
            
            $
            215
            
            
            
            13
            
            
            $
            907
            
            
            
            19
            
            
            $
            1,122Commercial
      and agricultural
            
            
            3
            
            
            
            668
            
            
            
            2
            
            
            
            75
            
            
            
            5
            
            
            
            743Multi-family
      residential
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Commercial
      and agricultural business loans
            
            
            1
            
            
            
            14
            
            
            
            2
            
            
            
            109
            
            
            
            3
            
            
            
            123Consumer
      loans:Home
      equity/home improvement
            
            
            4
            
            
            
            43
            
            
            
            11
            
            
            
            203
            
            
            
            15
            
            
            
            246Automobile
            
            
            2
            
            
            
            7
            
            
            
            2
            
            
            
            4
            
            
            
            4
            
            
            
            11Other
            
            
            3
            
            
            
            1
            
            
            
            7
            
            
            
            31
            
            
            
            10
            
            
            
            32Total
      loans
            
            
            19
            
            
            $
            948
            
            
            
            37
            
            
            $
            1,329
            
            
            
            56
            
            
            $
            2,277At December 31, 2008Real
      estate loans:One-
      to four-family residential
            
            
            4
            
            
            $
            436
            
            
            
            15
            
            
            $
            695
            
            
            
            19
            
            
            $
            1,131Commercial
      and agricultural
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Multi-family
      residential
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Commercial
      and agricultural business loans
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Consumer
      loans:Home
      equity/home improvement
            
            
            7
            
            
            
            102
            
            
            
            9
            
            
            
            188
            
            
            
            16
            
            
            
            290Automobile
            
            
            5
            
            
            
            22
            
            
            
            5
            
            
            
            18
            
            
            
            10
            
            
            
            40Other
            
            
            9
            
            
            
            32
            
            
            
            7
            
            
            
            6
            
            
            
            16
            
            
            
            38Total
      loans
            
            
            25
            
            
            $
            592
            
            
            
            36
            
            
            $
            907
            
            
            
            61
            
            
            $
            1,499At December 31, 2007Real
      estate loans:One-
      to four-family residential
            
            
            1
            
            
            $
            79
            
            
            
            12
            
            
            $
            610
            
            
            
            13
            
            
            $
            689Commercial
      and agricultural
            
            
            —
            
            
            
            —
            
            
            
            1
            
            
            
            102
            
            
            
            1
            
            
            
            102Multi-family
      residential
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Commercial
      and agricultural business loans
            
            
            —
            
            
            
            —
            
            
            
            2
            
            
            
            115
            
            
            
            2
            
            
            
            115Consumer
      loans:Home
      equity/home improvement
            
            
            5
            
            
            
            76
            
            
            
            4
            
            
            
            78
            
            
            
            9
            
            
            
            154Automobile
            
            
            4
            
            
            
            21
            
            
            
            3
            
            
            
            15
            
            
            
            7
            
            
            
            36Other
            
            
            3
            
            
            
            23
            
            
            
            4
            
            
            
            6
            
            
            
            7
            
            
            
            29Total
      loans
            
            
            13
            
            
            $
            199
            
            
            
            26
            
            
            $
            926
            
            
            
            39
            
            
            $
            1,125At December 31, 2006Real
      estate loans:One-
      to four-family residential
            
            
            9
            
            
            $
            323
            
            
            
            6
            
            
            $
            270
            
            
            
            15
            
            
            $
            593Commercial
      and agricultural
            
            
            —
            
            
            
            —
            
            
            
            2
            
            
            
            145
            
            
            
            2
            
            
            
            145Multi-family
      residential
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Commercial
      and agricultural business loans
            
            
            —
            
            
            
            —
            
            
            
            1
            
            
            
            659
            
            
            
            1
            
            
            
            659Consumer
      loans:Home
      equity/home improvement
            
            
            7
            
            
            
            146
            
            
            
            5
            
            
            
            191
            
            
            
            12
            
            
            
            337Automobile
            
            
            2
            
            
            
            1
            
            
            
            1
            
            
            
            1
            
            
            
            3
            
            
            
            2




15




Loans
      Delinquent For60-89
      Days
              
              
              90
      Days and Over
              
              
              TotalNumber
              
              
              Amount
              
              
              Number
              
              
              Amount
              
              
              Number
              
              
              Amount(Dollars
      in Thousands)Other
              
              
              2
              
              
              
              7
              
              
              
              2
              
              
              
              7
              
              
              
              4
              
              
              
              14Total
      loans
              
              
              20
              
              
              $
              477
              
              
              
              17
              
              
              $
              1,273
              
              
              
              37
              
              
              $
              1,750At December 31, 2005Real
      estate loans:One-
      to four-family residential
              
              
              6
              
              
              $
              155
              
              
              
              9
              
              
              $
              465
              
              
              
              15
              
              
              $
              620Commercial
      and agricultural
              
              
              —
              
              
              
              —
              
              
              
              3
              
              
              
              260
              
              
              
              3
              
              
              
              260Multi-family
      residential
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
      and agricultural business loans
              
              
              2
              
              
              
              5
              
              
              
              —
              
              
              
              —
              
              
              
              2
              
              
              
              5Consumer
      loans:Home
      equity/home improvement
              
              
              6
              
              
              
              134
              
              
              
              5
              
              
              
              213
              
              
              
              11
              
              
              
              347Automobile
              
              
              4
              
              
              
              13
              
              
              
              3
              
              
              
              18
              
              
              
              7
              
              
              
              31Other
              
              
              3
              
              
              
              12
              
              
              
              3
              
              
              
              30
              
              
              
              6
              
              
              
              42Total
      loans
              
              
              21
              
              
              $
              319
              
              
              
              23
              
              
              $
              986
              
              
              
              44
              
              
              $
              1,305


Classified
Assets.  Federal and state regulations require that each
insured savings institution classify its assets on a regular
basis.  In addition, in connection with examination of insured
institutions, Federal examiners have authority to identify problem assets and,
if appropriate, classify them.  There are three categories for
classified assets:  “substandard,” “doubtful” and
“loss.”  Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected.  Doubtful
assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss.  An asset classified loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted.  For assets classified “substandard” and
“doubtful,” the institution is required to establish general loan loss reserves
in accordance with accounting principles generally accepted in the United States
of America.  Assets classified “loss” must be either completely
written off or supported by a 100% specific reserve.  We also maintain
a category designated “special mention” which is established and maintained for
assets not considered classified but having potential weaknesses or risk
characteristics that could result in future problems.  An institution
is required to develop an in-house program to classify its assets, including
investments in subsidiaries, on a regular basis and set aside appropriate loss
reserves on the basis of such classification.  As part of the periodic
exams of Jacksonville Savings Bank by the Federal Deposit Insurance Corporation
and the Illinois Department of Financial and Professional Regulation, the staff
of such agencies reviews our classifications and determine whether such
classifications are adequate.  Such agencies have, in the past, and
may in the future require us to classify certain assets which management has not
otherwise classified or require a classification more severe than established by
management.  At December 31, 2009, our classified assets totaled $4.9
million, all of which were classified as substandard.





The total
amount of classified and special mention assets increased $1.6 million, or
16.4%, to $11.4 million at December 31, 2009 from $9.8 million at December 31,
2008.  The increase in classified and special mention assets during
2009 was primarily due to an increase of $2.5 million in substandard loans,
partially offset by a decrease of $880,000 in special mention
loans.  The decrease in special mention loans was primarily due to
$2.4 million in loans that were downgraded to a substandard rating and $500,000
in principal reductions on these loans, partially offset by $2.1 million in
additional loans rated as special mention during 2009.  The $2.5
million increase in substandard loans was primarily related to the downgrade of
$2.4 million of loans from the special mention rating and $847,000 of additional
loans rated as substandard during 2009, partially offset by charge-offs of
$427,000 and principal reductions of $164,000.


16


The
following table shows the principal amount of potential problem loans at
December 31, 2009 and December 31, 2008.





12/31/09
            
            
            12/31/08(In
      Thousands)Special
      Mention loans
            
            $
            6,489
            
            
            $
            7,369Substandard
      loans
            
            
            4,865
            
            
            
            2,388Total
      Special Mention and Substandard loans
            
            $
            11,354
            
            
            $
            9,757





Allowance
for Loan Losses





The allowance for loan losses is
maintained at a level that, in management’s judgment, is adequate to cover
probable credit losses inherent in the loan portfolio at the balance sheet
date.  The allowance for loan losses is established as losses are
estimated to have occurred through a provision for loan losses charged to
earnings.  Loan losses are charged against the allowance when
management believes the uncollectability of a loan balance is
confirmed.  Subsequent recoveries, if any, are credited to the
allowance.





The
allowance for loan losses is evaluated on a regular basis by management and is
based upon management’s periodic review of the collectability of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic
conditions.  This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.





The
allowance consists of allocated and general components.  The allocated
component relates to loans that are classified as impaired.  For those
loans that are classified as impaired, an allowance is established when the
discounted cash flows (or collateral value or observable market price) of the
impaired loan is lower than the carrying value of that loan.





A loan is
considered impaired when, based on current information and events, it is
probable that we will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due.  Loans that
experience insignificant payment delays and payment shortfalls generally are not
classified as impaired.  Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s
prior payment record and the amount of the shortfall in relation to the
principal and interest owed.  Impairment is measured on a loan-by-loan
basis for commercial and agricultural loans by either the present value of
expected future cash flows discounted at the loan’s effective interest rate, the
loan’s obtainable market price or the fair value of the collateral if the loan
is collateral dependent.





Groups of
loans with similar risk characteristics are collectively evaluated for
impairment based on the group’s historical loss experience adjusted for changes
in trends, conditions and other relevant factors that affect repayment of the
loans.  Accordingly, we do not separately identify individual consumer
and residential loans for impairment measurements, unless such loans are the
subject of a restructuring agreement due to financial difficulties of the
borrower.





The
general component covers non-classified loans and is based on historical
charge-off experience and expected loss given our internal risk rating
process.  The loan portfolio is stratified into homogeneous groups of
loans that possess similar loss characteristics and an appropriate loss ratio
adjusted for other qualitative factors is applied to the homogeneous pools of
loans to estimate the incurred losses in the loan portfolio.  The
other qualitative factors considered by management include, but are not limited
to, the following:





●
            changes
      in lending policies and procedures, including underwriting standards and
      collection practices;●
            changes
      in national and local economic and business conditions and developments,
      including the condition of various market
  segments;




17




●
            changes
      in the nature and volume of the loan portfolio;●
            changes
      in the experience, ability and depth of management and the lending
      staff;●
            changes
      in the trend of the volume and severity of the past due, nonaccrual, and
      classified loans;●
            changes
      in the quality of our loan review system and the degree of oversight by
      the board of directors;●
            the
      existence of any concentrations of credit, and changes in the level of
      such concentrations; and●
            the
      effect of external factors, such as competition and legal and regulatory
      requirements on the level of estimated credit losses in our current
      portfolio.




Commercial
and agricultural real estate loans generally have higher credit risks compared
to one- to four-family residential mortgage loans, as they typically involve
larger loan balances concentrated with single borrowers or groups of related
borrowers.  In addition, payment experience on loans secured by
income-producing properties typically depend on the successful operation of the
related real estate project and this may be subject to a greater extent to
adverse conditions in the real estate market and in the general
economy.





Commercial
and agricultural business loans involve a greater risk of default than one- to
four-residential mortgage loans of like duration since their repayment generally
depends on the successful operation of the borrower’s business and the
sufficiency of collateral if any.  The repayment of agricultural loans
can be greatly affected by weather conditions and commodity prices.





The
allowance for loan losses increased $356,000, or 18.4%, to $2.3 million at
December 31, 2009 from $1.9 million at December 31, 2008. The increase in the
allowance for loan losses was due primarily to an increase in net charge-offs
and an increase in non-performing assets during 2009.  Net charge-offs
increased to $2.2 million during 2009 as compared to $142,000 during
2008.  The higher level of net charge-offs and the resulting increase
to the allowance for loan losses primarily reflected the deterioration of two
commercial loan relationships during 2009.





The first borrower had loans with an
aggregate principal balance of $2.6 million at December 31, 2008 secured by
commercial trailers and, to a lesser extent, commercial real estate. During
2009, the borrower’s business experienced a significant decline in financial
condition and management determined that the value of the remaining collateral
was not sufficient to secure the balance of the loans. We recognized charge-offs
totaling $1.7 million on loans to this borrower during
2009.  Principal reductions of approximately $545,000 were received
from this borrower during 2009, which reduced the outstanding principal balance
to $400,000 at December 31, 2009.  The non-performing portion of this
lending relationship was $144,000 at December 31, 2009.  We have
provided an additional $138,000 to the allowance for loan losses during 2009
after the charge-offs noted above for any further potential losses on this
lending relationship.





The
second borrower had loans with an aggregate principal balance of $1.3 million at
December 31, 2008 secured primarily by mobile homes. During 2009, the borrower’s
business experienced a significant decline in financial condition and management
determined that the value of the remaining collateral was not sufficient to
secure the balance of the loans.  We recognized
charge-offs totaling $224,000 on loans to this borrower during
2009.  Principal reductions of approximately $211,000 were received
from this borrower during 2009, which reduced the outstanding principal balance
to $901,000 as of December 31, 2009.  The non-performing portion of
this lending relationship was $99,000 at December 31, 2009.  We have
provided an additional $242,000 to the allowance for loan losses during 2009
after the charge-offs noted above for any further potential losses on this
lending relationship.





The
increase in the allowance for loan losses was also due to an increase in
non-performing assets.  Non-performing assets increased $368,000 to
$2.3 million at December 31, 2009, compared to $2.0 million at December 31,
2008.  The increase in non-performing assets was due to an increase of
$763,000 in non-performing loans, partially offset by a decrease of $395,000 in
foreclosed assets held at December 31, 2009 as compared to at December 31,
2008.  The allowance for loan losses to non-performing loans decreased
to 117.20% at December 31, 2009 as compared to 162.47% at December 31, 2008.
This decrease was primarily due to lower specific provisions associated with the
non-performing loans at December 31, 2009.




18





Although we maintain our allowance for
loan losses at a level which we consider to be adequate to provide for potential
losses, there can be no assurance that such losses will not exceed the estimated
amounts or that we will not be required to make additions to the allowance for
loan losses in the future.  Future additions to our allowance for loan
losses and changes in the related ratio of the allowance for loan losses to
non-performing loans are dependent upon the economy, changes in real estate
values and interest rates, the view of the regulatory authorities toward
adequate loan loss reserve levels, and inflation.  Management will
continue to review the entire loan portfolio to determine the extent, if any, to
which further additional loan loss provisions may be deemed
necessary.





Analysis of the
Allowance for Loan Losses.  The following table summarizes
changes in the allowance for loan losses by loan categories for each year
indicated and additions to the allowance for loan losses, which have been
charged to operations.  There were no charge-offs in multi-family
residential real estate during the years presented.





For
      the Years Ended December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(Dollars
      in Thousands)Balance
      at beginning of
      year
            
            $
            1,934
            
            
            $
            1,766
            
            
            $
            1,864
            
            
            $
            1,846
            
            
            $
            1,888Charge-offs:One- to four-family
      residential
            
            
            147
            
            
            
            149
            
            
            
            165
            
            
            
            55
            
            
            
            161Commercial and agricultural
      real estate
            
            
            112
            
            
            
            —
            
            
            
            38
            
            
            
            30
            
            
            
            53Commercial and agricultural
      business
            
            
            1,883
            
            
            
            —
            
            
            
            35
            
            
            
            16
            
            
            
            8Home equity/home
      improvement
            
            
            58
            
            
            
            46
            
            
            
            18
            
            
            
            101
            
            
            
            145Automobile
            
            
            20
            
            
            
            8
            
            
            
            —
            
            
            
            2
            
            
            
            30Other
      consumer
            
            
            23
            
            
            
            3
            
            
            
            45
            
            
            
            14
            
            
            
            36Total
      charge-offs
            
            
            2,243
            
            
            
            206
            
            
            
            301
            
            
            
            218
            
            
            
            433Recoveries:One- to four-family
      residential
            
            
            1
            
            
            
            14
            
            
            
            5
            
            
            
            78
            
            
            
            14Commercial and agricultural
      real estate
            
            
            4
            
            
            
            15
            
            
            
            6
            
            
            
            8
            
            
            
            —Commercial and agricultural
      business
            
            
            —
            
            
            
            16
            
            
            
            —
            
            
            
            —
            
            
            
            —Home equity/home
      improvement
            
            
            4
            
            
            
            4
            
            
            
            3
            
            
            
            34
            
            
            
            98Automobile
            
            
            7
            
            
            
            5
            
            
            
            13
            
            
            
            17
            
            
            
            17Other
      consumer
            
            
            8
            
            
            
            10
            
            
            
            21
            
            
            
            39
            
            
            
            17Total  recoveries
            
            
            24
            
            
            
            64
            
            
            
            48
            
            
            
            176
            
            
            
            146Net
      loans
      charge-offs
            
            
            2,219
            
            
            
            142
            
            
            
            253
            
            
            
            42
            
            
            
            287Additions
      charged to
      operations
            
            
            2,575
            
            
            
            310
            
            
            
            155
            
            
            
            60
            
            
            
            245Balance
      at end of
      year
            
            $
            2,290
            
            
            $
            1,934
            
            
            $
            1,766
            
            
            $
            1,864
            
            
            $
            1,846Total
      loans
      outstanding
            
            $
            176,042
            
            
            $
            184,991
            
            
            $
            177,662
            
            
            $
            156,731
            
            
            $
            144,293Average
      net loans
      outstanding
            
            $
            182,813
            
            
            $
            177,963
            
            
            $
            165,715
            
            
            $
            149,238
            
            
            $
            137,740Allowance
      for loan losses as a percentage of total loans at end of
    year
            
            
            1.29
            %
            
            
            1.05
            %
            
            
            0.99
            %
            
            
            1.19
            %
            
            
            1.28
            %Net
      loans charged off as a percent of average net loans
      outstanding
            
            
            1.21
            %
            
            
            0.08
            %
            
            
            0.15
            %
            
            
            0.03
            %
            
            
            0.21
            %Allowance
      for loan losses to non-performing loans
            
            
            117.20
            %
            
            
            162.47
            %
            
            
            161.90
            %
            
            
            137.90
            %
            
            
            156.75
            %Allowance
      for loan losses to total non-performing assets at end of
    year
            
            
            97.99
            %
            
            
            98.22
            %
            
            
            119.49
            %
            
            
            123.94
            %
            
            
            111.95
            %




19


Allocation of
Allowance for Loan Losses.  The following table sets forth the
allocation of allowance for loan losses by loan category at the dates indicated.
The table reflects the allowance for loan losses as a percentage of total loans
receivable.  Management believes that the allowance can be allocated
by category only on an approximate basis.  The allocation of the
allowance by category is not necessarily indicative of future losses and does
not restrict the use of the allowance to absorb losses in any
category.





At
      December 31,2009
            
            
            2008
            
            
            2007Amount
            
            
            Percent
      of Loans in Each Category to Total Loans
            
            
            Amount
            
            
            Percent
      of Loans in Each Category to Total Loans
            
            
            Amount
            
            
            Percent
      of Loans in Each Category to Total Loans(Dollars
      in Thousands)One-
      to four-family residential
            
            $
            392
            
            
            
            21.9
            %
            
            $
            510
            
            
            
            25.3
            %
            
            $
            595
            
            
            
            28.4
            %Commercial
      and agricultural real estate
            
            
            739
            
            
            
            32.2
            
            
            
            537
            
            
            
            30.6
            
            
            
            346
            
            
            
            24.8Multi-family
      residential
            
            
            73
            
            
            
            2.5
            
            
            
            12
            
            
            
            2.4
            
            
            
            28
            
            
            
            2.7Commercial
      and agricultural business
            
            
            653
            
            
            
            19.5
            
            
            
            304
            
            
            
            19.1
            
            
            
            146
            
            
            
            20.6Home
      equity/home improvement
            
            
            249
            
            
            
            16.0
            
            
            
            301
            
            
            
            16.2
            
            
            
            465
            
            
            
            16.9Automobile
            
            
            26
            
            
            
            3.5
            
            
            
            33
            
            
            
            3.2
            
            
            
            74
            
            
            
            3.0Other
      consumer
            
            
            62
            
            
            
            4.4
            
            
            
            52
            
            
            
            3.2
            
            
            
            112
            
            
            
            3.6Unallocated
            
            
            96
            
            
            
            —
            
            
            
            185
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            $
            2,290
            
            
            
            100
            %
            
            $
            1,934
            
            
            
            100
            %
            
            $
            1,766
            
            
            
            100
            %





At
      December 31,2006
            
            
            2005Amount
            
            
            Percent of
      Loans in Each Category to Total Loans
            
            
            Amount
            
            
            Percent
      of Loans in Each Category to Total Loans(Dollars
      in Thousands)One-
      to four-family residential
            
            $
            512
            
            
            
            25.9
            %
            
            $
            448
            
            
            
            27.8
            %Commercial
      and agricultural real estate
            
            
            244
            
            
            
            25.3
            
            
            
            199
            
            
            
            23.4Multi-family
      residential
            
            
            37
            
            
            
            3.7
            
            
            
            40
            
            
            
            4.2Commercial
      and agricultural business
            
            
            275
            
            
            
            21.0
            
            
            
            129
            
            
            
            19.9Home
      equity/home improvement
            
            
            561
            
            
            
            17.3
            
            
            
            785
            
            
            
            18.3Automobile
            
            
            96
            
            
            
            3.4
            
            
            
            110
            
            
            
            3.2Other
      consumer
            
            
            139
            
            
            
            3.4
            
            
            
            135
            
            
            
            3.2Total
            
            $
            1,864
            
            
            
            100
            %
            
            $
            1,846
            
            
            
            100
            %





Investment
Activities





General.The asset/liability
management committee, consisting of our Chairman of the Board, President, Senior
Vice President, Vice President of Operations, Chief Financial Officer, and two
outside directors from the board, has primary responsibility for establishing
our investment policy and overseeing its implementation, subject to oversight by
our entire board of directors.  Authority to make investments under
approved guidelines is delegated to the Senior Vice President. The committee
meets at least quarterly.  All investment transactions are reported to
the board of directors for ratification quarterly.




The
investment policy is reviewed at least annually by the full board of
directors.  This policy dictates that investment decisions be made
based on providing liquidity, meeting pledging requirements, generating a
reasonable rate of return, minimizing our tax liability through the purchase of
municipal securities, minimizing exposure to credit risk and ensuring
consistency with our interest rate risk management
strategy.


Our
current investment policy permits us to invest in U.S. treasuries, federal
agency securities, mortgage-backed securities, investment grade corporate bonds,
municipal bonds, short-term instruments, and other
securities.  Investments in municipal bonds will be correlated with
Jacksonville Savings Bank’s current level of taxable income, the need for
tax-exempt income, and investment in the community.  The investment
policy also permits investments in certificates of deposit, securities purchased
under an agreement to resell, bankers acceptances, commercial paper and federal
funds.




20





Our
current investment policy generally does not permit investment in stripped
mortgage-backed securities, short sales, derivatives, or in other high-risk
securities. Federal and Illinois state law generally limit our investment
activities to those permissible for a national bank.





The accounting rules require that, at
the time of purchase, we designate a security as held to maturity,
available-for-sale, or trading, depending on our ability and
intent.  Securities available for sale are reported at fair value,
while securities held to maturity are reported at amortized cost. We only
maintain a securities available-for-sale portfolio.





The portfolio consists primarily of
mortgage-backed securities, municipal bonds and U.S. government and agency
securities all of which are classified as available for sale. Mortgage-backed
securities totaled $41.0 million at December 31, 2009.  General
obligation municipal bonds, most of which have been issued  within the
States of Illinois and Missouri totaled $28.1 million at December 31, 2009. Our
portfolio of U.S. Government and agency securities totaled $9.1 million at
December 31, 2009.  We expect the composition of our investment
portfolio to continue to change based on liquidity needs associated with loan
origination activities.  During the year ended December 31, 2009, we
had no investment securities that were deemed to be other than temporarily
impaired.





Under Federal regulations, we are
required to maintain a minimum amount of liquid assets that may be invested in
specified short-term securities and certain other
investments.  Liquidity levels may be increased or decreased depending
upon the yields on investment alternatives and upon management’s judgment as to
the attractiveness of the yields then available in relation to other
opportunities and its expectation of the level of yield that will be available
in the future, as well as management’s projections as to the short-term demand
for funds to be used in our loan originations and other activities.





Mortgage-Backed
Securities.  We invest in mortgage-backed securities insured or
guaranteed by the United States Government or government sponsored
enterprises.  These securities, which consist of mortgage-backed
securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, had an amortized
cost of $40.4 million, $27.4 million and $15.5 million at December 31, 2009,
2008, and 2007, respectively.  The fair value of our mortgage-backed
securities portfolio was $41.0 million, $27.8 million and $15.4 million at
December 31, 2009, 2008, and 2007, respectively, and the weighted average rate
as of December 31, 2009, 2008, and 2007 was 4.21%, 4.95% and 4.85%,
respectively. At December 31, 2009, $37.9 million of the mortgage-backed
securities in the investment portfolio had fixed-rates of interest and $3.1
million had variable rates of interest.





Mortgage-backed
securities are created by pooling mortgages and issuing a security with an
interest rate that is less than the interest rate on the underlying
mortgages.  Mortgage-backed securities typically represent a
participation interest in a pool of single-family or multi-family mortgages,
although we invest primarily in mortgage-backed securities backed by one- to
four-family mortgages.  The issuers of such securities pool and resell
the participation interests in the form of securities to investors such as
Jacksonville Savings Bank.  Some securities pools are guaranteed as to
payment of principal and interest to investors.  Mortgage-backed
securities generally yield less than the loans that underlie such securities
because of the cost of payment guarantees and credit
enhancements.  However, mortgage-backed securities are more liquid
than individual mortgage loans since there is an active trading market for such
securities.  In addition, mortgage-backed securities may be used to
collateralize our specific liabilities and obligations.  Finally,
mortgage-backed securities are assigned lower risk weightings for purposes of
calculating our risk-based capital level.




Investments
in mortgage-backed securities involve a risk that actual payments will be
greater or less than the prepayment rate estimated at the time of purchase,
which may require adjustments to the amortization of any premium or acceleration
of any discount relating to such interests, thereby affecting the net yield on
our securities.  We periodically review current prepayment speeds to
determine whether prepayment estimates require modification that could cause
amortization or accretion adjustments.




Municipal Bonds.At December 31, 2009, we held municipal bonds with a fair value of $28.1
million. All of our municipal bonds are general obligation bonds with full
taxing authority and ratings (when available) of A or above. Nearly all of our
municipal bonds are issued in Illinois or Missouri.




21




U.S. Government
and Agency Securities.At December 31, 2009, we held U.S.
Government and agency securities with a fair value of $9.1 million. These
securities have an average expected life of 2.44 years. While these securities
generally provide lower yields than other investments such as mortgage-backed
securities, our current investment strategy is to maintain investments in such
instruments to the extent appropriate for liquidity purposes, as collateral for
borrowings, and for prepayment protection.




Investment
Securities Portfolio.The following table sets forth the
composition of our investment securities portfolio at the dates indicated.
Investment securities do not include Federal Home Loan Bank of Chicago stock of
$1.1 million.  All of such securities were classified as available for
sale.





At
      December 31,2009
            
            
            2008
            
            
            2007Amortized
      Cost
            
            
            Fair
      Value
            
            
            Amortized
      Cost
            
            
            Fair
      Value
            
            
            Amortized
      Cost
            
            
            Fair
      Value(In
      Thousands)Mortgage-backed
      securities:Fannie
      Mae
            
            $
            10,646
            
            
            $
            10,855
            
            
            $
            14,422
            
            
            $
            14,654
            
            
            $
            7,439
            
            
            $
            7,433Freddie
      Mac
            
            
            6,938
            
            
            
            7,096
            
            
            
            6,085
            
            
            
            6,192
            
            
            
            4,561
            
            
            
            4,536Ginnie
      Mae
            
            
            22,844
            
            
            
            23,034
            
            
            
            6,877
            
            
            
            6,949
            
            
            
            3,495
            
            
            
            3,446Total
      mortgage-backed securities
            
            
            40,428
            
            
            
            40,985
            
            
            
            27,384
            
            
            
            27,795
            
            
            
            15,495
            
            
            
            15,415U.S.
      government and agencies
            
            
            9,037
            
            
            
            9,080
            
            
            
            19,472
            
            
            
            19,834
            
            
            
            50,107
            
            
            
            49,962Municipal
      bonds
            
            
            27,661
            
            
            
            28,116
            
            
            
            30,067
            
            
            
            29,805
            
            
            
            14,796
            
            
            
            14,933Total
            
            $
            77,126
            
            
            $
            78,181
            
            
            $
            76,923
            
            
            $
            77,434
            
            
            $
            80,398
            
            
            $
            80,310




22


Portfolio
Maturities and Yields.The composition and maturities of the
investment securities portfolio at December 31, 2009 are summarized in the
following table.  Maturities are based on the final contractual
payment dates, and do not reflect the impact of prepayments or early redemptions
that may occur. All of such securities were classified as available for
sale.





One
      Year or Less
            
            
            More
      than One Year through Five Years
            
            
            More
      than Five Years through Ten Years
            
            
            More
      than Ten Years
            
            
            Total
      SecuritiesAmortized
      Cost
            
            
            Weighted
      Average Yield
            
            
            Amortized
      Cost
            
            
            Weighted
      Average Yield
            
            
            Amortized
      Cost
            
            
            Weighted
      Average Yield
            
            
            Amortized
      Cost
            
            
            Weighted
      Average Yield
            
            
            Amortized
      Cost
            
            
            Fair
      Value
            
            
            Weighted
      Average Yield(Dollars
      in Thousands)Mortgage-backed
      securities:Fannie
      Mae
            
            $
            —
            
            
            
            —
            %
            
            $
            —
            
            
            
            —
            %
            
            $
            —
            
            
            
            —
            %
            
            $
            10,646
            
            
            
            4.30
            %
            
            $
            10,646
            
            
            $
            10,855
            
            
            
            4.30
            %FreddieMac
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            6,938
            
            
            
            4.34
            
            
            
            6,938
            
            
            
            7,096
            
            
            
            4.34Ginnie
      Mae
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            22,844
            
            
            
            4.13
            
            
            
            22,844
            
            
            
            23,034
            
            
            
            4.13Total
      mortgage-backed securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            40,428
            
            
            
            4.21
            
            
            
            40,428
            
            
            
            40,985
            
            
            
            4.21U.S.
      government and agencies
            
            
            —
            
            
            
            —
            
            
            
            1,000
            
            
            
            4.25
            
            
            
            5,481
            
            
            
            4.35
            
            
            
            2,556
            
            
            
            3.84
            
            
            
            9,037
            
            
            
            9,080
            
            
            
            4.20Municipal
      bonds(1)
            
            
            270
            
            
            
            3.31
            
            
            
            2,627
            
            
            
            3.30
            
            
            
            13,137
            
            
            
            3.56
            
            
            
            11,627
            
            
            
            4.16
            
            
            
            27,661
            
            
            
            28,116
            
            
            
            3.80Total
            
            $
            270
            
            
            
            3.31
            %
            
            $
            3,627
            
            
            
            3.59
            %
            
            $
            18,618
            
            
            
            3.79
            %
            
            $
            54,611
            
            
            
            4.18
            %
            
            $
            77,126
            
            
            $
            78,181
            
            
            
            4.06
            %


(1)
            We
      used an assumed 34% tax rate in computing tax equivalent adjustments. The
      tax equivalent yield of municipal bonds was 5.01% for maturities of one
      year or less, 5.00% for maturities of more than one year through five
      years, 5.40% for maturities for more than five years through ten years,
      6.31% for maturities of more than 10 years and 5.76% for the total
      municipal bonds securities portfolio at December 31, 2009. The tax
      equivalent adjustments to interest income of municipal bonds was $5,000
      for maturities of one year or less, $45,000 for maturities of more than
      one year through five years, $242,000 for maturities for more than five
      years through ten years, $250,000 for maturities of more than 10 years and
      $542,000 for the total municipal bonds securities portfolio for the year
      ended December 31, 2009.




23


Sources
of Funds





General.  Deposits
and borrowings are our major sources of funds for lending and other investment
purposes.  In addition, we derive funds from the repayment and
prepayment of loans and mortgage-backed securities, operations, sales of loans
into the secondary market, and the sale, call, or maturity of investment
securities.  Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and market
conditions.  Other sources of funds include advances from the Federal
Home Loan Bank.  For further information see
“—Borrowings.”  Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources or on
a longer term basis for general business purposes.





Deposits.  We
attract consumer and commercial deposits principally from within our market
areas through the offering of a broad selection of deposit instruments including
interest-bearing checking accounts, noninterest-bearing checking accounts,
savings accounts, money market accounts, term certificate accounts and
individual retirement accounts.  We will accept deposits of $100,000
or more and may offer negotiated interest rates on such deposits. At December
31, 2009, we had deposits of $100,000 or more from public entities that totaled
$25.0 million.  Deposit account terms vary according to the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate, among other factors.  We regularly evaluate our
internal cost of funds, survey rates offered by competing institutions, review
our cash flow requirements for lending and liquidity and execute rate changes
when deemed appropriate.  We do not obtain funds through brokers, nor
do we solicit funds outside our market area.


24


The
following tables set forth the distribution of our average deposit accounts, by
account type, for the years indicated.





For
      the Years Ended December 31,2009
            
            
            2008
            
            
            2007Average
      Balance
            
            
            Percent
            
            
            Weighted
      Average Rate
            
            
            Average
      Balance
            
            
            Percent
            
            
            Weighted
      Average Rate
            
            
            Average
      Balance
            
            
            Percent
            
            
            Weighted
      Average Rate(Dollars
      in Thousands)Deposit
      type:Non-interest
      bearing checking
            
            $
            19,791
            
            
            
            7.8
            %
            
            
            —
            %
            
            $
            18,479
            
            
            
            7.5
            %
            
            
            —
            %
            
            $
            16,214
            
            
            
            6.8
            %
            
            
            —
            %Interest-bearing
      checking
            
            
            29,009
            
            
            
            11.4
            
            
            
            0.32
            %
            
            
            28,572
            
            
            
            11.6
            
            
            
            0.70
            %
            
            
            25,820
            
            
            
            10.9
            
            
            
            1.17
            %Savings accounts
            
            
            24,849
            
            
            
            9.8
            
            
            
            0.88
            %
            
            
            22,677
            
            
            
            9.2
            
            
            
            0.99
            %
            
            
            22,774
            
            
            
            9.6
            
            
            
            1.00
            %Money
      market deposits
            
            
            4,616
            
            
            
            1.8
            
            
            
            0.86
            %
            
            
            4,700
            
            
            
            1.9
            
            
            
            1.06
            %
            
            
            4,957
            
            
            
            2.1
            
            
            
            1.41
            %Money
      market savings
            
            
            26,750
            
            
            
            10.5
            
            
            
            1.41
            %
            
            
            24,442
            
            
            
            9.9
            
            
            
            2.39
            %
            
            
            22,502
            
            
            
            9.4
            
            
            
            4.40
            %Certificates
      of deposit
            
            
            149,124
            
            
            
            58.7
            
            
            
            3.08
            %
            
            
            147,891
            
            
            
            59.9
            
            
            
            4.13
            %
            
            
            145,325
            
            
            
            61.2
            
            
            
            4.71
            %Total deposits
            
            $
            254,139
            
            
            
            100.00
            %
            
            
            2.09
            %
            
            $
            246,761
            
            
            
            100.00
            %
            
            
            2.90
            %
            
            $
            237,592
            
            
            
            100.00
            %
            
            
            3.55
            %





The
following table sets forth certificates of deposit classified by interest rate
as of the dates indicated.





At
      December 31,2009
            
            
            2008
            
            
            2007(In
      Thousands)Interest
      Rate:Less
      than 2.00%
            
            $
            51,683
            
            
            $
            1,006
            
            
            $
            1292.00%
      to 2.99%
            
            
            40,734
            
            
            
            36,001
            
            
            
            5,6183.00%
      to 3.99%
            
            
            37,674
            
            
            
            67,714
            
            
            
            23,2084.00%
      to 4.99%
            
            
            6,677
            
            
            
            17,269
            
            
            
            40,8765.00%
      to 5.99%
            
            
            8,852
            
            
            
            18,420
            
            
            
            80,4146.00%
      to 6.99%
            
            
            —
            
            
            
            86
            
            
            
            88Total
            
            $
            145,620
            
            
            $
            140,496
            
            
            $
            150,333




25





The
following table sets forth, by interest rate ranges and scheduled maturity,
information concerning our certificates of deposit at December 31,
2009.


At
      December 31, 2009Period
      to MaturityLess
      Than or Equal to

                One
      Year
              
              
              More
      Than One to

                Two
      Years
              
              
              More
      ThanTwo toThree Years
              
              
              More
      ThanThree Years
              
              
              Total
              
              
              Percent
      ofTotal(Dollars
      in Thousands)Interest
      Rate Range:Less
      than 2.00%
              
              $
              44,055
              
              
              $
              7,622
              
              
              $
              —
              
              
              $
              6
              
              
              $
              51,683
              
              
              
              35.5
              %2.00%
      to 2.99%
              
              
              29,580
              
              
              
              9,000
              
              
              
              1,686
              
              
              
              468
              
              
              
              40,734
              
              
              
              27.93.00%
      to 3.99%
              
              
              24,513
              
              
              
              5,624
              
              
              
              1,825
              
              
              
              5,712
              
              
              
              37,674
              
              
              
              25.94.00%
      to 4.99%
              
              
              3,686
              
              
              
              1,780
              
              
              
              954
              
              
              
              257
              
              
              
              6,677
              
              
              
              4.65.00%
      to 5.99%
              
              
              6,265
              
              
              
              1,633
              
              
              
              526
              
              
              
              428
              
              
              
              8,852
              
              
              
              6.16.00%
      to 6.99%
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
              
              $
              108,099
              
              
              $
              25,659
              
              
              $
              4,991
              
              
              $
              6,871
              
              
              $
              145,620
              
              
              
              100.00
              %





As of
December 31, 2009, the aggregate amount of outstanding certificates of deposit
in amounts greater than or equal to $100,000 was approximately $58.1 million, of
which $16.9 million were deposits from public entities.  The following
table set forth the maturity of those certificates as of December 31,
2009.





At
      December 31, 2009(In
      Thousands)Three
      months or
      less
            
            $
            11,961Over
      three months through six months
            
            
            12,937Over
      six months through one year
            
            
            21,889Over
      one year to three
      years
            
            
            7,677Over
      three
      years
            
            
            3,662Total
            
            $
            58,126





Borrowings. Deposits are our primary
source of funds for lending and investment activities.  If the need
arises, we may rely upon advances from the Federal Home Loan Bank to supplement
our supply of available funds and to fund deposit withdrawals.  We
typically secure advances from the Federal Home Loan Bank with one- to
four-family residential mortgage loans, United States Government and agency
securities and mortgage-backed securities.  The Federal Home Loan Bank
functions as a central reserve bank providing credit for us and other member
savings associations and financial institutions.  As a member, we are
required to own capital stock in the Federal Home Loan Bank and are authorized
to apply for advances on the security of such stock and certain of our home
mortgages, provided certain standards related to creditworthiness have been
met.  Advances are made pursuant to several different
programs.  Each credit program has its own interest rate and range of
maturities.  Depending on the program, limitations on the amount of
advances are based either on a fixed percentage of a member institution’s
stockholders’ equity or on the Federal Home Loan Bank’s assessment of the
institution’s creditworthiness.  At December 31, 2009, we had noFederal Home Loan Bank
advances outstanding.





Other borrowings consist of securities
sold under agreements to repurchase which are swept daily from commercial
deposit accounts.  We may be required to provide additional collateral
based on the fair value of the underlying securities.


26


Our
borrowings consist of advances from the Federal Home Loan Bank of Chicago and
funds borrowed under repurchase agreements.  At December 31, 2009, we
had access to additional Federal Home Loan Bank advances of up to $22.2
million.  The following table sets forth information concerning
balances and interest rates on our Federal Home Loan Bank advances at the dates
and for the periods indicated.





At
      or For the Years Ended December 31,2009
            
            
            2008
            
            
            2007(Dollars
      in thousands)Balance
      at end of period
            
            $
            —
            
            
            $
            13,500
            
            
            $
            10,000Average
      balance during period
            
            $
            5,349
            
            
            $
            12,029
            
            
            $
            8,629Maximum
      outstanding at any month end
            
            $
            10,000
            
            
            $
            21,000
            
            
            $
            18,000Weighted
      average interest rate at end of period
            
            
            —
            %
            
            
            2.59
            %
            
            
            4.98
            %Average
      interest rate during period
            
            
            1.94
            %
            
            
            3.91
            %
            
            
            5.02
            %





The
following table sets forth information concerning balances and interest rates on
our repurchase agreements at the dates and for the periods
indicated.





At
      or For the Years Ended December 31,2009
            
            
            2008
            
            
            2007(Dollars
      in thousands)Balance
      at end of period
            
            $
            3,789
            
            
            $
            7,633
            
            
            $
            4,936Average
      balance during period
            
            $
            5,160
            
            
            $
            6,031
            
            
            $
            4,665Maximum
      outstanding at any month end
            
            $
            6,920
            
            
            $
            7,633
            
            
            $
            5,838Weighted
      average interest rate at end of period
            
            
            0.24
            %
            
            
            0.03
            %
            
            
            2.89
            %Average
      interest rate during period
            
            
            0.19
            %
            
            
            1.29
            %
            
            
            4.26
            %





Trust
Services





We operate a full-service trust
department. We primarily manage farms and personal estates.  As of
December 31, 2009, our trust department managed or administered 100 trust
accounts and had $50.1 million in trust assets under
management.  Trust fees collected in 2009 and 2008 totaled $166,000
and $221,000, respectively.  The decrease in fees is due to additional
trust work performed during 2008.





Subsidiary
Activities





Jacksonville Savings Bank has one
wholly owned subsidiary, Financial Resources Group, Inc. (“Financial
Resources”), an Illinois corporation.  Financial Resources operates an
investment center engaged in the business of buying and selling stocks, bonds,
annuities and mutual funds for its customers’ accounts.  In addition,
Financial Resources is engaged in the business of originating commercial
business loans and commercial real estate loans.  For the years ended
December 31, 2009 and 2008, Financial Resources had gross revenues of $1.0
million and $1.2 million, respectively.


27


Regulation
and Supervision





General





Jacksonville
Bancorp, Inc. and Jacksonville Bancorp, MHC are nondiversified savings and loan
holding companies within the meaning of the Home Owners’ Loan Act.  As
such, they are registered with the Office of Thrift Supervision and are subject
to regulation by the Office of Thrift Supervision.  Jacksonville
Savings Bank is an Illinois-chartered savings bank subject to extensive
regulation by the Illinois Department of Financial and Professional Regulation
and the Federal Deposit Insurance Corporation.  Jacksonville Savings
Bank’s deposit accounts are insured up to applicable limits by the Federal
Deposit Insurance Corporation.  Jacksonville Savings Bank must file
reports with the Illinois Department of Financial and Professional Regulation
and the Federal Deposit Insurance Corporation concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers or acquisitions with other
depository institutions.  There are periodic examinations of the Bank
by the Illinois Department of Financial and Professional Regulation and the
Federal Deposit Insurance Corporation to review Jacksonville Savings Bank’s
compliance with various regulatory requirements.  Jacksonville Savings
Bank is also subject to certain reserve requirements established by the Board of
Governors of the Federal Reserve.  This regulation and supervision
establishes a comprehensive framework of activities in which a savings bank can
engage and is intended primarily for the protection of the Federal Deposit
Insurance Corporation and depositors.  The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes.  Any change in
such regulation, whether by the Illinois Department of Financial and
Professional Regulation, the Federal Deposit Insurance Corporation, or Congress
could have a material impact on the operations of Jacksonville Savings
Bank.




Proposed
Federal Legislation





Legislation has been proposed that
would implement sweeping changes to the current bank regulatory structure,
including eliminating our current primary federal regulator, the Office of
Thrift Supervision, by merging the Office of Thrift Supervision into the
Comptroller of the Currency (the primary federal regulator for national banks).
The proposed legislation would also establish a Financial Services Oversight
Council and grant the Board of Governors of the Federal Reserve System exclusive
authority to regulate all banks and thrift holding companies.  As a
result, Jacksonville Bancorp, Inc. would become a bank holding company subject
to supervision by the Federal Reserve Board as opposed to the Office of Thrift
Supervision, and would become subject to the Federal Reserve’s regulations,
including holding company capital requirements, that Jacksonville Bancorp, Inc.
would not be subject to as a savings and loan holding company. In addition,
compliance with new regulations and being supervised by one or more new
regulatory agencies could increase our expenses.





Illinois Savings Bank
Regulation





As an Illinois-chartered savings bank,
Jacksonville Savings Bank is subject to regulation and supervision by the
Illinois Department of Financial and Professional Regulation.  The
Illinois Department of Financial and Professional Regulation’s regulation of
Jacksonville Savings Bank covers, among other things, Jacksonville Savings
Bank’s internal organization (i.e., charter, bylaws,
capital requirements, transactions with directors and officers, and composition
of the board of directors), as well as supervision of permissible activities and
mergers and acquisitions.  Jacksonville Savings Bank is required to
file periodic reports with, and is subject to periodic examinations at least
once within every 18-month period by the Illinois Department of Financial and
Professional Regulation.  The lending and investment authority of
Jacksonville Savings Bank is prescribed by Illinois law and regulations, as well
as applicable Federal laws and regulations, and Jacksonville Savings Bank is
prohibited from engaging in any activities not permitted by such laws and
regulations.




28





Under Illinois law, savings banks are
required to maintain a minimum core capital to total assets ratio of
3%.  The Illinois Department of Financial and Professional Regulation
is authorized to require a savings bank to maintain a higher minimum capital
level if the Illinois Department of Financial and Professional Regulation
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 Illinois Department of Financial and
Professional Regulation may direct the savings bank to adhere to a specific
written plan established by the Illinois Department of Financial and
Professional Regulation 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.





Under Illinois law, a savings bank may
make both secured and unsecured loans.  However, loans for business,
corporate, commercial or agricultural purposes, whether secured or unsecured,
may not in the aggregate exceed 15% of a savings bank’s total assets unless
authorized by the Illinois Department of Financial and Professional
Regulation.  With the prior written consent of the Illinois Department
of Financial and Professional Regulation, savings banks may also engage in real
estate development activities, provided that the total investment in any one
project may not exceed 15% of total capital, and the total investment in all
projects may not exceed 50% of total capital.  The total loans and
extensions of credit outstanding at one time, both direct and indirect, by a
savings bank to any borrower may not exceed 25% of the savings bank’s total
capital.  At December 31, 2009, Jacksonville Savings Bank did not have
any loans-to-one borrower which exceeded these limitations.





Illinois-chartered
savings banks generally have all lending, investment and other powers which are
possessed by federal savings banks based in Illinois.  Recent federal
and state legislative developments have reduced distinctions between commercial
banks and savings institutions in Illinois with respect to lending and
investment authority.  As federal law has expanded the authority of
federally chartered savings institutions to engage in activities previously
reserved for commercial banks, Illinois legislation and regulations (“parity
legislation”) have given Illinois-chartered savings institutions, such as the
Bank, the powers of federally chartered savings institutions.




The board of directors of a savings
bank may declare dividends on its capital stock based upon the savings bank’s
annualized net profits except (1) dividends may not be declared if the bank
fails to meet its capital requirements, (2) dividends are limited to 100% of net
income in that year and (3) if total capital is less than 6% of total assets,
dividends are limited to 50% of net income without prior approval of the
Illinois Department of Financial and Professional Regulation.





An Illinois-chartered savings bank may
not make a loan to a person owning 10% or more of its stock, an affiliated
person, an agent or an attorney of the savings bank, either individually or as
an agent or partner of another, except under the rules of the Illinois
Department of Financial and Professional Regulation and regulations of the
Federal Deposit Insurance Corporation.  This restriction does not
apply, however, to loans made (i) on the security of single-family residential
property used by the borrower as his or her residence, and (ii) to a non-profit,
religious, charitable or fraternal organization or a corporation in which the
savings bank has been authorized to invest by the Illinois Department of
Financial and Professional Regulation.  Furthermore, a savings bank
may not purchase, lease or acquire a site for an office building or an interest
in real estate from an officer, director, employee or the holder of more than
10% of the savings bank’s stock or certain affiliated persons as set forth in
Illinois law, unless the prior written approval of the Illinois Department of
Financial and Professional Regulation is obtained.





Illinois law provides that any
depository institution may merge into a savings bank operating under the
Illinois Savings Bank Act.  The board of directors of each merging
institution must approve a plan of merger by resolution adopted by majority vote
of all members of the respective boards.  After such approval, the
plan of merger must be submitted to the Illinois Department of Financial and
Professional Regulation for approval.  The Illinois Department of
Financial and Professional Regulation may make an examination of the affairs of
each merging institution (and their affiliates).  The Illinois
Department of Financial and Professional Regulation shall not approve a merger
agreement unless he finds that, among other things, (i) the resulting
institution meets all requirements of the Illinois Savings Bank Act; (ii) the
merger agreement is fair to all persons affected; and (iii) the resulting
institution will be operated in a safe and sound manner.  If approved
by the Illinois Department of Financial and Professional Regulation, the plan of
merger must be submitted to stockholders of the depository institution for
approval, and may be required to be submitted to members if a mutual savings
bank is one of the constituent entities.  A two-thirds affirmative
vote is required for approval of the plan of merger.




29





Branching and
Interstate Banking.The establishment of branches by Jacksonville Savings
Bank is subject to approval of the Illinois Department of Financial and
Professional Regulation and Federal Deposit Insurance Corporation and geographic
limits established by state laws. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the “Riegle-Neal Act”) facilitates the
interstate expansion and consolidation of banking organizations by permitting,
among other things, (i) bank holding companies that are adequately capitalized
and managed to acquire banks located in states outside their home state
regardless of whether such acquisitions are authorized under the law of the host
state, (ii) the interstate merger of banks, subject to the right of
individual states to “opt out” of this authority, and (iii) banks to
establish new branches on an interstate basis provided that such action is
specifically authorized by the law of the host state.




Qualified Thrift
Lender Test.In order for Jacksonville Bancorp, Inc. to be
regulated as a savings and loan holding company by the Office of Thrift
Supervision (rather than as a bank holding company by the Board of Governors of
the Federal Reserve System), Jacksonville Savings Bank must qualify as a
“qualified thrift lender” under Office of Thrift Supervision regulations or
satisfy the “domestic building and loan association” test under the Internal
Revenue Code. Under the qualified thrift lender test, an institution is required
to maintain at least 65% of its “portfolio assets” (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) goodwill and other
intangible assets; and (iii) the value of property used to conduct business) in
certain “qualified thrift investments” (primarily residential mortgages and
related investments, including certain mortgage-backed and related securities)
in at least nine out of each 12 month period.  Jacksonville Savings
Bank currently maintains the majority of its portfolio assets in qualified
thrift investments and has met the qualified thrift lender test in each of the
last 12 months.





Transactions with
Related Parties.  A savings bank’s authority to engage in
transactions with its affiliates is limited by Sections 23A and 23B of the
Federal Reserve Act and Regulation W promulgated by the Board of Governors of
the Federal Reserve System.  An affiliate is generally a company that
controls, is controlled by, or is under common control with an insured
depository institution such as Jacksonville Savings
Bank.  Jacksonville Bancorp, Inc. is an affiliate of Jacksonville
Savings Bank.  In general, transactions between an insured depository
institution and its affiliates are subject to certain quantitative and
collateral requirements.  In addition, applicable regulations prohibit
a savings bank from lending to any of its affiliates that are engaged in
activities that are not permissible for bank holding companies and from
purchasing the securities of any affiliate, other than a
subsidiary.  Finally, transactions with affiliates must be consistent
with safe and sound banking practices, not involve low-quality assets and be on
terms that are as favorable to the institution as comparable transactions with
non-affiliates.  Applicable regulators require savings banks to
maintain detailed records of all transactions with affiliates.




Jacksonville
Savings Bank’s authority to extend credit to its directors, executive officers
and 10% or greater stockholders, as well as to entities controlled by such
persons, is governed by the requirements of Sections 22(g) and 22(h) of the
Federal Reserve Act and Regulation O promulgated by the Board of Governors of
the Federal Reserve System.  Among other things, these provisions
require that extensions of credit to insiders:




(i)
            be
      made on terms that are substantially the same as, and follow credit
      underwriting procedures that are not less stringent than, those prevailing
      for comparable transactions with unaffiliated persons and that do not
      involve more than the normal risk of repayment or present other
      unfavorable features, and(ii)
            not
      exceed certain limitations on the amount of credit extended to such
      persons, individually and in the aggregate, which limits are based, in
      part, on the amount of Jacksonville Savings Bank’s
    capital.




In
addition, extensions of credit in excess of certain limits must be approved in
advance by Jacksonville Savings Bank’s board of directors.




30




Capital
Maintenance.  Under Federal Deposit Insurance Corporation
regulations, Jacksonville Savings Bank must maintain minimum levels of
capital.  The regulations establish a minimum leverage capital
requirement of not less than 3% core capital to total assets for banks in the
strongest financial and managerial condition, with the highest supervisory
rating of the federal regulators for banks.  For all other banks, the
minimum leverage capital requirement is between 4% and 5% of total
assets.  Core capital is composed of the sum of common stockholders’
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
(other than qualifying mortgage servicing rights and qualifying supervisory
intangible core deposits), identified losses, investments in certain
subsidiaries, and unrealized gains (losses) on investment
securities.





The
Federal Deposit Insurance Corporation also requires that savings banks meet a
risk-based capital standard.  The risk-based capital standard requires
the maintenance of total capital (which is defined as core capital and
supplementary capital) to risk weighted assets of 8.0%.  In
determining the amount of risk-weighted assets, all assets, including certain
off balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based
on the risks the federal regulators believe are inherent in the type of
asset.  The components of core capital are equivalent to those
discussed earlier under the 3% leverage requirement.  The components
of supplementary capital currently include cumulative perpetual preferred stock,
long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock and allowance for loan and
lease losses.  Allowance for loan and lease losses includible in
supplementary capital is limited to a maximum of 1.25% of risk-weighted
assets.  Overall, the amount of capital counted toward supplementary
capital cannot exceed 100% of core capital.  At December 31, 2009,
Jacksonville Savings Bank exceeded its applicable capital
requirements.




Insurance of
Deposit Accounts.Jacksonville Savings
Bank is a member of the Deposit Insurance Fund, which is administered by the
Federal Deposit Insurance Corporation. Deposit accounts at Jacksonville Savings
Bank are insured by the Federal Deposit Insurance Corporation, generally up to a
maximum of $100,000 for each separately insured depositor and up to a maximum of
$250,000 for self-directed retirement accounts. However, the Federal Deposit
Insurance Corporation increased the deposit insurance available on all deposit
accounts to $250,000, effective until December 31, 2013.  In addition,
certain noninterest-bearing transaction accounts maintained with financial
institutions participating in the Federal Deposit Insurance Corporation’s
Temporary Liquidity Guarantee Program are fully insured regardless of the dollar
amount until June 30, 2010.  Jacksonville Savings Bank has opted to
participate in the Federal Deposit Insurance Corporation’s Temporary Liquidity
Guarantee Program.  See “—Temporary Liquidity Guarantee
Program.”




The
Federal Deposit Insurance Corporation imposes an assessment against institutions
for deposit insurance.  This assessment is based on the risk category
of the institution and, prior to 2009, ranged from 5 to 43 basis points of the
institution’s deposits.  On December 22, 2008, the Federal Deposit
Insurance Corporation published a final rule that raised the current deposit
insurance assessment rates uniformly for all institutions by 7 basis points (to
a range from 12 to 50 basis points) effective for the first quarter of
2009.  On February 27, 2009, the Federal Deposit Insurance Corporation
issued a final rule that altered the way the Federal Deposit Insurance
Corporation calculates federal deposit insurance assessment rates beginning in
the second quarter of 2009 and thereafter.





Under the
rule, the Federal Deposit Insurance Corporation first establishes an
institution’s initial base assessment rate.  This initial base
assessment rate ranges, depending on the risk category of the institution, from
12 to 45 basis points.  The Federal Deposit Insurance Corporation then
adjusts the initial base assessment (higher or lower) to obtain the total base
assessment rate.  The adjustments to the initial base assessment rate
are based upon an institution’s levels of unsecured debt, secured liabilities,
and brokered deposits.  The total base assessment rate ranges from 7
to 77.5 basis points of the institution’s deposits. At December 31, 2009, our
base assessment was 14.66 basis points.  Additionally, on May 22,
2009, the Federal Deposit Insurance Corporation issued a final rule that imposed
a special 5 basis points assessment on each FDIC-insured depository
institution’s assets, minus its Tier 1 capital on June 30, 2009, which was
collected on September 30, 2009. The special assessment was capped at 10 basis
points of an institution’s domestic deposits. Future special assessments could
also be assessed. Based upon Jacksonville Savings Bank’s review of the Federal
Deposit Insurance Corporation’s new rule, its Federal Deposit Insurance
Corporation premium assessment for 2009 increased by approximately $508,000,
including the special assessment.




31





The
Federal Deposit Insurance Corporation has adopted a final rule pursuant to which
all insured depository institutions will be required to prepay their estimated
assessments for the fourth quarter of 2009, and for all of 2010, 2011 and
2012.  Under the rule, this pre-payment was due on December 30,
2009.  The assessment rate for the fourth quarter of 2009 and for 2010
was based on each institution’s total base assessment rate for the third quarter
of 2009, modified to assume that the assessment rate in effect on September 30,
2009 had been in effect for the entire third quarter, and the assessment rate
for 2011 and 2012 was equal to the modified third quarter assessment rate plus
an additional 3 basis points.  In addition, each institution’s base
assessment rate for each period was calculated using its third quarter
assessment base, adjusted quarterly for an estimated 5% annual growth rate in
the assessment base through the end of 2012. Our prepayment amount was
approximately $1.4 million.




Insurance of deposits may be terminated
by the Federal Deposit Insurance Corporation upon a finding that an institution
has engaged in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the Federal Deposit Insurance Corporation. We do
not currently know of any practice, condition or violation that may lead to
termination of our deposit insurance.





In
addition to the Federal Deposit Insurance Corporation assessments, the Financing
Corporation (“FICO”) is authorized to impose and collect, with the approval of
the Federal Deposit Insurance Corporation, assessments for anticipated payments,
issuance costs and custodial fees on bonds issued by the FICO in the 1980s to
recapitalize the former Federal Savings and Loan Insurance Corporation. The
bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter
ended December 31, 2009, the annualized FICO assessment was equal to 1.0 basis
point for each $100 in domestic deposits maintained at an
institution.





Temporary
Liquidity Guarantee Program.  On October 14, 2008, the Federal
Deposit Insurance Corporation announced a new program – the Temporary Liquidity
Guarantee Program, which guarantees newly issued senior unsecured debt of a
participating organization, up to certain limits established for each
institution, issued between October 14, 2008 and June 30, 2009. The Federal
Deposit Insurance Corporation will pay the unpaid principal and interest on
FDIC-guaranteed debt instruments upon the uncured failure of the participating
entity to make timely payments of principal or interest in accordance with the
terms of the instrument.  The guarantee will remain in effect until
June 30, 2012. In return for the Federal Deposit Insurance Corporation’s
guarantee, participating institutions will pay the Federal Deposit Insurance
Corporation a fee based on the amount and maturity of the debt.  We
opted not to participate in this part of the Temporary Liquidity Guarantee
Program.




The other part of the Temporary Liquidity Guarantee Program provides full
federal deposit insurance coverage for noninterest-bearing transaction deposit
accounts, regardless of dollar amount, until December 31, 2009. An annualized 10
basis point assessment on balances in noninterest-bearing transaction accounts
that exceed the existing deposit insurance limit of $250,000 will be assessed on
a quarterly basis to insured depository institutions that have not opted out of
this component of the Temporary Liquidity Guarantee Program.  We opted
to participate in this component of the Temporary Liquidity Guarantee Program.
On August 26, 2009, the Federal Deposit Insurance Corporation extended the
program until June 30, 2010. Institutions had until November 2, 2009 to decide
whether they would opt out of the extension which takes effect on January 1,
2010. An annualized assessment rate between 15 and 25 basis points on balances
in noninterest-bearing transaction accounts that exceed the existing deposit
insurance limit of $250,000 will be assessed depending on the institution’s risk
category. We opted into the extension.





U.S. Treasury’s
Troubled Asset Relief Program Capital Purchase Program.The Emergency
Economic Stabilization Act of 2008, which was enacted on October 3, 2008,
provides the U.S. Secretary of the Treasury with broad authority to implement
certain actions to help restore stability and liquidity to U.S. financial
markets. One of the programs resulting from the legislation is the Troubled
Asset Relief Program Capital Purchase Program (“CPP”), which provides direct
equity investment by the U.S. Treasury Department in perpetual preferred stock
of qualified financial institutions. The program is voluntary and requires an
institution to comply with a number of restrictions and provisions, including
limits on executive compensation, stock redemptions and declaration of
dividends.  The CPP provides for a minimum investment of one percent
of total risk-weighted assets and a maximum investment equal to the lesser of
three percent of total risk-weighted assets or $25 billion. Participation in the
program is not automatic and is subject to approval by the U.S. Treasury
Department.  We opted not to participate in the CPP.




32




Community
Reinvestment Act.Under the Community
Reinvestment Act (“CRA”), as implemented by Federal Deposit Insurance
Corporation regulations, a savings institution has a continuing and affirmative
obligation consistent with its safe and sound operation to help meet the credit
needs of its entire community, including low and moderate income
neighborhoods.  The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution’s discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the
CRA.  The CRA requires the Federal Deposit Insurance Corporation, in
connection with its examination of a savings institution, to assess the
institution’s record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution.





Federal Home Loan
Bank System.  Jacksonville Savings Bank is a member of the
Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan
Banks.  The Federal Home Loan Bank System provides a central credit
facility primarily for member institutions as well as other entities involved in
home mortgage lending.  As a member of the Federal Home Loan Bank of
Chicago, Jacksonville Savings Bank is required to acquire and hold shares of
capital stock in the Federal Home Loan Bank.  As of December 31, 2009,
Jacksonville Savings Bank was in compliance with this requirement.




Prompt Corrective
Regulatory Action.  The Federal Deposit Insurance Corporation
Improvement Act requires, among other things, that federal bank regulatory
authorities take “prompt corrective action” with respect to institutions that do
not meet minimum capital requirements. For these purposes, the statute
establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized.




The
Federal Deposit Insurance Corporation may order savings banks which have
insufficient capital to take corrective actions. For example, a savings bank
which is categorized as “undercapitalized” would be subject to growth
limitations and would be required to submit a capital restoration plan, and a
holding company that controls such a savings bank would be required to guarantee
that the savings bank complies with the restoration plan. A “significantly
undercapitalized” savings bank would be subject to additional restrictions.
Savings banks deemed by the Federal Deposit Insurance Corporation to be
“critically undercapitalized” would be subject to the appointment of a receiver
or conservator.




At
December 31, 2009, Jacksonville Savings Bank is “well capitalized” under the
prompt corrective action rules.




Federal
Reserve System





Federal
Reserve Board regulations require savings banks to maintain noninterest-earning
reserves against their transaction accounts, such as negotiable order of
withdrawal and regular checking accounts.  At December 31, 2009,
Jacksonville Savings Bank was in compliance with these reserve
requirements.




Other
Regulations





Interest
and other charges collected or contracted for by Jacksonville Savings Bank are
subject to state usury laws and federal laws concerning interest
rates.  Jacksonville Savings Bank’s operations are also subject to
federal and state laws applicable to credit transactions, such as
the:




●
            Truth-In-Lending
      Act, governing disclosures of credit terms to consumer
      borrowers;●
            Home
      Mortgage Disclosure Act, requiring financial institutions to provide
      information to enable the public and public officials to determine whether
      a financial institution is fulfilling its obligation to help meet the
      housing needs of the community it serves;●
            Equal
      Credit Opportunity Act, prohibiting discrimination on the basis of race,
      creed or other prohibited factors in extending credit;●
            Fair
      Credit Reporting Act, governing the use and provision of information to
      credit reporting agencies;  33
  ●
              Fair
      Debt Collection Act, governing the manner in which consumer debts may be
      collected by collection agencies;●
              Truth
      in Savings Act;●
              Illinois
      High Risk Home Loan Act, which protects borrowers who enter into high risk
      home loans;●
              Illinois
      Predatory Lending Database Program, which helps provide counseling for
      homebuyers in connection with certain loans; and●
              rules
      and regulations of the various federal and state agencies charged with the
      responsibility of implementing such
laws.




The
operations of Jacksonville Savings Bank also are subject to the:





●
            Right
      to Financial Privacy Act, which imposes a duty to maintain confidentiality
      of consumer financial records and prescribes procedures for complying with
      administrative subpoenas of financial records;●
            Electronic
      Funds Transfer Act and Regulation E promulgated thereunder, which govern
      automatic deposits to and withdrawals from deposit accounts and customers’
      rights and liabilities arising from the use of automated teller machines
      and other electronic banking services;●
            Check
      Clearing for the 21st
      Century Act (also known as “Check 21”), which gives “substitute checks,”
      such as digital check images and copies made from that image, the same
      legal standing as the original paper check;●
            The
      USA PATRIOT Act, which requires savings banks operating to, among other
      things, establish broadened anti-money laundering compliance programs, due
      diligence policies and controls to ensure the detection and reporting of
      money laundering. Such required compliance programs are intended to
      supplement existing compliance requirements, also applicable to financial
      institutions, under the Bank Secrecy Act and the Office of Foreign Assets
      Control regulations; and●
            The
      Gramm-Leach-Bliley Act, which places limitations on the sharing of
      consumer financial information by financial institutions with unaffiliated
      third parties. Specifically, the Gramm-Leach-Bliley Act requires all
      financial institutions offering financial products or services to retail
      customers to provide such customers with the financial institution’s
      privacy policy and provide such customers the opportunity to “opt out” of
      the sharing of certain personal financial information with unaffiliated
      third parties.






Sarbanes-Oxley
Act of 2002





The
Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance,
auditing and accounting, executive compensation, and enhanced and timely
disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our
Chief Executive Officer and Chief Financial Officer will be required to certify
that our quarterly and annual reports do not contain any untrue statement of a
material fact. The rules adopted by the Securities and Exchange Commission under
the Sarbanes-Oxley Act have several requirements, including having these
officers certify that: they are responsible for establishing, maintaining and
regularly evaluating the effectiveness of our internal control over financial
reporting; they have made certain disclosures to our auditors and the audit
committee of the board of directors about our internal control over financial
reporting; and they have included information in our quarterly and annual
reports about their evaluation and whether there have been changes in our
internal control over financial reporting or in other factors that could
materially affect internal control over financial reporting.  We will
be subject to further reporting and audit requirements beginning with the year
ending December 31, 2010 under the requirements of the Sarbanes-Oxley
Act.  We will prepare policies, procedures and systems designed to
ensure compliance with these regulations.




34




Holding
Company Regulation





Permitted
Activities.  Pursuant to Section 10(o) of the Home Owners’
Loan Act and Office of Thrift Supervision regulations and policy, a mutual
holding company and a federally chartered mid-tier holding company such as
Jacksonville Bancorp, Inc. may engage in the following activities:
(i) investing in the stock of a savings association; (ii) acquiring a
mutual association through the merger of such association into a savings
association subsidiary of such holding company or an interim savings association
subsidiary of such holding company; (iii) merging with or acquiring another
holding company, one of whose subsidiaries is a savings association;
(iv) investing in a corporation, the capital stock of which is available
for purchase by a savings association under federal law or under the law of any
state where the subsidiary savings association or associations share their home
offices; (v) furnishing or performing management services for a savings
association subsidiary of such company; (vi) holding, managing or
liquidating assets owned or acquired from a savings subsidiary of such company;
(vii) holding or managing properties used or occupied by a savings
association subsidiary of such company; (viii) acting as trustee under
deeds of trust; (ix) any other activity (A) that the Federal Reserve
Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956,
unless the Director, by regulation, prohibits or limits any such activity for
savings and loan holding companies; or (B) in which multiple savings and
loan holding companies were authorized (by regulation) to directly engage on
March 5, 1987; (x) any activity permissible for financial holding companies
under Section 4(k) of the Bank Holding Company Act, including securities and
insurance underwriting; and (xi) purchasing, holding, or disposing of stock
acquired in connection with a qualified stock issuance if the purchase of such
stock by such savings and loan holding company is approved by the Director of
the Office of Thrift Supervision.  If a mutual holding company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets and engage in activities listed in (i) through (xi) above, and
has a period of two years to cease any nonconforming activities and divest of
any nonconforming investments.




The Home
Owners’ Loan Act prohibits a savings and loan holding company, including
Jacksonville Bancorp, Inc. and Jacksonville Bancorp, MHC, directly or
indirectly, or through one or more subsidiaries, from acquiring another savings
institution or holding company thereof, without prior written approval of the
Office of Thrift Supervision.  It also prohibits the acquisition or
retention of, with certain exceptions, more than 5% of a nonsubsidiary savings
institution, a nonsubsidiary holding company, or a nonsubsidiary company engaged
in activities other than those permitted by the Home Owners’ Loan Act; or
acquiring or retaining control of an institution that is not federally
insured.  In evaluating applications by holding companies to acquire
savings institutions, the Office of Thrift Supervision must consider the
financial and managerial resources, future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
fund, the convenience and needs of the community and competitive
factors.




The
Office of Thrift Supervision is prohibited from approving any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the
approval of interstate supervisory acquisitions by savings and loan holding
companies, and (ii) the acquisition of a savings institution in another
state if the laws of the state of the target savings institution specifically
permit such acquisitions.  The states vary in the extent to which they
permit interstate savings and loan holding company acquisitions.




TAXATION




Federal
Taxation




General.Jacksonville
Bancorp, Inc. and Jacksonville Savings Bank are subject to federal income
taxation in the same general manner as other corporations, with some exceptions
discussed below.  The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to Jacksonville
Bancorp, Inc. or Jacksonville Savings Bank.




Method of
Accounting.For federal
income tax purposes, Jacksonville Bancorp, Inc. currently reports its income and
expenses on the accrual method of accounting and uses a tax year ending December
31 for filing its federal and state income tax returns.




35




Bad Debt
Reserves.Historically,
Jacksonville Savings Bank has been subject to special provisions in the tax law
regarding allowable tax bad debt deductions and related reserves.  Tax
law changes were enacted in 1996, pursuant to the Small Business Protection Act
of 1996 (the “1996 Act”), that repealed the percentage of taxable income method
by qualifying savings institutions to determine deductions for bad
debts.  This change was effective for taxable years beginning after
1995 and required the recapture of “applicable excess reserves” of a savings
institution, of which Jacksonville Savings Bank is, into taxable income over a
six year period.  The applicable excess reserve is generally the
excess of its bad debt reserves as of the close of its last taxable year
beginning before January 1, 1996 over the balance of such reserves as of the
close of its last taxable year beginning before January 1, 1988.





Currently,
Jacksonville Savings Bank utilizes the experience method to account for bad debt
deductions for income tax purposes as defined in Internal Revenue Code Section
585.  Under this method, the annual deduction is the amount necessary
to increase the balance of the reserve at the close of the taxable year to the
greater of the amount which bears the same ratio to loans outstanding at the
close of the taxable year as the total net charge offs sustained during the
current and preceding five taxable years bear to the sum of the loans
outstanding at the close of those six years or the lower of (i) the balance in
the reserve account at the close of the base year,  (the last taxable
year beginning before 1988), or (ii) if the amount of outstanding loans at the
close of the taxable year is less than the amount of outstanding loans at the
close of the base year, the amount which bears the same ratio to outstanding
loans at the close of the taxable year as the balance of the reserve at the
close of the base year bears to the amount of outstanding loans at the close of
the base year.





Taxable
Distributions and Recapture.Prior to the
1996 Act, bad debt reserves created prior to January 1, 1988 were subject to
recapture into taxable income if Jacksonville Savings Bank failed to meet
certain thrift asset and definitional tests.




At
December 31, 2009, Jacksonville Savings Bank’s total federal pre-base year
reserve was approximately $2.6 million.  However, under current law,
base-year reserves remain subject to recapture if Jacksonville Savings Bank
makes certain non-dividend distributions, repurchases any of its stock, pays
dividends in excess of tax earnings and profits, or ceases to maintain a bank
charter.





Alternative
Minimum Tax.The Internal
Revenue Code of 1986, as amended (the “Code”), imposes an alternative minimum
tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain
tax preferences (“alternative minimum taxable income” or “AMTI”).  The
AMT is payable to the extent such AMTI is in excess of an exemption amount and
the AMT exceeds the regular income tax.  Net operating losses can
offset no more than 90% of AMTI.  Certain payments of AMT may be used
as credits against regular tax liabilities in future
years.  Jacksonville Bancorp, Inc. and Jacksonville Savings Bank have
not been subject to the AMT and have no such amounts available as credits for
carryover.





Net Operating
Loss Carryovers.  Generally, a financial institution may carry back
net operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years.  However, as a result of recent legislation,
subject to certain limitations, the carryback period for net operating losses
incurred in 2008 or 2009 (but not both years) has been expanded to five
years.  At December 31, 2009, Jacksonville Bancorp, MHC had a federal tax
loss carryforward of approximately $400,000.  There is also a
remaining Illinois carryforward of approximately $3.5 million at December 31,
2009, of which $3.3 million is attributable to Jacksonville Bancorp,
Inc.





Corporate
Dividends-Received Deduction.Jacksonville
Bancorp, Inc. may exclude from its federal taxable income 100% of dividends
received from Jacksonville Savings Bank as a wholly owned
subsidiary.  The corporate dividends-received deduction is 80% when
the dividend is received from a corporation having at least 20% of its stock
owned by the recipient corporation.  A 70% dividends-received
deduction is available for dividends received from corporations owning less than
20% by the recipient corporation.




36







State
Taxation





The State of Illinois imposes a tax on
the Illinois taxable income of corporations, including savings banks, at the
rate of 7.30%.  Illinois taxable income is generally similar to
federal taxable income except that interest from state and municipal obligations
is taxable and no deduction is allowed for state income
taxes.  However, a deduction is allowed for certain U.S. Government
and agency obligations.  Jacksonville Savings Bank’s state income tax
returns have not been audited by Illinois tax authorities during the past five
years.





Personnel





As of
December 31, 2009, Jacksonville Savings Bank and its subsidiary had a total of
99 full-time and 19 part-time employees.  None of Jacksonville Savings
Bank’s employees is represented by a collective bargaining
group.  Management believes that it has good working relations with
its employees.




Availability
of Annual Report on Form 10-K





Our
Annual Report on Form 10-K is available on our website at www.Jacksonvillesavings.com.  Information
on the website is not incorporated into, and is not otherwise considered a part
of, this Annual Report on Form 10-K.


37


ITEM
      1A.           Risk
      Factors




In
addition to risk disclosed elsewhere in this Annual Report, the following are
risks associated with our business and operations.




Non-residential
loans increase our exposure to credit risks.





Over the last several years, we have
increased our non-residential lending in order to improve the average yield of
our interest-earning assets and reduce the average maturity of our loan
portfolio.  At December 31, 2009, our portfolio of commercial and
agricultural real estate loans totaled $56.7 million, or 32.6% of our total
loans, compared to $33.9 million, or 23.8% of our total loans at December 31,
2005. The largest category of these loans is secured by farmland. Our portfolio
of commercial business and agricultural business loans totaled $34.4 million, or
19.8% of our total loans at December 31, 2009, compared to $28.7 million, or
20.2% of our total loans at December 31, 2005. These loans are typically secured
by equipment or inventory. It is difficult to assess the future performance of
our non-residential loan portfolio due to the recent origination or purchase of
many of these loans.  These loans may have delinquency or charge-off
rates above our historical experience, which could adversely affect our future
performance.





These
loans generally have more risk than one- to four-family residential mortgage
loans.  Because the repayment of commercial and agricultural real
estate loans and commercial and agricultural business loans depends on the
successful management and operation of the borrower’s properties or related
businesses, repayment of these loans can be affected by adverse conditions in
the real estate market or the local economy. Loans secured by agricultural real
estate and agricultural businesses which rely on the successful operation of a
farm can be adversely affected by fluctuations in crop prices and changes in
weather conditions. These developments may result in smaller harvests and less
income for farmers which may adversely impact such borrower’s ability to repay a
loan. Many of our borrowers also have more than one commercial and agricultural
real estate loan or commercial and agricultural business loan outstanding with
us.  Consequently, an adverse development with respect to one loan or
one credit relationship can expose us to significantly greater risk of loss
compared to an adverse development with respect to a one- to four-family
residential mortgage loan.  Finally, if we foreclose on a commercial
and agricultural real estate or commercial loan, our holding period for the
collateral, if any, typically is longer than for one- to four-family residential
mortgage loans because there are fewer potential purchasers of the collateral.
Because we plan to continue to increase our originations of commercial and
agricultural real estate and commercial loans, it may be necessary to increase
the level of our allowance for loan losses because of the increased risk
characteristics associated with these types of loans. Any such increase to our
allowance for loan losses would adversely affect our earnings.




Our
loan portfolio has significant concentrations among a small number of borrowers
and, as a result, we could be adversely affected by difficulties experienced by
a small number of borrowers.





As a result of large loan
concentrations among a relatively small number of borrowers, we could incur
significant losses if these borrowers are unable to repay their loans. At
December 31, 2009, we had 16 borrowers with aggregate loan balances of $41.6
million, which represented 23.6% of our total loan portfolio at that date. These
loans are primarily commercial and agricultural real estate loans and commercial
and agricultural business loans, including purchased loan participations.
Aggregate loan balances to these borrowers ranged from $1.0 million to $5.5
million for our largest borrower. While we seek to control our risk and minimize
losses on these large loan concentrations, if one or more of our large borrowers
were to default on their loans we could incur significant losses.





A
portion of our loan portfolio consists of loan participations secured by
properties outside our market area.  Loan participations may have a
higher risk of loss than loans we originate because we are not the lead lender
and we have limited control over credit monitoring.




We
occasionally purchase commercial real estate and commercial business loan
participations secured by properties outside our market area in which we are not
the lead lender. We have purchased loan participations secured by properties in
diverse geographic areas such as in Nebraska, Iowa, Minnesota, Arizona and
Florida.  These participations are secured by various types of
collateral such as hotels, senior living facilities, stores and condominium
developments. Loan participations may have a higher risk of loss than loans we
originate because we rely on the lead lender to monitor the performance of the
loan. Moreover, our decision regarding the classification of a loan
participation and loan loss provisions associated with a loan participation are
made in part based upon information provided by the lead lender. A lead lender
also may not monitor a participation loan in the same manner as we would for
loans that we originate.  At December 31, 2009, our loan
participations totaled $12.6 million, or 7.3% of our loan
portfolio.  At December 31, 2009, commercial real estate loan
participations outside our market area totaled $9.8 million, or 17.3% of the
commercial and agricultural real estate loan portfolio, and commercial business
loan participations outside our market area totaled $1.3 million, or 3.7% of the
commercial and agricultural business loan portfolio. At December 31, 2009, loan
participations delinquent 60 days or more totaled $493,000. If our underwriting
of these participation loans is not sufficient, our non-performing loans may
increase and our earnings may decrease.




38




If
the allowance for loan losses is not sufficient to cover actual loan losses, our
earnings could decrease.





Our customers may not repay their loans
according to the original terms, and the collateral, if any, securing the
payment of these loans may be insufficient to pay any remaining loan
balance.  We may experience significant loan losses, which may have a
material adverse effect on our operating results.  We make various
assumptions and judgments about the collectability of the loan portfolio,
including the creditworthiness of borrowers and the value of the real estate and
other assets serving as collateral for the repayment of loans.  If our
assumptions are incorrect, the allowance for loan losses may not be sufficient
to cover losses inherent in our loan portfolio, which would require additions to
the allowance.  Additions to the allowance would decrease our net
income. At December 31, 2009, our allowance for loan losses was $2.3 million, or
1.29% of total loans and 117.20% of non-performing loans, compared to $1.9
million, or 1.04% of total loans and 162.47% of non-performing loans, at
December 31, 2008.





In
determining the amount of the allowance for loan losses, management reviews
delinquent loans for potential impairments in our carrying
value.  Additionally, we apply a factor to the loan portfolio
principally based on historical loss experience applied to the composition of
the loan portfolio and integrated with management’s perception of risk in the
economy.  Since we use assumptions regarding individual loans and the
economy, the current allowance for loan losses may not be sufficient to cover
actual loan losses, and increases in the allowance may be
necessary.  Consequently, we may need to significantly increase the
provision for losses on loans, particularly if one or more of our larger loans
or credit relationships becomes delinquent or if we expand non-residential
lending such as commercial and agricultural real estate loans. As we continue to
increase our originations of such loans, increased provisions for loan losses
may be necessary, which would decrease our earnings.





Bank
regulators periodically review our allowance for loan losses and may require an
increase to the provision for loan losses or further loan charge-offs. Any
increase in our allowance for loan losses or loan charge-offs as required by
these regulatory authorities may have a material adverse effect on our financial
condition and results of operations.





If
our non-performing assets increase, our earnings will suffer.





At
December 31, 2009, our non-performing assets (which consist of non-accrual
loans, loans 90 days or more delinquent, and foreclosed real estate assets)
totaled $2.3 million, which is an increase of $368,000 or 18.7% from our
non-performing assets at December 31, 2008.  Our non-performing assets
adversely affect our net income in various ways. We do not record interest
income on non-accrual loans or real estate owned. We must reserve for probable
losses which results in additional provisions for loan losses. As circumstances
warrant, we must write down the value of properties in our other real estate
owned portfolio to reflect changing market values. Additionally, we have legal
fees associated with the resolution of problem assets as well as additional
costs such as taxes, insurance and maintenance related to our other real estate
owned. The resolution of non-performing assets also requires the active
involvement of management, which can adversely affect the amount of time we
devote to the income-producing activities of Jacksonville Savings
Bank.  If our estimate of the allowance for loan losses is inadequate,
we will have to increase the allowance accordingly.




39





We
could experience further impairment losses on the value of our mortgage
servicing rights.





A
significant aspect of our business is the origination of one- to four-family
residential mortgage loans for sale on a servicing retained basis. The fees we
receive for servicing such loans are referred to as mortgage servicing rights.
At December 31, 2009, the unpaid principal balances of mortgage loans serviced
for others was $148.0 million. Mortgage servicing rights fair values are
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. If the fair value of our mortgage servicing rights is less
than the carrying value of such rights, we may be required to recognize an
impairment loss. Such impairment can occur due to changes in interest rates,
loan performance or prepayment of the underlying mortgage.  At
December 31, 2008, we recognized an impairment loss related to our mortgage
servicing rights of $428,000.  Subsequently, during 2009, we recorded
a recovery of $123,000.





Changes
in interest rates could adversely affect our financial condition and results of
operations.





Our financial condition and results of
operations are significantly affected by changes in interest
rates.  Our results of operations depend substantially on our net
interest income, which is the difference between the interest income we earn on
our interest-earning assets, such as loans and securities, and the interest
expense we pay on our interest-bearing liabilities, such as deposits and
borrowings.  Because our interest-bearing liabilities generally
reprice or mature more quickly than our interest-earning assets, an increase in
interest rates generally would tend to result in a decrease in net interest
income.





Changes in interest rates may also
affect the average life of loans and mortgage-related securities. Decreases in
interest rates can result in increased prepayments of loans and mortgage-related
securities, as borrowers refinance to reduce their borrowing
costs.  Under these circumstances, we are subject to reinvestment risk
to the extent that we are unable to reinvest the cash received from such
prepayments at rates that are comparable to the rates on existing loans and
securities. Additionally, increases in interest rates may decrease loan demand
and make it more difficult for borrowers to repay adjustable rate loans. Also,
increases in interest rates may extend the life of fixed-rate assets, which
would restrict our ability to reinvest in higher yielding alternatives, and may
result in customers withdrawing certificates of deposit early so long as the
early withdrawal penalty is less than the interest they could receive from
higher interest rates.





Changes
in interest rates also affect the current fair value of our interest-earning
securities portfolio.  Generally, the value of securities moves
inversely with changes in interest rates.  At December 31, 2009, the
fair value of our portfolio of investment securities and mortgage-backed
securities totaled $78.2 million.  Gross unrealized losses on these
securities totaled $159,000 at December 31, 2009.




Any rise in market interest rates may
result in increased payments for borrowers who have adjustable rate mortgage
loans, thereby increasing the possibility of default.





Higher
Federal Deposit Insurance Corporation insurance premiums and special assessments
will adversely affect our earnings.




Recent
bank failures coupled with deteriorating economic conditions have significantly
reduced the Deposit Insurance Fund’s reserve ratio. On February 27, 2009, the
Federal Deposit Insurance Corporation issued a final rule that alters the way
the Federal Deposit Insurance Corporation calculates federal deposit insurance
assessment rates. Under the rule, the Federal Deposit Insurance Corporation
first establishes an institution’s initial base assessment rate.  This
initial base assessment rate ranges from 12 to 45 basis points, depending on the
risk category of the institution.  The Federal Deposit Insurance
Corporation then adjusts the initial base assessment (higher or lower) to obtain
the total base assessment rate.  The adjustments to the initial base
assessment rate are based upon an institution’s levels of unsecured debt,
secured liabilities, and brokered deposits.  The total base assessment
rate ranges from 7 to 77.5 basis points of the institution’s deposits. At
December 31, 2009, our assessment rate was 14.66 basis points. In addition, on
May 22, 2009, the Federal Deposit Insurance Corporation adopted a final rule
levying a five basis point special assessment on each insured depository
institution’s assets minus Tier 1 capital as of June 30, 2009.  We
recorded an expense of $137,000 during the quarter ended June 30, 2009, to
reflect the special assessment.  Any further special assessments that
the Federal Deposit Insurance Corporation levies will be recorded as an expense
during the appropriate period.




40




The Federal Deposit Insurance
Corporation also has adopted a rule pursuant to which all insured depository
institutions were required to prepay their estimated assessments for the fourth
quarter of 2009, and for all of 2010, 2011 and 2012.  This pre-payment
was due on December 30, 2009.  The assessment rate for the fourth
quarter of 2009 and for 2010 was based on each institution’s total base
assessment rate for the third quarter of 2009, modified to assume that the
assessment rate in effect on September 30, 2009 had been in effect for the
entire third quarter, and the assessment rate for 2011 and 2012 was equal to the
modified third quarter assessment rate plus an additional three basis
points.  In addition, each institution’s base assessment rate for each
period was calculated using its third quarter assessment base, adjusted
quarterly for an estimated 5% annual growth rate in the assessment base through
the end of 2012.  We are required to record the pre-payment as a
prepaid expense, which will be amortized to expense as incurred each
quarter.  Our prepayment amount totaled $1.4 million.




These
actions will significantly increase our noninterest expense in 2010 and in
future years as long as the increased premiums are in place.





If
we are unable to borrow funds, we may not be able to meet the cash flow
requirements of our depositors, creditors, and borrowers, or the operating cash
needed to fund corporate expansion and other corporate activities.





Liquidity
is the ability to meet cash flow needs on a timely basis at a reasonable
cost.  Our liquidity is used to make loans and to repay deposit
liabilities as they become due or are demanded by
customers.  Liquidity policies and procedures are established by the
board, with operating limits set based upon the ratio of loans to deposits and
percentage of assets funded with non-core or wholesale funding.  We
regularly monitor our overall liquidity position to ensure various alternative
strategies exist to cover unanticipated events that could affect
liquidity.  We also establish policies and monitor guidelines to
diversify our wholesale funding sources to avoid concentrations in any one
market source.  Wholesale funding sources include federal funds
purchased, securities sold under repurchase agreements, non-core deposits, and
debt.  Jacksonville Savings Bank is a member of the Federal Home Loan
Bank of Chicago, which provides funding through advances to members that are
collateralized with mortgage-related assets.





We
maintain a portfolio of available-for-sale securities that can be used as a
secondary source of liquidity.  There are other sources of liquidity
available to us should they be needed.  These sources include the sale
of loans, the ability to acquire national market, non-core deposits, issuance of
additional collateralized borrowings such as Federal Home Loan Bank advances and
federal funds purchased, and the issuance of preferred or common
securities.





If
our stock price remains below book value, we will continue to evaluate our
goodwill balances for impairment quarterly, and if the values of our businesses
have declined, we could recognize an impairment charge for our
goodwill.





We
performed a quarterly goodwill assessment as of December 31,
2009.  Based upon our analyses, we concluded that the fair value of
capital exceeded the fair value of our assets and liabilities and, therefore,
goodwill was not considered impaired as of that date.  It is possible
that our assumptions and conclusions regarding the valuation of our business
could change adversely, which could result in the recognition of impairment for
our goodwill, which could have a material adverse effect on our financial
condition and results of operations.





Our
business may continue to be adversely affected by the continued weakness in the
national and local economies.





Our
operations are significantly affected by national and local economic conditions.
Substantially all of our loans, excluding purchased loan participations, are to
businesses and individuals in Cass, Morgan, Macoupin and Montgomery Counties,
Illinois and surrounding communities. All of our branches and most of our
deposit customers are also located in these counties. The severe economic
recession of 2008 and 2009, as well as the continuing weakness of the economic
recovery both nationally and in our market area could have a material adverse
effect on our business, financial condition, results of operations and
prospects. In particular, these counties have experienced declines in real
estate values, increased foreclosures and higher unemployment
rates.




41




A further
deterioration in economic conditions in our market area could result in the
following consequences, any of which could have a material adverse effect on our
business, financial condition and results of operations:




●
            demand
      for our products and services may decline;●
            loan
      delinquencies, problem assets and foreclosures may
    increase;●
            collateral
      for our loans may continue to decline in value; and●
            the
      amount of our low-cost or non-interest bearing deposits may
      decrease.






The
United States economy remains weak and unemployment levels are
high.  The prolonged economic downturn will adversely affect our
business and financial results.





The United States experienced a severe
economic recession in 2008 and 2009.  While economic growth has
resumed recently, the rate of growth has been slow and unemployment remains at
very high levels and is not expected to improve in the near
future.  Loan portfolio quality has deteriorated at many financial
institutions reflecting, in part, the weak national economy and high
unemployment.  In addition, the values of real estate collateral
supporting many commercial loans and home mortgages have declined and may
continue to decline.  The continuing real estate downturn also has
resulted in reduced demand for the construction of new housing and increased
delinquencies in construction, residential and commercial mortgage loans. Bank
and bank holding company stock prices have declined substantially, and it is
significantly more difficult for banks and bank holding companies to raise
capital or borrow in the debt markets.





The Federal Deposit Insurance
Corporation Quarterly Banking Profile has reported that the ratio of noncurrent
assets plus other real estate owned to assets as a percentage of assets for
Federal Deposit Insurance Corporation-insured financial institutions rose to
3.32% as of December 31, 2009, from 0.95% as of December 31,
2007.  For the twelve months ended December 31, 2009, the Federal
Deposit Insurance Corporation Quarterly Banking Profile has reported that
annualized return on average assets was 0.09% for Federal Deposit Insurance
Corporation-insured financial institutions compared to 0.81% for the year ended
December 31, 2007.  The Nasdaq Bank Index declined 38% between
December 31, 2007 and December 31, 2009. At December 31, 2009, our
non-performing assets as a percentage of assets was 0.81%, and our return on
average assets was 0.47% for the year ended December 31, 2009.





Continued negative developments in the
financial services industry and the domestic and international credit markets
may significantly affect the markets in which we do business, the market for and
value of our loans and investments, and our ongoing operations, costs and
profitability.  Moreover, continued declines in the stock market in
general, or stock values of financial institutions and their holding companies
specifically, could adversely affect our stock performance.





Strong
competition may limit growth and profitability.





Competition in the banking and
financial services industry is intense.  We compete with commercial
banks, savings institutions, mortgage brokerage firms, credit unions, finance
companies, government sponsored entities, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and
elsewhere.  Many of these competitors (whether regional or national
institutions) have substantially greater resources and lending limits than we
have and may offer certain services that we do not or cannot
provide.  Our profitability depends upon our ability to successfully
compete in our market areas.




42





We operate in a highly regulated
environment and we may be adversely affected by changes in laws and
regulations.





We are subject to extensive regulation,
supervision and examination by the Illinois Department of Financial and
Professional Regulation, the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation. Such regulators govern the activities in which we
may engage, primarily for the protection of depositors and the Deposit Insurance
Fund.  These regulatory authorities have extensive discretion in
connection with their supervisory and enforcement activities, including the
ability to impose restrictions on a bank’s operations, reclassify assets,
determine the adequacy of a bank’s allowance for loan losses and determine the
level of deposit insurance premiums assessed.  Any change in such
regulation and oversight, whether in the form of regulatory policy, new
regulations or legislation or additional deposit insurance premiums, could have
a material impact on our operations.  Because our business is highly
regulated, the laws and applicable regulations are subject to frequent
change.  Any new laws, rules and regulations could make compliance
more difficult or expensive or otherwise adversely affect our business,
financial condition or prospects.





A
legislative proposal has been introduced that would eliminate the Office of
Thrift Supervision, Jacksonville Bancorp, Inc.’s primary federal regulator,
which would require Jacksonville Bancorp, Inc. to become a bank holding
company.





Legislation has been introduced in the
United States Senate and House of Representatives that would implement sweeping
changes to the current bank regulatory structure. The House Bill (H.R.
4173)   would eliminate our current primary federal regulator,
the Office of Thrift Supervision, by merging the Office of Thrift
Supervision  into the Comptroller of the Currency (the primary federal
regulator for national banks). The proposed legislation would also establish a
Financial Services Oversight Council and grant the Board of Governors of the
Federal Reserve System exclusive authority to regulate all bank and thrift
holding companies.  As a result, Jacksonville Bancorp, Inc. would
become a holding company subject to supervision by the Federal Reserve Board as
opposed to the Office of Thrift Supervision, and would become subject to the
Federal Reserve’s regulations, including holding company capital requirements,
that Jacksonville Bancorp, Inc. would not be subject to as a savings and loan
holding company. In addition, compliance with new regulations and being
supervised by one or more new regulatory agencies may increase our
expenses.





Changes
in laws and regulations and the cost of regulatory compliance with new laws and
regulations may adversely affect our operations and our income.





In response to the financial crisis of
2008 and early 2009, Congress has taken actions that are intended to strengthen
confidence and encourage liquidity in financial institutions, and the Federal
Deposit Insurance Corporation has taken actions to increase insurance coverage
on deposit accounts. In addition, there have been proposals made by members of
Congress that would reduce the amount delinquent borrowers are otherwise
contractually obligated to pay on their mortgage loans and limit the ability of
lenders to foreclose on mortgage collateral.





The potential exists for additional
federal or state laws and regulations, or changes in policy, affecting lending
and funding practices and liquidity standards.  Moreover, bank
regulatory agencies have been active in responding to concerns and trends
identified in examinations, and have issued many formal enforcement orders
requiring capital ratios in excess of regulatory requirements. Bank regulatory
agencies, such as the Illinois Department of Financial and Professional
Regulation, the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation, govern the activities in which we may engage, primarily for the
protection of depositors, and not for the protection or benefit of potential
investors. In addition, new laws and regulations may increase our costs of
regulatory compliance and of doing business, and otherwise affect our
operations. New laws and regulations may significantly affect the markets in
which we do business, the markets for and value of our loans and investments,
the fees we can charge, and our ongoing operations, costs and profitability.
Legislative proposals limiting our rights as a creditor may result in credit
losses or increased expense in pursuing our remedies as a creditor.




43





If
our investment in the Federal Home Loan Bank of Chicago becomes impaired, our
earnings and stockholders’ equity could decrease.





We are required to own common stock of
the Federal Home Loan Bank of Chicago to qualify for membership in the Federal
Home Loan Bank System and to be eligible to borrow funds under the Federal Home
Loan Bank’s advance program.  The aggregate cost of our Federal Home
Loan Bank common stock as of December 31, 2009 was $1.1
million.  Federal Home Loan Bank common stock is not a marketable
security and can only be redeemed by the Federal Home Loan
Bank.  However, the Federal Home Loan Bank of Chicago is currently
prohibited by its regulator from repurchasing or redeeming its outstanding stock
until its financial condition improves.





Federal Home Loan Banks may be subject
to accounting rules and asset quality risks that could materially lower their
regulatory capital. In an extreme situation, it is possible that the
capitalization of a Federal Home Loan Bank, including the Federal Home Loan Bank
of Chicago, could be substantially diminished or reduced to zero. Consequently,
we believe that there is a risk that our investment in Federal Home Loan Bank of
Chicago common stock could be deemed impaired at some time in the future, and if
this occurs, it would cause our earnings and stockholders’ equity to decrease by
the amount of the impairment charge.





System
failure or breaches of our network security could subject us to increased
operating costs as well as litigation and other liabilities.





The
computer systems and network infrastructure we use could be vulnerable to
unforeseen problems. Our operations are dependent upon our ability to protect
our computer equipment against damage from physical theft, fire, power loss,
telecommunications failure or a similar catastrophic event, as well as from
security breaches, denial of service attacks, viruses, worms and other
disruptive problems caused by hackers. Any damage or failure that causes an
interruption in our operations could have a material adverse effect on our
financial condition and results of operations. Computer break-ins, phishing and
other disruptions could also jeopardize the security of information stored in
and transmitted through our computer systems and network infrastructure, which
may result in significant liability to us and may cause existing and potential
customers to refrain from doing business with us. Although we, with the help of
third-party service providers, intend to continue to implement security
technology and establish operational procedures to prevent such damage, there
can be no assurance that these security measures will be successful. In
addition, advances in computer capabilities, new discoveries in the field of
cryptography or other developments could result in a compromise or breach of the
algorithms we and our third-party service providers use to encrypt and protect
customer transaction data. A failure of such security measures could have a
material adverse effect on our financial condition and results of
operations.





Public
Shareholders Do Not Exercise Voting Control Over Us.





A majority of our voting stock is owned
by Jacksonville Bancorp, MHC.  Jacksonville Bancorp, MHC is controlled
by its board of directors, who consist of those persons who are members of the
board of directors of Jacksonville Bancorp, Inc. and Jacksonville Savings
Bank.  Jacksonville Bancorp, MHC elects all members of the board of
directors of Jacksonville Bancorp, Inc., and, as a general matter, controls the
outcome of all matters presented to the stockholders of Jacksonville Bancorp,
Inc. for resolution by vote, except for matters that require a vote greater than
a majority vote.  Consequently, Jacksonville Bancorp, MHC, acting
through its board of directors, is able to control the business and operations
of Jacksonville Bancorp, Inc. and may be able to prevent any challenge to the
ownership or control of Jacksonville Bancorp, Inc. by stockholders other than
Jacksonville Bancorp, MHC.  There is no assurance that Jacksonville
Bancorp, MHC will not take actions that the public stockholders believe are
against their interests.





ITEM
      1B.          Unresolved Staff
      Comments




Not
applicable.




44




ITEM
      2.             Properties




We
conduct our business through our main office and two branch offices located in
Jacksonville, and branch offices located in Virden, Litchfield, Chapin, and
Concord, Illinois.  The following table sets forth certain information
concerning the main office and each branch office at December 31,
2009.  At December 31, 2009, our premises and equipment had an
aggregate net book value of approximately $5.8 million.  We believe
that our branch facilities are adequate to meet the present and immediately
foreseeable needs.  All facilities are owned.


Location
            
            
            Year
              Occupied
            
            
            NetBook
      Value
              at
      December 31,
              2009(In
      Thousands)Main
      Office1211
      West Morton AvenueJacksonville,
      Illinois
            
            1994
            
            
            $
            3,727Branch
      Office (1)211
      West State StreetJacksonville,
      Illinois
            
            1961
            
            
            
            603Branch
      Office (1)903
      South MainJacksonville,
      Illinois
            
            1989
            
            
            
            184Branch
      Office501
      North State StreetLitchfield,
      Illinois
            
            1997
            
            
            
            573Branch
      Office100
      North DyeVirden,
      Illinois
            
            1986
            
            
            
            185Branch
      Office510
      SuperiorChapin,
      Illinois
            
            2000
            
            
            
            465Branch
      Office (1)202
      StateConcord,
      Illinois
            
            2000
            
            
            
            29(1)           Transaction
      facilities only.




ITEM
      3.             Legal
      Proceedings




At
December 31, 2009, we were not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of business
which, in the aggregate, involve amounts which management believes are
immaterial to our financial condition, our results of operations and our cash
flows.






ITEM
      4.             Reserved.




PART II





ITEM
      5.             Market for
      Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities




The
“Stockholder Information” section of our annual report to stockholders for the
fiscal year ended December 31, 2009 (the “2009 Annual Report to Stockholders”)
is filed as an exhibit to this Form 10-K and is incorporated herein by
reference.  We did not purchase any shares of our common stock during
the fourth quarter of 2009.




45




Set forth
below is information as of December 31, 2009 regarding equity compensation
plans. The plans that have been approved by the stockholders are the 1996 Stock
Option Plan and 2001 Stock Option Plan.  Other than our Employee Stock
Ownership Plan, we do not have any equity compensation plans that were not
approved by our stockholders.


Plan
              Number
      of securities to be issued upon exercise of outstanding options
      and rights
              Weighted
      average
                exercise
      price
              Number
      of securities remaining available for issuance under
      planEquity
      compensation plans approved by stockholders
              33,345
              10.54
              4,400Equity
      compensation plans not approved by stockholders
              -
              -
              -Total
              33,345
              10.54
              4,400


ITEM
      6.             Selected Financial
      Data




The
“Selected Consolidated Financial Information” section of the 2009 Annual Report
to Stockholders is filed as an exhibit to this Form 10-K and is incorporated
herein by reference.




ITEM
      7.             Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations




The
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” section of the 2009 Annual Report to Stockholders is filed as an
exhibit to this Form 10-K and is incorporated herein by reference.




ITEM
      7A.          Quantitative and
      Qualitative Disclosures about Market
      Risk




The
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” section of the 2009 Annual Report to Stockholders is filed as an
exhibit to this Form 10-K and is incorporated herein by reference.




ITEM
      8.             Financial Statements
      and Supplementary Data




The
material identified in Item 15(a)(1) hereof is incorporated herein by
reference.




ITEM
      9.             Changes in and
      Disagreements with Accountants on Accounting and Financial
      Disclosure




None.




ITEM 9A.(T)     Controls and
      Procedures




(a)       Evaluation
of disclosure controls and procedures.




Our Chief
Executive Officer and Chief Financial Officer have concluded, based on their
evaluation as of the end of the period covered by this report, that our
disclosure controls and procedures (as defined by the Securities Exchange Act
Rules 13a-15(e) and 15d-15(e)) 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 Commission’s
rules and forms.




46




(b)       Management’s
Report on Internal Control over Financial Reporting




The
management of Jacksonville Bancorp, Inc. (the “Company”) is responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of the financial statements for external purposes in accordance with generally
accepted accounting principles. The Company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. All internal control systems, no matter how
well designed, have inherent limitations, including the possibility of human
error and the circumvention of overriding controls. Accordingly, even an
effective system of internal control over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that degree of compliance with the policies or procedures may
deteriorate.




Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009, based on the framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control—Integrated Framework. Based on that assessment, management
concludes that, as of December 31, 2009, the Company’s internal control over
financial reporting is effective.




This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in the annual report.




(c)       Changes
in internal controls.




There
were no significant changes made in our internal control over financial
reporting during the quarter ended December 31, 2009 that has materially
affected or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting.




ITEM
      9B.          Other
      Information




None.




PART III





ITEM
      10.           Directors, Executive
      Officers and Corporate Governance





Information
concerning our directors and certain officers is incorporated by reference
hereunder in the Proxy Statement for the 2010 Annual Meeting.




ITEM
      11.           Executive
      Compensation




Information
with respect to management compensation required under this item is incorporated
by reference hereunder in the Proxy Statement for the 2010 Annual
Meeting.




47




ITEM
      12.           Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters




Information
required under this item is incorporated by reference to the Proxy Statement for
the 2010 Annual Meeting.




ITEM
      13.           Certain Relationships
      and Related Transactions and Director
      Independence




Information
required under this item is incorporated by reference to the Proxy Statement for
the 2010 Annual Meeting.




ITEM
      14.           Principal Accountant
      Fees and Services




Information
required under this item is incorporated by reference to the Proxy Statement for
the 2010 Annual Meeting.





PART IV


ITEM
      15.           Exhibits
      and Financial Statement Schedules(a)(1) Financial
      Statements
  The
documents filed as a part of this Form 10-K are:
 (A)
              Report
      of Independent Registered Public Accounting Firm;(B)
              Consolidated
      Balance Sheets - December 31, 2009 and 2008;(C)
              Consolidated
      Statements of Income - years ended December 31, 2009 and
    2008;(D)
              Consolidated
      Statements of Stockholders’ Equity - years ended December 31, 2009 and
      2008;(E)
              Consolidated
      Statements of Cash Flows - years ended December 31, 2009 and 2008;
      and(F)
              Notes
      to Consolidated Financial Statements.(a)(2)
              Financial Statement
    SchedulesAll
      financial statement schedules have been omitted as the required
      information is inapplicable or has been included in the Notes to
      Consolidated Financial Statements.
  48
 
 (a)(3)
              Exhibits
 
 3.1
              Federal
      Charter(1)3.2
              Bylaws(1)(2)4
              Stock
      Certificate of Jacksonville Bancorp, Inc.(1)10.1
              Employment
      Agreement between Jacksonville Savings Bank and Andrew F. Applebee(3)10.2
              Employment
      Agreement between Jacksonville Savings Bank and Richard A. Foss(4)10.3
              Employment
      Agreement between Jacksonville Savings Bank and John Williams(5)10.4
              Jacksonville
      Savings Bank and Jacksonville Bancorp, MHC 1996 Stock Option Plan(6)10.5
              Jacksonville
      Savings Bank 2001 Stock Option Plan(7)10.6
              Amendmentsto
      the Jacksonville Savings Bank and Jacksonville Bancorp, MHC Stock Option
      Plans(8)10.7
              Jacksonville
      Savings Bank Supplemental Life Insurance Plan(9)10.8
              Jacksonville
      Savings Bank Salary Continuation Plan 1(10)10.9
              Jacksonville
      Savings Bank Long-Term Deferred Compensation Plan, as amended(11)10.10
              Deferred
      Compensation Agreement between Chapin State Bank and John C. Williams(12)10.11
              Director’s
      Compensation Agreement between Chapin State Bank and John C. Williams(13)10.12
              Deferred
      Compensation Agreement between Chapin State Bank and Dean H. Hess(14)10.13
              Director’s
      Compensation Agreement between Chapin State Bank and Dean H. Hess(15)13
              2009
      Annual Report to Stockholders14
              Code
      of Ethics(16)21
              Subsidiaries23
              Consent
      of BKD LLP to incorporate financial statements into Registration Statement
      on Form S-831.1
              Certification
      required pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              Certification
      required pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.
  
 (1)
              Incorporated
      by reference to Exhibits 1, 2 and 3 to the Current Report on Form 8-A12G
      filed with the Securities and Exchange Commission on May 2, 2002 (File No.
      000-49792).(2)
              Incorporated
      by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with
      the Securities and Exchange Commission on January 22, 2009 (File No.
      000-49792).(3)
              Incorporated
      by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed with
      the Securities and Exchange Commission on March 20, 2009 (File No.
      000-49792).(4)
              Incorporated
      by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with
      the Securities and Exchange Commission on September 4, 2008 (File No.
      000-49792).(5)
              Incorporated
      by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with
      the Securities and Exchange Commission on September 4, 2008 (File No.
      000-49792).(6)
              Incorporated
      by reference to Exhibit 10.1 to the Registration Statement on Form S-8
      filed with the Securities and Exchange Commission on February 2, 2004
      (File No. 333-112420).(7)
              Incorporated
      by reference to Exhibit 10.2 to the Registration Statement on Form S-8
      filed with the Securities and Exchange Commission on February 2, 2004
      (File No. 333-112420).(8)
              Incorporated
      by reference to Exhibit 10.6 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(9)
              Incorporated
      by reference to Exhibit 10.8 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(10)
              Incorporated
      by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with
      the Securities and Exchange Commission on September 4, 2008 (File No.
      000-49792).(11)
              Incorporated
      by reference to Exhibit 10.10 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(12)
              Incorporated
      by reference to Exhibit 10.11 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(13)
              Incorporated
      by reference to Exhibit 10.12 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(14)
              Incorporated
      by reference to Exhibit 10.13 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(15)
              Incorporated
      by reference to Exhibit 10.14 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(16)
              Incorporated
      by reference to Exhibit 14 to the Annual Report on Form 10-K filed with
      the Securities and Exchange Commission on March 29, 2004 (File No.
      000-49792).
  49
  Signatures
  Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
  Jacksonville
      Bancorp, Inc.Date:
      March 15, 2010
              
              By:
              /s/
      Richard A. FossRichard
      A. Foss, Presidentand
      Chief Executive Officer
  Pursuant
to the requirements of the Securities Exchange of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
 By:
              /s/
      Richard A. Foss
              
              By:
              /s/
      Andrew F. ApplebeeRichard
      A. Foss, President,
              
              
              Andrew
      F. Applebee, Chairman of the BoardChief
      Executive Officer and DirectorDate:
      March 15, 2010
              Date:
      March 15, 2010By:
              /s/
      Diana S. Tone
              
              By:
              /s/
      Dean H. HessDiana
      S. Tone
              
              
              Dean
      H. Hess, DirectorChief
      Financial OfficerDate:
      March 15, 2010
              Date:
      March 15, 2010By:
              /s/
      John L. Eyth
              
              By:
              /s/
      Emily J. OsburnJohn
      L. Eyth, Director
              
              
              Emily
      J. Osburn, DirectorDate:
      March 15, 2010
              Date:
      March 15, 2010By:
              /s/
      Harmon B. Deal III
              
              By:
              /s/
      John C. WilliamsHarmon
      B. Deal, III, Director
              
              
              John
      C. Williams, DirectorSenior
      Vice President and Trust OfficerDate:
      March 15, 2010
              Date:
      March 15, 2010By:
              /s/
      John M. BuchananJohn
      M. Buchanan, DirectorDate:
      March 15, 2010
  50
  EXHIBIT
INDEX
 3.1
              Federal
      Charter(1)3.2
              Bylaws(1)(2)4
              Stock
      Certificate of Jacksonville Bancorp, Inc.(1)10.1
              Employment
      Agreement between Jacksonville Savings Bank and Andrew F. Applebee(3)10.2
              Employment
      Agreement between Jacksonville Savings Bank and Richard A. Foss(4)10.3
              Employment
      Agreement between Jacksonville Savings Bank and John Williams(5)10.4
              Jacksonville
      Savings Bank and Jacksonville Bancorp, MHC 1996 Stock Option Plan(6)10.5
              Jacksonville
      Savings Bank 2001 Stock Option Plan(7)10.6
              Amendmentsto
      the Jacksonville Savings Bank and Jacksonville Bancorp, MHC Stock Option
      Plans(8)10.7
              Jacksonville
      Savings Bank Supplemental Life Insurance Plan(9)10.8
              Jacksonville
      Savings Bank Salary Continuation Plan 1(10)10.9
              Jacksonville
      Savings Bank Long-Term Deferred Compensation Plan, as amended(11)10.10
              Deferred
      Compensation Agreement between Chapin State Bank and John C. Williams(12)10.11
              Director’s
      Compensation Agreement between Chapin State Bank and John C. Williams(13)10.12
              Deferred
      Compensation Agreement between Chapin State Bank and Dean H. Hess(14)10.13
              Director’s
      Compensation Agreement between Chapin State Bank and Dean H. Hess(15)13
              2009
      Annual Report to Stockholders14
              Code
      of Ethics(16)21
              Subsidiaries23
              Consent
      of BKD LLP to incorporate financial statements into Registration Statement
      on Form S-831.1
              Certification
      required pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              Certification
      required pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.
 
 (1)
              Incorporated
      by reference to Exhibits 1, 2 and 3 to the Current Report on Form 8-A12G
      filed with the Securities and Exchange Commission on May 2, 2002 (File No.
      000-49792).(2)
              Incorporated
      by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with
      the Securities and Exchange Commission on January 22, 2009 (File No.
      000-49792).(3)
              Incorporated
      by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed with
      the Securities and Exchange Commission on March 20, 2009 (File No.
      000-49792).(4)
              Incorporated
      by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with
      the Securities and Exchange Commission on September 4, 2008 (File No.
      000-49792).(5)
              Incorporated
      by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with
      the Securities and Exchange Commission on September 4, 2008 (File No.
      000-49792).(6)
              Incorporated
      by reference to Exhibit 10.1 to the Registration Statement on Form S-8
      filed with the Securities and Exchange Commission on February 2, 2004
      (File No. 333-112420).(7)
              Incorporated
      by reference to Exhibit 10.2 to the Registration Statement on Form S-8
      filed with the Securities and Exchange Commission on February 2, 2004
      (File No. 333-112420).(8)
              Incorporated
      by reference to Exhibit 10.6 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(9)
              Incorporated
      by reference to Exhibit 10.8 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(10)
              Incorporated
      by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with
      the Securities and Exchange Commission on September 4, 2008 (File No.
      000-49792).(11)
              Incorporated
      by reference to Exhibit 10.10 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(12)
              Incorporated
      by reference to Exhibit 10.11 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(13)
              Incorporated
      by reference to Exhibit 10.12 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(14)
              Incorporated
      by reference to Exhibit 10.13 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(15)
              Incorporated
      by reference to Exhibit 10.14 to the Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on March 12, 2010 (File
      No. 333-165466).(16)
              Incorporated
      by reference to Exhibit 14 to the Annual Report on Form 10-K filed with
      the Securities and Exchange Commission on March 29, 2004 (File No.
      000-49792).