Exhibit
13







Jacksonville
      Bancorp, Inc.
              2009
      Annual Report















To Our
Shareholders:




2009 was
one of the most difficult years on record for the U.S. economy and for many
institutions in the banking industry.  At year end, nationwide
foreclosure filings totaled more than 3.1 million, unemployment stood at 10.0
percent and five of the preceding seven quarters showed a decline in real
GDP.  Many banks were closed and more closures are
forecasted.  Despite the severity of the nationwide recession, your
bank was able to achieve significant core deposit growth, maintain a low number
of nonperforming loans and enjoy a profitable year.




At year
end, total deposits had increased $16.5 million with most of the growth
occurring in checking and savings accounts.  We believe this type of
core deposit growth is a reflection of consumer confidence and preference for a
community bank staffed by people they know.  The combination of growth
in lower cost deposits and lower market interest rates resulted in an expansion
of our net interest margin.




While we
were able to achieve a number of operating efficiencies, we also experienced
increases in two major expense areas.  In 2009, the FDIC required all
financial institutions to pay substantially higher insurance
premiums.  For Jacksonville Savings Bank, the increase amounted to
more than $500,000.  Also, in recognition of the economic hardship
occurring in our market area and its impact on our analysis, we recorded a
significant increase in our provision for loan losses.  Although we
remain committed to lending in our local markets, we will also be vigilant in
evaluating the quality of our loans.  In spite of these additional
expenses, net income for 2009 was $1,396,167.




In an
effort to position ourselves for future growth, we announced in January, 2010
that we would be converting from a mutual holding company (MHC) form of
ownership to a 100% stock company.  We hope to have the transaction
completed during the third calendar quarter of 2010.  The additional
capital raised in the conversion will allow us to increase our lending limit as
well as to respond to strategic growth opportunities that may
arise.




With the
continued loyalty of our customers, the support of our shareholders and the
dedication of our employees, we look forward to another year of positive
results.




Sincerely,




Andrew F.
Applebee                                             Richard A.
Foss


Chairman                                                                 President and
CEO







Table
of Contents





PageBusiness
      of the Company
              
              1Selected
      Consolidated Financial Information
              
              2-3Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              4-20Report
      of Independent Registered Public Accounting Firm
              
              21Consolidated
      Financial Statements
              
              22-29Notes
      to Consolidated Financial Statements
              
              30-71Common
      Stock Information
              
              72Directors
      and Officers
              
              73Corporate
      Information
              
              74Annual
      Meeting
              
              74







Business
of the Company




Jacksonville
Bancorp, Inc. (the “Company”) was incorporated under Federal law on May 3,
2002.  We are a savings and loan holding company whose sole business
activity is the 100% ownership of Jacksonville Savings Bank (the
“Bank”).  We are majority owned by Jacksonville Bancorp, MHC, a
Federally-chartered mutual holding company.




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.




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 a full service trust department and an investment center.  The
investment center is operated through Financial Resources Group, Inc.,
Jacksonville Savings Bank’s wholly-owned subsidiary.




1


Selected
Consolidated Financial Information




The
following tables set forth certain information concerning the consolidated
financial position, consolidated data from operations and performance ratios of
the Company at the dates and for the years indicated.  Selected
quarterly financial data for each of the last two years is set forth at Note 21
to the Consolidated Financial Statements.




At
      December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(In
      thousands)Selected
      Financial Condition Data:Total assets
            
            $
            288,846
            
            
            $
            288,275
            
            
            $
            288,489
            
            
            $
            267,372
            
            
            $
            253,946Cash
      and cash equivalents
            
            
            15,696
            
            
            
            7,145
            
            
            
            12,175
            
            
            
            9,331
            
            
            
            6,681Investment
      securities
            
            
            38,455
            
            
            
            50,988
            
            
            
            66,295
            
            
            
            79,978
            
            
            
            80,821Mortgage-backed
      securities
            
            
            40,984
            
            
            
            27,795
            
            
            
            15,415
            
            
            
            8,210
            
            
            
            8,646Loans, net(1)
            
            
            174,497
            
            
            
            184,337
            
            
            
            177,728
            
            
            
            155,264
            
            
            
            142,771Federal
      Home Loan Bank of Chicago stock, at cost
            
            
            1,109
            
            
            
            1,109
            
            
            
            1,109
            
            
            
            1,109
            
            
            
            1,539Foreclosed assets,
      net
            
            
            383
            
            
            
            769
            
            
            
            364
            
            
            
            152
            
            
            
            456Bank
      owned life insurance
            
            
            4,095
            
            
            
            3,907
            
            
            
            3,186
            
            
            
            334
            
            
            
            311Deposits
            
            
            254,700
            
            
            
            238,151
            
            
            
            245,721
            
            
            
            232,913
            
            
            
            218,370Federal
      Home Loan Bank of Chicago advances
            
            
            —
            
            
            
            13,500
            
            
            
            10,000
            
            
            
            4,000
            
            
            
            8,000Short-term
      borrowings
            
            
            3,789
            
            
            
            7,633
            
            
            
            4,936
            
            
            
            5,035
            
            
            
            3,350Stockholders’
      equity
            
            
            25,263
            
            
            
            24,259
            
            
            
            22,618
            
            
            
            21,145
            
            
            
            20,103




For
      the Years Ended December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(In
      thousands, except per share amounts)Selected
      Operating Data:Interest income
            
            $
            14,420
            
            
            $
            15,908
            
            
            $
            15,609
            
            
            $
            13,978
            
            
            $
            12,423Interest
      expense
            
            
            5,432
            
            
            
            7,716
            
            
            
            9,056
            
            
            
            7,031
            
            
            
            4,986Net interest
      income
            
            
            8,988
            
            
            
            8,192
            
            
            
            6,553
            
            
            
            6,947
            
            
            
            7,437Provision for loan
      losses
            
            
            2,575
            
            
            
            310
            
            
            
            155
            
            
            
            60
            
            
            
            245Net
      interest income after provision for loan losses
            
            
            6,413
            
            
            
            7,882
            
            
            
            6,398
            
            
            
            6,887
            
            
            
            7,192Noninterest
      income
            
            
            4,209
            
            
            
            3,161
            
            
            
            2,492
            
            
            
            2,235
            
            
            
            2,174Noninterest
      expense
            
            
            9,126
            
            
            
            9,221
            
            
            
            8,261
            
            
            
            7,893
            
            
            
            8,054Income
      before income tax
            
            
            1,497
            
            
            
            1,822
            
            
            
            629
            
            
            
            1,229
            
            
            
            1,312Provision
      for income taxes
            
            
            101
            
            
            
            304
            
            
            
            10
            
            
            
            334
            
            
            
            412Net
      income
            
            $
            1,396
            
            
            $
            1,518
            
            
            $
            619
            
            
            $
            895
            
            
            $
            900Earnings
      per share:Basic
            
            $
            0.72
            
            
            $
            0.76
            
            
            $
            0.31
            
            
            $
            0.45
            
            
            $
            0.46Diluted
            
            $
            0.72
            
            
            $
            0.76
            
            
            $
            0.31
            
            
            $
            0.45
            
            
            $
            0.45Dividends per
      share
            
            $
            0.30
            
            
            $
            0.30
            
            
            $
            0.30
            
            
            $
            0.30
            
            
            $
            0.30







(1)
              Includes
      loans held for sale of $814,000, $1.4 million, $1.9 million, $426,000 and
      $499,000 at December 31, 2009, 2008, 2007, 2006 and 2005,
      respectively.


2




At
      or For the Years Ended December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Selected
      Financial Ratios and Other Data:Performance
      Ratios:Return
      on average assets (ratio of net income to average total
      assets)
            
            
            0.47
            %
            
            
            0.52
            %
            
            
            0.22
            %
            
            
            0.35
            %
            
            
            0.36
            %Return
      on average equity (ratio of net income to average equity)
            
            
            5.69
            %
            
            
            6.59
            %
            
            
            2.86
            %
            
            
            4.37
            %
            
            
            4.44
            %Interest rate
      spread(1)
            
            
            3.08
            %
            
            
            2.70
            %
            
            
            2.15
            %
            
            
            2.48
            %
            
            
            2.99
            %Net interest
      margin(2)
            
            
            3.30
            %
            
            
            3.01
            %
            
            
            2.53
            %
            
            
            2.85
            %
            
            
            3.18
            %Efficiency
      ratio(3)
            
            
            69.15
            %
            
            
            81.22
            %
            
            
            91.33
            %
            
            
            85.97
            %
            
            
            83.80
            %Dividend pay-out
      ratio(4)
            
            
            18.96
            %
            
            
            18.75
            %
            
            
            45.94
            %
            
            
            31.69
            %
            
            
            30.98
            %Non-interest
      expense to average total assets
            
            
            3.10
            %
            
            
            3.14
            %
            
            
            2.95
            %
            
            
            3.05
            %
            
            
            3.19
            %Average
      interest-earning assets to average
              interest-bearing
      liabilities
            
            
            111.14
            %
            
            
            110.66
            %
            
            
            110.69
            %
            
            
            112.81
            %
            
            
            109.07
            %Average equity to
      average total assets
            
            
            8.33
            %
            
            
            7.85
            %
            
            
            7.79
            %
            
            
            7.90
            %
            
            
            8.03
            %Asset
      Quality Ratios:Non-performing
      assets to total assets
            
            
            0.81
            %
            
            
            0.68
            %
            
            
            0.51
            %
            
            
            0.56
            %
            
            
            0.65
            %Non-performing loans
      to total loans
            
            
            1.11
            %
            
            
            0.64
            %
            
            
            0.61
            %
            
            
            0.86
            %
            
            
            0.82
            %Allowance
      for loan losses to non-performing loans
            
            
            117.20
            %
            
            
            162.47
            %
            
            
            161.90
            %
            
            
            137.90
            %
            
            
            156.75
            %Allowance for loan
      losses to gross loans(5)
            
            
            1.29
            %
            
            
            1.04
            %
            
            
            0.98
            %
            
            
            1.19
            %
            
            
            1.28
            %Capital
      Ratios:Total capital (to
      risk-weighted assets)
            
            
            11.83
            %
            
            
            10.94
            %
            
            
            11.32
            %
            
            
            12.34
            %
            
            
            12.83
            %Tier I capital (to
      risk-weighted assets)
            
            
            10.70
            %
            
            
            10.02
            %
            
            
            10.38
            %
            
            
            11.25
            %
            
            
            11.66
            %Tier I capital (to
      total assets)
            
            
            7.44
            %
            
            
            7.30
            %
            
            
            7.02
            %
            
            
            7.45
            %
            
            
            7.31
            %Other
      Data:Number of full
      service offices
            
            
            7
            
            
            
            7
            
            
            
            7
            
            
            
            7
            
            
            
            7Full time equivalent
      employees
            
            
            110
            
            
            
            110
            
            
            
            114
            
            
            
            115
            
            
            
            116







(1)
            The
      interest rate spread represents the difference between the
      weighted-average yield on interest-earning assets and the weighted-
      average cost of interest-bearing liabilities for the
    period.


(2)
            The
      net interest margin represents net interest income as a percent of average
      interest-earning assets for the
period.


(3)
            The
      efficiency ratio represents non-interest expense divided by the sum of net
      interest income and non-interest
income.


(4)
            The
      dividend payout ratio represents dividends declared per share divided by
      net income per share.


(5)
            Gross
      loans includes loans held for
sale.




3


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations




General




Management’s
discussion and analysis of financial condition and results of operations is
intended to assist in understanding our financial condition and results of
operations.  The information contained in this section should be read
in conjunction with our consolidated financial statements and the accompanying
notes.




Certain
statements in this annual report and throughout Management’s Discussion and
Analysis of Financial Condition and Results of Operations are “forward looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995 and involve known and unknown risk, uncertainties and other factors that
may cause the Company’s actual results, performance or achievements to be
materially different from the results, performance or achievements expressed or
implied by the forward looking statement.  Factors that impact such
forward looking statements include, among others, changes in general economic
conditions, changes in interest rates and competition.  We decline any
obligation to publicly announce future events or developments that may affect
the forward-looking statements herein.




Operating
Strategy – Overview




Our
business consists principally of attracting deposits from the general public and
using deposits and borrowings to originate mortgage loans secured by one- to
four-family residences, commercial real estate and agricultural real estate. In
addition, we originate commercial and agricultural business loans and consumer
loans.  Our net income, like other financial institutions, is
primarily dependent on our net interest income, which is the difference between
the income earned on our interest-earning assets, such as loans and investments,
and the cost of our interest-bearing liabilities, primarily deposits and
borrowings.  Our net income is also affected by provisions for loan
losses and other operating income and expenses. An important source of income is
income from servicing loans which we have originated but sold into the secondary
market.  General economic conditions, particularly changes in market
interest rates, government legislation, monetary policies, and attendant actions
of the regulatory authorities are the external influences affecting many of the
factors of our net income.




Management
has implemented various strategies designed to enhance our
profitability.  These strategies include reducing our exposure to
interest rate risk by selling fixed-rate loans and offering other fee-based
services to our customers.  We recognize the need to establish and
adhere to strict loan underwriting criteria and guidelines.  We
generally limit our investment portfolio to securities issued by the United
States Government and Government sponsored entities, mortgage-backed securities
collateralized by United States Government sponsored entities, and
bank-qualified general obligation municipal issues.




The 2008
and 2009 recession had a severe impact on the entire banking industry which
caused increased bank failures nationwide and resulted in a decline in market
interest rates. The low interest rate environment resulted in increased
originations of our fixed-rate residential loans for sale to the secondary
market during 2009. The Federal Home Loan Bank discontinued its Mortgage
Partnership Program as of October 31, 2008. However, we continue to sell loans
to Freddie Mac. During the year ended December 31, 2009, we sold $66.7 million
of fixed-rate residential mortgage loans.  Market conditions and lower
market interest rates resulted in our recognizing an impairment charge on our
mortgage servicing rights during 2008.  Improved market conditions and
higher long-term market interest rates during 2009 resulted in our recognition
of a partial recovery of the impairment charge during 2009.  We do not
have a subprime mortgage loan product.  Our investment portfolio has
not been affected by the recession and financial crisis, since all our
mortgage-backed securities are issued by United States Government or United
States Government sponsored entities.  Since the real estate values in
our market area did not increase as dramatically as they did in other parts of
the nation prior to 2008, we have not experienced dramatic decreases in home
values during the current recession.  While our level of
non-performing assets increased during 2009, we attribute the increase more to
specific borrower circumstances, rather than the economy in
general.




4




We
continue to service our existing borrowers and originate new loans to credit
worthy borrowers in an effort to meet the credit needs of our
community.  We intend to remain a community-oriented financial
institution dedicated to meeting the credit and financial services needs of our
customers in our market area.




Critical
Accounting Policies and Use of Significant Estimates




In the
ordinary course of business, we have made a number of estimates and assumptions
relating to the reporting of results of operations and financial condition in
preparing our financial statements in conformity with accounting principles
generally accepted in the United States of America.  Actual results
could differ significantly from those estimates under different assumptions and
conditions.  Management believes the following discussion addresses
our most critical accounting policies and significant estimates, which are those
that are most important to the portrayal of our financial condition and results
and require management’s most difficult, subjective and complex judgments, often
as a result of the need to make estimates about the effect of matters that are
inherently uncertain.  For a discussion of recent accounting
pronouncements, see Note 1 of the Notes to Financial Statements.




Allowance
for Loan Losses.We believe the allowance for loan losses is the critical accounting
policy that requires the most significant judgments and assumptions used in the
preparation of the consolidated financial statements.  The allowance
for loan losses is a material estimate that is particularly susceptible to
significant changes in the near term and is established through a provision for
loan losses.  The allowance is based upon past loan experience and
other factors which, in management’s judgment, deserve current recognition in
estimating loan losses.  The evaluation includes a review of all loans
on which full collectability may not be reasonably assured.  Other
factors considered by management include the size and character of the loan
portfolio, concentrations of loans to specific borrowers or industries, existing
economic conditions and historical losses on each portfolio
category.  In connection with the determination of the allowance for
loan losses, management uses independent appraisals for significant properties,
which collateralize loans.  Management uses the available information
to make such determinations.  If circumstances differ substantially
from the assumptions used in making determinations, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
affected.  While we believe we have established our existing allowance
for loan losses in conformity with accounting principles generally accepted in
the United States of America, there can be no assurance that regulators, in
reviewing our loan portfolio, will not request an increase in the allowance for
loan losses.  Because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that increases to
the allowance will not be necessary if loan quality
deteriorates.




Other
Real Estate Owned.
Other real estate owned acquired through loan foreclosures are initially
recorded at fair value less costs to sell when acquired, establishing a new cost
basis.  The adjustment at the time of foreclosure is recorded through
the allowance for loan losses.  Due to the subjective nature of
establishing fair value when the asset is acquired, the actual fair value of the
other real estate owned could differ from the original estimate.  If
it is determined that fair value declines subsequent to foreclosure, the asset
is written down through a charge to non-interest expense.  Operating
costs associated with the assets after acquisition are also recorded as
non-interest expense.  Gains and losses on the disposition of other
real estate owned are netted and posted to non-interest
expense.




5




Deferred
Income Tax Assets/Liabilities.
Our net deferred income tax asset arises from differences in the dates that
items of income and expense enter into our reported income and taxable
income.  Deferred tax assets and liabilities are established for these
items as they arise.  From an accounting standpoint, deferred tax
assets are reviewed to determine that they are realizable based upon the
historical level of our taxable income, estimates of our future taxable income
and the reversals of deferred tax liabilities.  In most cases, the
realization of the deferred tax asset is based on our future
profitability.  If we were to experience net operating losses for tax
purposes in a future period, the realization of our deferred tax assets would be
evaluated for a potential valuation reserve.




Impairment
of Goodwill.Goodwill,
an intangible asset with an indefinite life, was recorded on our balance sheet
in prior periods as a result of acquisition activity.  Goodwill is
evaluated for impairment annually, unless there are factors present that
indicate a potential impairment, in which case, the goodwill impairment test is
performed more frequently.  During 2009, goodwill was evaluated
quarterly due to market conditions.




Mortgage
Servicing Rights.Mortgage
servicing rights are very sensitive to movements in interest rates as expected
future net servicing income depends on the projected outstanding principal
balances of the underlying loans, which can be greatly reduced by
prepayments.  Prepayments usually increase when mortgage interest
rates decline and decrease when mortgage interest rates
rise.




Fair
Value Measurements.
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.  We estimate the fair
value of financial instruments using a variety of valuation
methods.  Where financial instruments are actively traded and have
quoted market prices, quoted market prices are used for fair
value.  When the financial instruments are not actively traded, other
observable market inputs, such as quoted prices of securities with similar
characteristics, may be used, if available, to determine fair
value.  When observable market prices do not exist, we estimate fair
value.  Other factors such as model assumptions and market
dislocations can affect estimates of fair value.




Recent
Accounting Pronouncements




In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 168, “The
FASB Accounting Standards Codification TM and the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No.
162.”  Effective for financial statements issued for interim
and annual periods ending after September 15, 2009, the FASB Accounting
Standards Codification TM (“ASC”) is now the source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission under the authority of federal securities laws are also
sources of authoritative GAAP for Securities and Exchange Commission
registrants.  The ASC superseded all then-existing non Securities and
Exchange Commission accounting and reporting standards.  All other
non-grandfathered non Securities and Exchange Commission accounting literature
not included in the ASC became non-authoritative. Following this Statement, the
FASB will no longer issue new standards in the form of Statements, FASB Staff
Positions (“FSP”) or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates.  The FASB will not consider
Accounting Standards Updates as authoritative in their own
right.  Accounting Standards Updates will serve only to update the
ASC, provide background information about the guidance, and provide the bases
for conclusions on the change(s) in the ASC.  This SFAS was codified
within ASC 105.  The impact of adoption was not material on
us.




6




In April
2009, the FASB issued FSP FAS 157-4, “Determining
Fair Value When the Volume and Level of Activity for the Asset
or  Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly,” which was codified into ASC
820.  This FSP provides additional guidance for estimating fair value
in accordance with SFAS No. 157, “Fair
Value Measurements,” when the volume and level of activity for the asset
or liability have significantly decreased.  This FSP also includes
guidance on identifying circumstances that indicate a transaction is not
orderly.




In April
2009, the FASB issued FSP FAS 115-2 and FSP FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which were
codified into ASC 320.  This FSP amends the
other-than-temporary-impairment (“OTTI”) guidance in U.S. GAAP for debt
securities to make the guidance more operational and to improve the presentation
and disclosure of OTTI on debt and equity securities in the financial
statements.  This FSP does not amend existing recognition and
measurement guidance related to OTTI of equity securities.  FSP FAS
115-2 and 124-2 was effective for interim and annual periods ending after June
15, 2009, with early adoption permitted for periods ending after March 15, 2009
if FSP FAS 157-4 was adopted early as well.  We adopted FSP FAS 115-2
and 124-2 and FSP FAS 157-4 during 2009 and there was no material impact to our
financial statements.




In April
2009, the FASB issued FSP FAS 141(R)-1, “Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies” which was codified into ASC 805.  This FSP
amends and clarifies SFAS No. 141(R), “Business
Combinations,” to address application issues raised by preparers,
auditors, and members of the legal profession on initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business
combination.  This FSP was effective for assets or liabilities arising
from contingencies in business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.  There has been no impact during 2009 from
adoption of FSP FAS 141(R)-1 on January 1, 2009.




In June
2009, the FASB issued SFAS No. 166, “Accounting
for Transfers of Financial Assets—an amendment of FASB Statement No. 140”
which was codified into ASC Topic 860.  Topic 860 seeks to improve the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets.  Topic 860 addresses (1) practices
that have developed since the issuance of SFAS No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,” that are not consistent with the original intent and key
requirements of that Statement and (2) concerns of financial statement users
that many of the financial assets (and related obligations) that have been
derecognized should continue to be reported in the financial statements of
transferors.  This standard must be applied as of the beginning of
each reporting entity’s first annual reporting period that begins after November
15, 2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter.  Earlier application
is prohibited.  This standard must be applied to transfers occurring
on or after the effective date.  The impact of adoption is not
expected to be material to us.




In June
2009, the FASB issued SFAS No. 167, “Amendments
to FASB Interpretation No. 46(R),” which was codified into ASC Topic
810.  Topic 810 seeks to improve financial reporting by enterprises
involved with variable interest entities by addressing (1) the effects on
certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation
of Variable Interest Entities,” as a result of the elimination of the
qualifying special-purpose entity concept in SFAS No. 166, and (2) constituent
concerns about the application of certain key provisions of Interpretation
46(R), including those in which the accounting and disclosures under the
Interpretation do not always provide timely and useful information about an
enterprise’s involvement in a variable interest entity. This Statement shall be
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter.  Earlier application is prohibited.  The impact
of adoption is not expected to be material to us.




7




Federal
Deposit Insurance Corporation Insurance Coverage




As with
all banks insured by the FDIC, the Company’s depositors are protected against
the loss of their insured deposits by the FDIC.  The FDIC recently
made two changes to the rules that broadened the FDIC insurance.  The
FDIC has temporarily increased basic FDIC insurance coverage from $100,000 to
$250,000 per depositor until December 31, 2013.  In addition, the FDIC
has instituted a Temporary Liquidity Guaranty Program (“TLGP”) which provides
full deposit insurance coverage for non-interest bearing transaction deposit
accounts, regardless of dollar amount, until June 30, 2010.  The FDIC
defines a “non-interest bearing transaction account” as a transaction account on
which the insured depository institution pays no interest and does not reserve
the right to require advance notice of intended withdrawals.  This
coverage is over and above the $250,000 in deposit insurance otherwise provided
to a customer.  The Company opted into the TLGP.  The
additional cost of this program, assessed on a quarterly basis, is a 10 basis
point annualized surcharge on balances in non-interest bearing transaction
accounts that exceed $250,000.




Financial
Condition




Total
assets increased to $288.8 million at December 31, 2009, from $288.3 million at
December 31, 2008.  Net loans decreased $9.3 million, or 5.1%, to
$173.7 million as of December 31, 2009.  The decrease in net loans
reflected an $8.2 million decrease in one- to four-family residential mortgage
loans, primarily refinanced loans which were sold in the secondary market during
2009 with servicing retained.  Cash and cash equivalents increased
$8.6 million to $15.7 million at December 31, 2009 from $7.1 million at December
31, 2008.  Available for sale investment securities decreased $12.4
million, or 25.1%, to $37.2 million at December 31, 2009 from $49.6 million at
December 31, 2008, primarily due to $16.1 million in calls and $19.9 million in
sales of U.S. Government securities and municipal bonds, partially offset by
purchases of $23.3 million of U.S. Government securities and tax-free municipal
bonds.  Mortgage-backed securities increased $13.2 million, or 47.5%,
to $41.0 million at December 31, 2009 from $27.8 million at December 31,
2008.




At
December 31, 2009, we owned $1.1 million of Federal Home Loan Bank of Chicago
stock.  Management reviews this investment on a quarterly basis, in
light of the Federal Home Loan Bank’s financial performance.  At
December 31, 2009, management deemed that the cost method investment in Federal
Home Loan Bank of Chicago stock was ultimately recoverable and therefore not
impaired.  We also hold $2.7 million in goodwill associated with our
prior acquisition of Chapin State Bank.  In 2009, management reviewed
goodwill for impairment quarterly.  Given the current market
conditions and the fact that our common stock was trading below our book value,
we performed our most recent analysis as of December 31, 2009.  This
analysis, which considered recent market data for bank and thrift transactions,
resulted in management’s conclusion to not take an impairment in
2009.




At
December 31, 2009, we had $850,000 in mortgage servicing rights.  Our
mortgage servicing rights asset represents approximately 57 basis points of the
$148.0 million in loans that we serviced.  We obtain an independent
valuation of the mortgage servicing rights at least annually.  Our
updated valuation as of December 31, 2009, resulted in a higher value due to the
increased value of the mortgage servicing rights originated prior to
2009.  Consequently, we recognized a recovery of $123,000 of an
impairment charge of $428,000 that we recognized during 2008.




Total
deposits increased $16.5 million, or 7.0%, to $254.7 million as of December 31,
2009, primarily due to increases of $11.4 million in transaction accounts and
$5.1 million in time deposits. Management believes the increase in deposits
reflected customers preferring to have their assets in FDIC insured deposits
during the recession, as well as the effect of recent bank failures in our
market area.  As a result of our increase in deposits, we were able to
decrease our borrowings by $17.3 million to $3.8 million at December 31,
2009.




8




Stockholders’
equity increased $1.0 million to $25.3 million at December 31,
2009.  The increase resulted primarily from net income of $1.4 million
and a $358,000 increase in unrealized gains, net of tax, on available-for-sale
securities, partially offset by the payment of $265,000 in
dividends.  The change in unrealized gains or losses on securities
classified as available-for-sale is affected by market conditions and,
therefore, can fluctuate daily.  Stockholders’ equity was also
affected by the repurchase of $486,000 of our common stock during the first
quarter of 2009.




COMPARISON
OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008




General




Net
income for the year ended December 31, 2009 totaled $1.4 million, or $0.72 per
common share, basic and diluted, compared to net income for the year ended
December 31, 2008 of $1.5 million, or $0.76 per common share, basic and
diluted.  The decrease of $122,000 in net income reflected a $2.3
million increase in the provision for loan losses, which primarily related to
the deterioration of two commercial business relationships during
2009.  The increase in the provision for loan losses was partially
offset by increases of $1.0 million in non-interest income and $796,000 in net
interest income and decreases of $204,000 in income taxes and $95,000 in
non-interest expense.  Our operations have benefited from the
steepening yield curve in 2008 and 2009 as lower short-term interest rates
resulted in our deposits repricing downward faster than our loans, which have
yields tied to longer-term interest rates.




Interest
Income




Interest
income decreased to $14.4 million for the year ended December 31, 2009 from
$15.9 million for the year ended December 31, 2008.  The $1.5 million
decrease in interest income resulted from decreased income of $434,000 on loans,
$518,000 on investment securities, $318,000 on mortgage-backed securities, and
$218,000 on other interest-earning assets.




Interest
income on loans decreased $434,000 to $11.6 million for 2009 from $12.0 million
for 2008 due primarily to a decrease in the average yield of the loan portfolio,
partially offset by an increase in the average balance of the loan
portfolio.  The average yield of the loan portfolio decreased 42 basis
points to 6.34% for 2009 from 6.76% for 2008. The decrease in the average yield
reflected lower market interest rates in 2009.  The average balance of
loans increased $4.9 million to $182.8 million during 2009.  The
increase in the average balance of loans was primarily due to an increase in the
average balance of commercial real estate loans, including participations
purchased from other institutions.




Interest
income on investment securities decreased $518,000 to $1.6 million in 2009 from
$2.1 million for 2008, reflecting a $12.7 million decrease in the average
balance of the investment securities portfolio to $40.7 million during 2009 from
$53.4 million during 2008 and a slight decrease in the average
yield.  The decrease in the average balance reflected an increase in
calls and sales, a portion of which were reinvested in tax-free municipal bonds
and mortgage-backed securities.  The average yield of investment
securities decreased to 3.81% for 2009 from 3.88% for 2008.  This
average yield does not reflect the benefit of the higher tax-equivalent yield of
our municipal bonds, which was reflected as a reduction in income tax
expense.




9




Interest
income on mortgage-backed securities decreased $318,000 to $1.3 million in 2009
from $1.6 million in 2008, reflecting a 182 basis point decrease in the average
yield of these securities to 3.13% for 2009 from 4.44% for 2008.  The
decrease in the average yield was primarily due to accelerated premium
amortization resulting from higher prepayments on mortgage-backed
securities.  The decrease in the average yield was partially offset by
a $8.5 million increase in the average balance of mortgage-backed securities to
$40.4 million in 2009 from $31.9 million in 2008.




Interest
income from other interest-earning assets, which consisted of interest-earning
deposit accounts and federal funds sold, decreased $218,000 to $12,000 during
2009 primarily due to a 232 basis point decrease in the average
yield.  The average yield of these other interest-earning assets
decreased to 0.15% for 2009 from 2.47% for 2008, reflecting the decrease in
short-term market interest rates.  The average balance of these assets
decreased $1.1 million to $8.2 million during 2009 compared to
2008.




Interest
Expense




Total
interest expense decreased $2.3 million to $5.4 million during 2009 from $7.7
million during 2008.  The decrease in interest expense was due to
decreases of $1.9 million in the cost of deposits and $432,000 in the cost of
borrowings.




The cost
of deposits decreased $1.9 million to $5.3 million in 2009 from $7.2 million in
2008 due primarily to a decrease in the average rate paid on
deposits.  The average rate paid decreased 87 basis points to 2.27%
during 2009 from 3.14% during 2008, reflecting a decrease in market interest
rates as short-term interest rates decreased significantly at the end of 2008
and throughout 2009.  The average balance of deposits increased $6.1
million during 2009 to $234.3 million from $228.3 million during
2008.




The cost
of borrowed funds decreased $432,000 to $116,000 in 2009 from $548,000 in 2008,
primarily due to a 194 basis point decrease in the average rate paid on borrowed
funds as well as a lower average balance of borrowed funds. The average rate
paid decreased to 1.10% for 2009 from 3.04% for 2008, reflecting the decrease in
market interest rates.  The average balance of borrowed funds also
decreased $7.5 million to $10.5 million during 2009, primarily due to a $6.7
million decrease in the average balance of advances from the Federal Home Loan
Bank.  The remainder of the balance consisted of securities sold under
agreements to repurchase.




Net
Interest Income




Net
interest income increased by $796,000, or 9.7%, to $8.9 million for the year
ended December 31, 2009 from $8.2 million for the year ended December 31, 2008,
primarily due to the improvement in our net interest rate spread and net
interest margin.  Our interest rate spread increased by 38 basis
points to 3.08% during 2009 from 2.70% during 2008.  Our net interest
margin improved 29 basis points to 3.30% for the year ended December 31, 2009
from 3.01% for the year ended December 31, 2008.  The improvement in
our net interest rate spread and net interest margin reflected the steepening
yield curve as short-term market interest rates used to price our deposits
declined significantly in 2008 and 2009, and the resulting decrease in the cost
of our deposits and other liabilities was greater than the decrease in the yield
on our loans and investments.




Provision
for Loan Losses




The
provision for loan losses is determined by management as the amount needed to
replenish the allowance for loan losses, after net charge-offs have been
deducted, to a level considered adequate to absorb known and probable losses in
the loan portfolio, in accordance with accounting principles generally accepted
in the United States of America.




10




We
recorded a provision for loan losses of $2.6 million for the year ended December
31, 2009, compared to $310,000 during 2008.  The increase in the
provision reflected charges to the allowance for loan losses due to the
deterioration of two commercial business loan relationships during 2009. For a
further discussion of the details of these two commercial business loan
relationships, please see “Business of Jacksonville Savings Bank—Delinquencies
and Classified Assets—Non-Performing Assets and Delinquent
Loans.”  Charge-offs totaling $1.9 million were recognized during 2009
and additional specific provisions of $380,000 have been added to the allowance
to absorb potential estimated losses related to these two loans.  The
remainder of the increase in the provision for loan losses reflected an increase
in the average balance of the loan portfolio and an increase in classified and
special mention assets.  Net charge-offs increased during 2009 to $2.2
million from $142,000 during 2008.  The allowance for loan losses
increased $356,000 to $2.3 million at December 31, 2009.




The
provisions in 2009 and 2008 were made to bring the allowance for loan losses to
a level deemed adequate following management’s evaluation of the repayment
capacity and collateral protection afforded by each problem loan identified by
management.  The review also considered the local economy and the
level of bankruptcies and foreclosures in our market area.




11




The
following table sets forth the composition of our non-performing assets at
December 31, 2009 and 2008, respectively.




12/31/09
            
            
            12/31/08(Dollars
      in thousands)Non-accrual
      loans:Real
      estate loans:One-
      to four-family residential
            
            $
            484
            
            
            $
            445Commercial
      and agricultural
            
            
            98
            
            
            
            34Multi-family
      residential
            
            
            132
            
            
            
            152Commercial
      and agricultural business loans
            
            
            416
            
            
            
            48Consumer
      loans:Home
      equity/home improvement
            
            
            407
            
            
            
            318Automobile
            
            
            8
            
            
            
            3Other
            
            
            52
            
            
            
            5Total
      non-accrual loans
            
            
            1,597
            
            
            
            1,005Loans
      delinquent 90 days or greater and still accruing:Real
      estate loans:One-
      to four-family residential
            
            
            349
            
            
            
            163Commercial
      and agricultural
            
            
            —
            
            
            
            —Multi-family
      residential
            
            
            —
            
            
            
            —Commercial
      and agricultural business loans
            
            
            —
            
            
            
            —Consumer
      loans:Home
      equity/home improvement
            
            
            —
            
            
            
            —Automobile
            
            
            3
            
            
            
            18Other
            
            
            5
            
            
            
            5Total
      loans delinquent 90 days or greater and still accruing
            
            
            357
            
            
            
            186Total
      non-performing loans
            
            
            1,954
            
            
            
            1,191Other
      real estate owned and foreclosed assets:Real
      estate loans:One-
      to four-family residential
            
            
            324
            
            
            
            565Commercial
      and agricultural
            
            
            59
            
            
            
            204Multi-family
      residential
            
            
            —
            
            
            
            —Commercial
      and agricultural business loans
            
            
            —
            
            
            
            —Consumer
      loans:Home
      equity/home improvement
            
            
            —
            
            
            
            —Automobile
            
            
            —
            
            
            
            9Other
            
            
            —
            
            
            
            —Total  other
      real estate owned and foreclosed assets
            
            
            383
            
            
            
            778Total
      non-performing assets
            
            $
            2,337
            
            
            $
            1,969Ratios:Non-performing
      loans to total loans
            
            
            1.11
            %
            
            
            0.64
            %Non-performing
      assets to total assets
            
            
            0.81
            
            
            
            0.68




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.




12




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 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.




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




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.




13




Non-interest
Income




Non-interest
income increased $1.0 million to $4.2 million for the year ended December 31,
2009 from $3.2 million for the year ended December 31, 2008.  The
increase in non-interest income resulted primarily from increases of $541,000 in
net income from mortgage banking operations, $556,000 in gains on sales of
securities, and $102,000 in service charges on deposit accounts, which were
partially offset by a decrease of $152,000 in commission income.  The
increase in gains on sales of securities reflected the sale of $57.4 million in
securities during 2009 in order to realize gains on the securities, and to
restructure a portion of the portfolio into lower risk-weighted
investments.  The increase in mortgage banking income was due to
secondary market sales totaling $66.7 million in 2009 as compared to sales of
$30.1 million in 2008, and an increase in the net capitalization of mortgage
servicing rights. We expect the level of mortgage banking activity to moderate
in 2010.  The increase in service charges on deposits reflected an
increase in non-sufficient fund fees in 2009.  The decrease in
commission income was due to reduced brokerage activity, which reflected current
market conditions.




Non-interest
Expense




Non-interest
expense decreased $95,000 to $9.1 million during the year ended December 31,
2009, compared to the year ended December 31, 2008.  The decrease in
non-interest expense reflected a $123,000 recovery in the impairment of mortgage
servicing rights during 2009, compared to an impairment charge of $428,000
during 2008.  The recovery reflected an increase in the value of
mortgage servicing rights due to improved market conditions and reduced
prepayment speeds as of December 31, 2009.  The lower level of
non-interest expense also reflected a $71,000 decrease in data processing
expense following the conversion of our core processing system during the third
quarter of 2008. The decrease in non-interest expense was partially offset by a
$508,000 increase in FDIC deposit insurance premiums.  The increase in
FDIC premiums reflected the higher assessment rates for 2009 and approximately
$137,000 related to the second quarter FDIC special assessment.  The
increase compared to 2008 also reflected the remainder of a one-time FDIC credit
for past contributions to the insurance fund of $107,000 that was used in
2008.




Income
Taxes




The
provision for income taxes decreased $204,000 to $101,000 during 2009 compared
to 2008. The provision reflected a decrease in taxable income due to lower
income and an increase in the benefit of tax-exempt investment
securities.  Our effective tax rate was 6.7% for 2009 as compared to
16.7% for 2008 due to the increase in our tax-exempt investment securities and
lower income levels.




14


Average
Balances and Yields




The
following table sets forth, for the years indicated, information regarding
average balances of assets and liabilities as well as the total dollar amounts
of interest income from average interest-earning assets and interest expense on
average interest-bearing liabilities, resultant yields, interest rate spread,
net interest margin, and ratio of average interest-earning assets to average
interest-bearing liabilities.




For
      the Years Ended December 31,2009
              
              
              2008AverageOutstandingBalance
              
              
              Interest
              
              
              Yield/
      Rate
              
              
              AverageOutstanding
      Balance
              
              
              Interest
              
              
              Yield/
      Rate(Dollars
      in thousands)Interest-earning
      assets:Loans (1)
              
              $
              182,813
              
              
              $
              11,592
              
              
              
              6.34
              %
              
              $
              177,963
              
              
              $
              12,026
              
              
              
              6.76
              %Investment
      securities (2)
              
              
              40,732
              
              
              
              1,554
              
              
              
              3.81
              
              
              
              53,392
              
              
              
              2,072
              
              
              
              3.88Mortgage-backed
      securities
              
              
              40,381
              
              
              
              1,262
              
              
              
              3.13
              
              
              
              31,921
              
              
              
              1,580
              
              
              
              4.95Cash and cash
      equivalents
              
              
              8,231
              
              
              
              12
              
              
              
              0.15
              
              
              
              9,313
              
              
              
              230
              
              
              
              2.47Total
      interest-earning assets
              
              
              272,157
              
              
              
              14,420
              
              
              
              5.30
              
              
              
              272,589
              
              
              
              15,908
              
              
              
              5.83Non-interest-earning
      assets
              
              
              22,626
              
              
              
              
              
              
              
              
              
              
              
              20,642Total assets
              
              $
              294,783
              
              
              
              
              
              
              
              
              
              
              $
              293,231Interest-bearing
      liabilities:Interest bearing
      checking
              
              $
              29,009
              
              
              $
              94
              
              
              
              0.32
              %
              
              $
              28,572
              
              
              $
              199
              
              
              
              0.70
              %Savings
      accounts
              
              
              24,849
              
              
              
              218
              
              
              
              0.88
              
              
              
              22,677
              
              
              
              224
              
              
              
              0.99Certificates of
      deposit
              
              
              149,124
              
              
              
              4,586
              
              
              
              3.08
              
              
              
              147,891
              
              
              
              6,112
              
              
              
              4.13Money market
      savings
              
              
              26,750
              
              
              
              378
              
              
              
              1.41
              
              
              
              24,442
              
              
              
              584
              
              
              
              2.39Money market
      deposits
              
              
              4,616
              
              
              
              40
              
              
              
              0.86
              
              
              
              4,700
              
              
              
              50
              
              
              
              1.06Total
      interest-bearing deposits
              
              
              234,348
              
              
              
              5,316
              
              
              
              2.27
              
              
              
              228,282
              
              
              
              7,169
              
              
              
              3.14Federal
      Home Loan Bankadvances
              
              
              5,359
              
              
              
              104
              
              
              
              1.94
              
              
              
              12,018
              
              
              
              469
              
              
              
              3.91Short-term
      borrowings
              
              
              5,168
              
              
              
              12
              
              
              
              0.94
              
              
              
              6,028
              
              
              
              78
              
              
              
              1.29Total
      borrowings
              
              
              10,527
              
              
              
              116
              
              
              
              1.10
              
              
              
              18,046
              
              
              
              548
              
              
              
              3.04Total
      interest-bearing liabilities
              
              
              244,875
              
              
              
              5,432
              
              
              
              2.22
              %
              
              
              246,328
              
              
              
              7,716
              
              
              
              3.13
              %Non-interest-bearing
      liabilities
              
              
              25,360
              
              
              
              
              
              
              
              
              
              
              
              23,881Total
      liabilities
              
              
              270,235
              
              
              
              
              
              
              
              
              
              
              
              270,209Stockholders’
      equity
              
              
              24,548
              
              
              
              
              
              
              
              
              
              
              
              23,022Total liabilities and stockholders’ equity
              
              $
              294,783
              
              
              
              
              
              
              
              
              
              
              $
              293,231Net interest
      income
              
              
              
              
              
              $
              8,988
              
              
              
              
              
              
              
              
              
              
              $
              8,192Net interest rate
      spread (3)
              
              
              
              
              
              
              
              
              
              
              3.08
              %
              
              
              
              
              
              
              
              
              
              
              2.70
              %Net interest-earning assets (4)
              
              
              
              
              
              $
              27,282
              
              
              
              
              
              
              
              
              
              
              $
              26,261Net interest margin
      (5)
              
              
              
              
              
              
              
              
              
              
              3.30
              %
              
              
              
              
              
              
              
              
              
              
              3.01
              %Average
      interest-earning assets to average interest-bearing
      liabilities
              
              
              
              
              
              
              
              
              
              
              111.14
              %
              
              
              
              
              
              
              
              
              
              
              110.66
              %







(1)
            Includes
      non-accrual loans and loans held for sale and fees of $110,000 for 2009,
      $54,000 for 2008 and $93,000 for
2007.


(2)
            Includes
      Federal Home Loan Bank stock and U.S. Agency
  securities.


(3)
            Net
      interest rate spread represents the difference between the yield on
      average interest-earning assets and the cost of average interest-bearing
      liabilities.


(4)
            Net
      interest-earning assets represents total interest-earning assets less
      total interest-bearing liabilities.


(5)
            Net
      interest margin represents net interest income divided by average total
      interest-earning assets.


15




Rate/VolumeAnalysis




The
following table presents the effects of changing rates and volumes on our net
interest income for the fiscal years indicated.  The rate column shows
the effects attributable to changes in rate (changes in rate multiplied by prior
volume).  The volume column shows the effects attributable to changes
in volume (changes in volume multiplied by prior rate).  The net
column represents the sum of the prior columns.  For purposes of this
table, changes attributable to both rate and volume, which cannot be segregated,
have been allocated proportionately, based on the changes due to rate and the
changes due to volume.




Years
      Ended December 31,2009
      vs 2008Increase
      (Decrease) Due to
              
              
              Total
      Increase (Decrease)Rate
              
              
              Volume(In
      thousands)Interest-earning
      assets:Loans
              
              $
              (756
              )
              
              $
              322
              
              
              $
              (434
              )Investment
      securities
              
              
              (34
              )
              
              
              (484
              )
              
              
              (518
              )Mortgage-backed
      securities
              
              
              (672
              )
              
              
              354
              
              
              
              (318
              )Cash
      and cash equivalents
              
              
              (194
              )
              
              
              (24
              )
              
              
              (218
              )Total
      interest-earning assets
              
              $
              (1,656
              )
              
              $
              168
              
              
              $
              (1,488
              )Interest-bearing
      liabilities:Interest
      bearing checking
              
              $
              (108
              )
              
              $
              3
              
              
              $
              (105
              )Savings
      accounts
              
              
              (26
              )
              
              
              20
              
              
              
              (6
              )Certificates
      of deposit
              
              
              (1,577
              )
              
              
              51
              
              
              
              (1,526
              )Money
      market savings
              
              
              (257
              )
              
              
              51
              
              
              
              (206
              )Money
      market deposits
              
              
              (9
              )
              
              
              (1
              )
              
              
              (10
              )Total
      interest-bearing deposits
              
              
              (1,977
              )
              
              
              124
              
              
              
              (1,853
              )Federal
      Home Loan Bank advances
              
              
              (174
              )
              
              
              (192
              )
              
              
              (366
              )Short-term
      borrowings
              
              
              (56
              )
              
              
              (9
              )
              
              
              (65
              )(230
              )
              
              
              (202
              )
              
              
              (431
              )Total
      interest-bearing liabilities
              
              
              (2,207
              )
              
              
              (77
              )
              
              
              (2,284
              )Change
      in net interest income
              
              $
              551
              
              
              $
              245
              
              
              $
              796




16


Asset
and Liability Management




As a
financial institution, we face risk from interest rate
volatility.  Fluctuations in interest rates affect both our level of
income and expense on a large portion of our assets and
liabilities.  Fluctuations in interest rates also affect the market
value of all interest-earning assets.




The
primary goal of our interest rate risk management strategy is to maximize net
interest income while maintaining an acceptable interest rate risk
profile.  We seek to coordinate asset and liability decisions so that,
under changing interest rate scenarios, portfolio equity and net interest income
remain within an acceptable range.




Our
policy in recent years has been to reduce our interest rate risk by better
matching the maturities of our interest rate sensitive assets and liabilities,
selling our long-term fixed-rate residential mortgage loans with terms of 15
years or more to the secondary market, originating adjustable rate loans,
balloon loans with terms ranging from three to five years, and originating
consumer and commercial business loans, which typically are for a shorter
duration and at higher rates of interest than one- to four-family residential
mortgage loans.  Our portfolio of mortgage-backed securities,
including both fixed and variable rates, also provides monthly cash
flow.  The remaining investment portfolio has been structured to
better match the maturities and rates of our interest-bearing
liabilities.  With respect to liabilities, we have attempted to
increase our savings and transaction deposit accounts, which management believes
are more resistant to changes in interest rates than certificate
accounts.  The board of directors appoints the Asset-Liability
Management Committee (“ALCO”), which is responsible for reviewing our asset and
liability policies.  The ALCO meets quarterly to review interest rate
risk and trends, as well as liquidity and capital requirements.




We use
comprehensive asset/liability software provided by a third-party vendor to
perform interest rate sensitivity analysis for all product
categories.  The primary focus of our analysis is the effect of
interest rate increases and decreases on net interest
income.  Management believes that this analysis reflects the potential
effects on current earnings of interest rate changes.  Call criteria
and prepayment assumptions are taken into consideration for investment
securities and loans.  All of our interest sensitive assets and
liabilities are analyzed by product type and repriced based upon current
offering rates.  The software performs interest rate sensitivity
analysis by performing rate shocks of plus or minus 300 basis points in 100
basis point increments.




The
following table shows projected results at December 31, 2009 and 2008, of the
impact on net interest income from an immediate change in interest rates, as
well as the benchmarks established by ALCO.  The results are shown as
a dollar and percentage change in net interest income over the next twelve
months.




Change
      in Net Interest IncomeDecember
      31, 2009
            
            December
      31, 2008
            
            ALCO
      BenchmarkRate
      Shock
            
            $
      Change
            
            %
      Change
            
            $
      Change
            
            %
      Change(Dollars
      in thousands)+300
      basis points
            
            174
            
            1.71
            
            (143)
            
            (1.46)
            
            >(20.00)%+200
      basis points
            
            220
            
            2.16
            
            (68)
            
            (0.69)
            
            >(20.00)%+100
      basis points
            
            184
            
            1.80
            
            33
            
            0.34
            
            >(12.50)%(100)
      basis points
            
            (271)
            
            (2.66)
            
            95
            
            0.97
            
            >(12.50)%(200)
      basis points
            
            (412)
            
            (4.05)
            
            (12)
            
            (0.12)
            
            >(20.00)%(300)
      basis points
            
            (589)
            
            (5.78)
            
            (205)
            
            (2.10)
            
            >(20.00)%




The table
above indicates that at December 31, 2009, in the event of a 200 basis point
increase in interest rates, we would experience a 2.16% increase in net interest
income.  In the event of a 100 basis point decrease in interest rates,
we would experience a 2.66% decrease in net interest income.




17




The
effects of interest rates on net interest income are not predictable.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, prepayments, and deposit run-offs, and should not be relied upon as
indicative of actual results. Certain shortcomings are inherent in these
computations. Although some assets and liabilities may have similar maturity or
periods of repricing, they may react at different times and in different degrees
to changes in market interest rates. Rates on other types of assets and
liabilities may lag behind changes in market interest rates. Assets, such as
adjustable rate mortgage loans, generally have features that restrict changes in
interest rates on a short-term basis and over the life of the asset. After a
change in interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making the calculations set forth above.
Additionally, increased credit risk may result if our borrowers are unable to
meet their repayment obligations as interest rates increase.




Liquidity
and Capital Resources




Liquidity
is the ability to meet current and future short-term financial
obligations.  Our ALCO Committee is responsible for establishing and
monitoring our liquidity targets and strategies in order to ensure that
sufficient liquidity exists for meeting the borrowing needs of our customers as
well as unanticipated contingencies.  At December 31, 2009, we had
access to immediately available funds of approximately $22.2 million from the
Federal Home Loan Bank of Chicago and $32.1 million in overnight federal funds
purchased.




We
regularly adjust our investments in liquid assets based upon our assessment of
expected loan demand, expected deposit flows, yields available on
interest-earning deposits and securities, and the objectives of our
asset/liability management program.  Excess liquid assets are invested
generally in interest-earning deposits and short- and intermediate-term
securities.




Our most
liquid assets are cash and cash equivalents.  The levels of these
assets are dependent on our operating, financing, and investing
activities.  At December 31, 2009 and 2008, cash and cash equivalents
totaled $15.7 million and $7.1 million, respectively.  Our primary
sources of funds include customer deposits, proceeds from sales of loans,
maturities and sales of investments, and principal repayments from loans and
mortgage-backed securities (both scheduled and prepayments).  During
the years ended December 31, 2009 and 2008, the most significant sources of
funds have been deposit growth, investment calls, sales, and principal payments,
and advances from the Federal Home Loan Bank.  These funds have been
used for new loan originations.




Our cash
and cash equivalents increased $8.6 million during the year ended December 31,
2009, compared to a decrease of $5.0 million during the year ended December 31,
2008.  Net cash provided by operating activities increased to $3.5
million during 2009 from $1.6 million during 2008.  Net cash provided
by investing activities increased to $6.5 million during 2009 from the $5.0
million in cash used during 2008.  Cash provided by net loan
originations and payments increased to $6.6 million during 2009 from the net
cash used of $7.9 million during 2008.  Cash used in financing
activities decreased to $1.5 million during 2009 from the $1.6 million in cash
provided during 2008.  The decrease was primarily due to the increase
in deposits of $16.5 million partially offset by the decrease in Federal Home
Loan Bank advances of $13.5 million during 2009.




While
loan sales and principal repayments on mortgage-backed securities are relatively
predictable, deposit flows and early prepayments are more influenced by interest
rates, general economic conditions, and competition.  We attempt to
price our deposits to meet asset/liability objectives and stay competitive with
local market conditions.




18





Liquidity
management is both a short- and long-term responsibility of
management.  We adjust our investments in liquid assets based upon
management’s assessment of expected loan demand, projected purchases of
investment and mortgage-backed securities, expected deposit flows, yields
available on interest-bearing deposits, and liquidity of its asset/liability
management program.  Excess liquidity is generally invested in
interest-earning overnight deposits, federal funds sold, and other short-term
U.S. agency obligations.  We use securities sold under agreements to
repurchase as an additional funding source.  The agreements represent
our obligations to third parties and are secured by investments which we pledge
as collateral.  At December 31, 2009, we had $3.8 million in
outstanding repurchase agreements, which were for overnight
funding.




If we
require funds beyond our ability to generate them internally, we have the
ability to borrow funds from the Federal Home Loan Bank.  We may
borrow from the Federal Home Loan Bank under a blanket agreement which assigns
all investments in Federal Home Loan Bank stock as well as qualifying first
mortgage loans equal to 150% of the outstanding balance as collateral to secure
the amounts borrowed.  This borrowing arrangement is limited to the
lesser of 30% of our total assets, 75% of the balance of qualifying one- to
four-family residential loans, or twenty times the balance of Federal Home Loan
Bank stock held by us.  At December 31, 2009, we had no outstanding
advances and a borrowing capacity of approximately $22.2 million.




We
maintain levels of liquid assets as established by the board of
directors.  Our liquidity ratio, adjusted for pledged assets, at
December 31, 2009 and 2008 was 30.7% and 24.1%, respectively.  This
ratio represents the volume of short-term liquid assets as a percentage of net
deposits and borrowings due within one year.




We must
also maintain adequate levels of liquidity to ensure the availability of funds
to satisfy loan commitments.  We anticipate that we will have
sufficient funds available to meet our current commitments principally through
the use of current liquid assets and through our borrowing capacity discussed
above.  The following table summarizes our outstanding loan
commitments at December 31, 2009 and 2008.  The commitments listed
below include loans committed for sale to the secondary market of $895,000 and
$12.4 million as of December 31, 2009 and 2008, respectively.




December
      31, 2009
            
            
            December
      31, 2008(In
      thousands)Commitments
      to fund loans
            
            $
            36,946
            
            
            $
            50,723Standby
      letters of credit
            
            
            488
            
            
            
            774




Quantitative
measures established by regulation to ensure capital adequacy require
Jacksonville Savings Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital to risk-weighted assets and Tier I
capital to average assets.  At December 31, 2009, Jacksonville Savings
Bank meets all capital adequacy requirements to which it is
subject.




The
Director of the Illinois Department of Financial and Professional Regulation is
authorized to require a savings bank to maintain a minimum capital level based
upon the savings bank’s financial condition or history, management or
earnings.  If a savings bank’s core capital ratio falls below the
required level, the Director may direct the savings bank to adhere to a specific
written plan established by the Director to correct the savings bank’s capital
deficiency, as well as a number of other restrictions on the savings bank’s
operations, including a prohibition on the declaration of dividends by the
savings bank’s board of directors.  At December 31, 2009, Jacksonville
Savings Bank’s core capital ratio was 7.44% of total adjusted average assets,
which exceeded the required ratio of 4.00%.




19




As of
December 31, 2009, the Federal Deposit Insurance Corporation categorized
Jacksonville Savings Bank as well capitalized under the regulatory framework for
prompt corrective action.  To be categorized as adequately
capitalized, Jacksonville Savings Bank must maintain minimum total risk-based,
Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table
below.  There are no conditions or events since that notification that
management believes have changed Jacksonville Savings Bank’s
category.  Jacksonville Savings Bank’s actual capital ratios at
December 31, 2009 and 2008 are presented in the table below.




Minimum
      Required
            
            December
      31, 2009
                Actual
            
            December
      31, 2008
                ActualTier
      1 Capital to Average Assets
            4.00%
            
            7.44%
            
            7.30%Tier
      1 Capital to Risk-Weighted Assets
            4.00%
            
            10.70%
            
            10.02%Total
      Capital to Risk-Weighted Assets
            8.00%
            
            11.83%
            
            10.94%




Effect
of Inflation and Changing Prices




The
consolidated financial statements and related notes of Jacksonville
Bancorp-Federal have been prepared in accordance with GAAP.  GAAP
generally requires the measurement of financial position and operating results
in terms of historical dollars without consideration of changes in the relative
purchasing power of money over time due to inflation.  The impact of
inflation is reflected in the increased cost of our
operations.  Unlike industrial companies, our assets and liabilities
are primarily monetary in nature.  As a result, changes in market
interest rates have a greater impact on performance than the effects of
inflation.




* * * * *
*


20




Report
of Independent Registered Public Accounting Firm




Audit
Committee, Board of Directors, and Stockholders


Jacksonville
Bancorp, Inc.


Jacksonville,
Illinois




We have
audited the accompanying consolidated balance sheets of Jacksonville Bancorp,
Inc. as of December 31, 2009 and 2008, and the related consolidated statements
of income, stockholders’ equity and cash flows for the years then
ended.  The Company’s management is responsible for these financial
statements.  Our responsibility is to express an opinion on these
financial statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits include
consideration of internal control over financial reporting as a basis for
designing auditing procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  Our audits also include examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Jacksonville Bancorp, Inc.
as of December 31, 2009 and 2008, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.




/sig/BKD,llp




Decatur,
Illinois


March 12,
2010




21


Jacksonville
Bancorp, Inc.
 Consolidated
Balance Sheets
 December
31, 2009 and 2008





Assets




2009
            
            
            2008Cash
      and due from banks
            
            $
            4,412,988
            
            
            $
            6,292,590Federal
      funds sold
            
            
            9,925,855
            
            
            
            460,194Interest-bearing
      demand deposits in banks
            
            
            1,357,631
            
            
            
            392,504Cash
      and cash equivalents
            
            
            15,696,474
            
            
            
            7,145,288Available-for-sale
      securities:Investment
      securities
            
            
            37,196,298
            
            
            
            49,638,933Mortgage-backed
      securities
            
            
            40,984,395
            
            
            
            27,795,119Other
      investments
            
            
            149,902
            
            
            
            240,321Loans
      held for sale
            
            
            814,074
            
            
            
            1,388,284Loans,
      net of allowance for loan losses of $2,290,001 and $1,934,072 at December
      31, 2009 and 2008
            
            
            173,683,310
            
            
            
            182,948,292Premises
      and equipment
            
            
            5,766,858
            
            
            
            6,106,746Federal
      Home Loan Bank stock
            
            
            1,108,606
            
            
            
            1,108,606Foreclosed
      assets held for sale, net
            
            
            382,879
            
            
            
            769,467Cash
      surrender value of life insurance
            
            
            4,094,663
            
            
            
            3,907,339Interest
      receivable
            
            
            1,988,394
            
            
            
            2,344,502Deferred
      income taxes
            
            
            724,139
            
            
            
            891,731Mortgage
      servicing rights, net of valuation allowance of $156,442 and $428,030 as
      of December 31, 2009 and 2008
            
            
            850,313
            
            
            
            545,494Goodwill
            
            
            2,726,567
            
            
            
            2,726,567Other
      assets
            
            
            2,679,600
            
            
            
            718,645Total
      assets
            
            $
            288,846,472
            
            
            $
            288,275,334




See Notes to Consolidated Financial
Statements




22


Jacksonville
Bancorp, Inc.
 Consolidated
Balance Sheets
 December
31, 2009 and 2008





Liabilities
and Stockholders’ Equity




2009
            
            
            2008LiabilitiesDepositsDemand
            
            $
            20,668,169
            
            
            $
            19,526,137Savings,
      NOW and money market
            
            
            88,412,078
            
            
            
            78,129,554Time
            
            
            145,619,976
            
            
            
            140,495,537Total
      deposits
            
            
            254,700,223
            
            
            
            238,151,228Short-term
      borrowings
            
            
            3,789,453
            
            
            
            7,633,079Federal
      Home Loan Bank advances
            
            
            —
            
            
            
            13,500,000Deferred
      compensation
            
            
            2,826,227
            
            
            
            2,576,290Advances
      from borrowers for taxes and insurance
            
            
            508,356
            
            
            
            445,077Interest
      payable
            
            
            734,903
            
            
            
            925,661Other
      liabilities
            
            
            1,023,890
            
            
            
            784,559Total
      liabilities
            
            
            263,583,052
            
            
            
            264,015,894Stockholders’
      EquityPreferred
      stock, $.01 par value, authorized 10,000,000 shares;none
      issued and outstanding
            
            
            —
            
            
            
            —Common
      stock, $.01 par value; authorized 20,000,000 shares; issued 1,987,904
      shares
            
            
            19,879
            
            
            
            19,879Additional
      paid-in capital
            
            
            6,634,591
            
            
            
            6,634,108Retained
      earnings – substantially restricted
            
            
            18,399,506
            
            
            
            17,268,043Accumulated
      other comprehensive income
            
            
            695,825
            
            
            
            337,410Treasury
      stock, at cost
              Common;
      2009 – 67,087 shares
            
            
            (486,381
            )
            
            
            —Total
      stockholders’ equity
            
            
            25,263,420
            
            
            
            24,259,440Total
      liabilities and stockholders’ equity
            
            $
            288,846,472
            
            
            $
            288,275,334




See Notes to Consolidated
Financial Statements




23





Jacksonville
Bancorp, Inc.


Consolidated
Statements of Income
 Years
Ended December 31, 2009 and 2008


2009
            
            
            2008Interest
      and Fee IncomeLoans,
      including fees
            
            $
            11,591,716
            
            
            $
            12,026,500Debt
      securitiesTaxable
            
            
            503,211
            
            
            
            1,094,248Tax-exempt
            
            
            1,050,667
            
            
            
            977,332Mortgage-backed
      securities
            
            
            1,262,357
            
            
            
            1,579,923Other
            
            
            11,966
            
            
            
            230,333Total
      interest income
            
            
            14,419,917
            
            
            
            15,908,336Interest
      ExpenseDeposits
            
            
            5,315,273
            
            
            
            7,168,601Short-term
      borrowings
            
            
            12,452
            
            
            
            78,045Federal
      Home Loan Bank advances
            
            
            103,803
            
            
            
            469,771Total
      interest expense
            
            
            5,431,528
            
            
            
            7,716,417Net
      Interest Income
            
            
            8,988,389
            
            
            
            8,191,919Provision
      for Loan Losses
            
            
            2,575,000
            
            
            
            310,000Net
      Interest Income After Provision for Loan Losses
            
            
            6,413,389
            
            
            
            7,881,919Noninterest
      IncomeFiduciary
      activities
            
            
            166,138
            
            
            
            220,542Commission
      income
            
            
            869,368
            
            
            
            1,021,228Service
      charges on deposit accounts
            
            
            895,264
            
            
            
            792,940Mortgage
      banking operations, net
            
            
            736,681
            
            
            
            195,743Net
      realized gains on sales of available-for-sale securities
            
            
            588,959
            
            
            
            33,324Loan
      servicing fees
            
            
            359,813
            
            
            
            352,477Increase
      in cash surrender value of life insurance
            
            
            178,676
            
            
            
            162,827Other
            
            
            414,195
            
            
            
            381,842Total
      noninterest income
            
            
            4,209,094
            
            
            
            3,160,923




See Notes to Consolidated
Financial Statements




24





Jacksonville
Bancorp, Inc.


Consolidated
Statements of Income
 Years
Ended December 31, 2009 and 2008


2009
            
            
            2008Noninterest
      ExpenseSalaries
      and employee benefits
            
            $
            5,579,322
            
            
            $
            5,525,628Occupancy
      and equipment
            
            
            1,075,728
            
            
            
            1,101,671Data
      processing
            
            
            356,666
            
            
            
            427,838Professional
            
            
            230,699
            
            
            
            179,517Marketing
            
            
            112,273
            
            
            
            124,321Postage
      and office supplies
            
            
            287,671
            
            
            
            310,119Deposit
      insurance premium
            
            
            555,223
            
            
            
            46,943Impairment
      (recovery) on mortgage servicing rights asset
            
            
            (122,790
            )
            
            
            428,030Other
            
            
            1,050,935
            
            
            
            1,076,670Total
      noninterest expense
            
            
            9,125,727
            
            
            
            9,220,737Income
      Before Income Taxes
            
            
            1,496,756
            
            
            
            1,822,105Provision
      for Income Taxes
            
            
            100,589
            
            
            
            304,183Net
      Income
            
            $
            1,396,167
            
            
            $
            1,517,922Basic
      Earnings Per Share
            
            $
            0.72
            
            
            $
            0.76Diluted
      Earnings Per Share
            
            $
            0.72
            
            
            $
            0.76Cash
      Dividends Per Share
            
            $
            0.30
            
            
            $
            0.30




See Notes to Consolidated Financial
Statements




25
 
 Jacksonville
Bancorp, Inc.
 Consolidated
Statements of Stockholders’ Equity
 Years
Ended December 31, 2009 and 2008


AdditionalIssued
      Common Stock
            
            
            Paid-inShares
            
            
            Amount
            
            
            CapitalBalance,
      January 1, 2008
            
            
            1,986,804
            
            
            $
            19,868
            
            
            $
            6,621,359Comprehensive
      incomeNet
      income
            
            
            —
            
            
            
            —
            
            
            
            —Change
      in unrealized appreciation on available-for-sale securities, net of
      taxes
            
            
            —
            
            
            
            —
            
            
            
            —Total
      comprehensive incomeStock
      option compensation expense
            
            
            —
            
            
            
            —
            
            
            
            1,760Dividends
      on common stock, $.30 per share
            
            
            —
            
            
            
            —
            
            
            
            —Stock
      options exercised
            
            
            1,100
            
            
            
            11
            
            
            
            10,989Balance,
      December 31, 2008
            
            
            1,987,904
            
            
            
            19,879
            
            
            
            6,634,108Comprehensive
      incomeNet
      income
            
            
            —
            
            
            
            —
            
            
            
            —Change
      in unrealized appreciation on available-for-sale securities, net of
      taxes
            
            
            —
            
            
            
            —
            
            
            
            —Total
      comprehensive incomePurchase
      of treasury stock (67,087 shares)
            
            
            —
            
            
            
            —
            
            
            
            —Stock
      option compensation expense
            
            
            —
            
            
            
            —
            
            
            
            483Dividends
      on common stock, $.30 per share
            
            
            —
            
            
            
            —
            
            
            
            —Balance,
      December 31, 2009
            
            
            1,987,904
            
            
            $
            19,879
            
            
            $
            6,634,591




See Notes to Consolidated
Financial Statements




26





Jacksonville
Bancorp, Inc.
 Consolidated
Statements of Stockholders’ Equity
 Years
Ended December 31, 2009 and 2008




AccumulatedOtherRetained
            
            
            Comprehensive
            
            
            TreasuryEarnings
            
            
            Income
      (Loss)
            
            
            Stock
            
            
            TotalBalance,
      January 1, 2008
            
            $
            16,034,800
            
            
            $
            (58,136
            )
            
            $
            —
            
            
            $
            22,617,891Comprehensive
      incomeNet
      income
            
            
            1,517,922
            
            
            
            —
            
            
            
            —
            
            
            
            1,517,922Change
      in unrealized appreciation on available-for-sale securities, net of
      taxes
            
            
            —
            
            
            
            395,546
            
            
            
            —
            
            
            
            395,546Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,913,468Stock
      option compensation expense
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,760Dividends
      on common stock, $.30 per share
            
            
            (284,679
            )
            
            
            —
            
            
            
            —
            
            
            
            (284,679
            )Stock
      options exercised
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            11,000Balance,
      December 31, 2008
            
            
            17,268,043
            
            
            
            337,410
            
            
            
            —
            
            
            
            24,259,440Comprehensive
      incomeNet
      income
            
            
            1,396,167
            
            
            
            —
            
            
            
            —
            
            
            
            1,396,167Change
      in unrealized appreciation on available-for-sale securities, net of
      taxes
            
            
            —
            
            
            
            358,415
            
            
            
            —
            
            
            
            358,415Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,754,582Purchase
      of treasury stock (67,087 shares)
            
            
            —
            
            
            
            —
            
            
            
            (486,381
            )
            
            
            (486,381
            )Stock
      option compensation expense
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            483Dividends
      on common stock, $.30 per share
            
            
            (264,704
            )
            
            
            —
            
            
            
            —
            
            
            
            (264,704
            )Balance,
      December 31, 2009
            
            $
            18,399,506
            
            
            $
            695,825
            
            
            $
            (486,381
            )
            
            $
            25,263,420




See Notes to Consolidated
Financial Statements




27





Jacksonville
Bancorp, Inc.
 Consolidated
Statements of Cash Flows
 Years
Ended December 31, 2009 and 2008




2009
            
            
            2008Operating
      ActivitiesNet
      income
            
            $
            1,396,167
            
            
            $
            1,517,922Items
      not requiring (providing) cashDepreciation
      and amortization
            
            
            406,469
            
            
            
            431,697Provision
      for loan losses
            
            
            2,575,000
            
            
            
            310,000Amortization
      of premiums and discounts on securities
            
            
            955,364
            
            
            
            83,720Amortization
      of core deposit intangibles
            
            
            —
            
            
            
            39,862Deferred
      income taxes
            
            
            (17,047
            )
            
            
            (290,430
            )Net
      realized gains on available-for-sale securities
            
            
            (588,959
            )
            
            
            (33,324
            )Amortization
      of mortgage servicing rights
            
            
            507,313
            
            
            
            196,403Impairment
      (recovery) of mortgage servicing rights asset
            
            
            (122,790
            )
            
            
            428,030Increase
      in cash surrender value of life insurance
            
            
            (187,324
            )
            
            
            (171,476
            )Gains
      on sales of foreclosed assets
            
            
            (11,701
            )
            
            
            (18,242
            )Gain
      on sale of premises and equipment
            
            
            —
            
            
            
            (6,517
            )Stock
      option compensation expense
            
            
            483
            
            
            
            1,760Tax
      benefit relating to stock options exercised
            
            
            —
            
            
            
            —Changes
      inInterest
      receivable
            
            
            356,108
            
            
            
            (239,408
            )Other
      assets
            
            
            (1,990,045
            )
            
            
            (354,574
            )Interest
      payable
            
            
            (190,758
            )
            
            
            (322,685
            )Other
      liabilities
            
            
            523,316
            
            
            
            (212,431
            )Origination
      of loans held for sale
            
            
            (66,814,834
            )
            
            
            (29,807,986
            )Proceeds
      from sales of loans held for sale
            
            
            66,699,701
            
            
            
            30,076,869Net
      cash provided by operating activities
            
            
            3,496,463
            
            
            
            1,629,190Investing
      ActivitiesPurchases
      of available-for-sale securities
            
            
            (101,825,114
            )
            
            
            (69,456,634
            )Proceeds
      from maturities of available-for-sale securities
            
            
            43,966,667
            
            
            
            50,922,663Proceeds
      from the sales of available-for-sale investments and other
      investments
            
            
            57,378,873
            
            
            
            22,009,669Net
      change in loans
            
            
            6,600,703
            
            
            
            (7,901,707
            )Purchase
      of premises and equipment
            
            
            (66,581
            )
            
            
            (295,828
            )Proceeds
      from sales of premises and equipment
            
            
            —
            
            
            
            32,795Proceeds
      from the sale of foreclosed assets
            
            
            487,568
            
            
            
            201,880Purchase
      of bank-owned life insurance
            
            
            —
            
            
            
            (549,635
            )Net
      cash provided by (used in) investing activities
            
            
            6,542,116
            
            
            
            (5,036,797
            )




See Notes to Consolidated
Financial Statements




28





Jacksonville
Bancorp, Inc.
 Consolidated
Statements of Cash Flows
 Years
Ended December 31, 2009 and 2008




2009
            
            
            2008Financing
      ActivitiesNet
      increase in demand deposits, money market, NOW and savings
      accounts
            
            $
            11,424,556
            
            
            $
            2,267,974Net
      increase (decrease) in certificates of deposit
            
            
            5,124,439
            
            
            
            (9,837,497
            )Net
      increase (decrease) in short-term borrowings
            
            
            (3,843,626
            )
            
            
            2,697,045Proceeds
      from Federal Home Loan Bank advances
            
            
            —
            
            
            
            8,500,000Repayment
      of Federal Home Loan Bank advances
            
            
            (13,500,000
            )
            
            
            (5,000,000
            )Net
      increase in advances from borrowers for taxes and
insurance
            
            
            63,279
            
            
            
            23,588Proceeds
      from stock options exercised
            
            
            —
            
            
            
            11,000Purchase
      and retirement of common stock
            
            
            —
            
            
            
            —Purchase
      of treasury stock
            
            
            (486,381
            )
            
            
            —Dividends
      paid
            
            
            (269,660
            )
            
            
            (284,679
            )Net
      cash provided by (used in) financing activities
            
            
            (1,487,393
            )
            
            
            (1,622,569
            )Increase
      (Decrease) in Cash and Cash Equivalents
            
            
            8,551,186
            
            
            
            (5,030,176
            )Cash
      and Cash Equivalents, Beginning of Year
            
            
            7,145,288
            
            
            
            12,175,464Cash
      and Cash Equivalents, End of Year
            
            $
            15,696,474
            
            
            $
            7,145,288Supplemental
      Cash Flows InformationInterest
      paid
            
            $
            5,622,286
            
            
            $
            8,039,102Income
      taxes paid
            
            $
            559,000
            
            
            $
            551,600Sale
      and financing of foreclosed assets
            
            $
            218,636
            
            
            $
            156,890Real
      estate acquired in settlement of loans
            
            $
            307,915
            
            
            $
            666,822Dividends
      declared not paid
            
            $
            66,157
            
            
            $
            71,113Loans
      held for sale transferred to loans
            
            $
            —
            
            
            $
            —




See Notes to Consolidated Financial
Statements


29
 
 Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008


Note
      1:
            Nature of Operations
      and Summary of Significant Accounting Policies




Nature
of Operations




Jacksonville
Bancorp, Inc. (the “Company”) was incorporated under Federal law on May 3,
2002.  The Company is a savings and loan holding company and its sole
business activity is the 100% ownership of Jacksonville Savings Bank (the
“Bank”).  As part of our reorganization into the two-tier mutual
holding company form of ownership, the shareholder interests in the Bank were
converted into interests of the Company.  The Bank was founded in 1916
as an Illinois-chartered savings and loan association and converted to an
Illinois-chartered savings bank in 1992.  The Bank is headquartered in
Jacksonville, Illinois and operates six branches in addition to its main
office.  The Bank’s deposits have been federally insured since 1945 by
the Federal Deposit Insurance Corporation (“FDIC”).  The Bank has been
a member of the Federal Home Loan Bank (“FHLB”) System since 1932.




On April
20, 1995, the Bank reorganized into the mutual holding company form of
ownership, pursuant to which the Bank amended its charter from an
Illinois-chartered mutual savings bank into an Illinois-chartered mutual holding
company (“MHC”), Jacksonville Bancorp, MHC.  On December 28, 2000,
Jacksonville Bancorp, MHC, converted from an Illinois-chartered mutual holding
company to a federally-chartered mutual holding company.




The Bank
is a community-oriented savings bank engaged primarily in the business of
attracting retail deposits from the general public in the Bank’s market area and
using such funds together with borrowings and funds from other sources to
originate consumer loans and mortgage loans secured by one- to four-family
residential real estate.  The Bank also originates commercial real
estate loans, multi-family real estate loans, commercial business loans, and
agricultural loans.  When possible, the Bank emphasizes the
origination of mortgage loans with adjustable interest rates (“ARM”), as well as
fixed-rate balloon loans with terms ranging from three to five years, consumer
loans, which are primarily home equity loans secured by second mortgages,
commercial business loans, and agricultural loans.  The Bank also
offers trust and investment services.  The investment center, Berthel
Fisher and Company Financial Services, Inc., is operated through the Bank’s
wholly-owned subsidiary, Financial Resources Group, Inc.




The
Company is subject to competition from other financial institutions and
nonfinancial institutions providing financial products.  Additionally,
the Company is subject to the regulations of certain regulatory agencies and
undergoes periodic examinations by those regulatory agencies.




The
significant accounting and reporting policies of the Company and its subsidiary
follow:




Principles
of Consolidation and Financial Statement Presentation




The
consolidated financial statements include the accounts of the Company, the Bank
and the Bank’s wholly owned subsidiary, Financial Resources Group,
Inc.  Significant intercompany accounts and transactions have been
eliminated in consolidation.  Based on the Company’s approach to
decision making, it has decided that its business is comprised of a single
segment.




30




Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008


The
consolidated financial statements of the Company have been prepared in
conformity with accounting principles generally accepted in the United States of
America and conform to predominate practice within the banking
industry.




Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those
estimates.




Material
estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses, fair value of securities,
Federal Home Loan Bank stock impairment, valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans, valuation of loan
servicing rights, valuation of deferred tax assets and goodwill
impairment.




Cash
Equivalents




The
Company considers all liquid investments with original maturities of three
months or less to be cash equivalents.  At December 31, 2009 and 2008,
cash equivalents consisted primarily of federal funds sold and interest-earning
demand deposits in banks.




The
financial institutions holding the Company’s cash accounts is participating in
the FDIC’s Transaction Account Guarantee Program.  Under that program,
through June 30, 2010, all noninterest-bearing transaction accounts are fully
guaranteed by the FDIC for the entire amount in the account.




Effective
October 3, 2008, the FDIC’s insurance limits increased to
$250,000.  The increase in federally insured limits is currently set
to expire December 31, 2013, at which time deposit insurance limits will be
reduced to $100,000.  At December 31, 2009, the Company’s
interest-bearing cash accounts did not exceed federally insured
limits.




Securities




Available-for-sale
securities, which include any security for which the Company has no immediate
plan to sell but which may be sold in the future, are carried at fair
value.  Unrealized gains and losses are recorded, net of related
income tax effects, in other comprehensive income.




Amortization
of premiums and accretion of discounts are recorded as interest income from
securities.  Realized gains and losses are recorded as net security
gains (losses).  Gains and losses on sales of securities are
determined on the specific-identification method.




31


Jacksonville
Bancorp, Inc.


Notes
to Consolidated Financial Statements


Years
Ended December 31, 2009 and 2008




Other
Investments




Other
investments at December 31, 2009 and 2008 include local municipal bonds and
equity investments in local community development organizations.  The
municipal bonds mature ratably through the year 2020.  These
securities have no readily ascertainable market value and are carried at
cost.




Loans
Held for Sale




Mortgage
loans originated and intended for sale in the secondary market are carried at
the lower of cost or fair value in the aggregate.  Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
noninterest income.  Gains and losses on loan sales are recorded in
noninterest income, and direct loan origination costs and fees are deferred at
origination of the loan and are recognized in noninterest income upon sale of
the loan.




Loans




Loans
that management has the intent and ability to hold for the foreseeable future or
until maturity or payoffs are reported at their outstanding principal balances
adjusted for unearned income, charge-offs, the allowance for loan losses, any
unamortized deferred fees or costs on originated loans.




For loans
amortized at cost, interest income is accrued based on the unpaid principal
balance.  Loan origination fees, net of certain direct origination
costs, as well as premiums and discounts, are deferred and amortized as a level
yield adjustment over the respective term of the loan.




The
accrual of interest on loans is generally discontinued at the time the loan is
90 days past due unless the credit is well-secured and in process of
collection.  Past due status is passed on contractual terms of the
loan.  In all cases, loans are placed on nonaccrual or charged off at
an earlier date if collection of principal or interest is considered
doubtful.




All
interest accrued but not collected for loans that are placed on nonaccrual or
charged off are reversed against interest income.  The interest on
these loans is accounted for on the cash-basis or cost-recovery method, until
qualifying for return to accrual.  Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.




Allowance
for Loan Losses




The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to income.  Loan
losses are charged against the allowance when management believes collectibility
of the principal is unlikely.  Subsequent recoveries, if any, are
credited to the allowance.




32


Jacksonville
Bancorp, Inc.


Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008




The
allowance for loan losses is evaluated on a regular basis by management and is
based upon management’s periodic review of the collectibility of the loans in
light of historical experience, 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.  The
general component covers nonclassified loans and is based on historical
charge-off experience and expected loss given default derived from the Company’s
internal risk rating process.  Other adjustments may be made to the
allowance for pools of loans after an assessment of internal or external
influences on credit quality that are not fully reflected in the historical loss
or risk rating data.




A loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due.  Loans that
experience insignificant payment delays and payment shortfalls generally are not
classified as impaired.  Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s
prior payment record and the amount of the shortfall in relation to the
principal and interest owed.  Impairment is measured on a loan-by-loan
basis for commercial and construction 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, the Company does 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.




Premises
and Equipment




Depreciable
assets are stated at cost less accumulated depreciation.  Depreciation
is charged to expense using the straight-line method over the estimated useful
lives of the assets.




33




Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008




The
estimated useful lives for each major depreciable classification of premises and
equipment are as follows:




Buildings and improvements
            35-40
      yearsEquipment
            3-5
      years




Federal
Home Loan Bank Stock




Federal
Home Loan Bank stock is a required investment for institutions that are members
of the Federal Home Loan Bank system.  The required investment in the
common stock is based on a predetermined formula.




The
Company owns $1,108,606 of Federal Home Loan Bank stock as of December 31, 2009
and 2008.  The Federal Home Loan Bank of Chicago (FHLB) is operating
under a Cease and Desist Order from their regulator, the Federal Housing Finance
Board.  The order prohibits capital stock repurchases and redemptions
until a time to be determined by the Federal Housing Finance
Board.  The FHLB will continue to provide liquidity and funding
through advances.  With regard to dividends, the FHLB will continue to
assess their dividend capacity each quarter and make appropriate request for
approval.  The FHLB did not pay a dividend during 2009 or
2008.  Management performed an analysis and deemed the cost method
investment in FHLB stock is ultimately recoverable and therefore not
impaired.




Foreclosed
Assets Held for Sale




Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value at the date of foreclosure, establishing a new
cost basis.  Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of carrying
amount or fair value less cost to sell.  Revenue and expenses from
operations and changes in the valuation allowance are included in income or
expense from foreclosed assets.




Bank-owned
Life Insurance




Bank-owned
life insurance policies are reflected on the consolidated balance sheets at the
estimated cash surrender value.  Changes in the cash surrender value
are reflected in noninterest income in the consolidated statements of
income.




Goodwill




Goodwill
is tested annually for impairment.  If the implied fair value of
goodwill is lower than its carrying amount, a goodwill impairment is indicated
and goodwill is written down to its implied fair value.  Subsequent
increases in goodwill value are not recognized in the financial
statements.  The goodwill was not deemed impaired as of December 31,
2009 or 2008.






34




Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008





Intangible
Assets




Intangible
assets are being amortized on the straight-line basis over periods up to eight
years.  Such assets are periodically evaluated as to the
recoverability of their carrying value.  The intangibles were fully
amortized during 2008.




Mortgage
Servicing Rights




Mortgage
servicing assets are recognized separately when rights are acquired through
purchase or through sale of financial assets.  Under the servicing
assets and liabilities accounting guidance (ASC 860-50), servicing rights
resulting from the sale or securitization of loans originated by the Company are
initially measured at fair value at the date of transfer.  Fair value
is based on market prices for comparable mortgage servicing contracts, when
available, or alternatively, is based on a valuation model that calculates the
present value of estimated future net servicing income.  The valuation
model incorporates assumptions that market participants would use in estimating
future net servicing income, such as the cost to service, the discount rate, the
custodial earnings rate, an inflation rate, ancillary income, prepayment speeds
and default rates and losses.  These variables change from quarter to
quarter as market conditions and projected interest rates change.




The
Company subsequently measures each class of servicing asset using either the
fair value or the amortization method.  The Company has elected to
subsequently measure the mortgage servicing rights under the amortization
method.  Under the amortization method, servicing rights are amortized
in proportion to and over the period of estimated net servicing
income.  The amortized assets are assessed for impairment or increased
obligation based on fair value at each reporting date.  Each class of
separately recognized servicing assets subsequently measured using the
amortization method are evaluated and measured for
impairment.  Impairment is determined by stratifying rights into
tranches based on predominant characteristics, such as interest rate, loan type
and investor type.  Impairment is recognized through a valuation
allowance for an individual tranche, to the extent that fair value is less than
the carrying amount of the servicing assets for that tranche.  The
valuation allowance is adjusted to reflect changes in the measurement of
impairment after the initial measurement of impairment.  Changes in
valuation allowances are reported as a separate line item in noninterest expense
on the income statement.  Fair value in excess of the carrying amount
of servicing assets for that stratum is not recognized.




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 in 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.




Treasury
Stock




Common
stock shares repurchased are recorded at cost.  Cost of shares retired
or reissued is determined using the first-in, first-out method.




35


Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008




Stock
Options




At
December 31, 2009 and 2008, the Company has a stock-based employee compensation
plan, which is described more fully in Note 15.




Income
Taxes




The
Company accounts for income taxes in accordance with income tax accounting
guidance (ASC 740, Income
Taxes).  The income tax accounting guidance results in two
components of income tax expense:  current and
deferred.  Current income tax expense reflects taxes to be paid or
refunded for the current period by applying the provisions of the enacted tax
law to the taxable income or excess of deductions over revenues.  The
Company determines deferred income taxes using the liability (or balance sheet)
method.  Under this method, the net deferred tax asset or liability is
based on the tax effects of the differences between the book and tax bases of
assets and liabilities, and enacted changes in tax rates and laws are recognized
in the period in which they occur.




Deferred
income tax expense results from changes in deferred tax assets and liabilities
between periods.  Deferred tax assets are recognized if it is more
likely than not, based on the technical merits, that the tax position will be
realized or sustained upon examination.  The term more likely than not
means a likelihood of more than 50 percent; the terms examined and upon
examination also include resolution of the related appeals or litigation
processes, if any.  A tax position that meets the more-likely-than-not
recognition threshold is initially and subsequently measured as the largest
amount of tax benefit that has a greater than 50 percent likelihood of being
realized upon settlement with a taxing authority that has full knowledge of all
relevant information.  The determination of whether or not a tax
position has met the more-likely-than-not recognition threshold considers the
facts, circumstances and information available at the reporting date and is
subject to the management’s judgment.  Deferred tax assets are reduced
by a valuation allowance if, based on the weight of evidence available, it is
more likely than not that some portion or all of a deferred tax asset will not
be realized.




The
Company recognizes interest and penalties on income taxes as a component of
income tax expense.




The
Company files consolidated income tax returns with its subsidiary.




Earnings
Per Share




Basic
earnings per share represents income available to common stockholders divided by
the weighted-average number of common shares outstanding during each
period.  Diluted earnings per share reflects additional potential
common shares that would have been outstanding if dilutive potential common
shares had been issued.  Potential common shares that may be issued by
the Company relate solely to outstanding stock options and are determined using
the treasury stock method.




Treasury
stock shares are not deemed outstanding for earnings per share
calculations.




36


Jacksonville
Bancorp, Inc.


Notes
to Consolidated Financial Statements


Years
Ended December 31, 2009 and 2008




Comprehensive
Income




Comprehensive
income consists of net income and other comprehensive income, net of applicable
income taxes.  Other comprehensive income includes unrealized
appreciation (depreciation) on available-for-sale securities.




Trust
Assets




Assets
held in fiduciary or agency capacities are not included in the consolidated
balance sheets since such items are not assets of the Company.  Fees
from trust activities are recorded as revenue over the period in which the
service is provided.  Fees are a function of the market value of
assets managed and administered, the volume of transactions, and fees for other
services rendered, as set forth in the underlying client agreement with the
Trust Department.  This revenue recognition involves the use of
estimates and assumptions, including components that are calculated based on
estimated asset valuations and transaction volumes.  Generally, the
actual trust fee is charged to each account on a quarterly basis.  Any
out of pocket expenses or services not typically covered by the fee schedule for
trust activities are charged directly to the trust account on a gross basis as
trust revenue is incurred. The Company managed or administered 100 and 106 trust
accounts with assets totaling approximately $50.1million and $48.9 million at
December 31, 2009 and 2008, respectively.




Reclassifications




Certain
reclassifications have been made to the 2008 financial statements to conform to
the 2009 financial statement presentation.  These reclassifications
had no effect on net income or stockholders’ equity.




Recent
and Future Accounting Requirements




In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 168, “The
FASB Accounting Standards Codification TM and the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No.
162.”  Effective for financial statements issued for interim
and annual periods ending after September 15, 2009, the FASB Accounting
Standards Codification TM (“ASC”) is now the source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under the authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants.  The ASC
superseded all then-existing non-SEC accounting and reporting
standards.  All other non-grandfathered non-SEC accounting literature
not included in the ASC became non-authoritative.  Following this
Statement, the FASB will no longer issue new standards in the form of
Statements, FASB Staff Positions (“FSP”) or Emerging Issues Task Force
Abstracts.  Instead, it will issue Accounting Standards
Updates.  The FASB will not consider Accounting Standards Updates as
authoritative in their own right.  Accounting Standards Updates will
serve only to update the ASC, provide background information about the guidance,
and provide the bases for conclusions on the change(s) in the
ASC.  This SFAS was codified within ASC 105.  The impact of
adoption was not material.




37




Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008


In April
2009, the FASB issued FSP FAS 157-4, “Determining
Fair Value When the Volume and Level of Activity for the Asset
or  Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly,” which was codified into ASC
820.  This FSP provides additional guidance for estimating fair value
in accordance with SFAS No. 157, “Fair
Value Measurements,” when the volume and level of activity for the asset
or liability have significantly decreased.  This FSP also includes
guidance on identifying circumstances that indicate a transaction is not
orderly.




In April
2009, the FASB issued FSP FAS 115-2 and FSP FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments,” which were
codified into ASC 320.  This FSP amends the
other-than-temporary-impairment (“OTTI”) guidance in U.S. GAAP for debt
securities to make the guidance more operational and to improve the presentation
and disclosure of OTTI on debt and equity securities in the financial
statements.  This FSP does not amend existing recognition and
measurement guidance related to OTTI of equity securities.  FSP FAS
115-2 and 124-2 was effective for interim and annual periods ending after June
15, 2009, with early adoption permitted for periods ending after March 15, 2009
if FSP FAS 157-4 was adopted early as well.  The Company adopted FSP
FAS 115-2 and 124-2 and FSP FAS 157-4 during 2009 and there was no material
impact to the financial statements.




In April
2009, the FASB issued FSP FAS 141(R)-1, “Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies” which was codified into ASC 805.  This FSP
amends and clarifies SFAS No. 141(R), “Business
Combinations,” to address application issues raised by preparers,
auditors, and members of the legal profession on initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business
combination.  This FSP was effective for assets or liabilities arising
from contingencies in business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.  There has been no impact during 2009 from
adoption of FSP FAS 141(R)-1 on January 1, 2009.




38




Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008


Newly
Issued But Not Yet Effective Accounting Standards




In June
2009, the FASB issued SFAS No. 166, “Accounting
for Transfers of Financial Assets—an amendment of FASB Statement No. 140”
which was codified into ASC Topic 860.  Topic 860 seeks to improve the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets.  Topic 860 addresses (1) practices
that have developed since the issuance of SFAS No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,” that are not consistent with the original intent and key
requirements of that Statement and (2) concerns of financial statement users
that many of the financial assets (and related obligations) that have been
derecognized should continue to be reported in the financial statements of
transferors.  This standard must be applied as of the beginning of
each reporting entity’s first annual reporting period that begins after November
15, 2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter.  Earlier application
is prohibited.  This standard must be applied to transfers occurring
on or after the effective date.  The impact of adoption is not
expected to be material.




In June
2009, the FASB issued SFAS No. 167, “Amendments
to FASB Interpretation No. 46(R)”, which was codified into ASC Topic
810.  Topic 810 seeks to improve financial reporting by enterprises
involved with variable interest entities by addressing (1) the effects on
certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation
of Variable Interest Entities,” as a result of the elimination of the
qualifying special-purpose entity concept in SFAS No. 166, and (2) constituent
concerns about the application of certain key provisions of Interpretation
46(R), including those in which the accounting and disclosures under the
Interpretation do not always provide timely and useful information about an
enterprise’s involvement in a variable interest entity. This Statement shall be
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter.  Earlier application is prohibited.  The impact
of adoption is not expected to be material.




Note
      2:
            Restriction
      on Cash and Due From Banks




The
Company is required to maintain reserve funds in cash and/or on deposit with the
Federal Reserve Bank.  The reserve required at December 31, 2009 and
2008, was $1,160,000 and $1,054,000, respectively.




39




Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 
 Note
      3:
              Securities
  The
amortized cost and approximate fair values, together with gross unrealized gains
and losses, of securities are as follows:
  AmortizedCost
              
              
              GrossUnrealizedGains
              
              
              GrossUnrealizedLosses
              
              
              Fair
      ValueAvailable-for-saleSecuritiesDecember
      31, 2009:U.S.
      Government and agencies
              
              $
              9,036,752
              
              
              $
              70,820
              
              
              $
              (27,556
              )
              
              $
              9,080,016Mortgage-backed
      securities (Government-sponsored enterprises -
residential)
              
              
              40,428,279
              
              
              
              610,634
              
              
              
              (54,518
              )
              
              
              40,984,395Municipal
      bonds
              
              
              27,661,381
              
              
              
              531,363
              
              
              
              (76,462
              )
              
              
              28,116,282$
              77,126,412
              
              
              $
              1,212,817
              
              
              $
              (158,536
              )
              
              $
              78,180,693December
      31, 2008:U.S.
      Government and agencies
              
              $
              19,472,065
              
              
              $
              361,545
              
              
              $
              —
              
              
              $
              19,833,610Mortgage-backed
      securities (Government-sponsored enterprises -
residential)
              
              
              27,384,188
              
              
              
              410,931
              
              
              
              —
              
              
              
              27,795,119Municipal
      bonds
              
              
              30,066,572
              
              
              
              283,150
              
              
              
              (544,399
              )
              
              
              29,805,323$
              76,922,825
              
              
              $
              1,055,626
              
              
              $
              (544,399
              )
              
              $
              77,434,052
  40
 Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 The
amortized cost and fair value of available-for-sale securities at
December 31, 2009, by contractual maturity, are shown
below.  Expected maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations with or without
call or prepayment penalties.
  Available-for-saleAmortized
                Cost
              
              
              Fair
                ValueWithin
      one year
              
              $
              270,508
              
              
              $
              271,451One
      to five years
              
              
              3,627,155
              
              
              
              3,758,162Five
      to ten years
              
              
              18,617,963
              
              
              
              18,862,007After
      ten years
              
              
              14,182,507
              
              
              
              14,304,67836,698,133
              
              
              
              37,196,298Mortgage-backed
      securities
              
              
              40,428,279
              
              
              
              40,984,395Totals
              
              $
              77,126,412
              
              
              $
              78,180,693
  The
carrying value of securities pledged as collateral, to secure public deposits
and for other purposes, was $31,178,386 at December 31, 2009 and $43,048,336 at
December 31, 2008.
  The book
value of securities sold under agreements to repurchase amounted to $3,789,453
and $7,633,079 at December 31, 2009 and 2008, respectively.
  Gross
gains of $588,959 and $48,226 and gross losses of $0 and $14,902 resulting from
sales of available-for-sale securities were realized for 2009 and 2008,
respectively.  The tax provision applicable to these net realized
gains amounted to $200,246 and $11,330, respectively.
  Certain
investments in debt securities are reported in the financial statements at an
amount less than their historical cost.  Total fair value of these
investments at December 31, 2009 and 2008, was $17,438,959 and $13,971,751,
which is approximately 22% and 18%, respectively, of the Company’s
available-for-sale investment portfolio.  The declines primarily
resulted from recent changes in market interest rates.
  Management
believes the declines in fair value for these securities are
temporary.
  41
 
 Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
  The
following table shows the Company’s investments’ gross unrealized losses and
fair value of the Company’s investments with unrealized losses that are not
deemed to be other-than-temporarily impaired, aggregated by investment category
and length of time that individual securities have been in a continuous
unrealized loss position at December 31, 2009 and 2008:
  December
      31, 2009Less
      than 12 Months
              
              
              12
      Months or More
              
              
              TotalDescription
      of
                Securities
              
              Fair
      Value
              
              
              Unrealized
                Losses
              
              
              Fair
      Value
              
              
              Unrealized
                Losses
              
              
              Fair
      Value
              
              
              Unrealized
                LossesAvailable-for-sale
      SecuritiesU.S.
      Government and agencies
              
              $
              2,477,539
              
              
              $
              (27,556
              )
              
              $
              —
              
              
              $
              —
              
              
              $
              2,477,539
              
              
              $
              (27,556
              )Mortgage-backed
      securities (Government-sponsoredenterprises -
    residential)
              
              
              7,435,781
              
              
              
              (54,518
              )
              
              
              —
              
              
              
              —
              
              
              
              7,435,781
              
              
              
              (54,518
              )Municipal
      bonds
              
              
              7,525,639
              
              
              
              (76,462
              )
              
              
              —
              
              
              
              —
              
              
              
              7,525,639
              
              
              
              (76,462
              )Total
      temporarily impaired securities
              
              $
              17,438,959
              
              
              $
              (158,536
              )
              
              $
              —
              
              
              $
              —
              
              
              $
              17,438,959
              
              
              $
              (158,536
              )
  December
      31, 2008Less
      than 12 Months
              
              
              12
      Months or More
              
              
              TotalDescription
      of
                Securities
              
              Fair
      Value
              
              
              Unrealized
                Losses
              
              
              Fair
      Value
              
              
              Unrealized
                Losses
              
              
              Fair
      Value
              
              
              Unrealized
                LossesAvailable-for-sale
      SecuritiesU.S.
      Government and agencies
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —Mortgage-backed
      securities (Government-sponsoredenterprises -
    residential)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Municipal
      bonds
              
              
              13,971,751
              
              
              
              (544,399
              )
              
              
              —
              
              
              
              —
              
              
              
              13,971,751
              
              
              
              (544,399
              )Total
      temporarily impaired securities
              
              $
              13,971,751
              
              
              $
              (544,399
              )
              
              $
              —
              
              
              $
              —
              
              
              $
              13,971,751
              
              
              $
              (544,399
              )
  As of
December 31, 2009 and 2008, there were no securities with an unrealized loss of
more than 12 consecutive months.
  42
 Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
  Note
      4:
              Loans
      and Allowance for Loan Losses
  Categories
of loans at December 31, include:
  2009
              
              
              2008Mortgage
      loans on real estateResidential
      1-4 family
              
              $
              38,580,967
              
              
              $
              46,806,391Commercial
      and agricultural
              
              
              60,993,795
              
              
              
              61,034,537Second
      mortgages
              
              
              28,119,373
              
              
              
              30,001,775Total
      mortgage loans on real estate
              
              
              127,694,135
              
              
              
              137,842,703Commercial
      loans, including agricultural
              
              
              34,393,456
              
              
              
              35,356,098Consumer
              
              
              6,117,802
              
              
              
              5,841,659Other
              
              
              7,836,674
              
              
              
              5,950,391176,042,067
              
              
              
              184,990,851LessNet
      deferred loan fees
              
              
              68,756
              
              
              
              108,487Allowance
      for loan losses
              
              
              2,290,001
              
              
              
              1,934,072Net
      loans
              
              $
              173,683,310
              
              
              $
              182,948,292
  Activity
in the allowance for loan losses was as follows:
  2009
              
              
              2008Balance,
      beginning of year
              
              $
              1,934,072
              
              
              $
              1,766,229Provision
      charged to expense
              
              
              2,575,000
              
              
              
              310,000Losses
      charged off, net of recoveries of $24,042 for 2009 and $64,025 for
      2008
              
              
              (2,219,071
              )
              
              
              (142,157
              )Balance,
      end of year
              
              $
              2,290,001
              
              
              $
              1,934,072
  The
increase in charge-off amounts in 2009 was mainly due to the deterioration of
two large commercial relationships.  Losses totaling $1,886,820 were
recognized during the year on these two credits.  As of December 31,
2009, the amount related to these relationships which remains in impaired loans
totaled $1,160,850, net of a specific reserve of $379,662.
  The loan
portfolio includes a concentration of loans to agricultural and
agricultural-related industries amounting to $35,065,164 and $32,357,258 as of
December 31, 2009 and 2008, respectively.  Generally, those loans are
collateralized by assets of the borrower.  The loans are expected to
be repaid from cash flows or from proceeds of sale of selected assets of the
borrowers.
  43
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 
 At
December 31, 2009 and 2008, the Company held a concentration in commercial real
estate loans amounting to $34,773,390 and $35,356,098,
respectively.  Included in the commercial loans and commercial real
estate amounts are loan participations purchased collateralized by properties
from an area out of the Company’s normal lending area totaling $11,080,199 and
$7,938,535 as of December 31, 2009 and 2008, respectively.
  A loan is
considered impaired, in accordance with the impairment accounting guidance (ASC
310-10-35-16), when based on current information and events, it is probable the
Company will be unable to collect all amounts due from the borrower in
accordance with the contractual terms of the loan.  Impaired loans
include nonperforming commercial loans but also include loans modified in
troubled debt restructurings where concessions have been granted to borrowers
experiencing financial difficulties.  These concessions could include
a reduction in the interest rate on the loan, payment extensions, forgiveness of
principal, forbearance or other actions intended to maximize
collection.
  Included
in the impaired loans at December 31, 2009 and 2008 are commercial real estate
loans in the amount of $1,073,629 and $0, respectively that
are  troubled debt restructurings.  The Company does not
have any additional troubled debt restructurings that were performing in
accordance with their modified terms as of December 31, 2009 and
2008.  The weighted average interest rate of the troubled debt
restructured loans pre-restructuring was 7.17% and post-restructuring the rate
at December 31, 2009 was 5.34%.
  The
following table presents the Company’s impaired and nonaccrual loans as well as
loans past due 90 days or more and accruing at December 31, 2009 and
2008.
  2009
              
              
              2008Impaired
      loans without a valuation allowance
              
              $
              —
              
              
              $
              206,446Impaired
      loans with a valuation allowance
              
              
              3,713,484
              
              
              
              1,147,702Total
      impaired loans
              
              $
              3,713,484
              
              
              $
              1,354,148Valuation
      allowance related to impaired loans
              
              $
              559,481
              
              
              $
              174,905Total
      nonaccrual loans
              
              $
              1,597,027
              
              
              $
              1,004,881Total
      loans past due 90 days or more and still accruing
              
              $
              356,534
              
              
              $
              185,502
  44
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
  2009
              
              
              2008Average
      investment in impaired loans
              
              $
              5,205,308
              
              
              $
              489,211Interest
      income recognized on impaired loans
              
              $
              226,821
              
              
              $
              114,520Interest
      income recognized on a cash basis on impaired loans
              
              $
              219,969
              
              
              $
              96,459
  Note
      5:
              Premises
      and Equipment
  Major
classifications of premises and equipment, stated at cost, are as
follows:
  2009
              
              
              2008Land
              
              $
              983,276
              
              
              $
              983,276Buildings
      and improvements
              
              
              7,542,073
              
              
              
              7,522,011Equipment
              
              
              4,440,594
              
              
              
              4,401,11312,965,943
              
              
              
              12,906,400Less
      accumulated depreciation
              
              
              (7,199,085
              )
              
              
              (6,799,654
              )Net
      premises and equipment
              
              $
              5,766,858
              
              
              $
              6,106,746
  Note
      6:
              Loan
      Servicing
  Mortgage
loans serviced for others are not included in the accompanying consolidated
balance sheets.  The risks inherent in mortgage servicing assets
relate primarily to changes in prepayments that result from shifts in mortgage
interest rates.  The unpaid principal balance of mortgage loans
serviced for others was $147,962,049 and $132,100,020 at December 31, 2009 and
2008, respectively.
  45
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 The
following summarized the activity pertaining to mortgage servicing rights
measured using the amortization method, along with the aggregate activity in
related valuation allowances:
  2009
              
              
              2008Mortgage
      servicing rightsBalance,
      beginning of year
              
              $
              973,524
              
              
              $
              965,679Additions
              
              
              391,746
              
              
              
              204,248Amortization
              
              
              (358,515
              )
              
              
              (196,403
              )Balance
      at end of year
              
              
              1,006,755
              
              
              
              973,524Valuation
      allowancesBalance
      at beginning of year
              
              
              428,030
              
              
              
              —Additions
              
              
              —
              
              
              
              428,030Reduction
      due to increases in market value
              
              
              (122,790
              )
              
              
              —Reduction
      due to payoff of loans
              
              
              (148,798
              )
              
              
              —Balances
      at end of year
              
              
              156,442
              
              
              
              428,030Mortgage
      servicing assets, net
              
              $
              850,313
              
              
              $
              545,494Fair
      value disclosuresFair
      value as of the beginning of the period
              
              $
              545,494
              
              
              $
              1,040,899Fair
      value as of the end of the period
              
              $
              1,083,576
              
              
              $
              545,494
  During
2008, a valuation allowance of $428,030 was necessary to adjust the aggregate
cost basis of the mortgage servicing right asset to fair market
value.  The valuation allowance was reduced during 2009 due to both
payments received on the related loans as well as an increase in the estimated
market value on the mortgage servicing rights asset.
  Comparable
market values and a valuation model that calculates the present value of future
cash flows were used to estimate fair value.  For purposes of
measuring impairment, risk characteristics including product type, investor
type, and interest rates, were used to stratify the originated mortgage
servicing rights.
  Note
      7:
              Deposits
  Interest-bearing
deposits in denominations of $100,000 or more totaled $89,917,806 at
December 31, 2009 and $87,908,417 at December 31, 2008.
  46
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 The
following table represents deposit interest expense by deposit
type:
  December
      31,2009
              
              
              2008Savings,
      NOW and Money Market
              
              $
              729,009
              
              
              $
              1,056,335Certificates
      of deposit
              
              
              4,586,264
              
              
              
              6,112,266Total
      deposit interest expense
              
              $
              5,315,273
              
              
              $
              7,168,601
  At
December 31, 2009, the scheduled maturities of time deposits are as
follows:
  2010
              
              $
              108,098,4572011
              
              
              25,659,3232012
              
              
              4,990,7592013
              
              
              2,171,5902014
              
              
              4,684,766Thereafter
              
              
              15,081$
              145,619,976
  Note
      8:
              Short-term
      Borrowings
  Short-term
borrowings consist of securities sold under agreements to repurchase totaling
$3,789,453 and $7,633,079 at December 31, 2009 and 2008,
respectively.
  Securities sold under
agreements to repurchase consist of obligations of the Company to other
parties.  The obligations are secured by investments and such
collateral is held by the Company.  The maximum amount of outstanding
agreements at any month end during 2009 and 2008 totaled $6,919,503 and
$7,633,079, respectively, and the monthly average of such agreements totaled
$5,160,416 and $6,031,389 for 2009 and 2008, respectively.  The
agreements at December 31, 2009, are all overnight
agreements.
  Note
      9:
              Federal
      Home Loan Bank Advances
  The
Federal Home Loan Bank advances totaled $0 and $13,500,000 as of December 31,
2009 and 2008, respectively.  The advances at December 31, 2008 were
secured by mortgage loans totaling $44,039,000.  The advances, at
interest rates of 0.52% to 5.09%, were subject to restrictions or penalties in
the event of prepayment.  The advances outstanding at December 31,
2008 matured in 2009.
  47
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Note
      10:
              Income
      Taxes
  The
Company and its subsidiary file income tax returns in the U.S. federal and state
of Illinois jurisdictions.  With a few exceptions, the Company is no
longer subject to U.S. federal and Illinois  income tax examinations
by tax authorities for years before 2006.  During the years ended
December 31, 2009 and 2008, the Company did not recognize expense for interest
or penalties.
  The
provision for income taxes includes these components:
  2009
              
              
              2008Taxes
      currently payableFederal
              
              $
              117,636
              
              
              $
              594,613State
              
              
              —
              
              
              
              —Deferred
      income taxes
              
              
              (17,047
              )
              
              
              (290,430
              )Income
      tax expense
              
              $
              100,589
              
              
              $
              304,183
  A
reconciliation of income tax expense at the statutory rate to the Company’s
actual income tax expense is shown below:
  2009
              
              
              2008Computed
      at the statutory rate (34%)
              
              $
              508,897
              
              
              $
              619,515Increase
      (decrease) resulting fromTax
      exempt interest
              
              
              (354,497
              )
              
              
              (283,936
              )Graduated
      tax rates
              
              
              (14,968
              )
              
              
              (18,221
              )State
      income taxes, net
              
              
              58,345
              
              
              
              58,144Increase
      in cash surrender value
              
              
              (60,750
              )
              
              
              (55,361
              )Other
              
              
              (36,438
              )
              
              
              (15,958
              )Actual
      tax expense
              
              $
              100,589
              
              
              $
              304,183Tax
      expense as a percentage of pre-tax income
              
              
              6.72
              %
              
              
              16.69
              %
  48
 Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
  The tax
effects of temporary differences related to deferred taxes shown on the balance
sheets were:
  2009
              
              
              2008Deferred
      tax assetsAllowance
      for loan losses
              
              $
              763,554
              
              
              $
              625,389Deferred
      compensation
              
              
              1,097,085
              
              
              
              1,000,064State
      net operating loss carryforward
              
              
              160,488
              
              
              
              220,3252,021,127
              
              
              
              1,845,778Deferred
      tax liabilitiesUnrealized
      gains on available-for-sale securities
              
              
              (358,456
              )
              
              
              (173,817
              )Depreciation
              
              
              (360,916
              )
              
              
              (337,862
              )Federal
      Home Loan Bank stock dividends
              
              
              (146,736
              )
              
              
              (146,736
              )Prepaid
      expenses
              
              
              (68,875
              )
              
              
              (46,695
              )Mortgage
      servicing rights
              
              
              (330,075
              )
              
              
              (211,750
              )Other
              
              
              (31,930
              )
              
              
              (37,187
              )(1,296,988
              )
              
              
              (954,047
              )Net
      deferred tax asset
              
              $
              724,139
              
              
              $
              891,731
  At
December 31, 2009 and 2008, the Company had Illinois net operating loss
carryforwards totaling approximately $3,331,005 and $4,572,947, respectively,
which will expire in varying amounts between 2015 and
2019.  Management believes the Company will produce taxable earnings
in the future which will enable the net operating loss carryforwards to be
utilized prior to expiration.
  Retained
earnings at December 31, 2009 and 2008, include approximately $2,600,000, for
which no deferred federal income tax liability has been
recognized.  These amounts represent an allocation of income to bad
debt deductions for tax purposes only.  Reduction of amounts so
allocated for purposes other than tax bad debt losses or adjustments arising
from carryback of net operating losses would create income for tax purposes
only, which would be subject to the then-current corporate income tax
rate.  The deferred income tax liabilities on the preceding amounts
that would have been recorded if they were expected to reverse into taxable
income in the foreseeable future were approximately $1,000,000 at December 31,
2009 and 2008.
  49
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Note
      11:
              Comprehensive
      Income
  Other
comprehensive income components and related taxes were as follows:
  2009
              
              
              2008Net
      unrealized gain (loss) on available-for-sale securities
              
              $
              1,132,013
              
              
              $
              632,636Less
      reclassification adjustment for realized gains included in
      income
              
              
              588,959
              
              
              
              33,324Other
      comprehensive income, before tax effect
              
              
              543,054
              
              
              
              599,312Less
      tax expense
              
              
              184,639
              
              
              
              203,766Other
      comprehensive income
              
              $
              358,415
              
              
              $
              395,546
  The
components of accumulated other comprehensive income (loss), included in
stockholders’ equity, are as follows:
  2009
              
              
              2008Net
      unrealized gain (loss) on securities available-for-sale
              
              $
              1,054,281
              
              
              $
              511,227Tax
      effect
              
              
              (358,456
              )
              
              
              (173,817
              )Net-of-tax
      amount
              
              $
              695,825
              
              
              $
              337,410
  Note
      12:
              Regulatory
      Matters
  The Bank
is subject to various regulatory capital requirements administered by the
federal banking agencies.  Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank’s financial statements.  Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank’s assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices.  The Bank’s
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
  50
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth in the table below) of total
and Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined) and of Tier I capital to average assets (as
defined).  Management believes, as of December 31, 2009 and 2008, that
the Bank meets all capital adequacy requirements to which it is
subject.
  As of
December 31, 2009, the most recent notification from the FDIC categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action.  To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set
forth in the table.  There are no conditions or events since that
notification that management believes have changed the Bank’s
category.
  The
Bank’s actual capital amounts (in thousands) and ratios are also presented in
the table.
  Actual
              
              
              Minimum
      CapitalRequirement
              
              
              Minimum
      to Be WellCapitalized Under PromptCorrective
      ActionProvisionsAmount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              RatioAs
      of December 31, 2009Total
      risk-based capital(to
      risk-weighted assets)
              
              $
              23,891
              
              
              
              11.83
              %
              
              $
              16,146
              
              
              
              8.0
              %
              
              $
              20,183
              
              
              
              10.0
              %Tier
      I capital(to
      risk-weighted assets)
              
              
              21,601
              
              
              
              10.70
              
              
              
              8,073
              
              
              
              4.0
              
              
              
              12,110
              
              
              
              6.0Tier
      I capital(to
      average assets)
              
              
              21,601
              
              
              
              7.44
              
              
              
              11,611
              
              
              
              4.0
              
              
              
              14,514
              
              
              
              5.0Tangible
      capital(to
      adjusted tangible assets)
              
              
              21,601
              
              
              
              7.44
              
              
              
              4,354
              
              
              
              1.5
              
              
              
              —
              
              
              
              N/AAs
      of December 31, 2008Total
      risk-based capital(to
      risk-weighted assets)
              
              $
              22,816
              
              
              
              10.94
              %
              
              $
              16,677
              
              
              
              8.0
              %
              
              $
              20,846
              
              
              
              10.0
              %Tier
      I capital(to
      risk-weighted assets)
              
              
              20,882
              
              
              
              10.02
              
              
              
              8,338
              
              
              
              4.0
              
              
              
              12,508
              
              
              
              6.0Tier
      I capital(to
      average assets)
              
              
              20,882
              
              
              
              7.30
              
              
              
              11,436
              
              
              
              4.0
              
              
              
              14,295
              
              
              
              5.0Tangible
      capital(to
      adjusted tangible assets)
              
              
              20,882
              
              
              
              7.30
              
              
              
              4,289
              
              
              
              1.5
              
              
              
              —
              
              
              
              N/A
  51
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 
 The
following is a reconciliation of the Bank equity amount included in the
consolidated balance sheets to the amounts (in thousands) reflected above for
regulatory capital purposes as of December 31:
  2009
              
              
              2008Bank
      equity
              
              $
              25,024
              
              
              $
              24,001Less
      net unrealized gain
              
              
              696
              
              
              
              337Less
      disallowed goodwill
              
              
              2,727
              
              
              
              2,727Less
      disallowed servicing amounts
              
              
              —
              
              
              
              55Tier
      1 capital
              
              
              21,601
              
              
              
              20,882Plus
      allowance for loan losses
              
              
              2,290
              
              
              
              1,934Total
      risked-based capital
              
              $
              23,891
              
              
              $
              22,816
  The Bank
is subject to certain restrictions on the amount of dividends that it may
declare without prior regulatory approval.  As of December 31, 2009,
the Bank has $2,300,000 available for the payment of dividends without prior
regulatory approval.
  Although
the Company’s regulators approved the mutual holding company’s waiver of
dividends, the amounts declared but not paid on the shares owned by the mutual
holding company are considered a restriction on the Company’s retained
earnings.  The Company’s mutual holding company waived its share of
dividends declared by the Company as follows:
  Year
      ended December 31, 2000
              
              $
              77,905Year
      ended December 31, 2001
              
              
              311,621Year
      ended December 31, 2002
              
              
              311,622Year
      ended December 31, 2003
              
              
              311,621Year
      ended December 31, 2004
              
              
              311,622Year
      ended December 31, 2005
              
              
              311,621Year
      ended December 31, 2006
              
              
              311,622Year
      ended December 31, 2007
              
              
              311,621Year
      ended December 31, 2008
              
              
              311,622Year
      ended December 31, 2009
              
              
              311,621$
              2,882,498
  52
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
  Note
      13:
              Related
      Party Transactions
  At
December 31, 2009 and 2008, the Company had loans outstanding to executive
officers, directors, significant shareholders and their affiliates (related
parties) in the amount of $4,175,892 and $979,776, respectively.
  Annual
activity consisted of the following:
  2009
              
              
              2008Balance
      beginning of year
              
              $
              979,776
              
              
              $
              944,569Additions
              
              
              2,657,615
              
              
              
              2,402,371Repayments
              
              
              (1,855,537
              )
              
              
              (2,311,845
              )Change
      in related parties
              
              
              2,394,038
              
              
              
              (55,319
              )Balance,
      end of year
              
              $
              4,175,892
              
              
              $
              979,776
  In
management’s opinion, such loans and other extensions of credit and deposits
were made in the ordinary course of business and were made on substantially the
same terms (including interest rates and collateral) as those prevailing at the
time for comparable transactions with other persons.  Further, in
management’s opinion, these loans did not involve more than normal risk of
collectibility or present other unfavorable features.
  Deposits
from related parties held by the Company at December 31, 2009 and 2008
totaled approximately $2,036,000 and $2,247,000, respectively.
  Note
      14:
              Employee
      Benefits
  401(k)
Plan —The Company maintains a 401(k) savings plan for eligible
employees.  The Company’s contributions to this plan were $143,770 and
$140,087 for the years ended December 31, 2009 and 2008,
respectively.  The plan invests its assets in deposit accounts at the
Company which earned interest at a rate of 3.15% to 3.75% for the year ended
December 31, 2009 and 4.00% to 4.5% for the year ended December 31,
2008.
  Deferred
Compensation Plan —The Company maintains a deferred compensation plan
for certain key officers and employees.  Contributions are determined
annually by the Company’s Board of Directors.  Effective in 2005, the
Company froze this plan and no contributions to this plan were made for the
years ended December 31, 2009 or 2008.  The plan accrues interest at a
variable rate which fluctuates based on Moody’s Corporate Bond Average
Index.  The amount recorded on the balance sheets as deferred
compensation was $2,166,147 and $2,091,900 as of December 31, 2009 and 2008,
respectively.  Compensation expense related to the plan was $168,394
and $167,079 for the years ended December 31, 2009 and 2008,
respectively.
  53
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 
 The
Company has also entered into deferred compensation agreements with certain key
officers and employees. The agreements provide for monthly payments at
retirement or death. The charge to expense for this plan reflects the
accrual using the principal and interest method over the vesting period of the
present value of benefits due each participant on the full eligibility date
using a 6 to 8% discount rate. The amount recorded on the balance sheets as
deferred compensation was $660,080 and $484,390 as of December 31, 2009 and
2008, respectively. Compensation expense related to the plans was $181,578
and $164,956 for the years ended December 31, 2009 and 2008,
respectively.
  Employee
Stock Ownership Plan —The ESOP is a noncontributory defined contribution
plan which covers substantially all employees. The Company may contribute
to the Plan, at its discretion, an amount determined by the Board of
Directors. The Company has made no contributions in 2009 or
2008.
  At
December 31, 2009 and 2008, all 53,273 shares held by the ESOP had been
allocated. The fair value of shares held by the ESOP is $479,457 as of
December 31, 2009.
  In the
event a terminated Plan participant desires to sell his or her shares of the
Company’s stock, the Company’s stock includes a put option, which is a right to
demand that the Company buy any shares of its stock distributed to participants
at fair market value.
  Note
      15:
              Stock
      Options Plan
  The
Jacksonville Savings Bank and Jacksonville Bancorp, MHC 1996 Stock Option Plan
was adopted on April 23, 1996 and is administered by the Board of
Directors. A total of 83,625 shares of common stock were reserved and
awarded under the Plan. Awards expire ten years after the grant date and
are exercisable at a price of $8.83 per share. In 2004, 5,600 shares
related to this plan were reissued at a price of $14.00 per share. The
Jacksonville Savings Bank 2001 Stock Option Plan was adopted on April 30,
2001 and is administered by the Stock Benefits Committee. A total of 87,100
shares of common stock were reserved and awarded under the Plan during 2001 that
expire ten years after the grant date and are exercisable at a price of $10.00
per share. No shares were granted during 2009 or 2008.
  The fair
value of each option award is estimated on the date of grant using a binomial
option valuation model that uses the assumptions noted in the following
table. Expected volatility is based on historical volatility of the
Company’s stock and other factors. The Company uses historical data to
estimate option exercise and employee termination within the valuation model;
separate groups of employees that have similar historical exercise behavior are
considered separately for valuation purposes. The expected term of options
granted is derived from the output of the option valuation model and represents
the period of time that options granted are expected to be outstanding; the
range given below results from certain groups of employees exhibiting different
behavior. The risk-free rate for periods within the contractual life of the
option is based on the U.S. Treasury yield curve in effect at the time of
grant.
  54
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 A summary
of option activity under the Plan as of December 31, 2009 and 2008, and changes
during the years then ended, is presented below:
  2009Shares
              
              
              Weighted-AverageExercise
      Price
              
              
              Weighted-AverageRemainingContractualTerm
              
              
              AggregateIntrinsic
      ValueOutstanding,
      beginning of year
              
              
              34,445
              
              
              $
              10.65Granted
              
              
              —
              
              
              
              —Exercised
              
              
              —
              
              
              
              —Forfeited
      or expired
              
              
              (1,100
              )
              
              
              14.00Outstanding,
      end of year
              
              
              33,345
              
              
              $
              10.54
              
              
              
              2.40
              
              
              $
              0Exercisable,
      end of year
              
              
              33,345
              
              
              $
              10.54
              
              
              
              2.40
              
              
              $
              0
  The
aggregate intrinsic value of options outstanding and exercisable at the end of
the year 2009 excludes 28,845 and 4,500 shares that are exercisable at prices of
$10.00 and $14.00 per share and were antidilutive.
  2008Shares
              
              
              Weighted-AverageExercise
      Price
              
              
              Weighted-AverageRemainingContractualTerm
              
              
              AggregateIntrinsic
      ValueOutstanding,
      beginning of year
              
              
              35,545
              
              
              $
              10.63Granted
              
              
              —
              
              
              
              —Exercised
              
              
              (1,100
              )
              
              
              10.00Forfeited
      or expired
              
              
              —
              
              
              
              —Outstanding,
      end of year
              
              
              34,445
              
              
              $
              10.65
              
              
              
              3.49
              
              
              $
              0Exercisable,
      end of year
              
              
              34,205
              
              
              $
              10.63
              
              
              
              3.46
              
              
              $
              0
  55
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 
 The
aggregate intrinsic value of options outstanding at the end of the year 2008
excludes 28,845 and 5,600 shares that are exercisable at prices of $10.00 and
$14.00 per share and were antidilutive.
  The
aggregate intrinsic value of options exercisable at the end of the year 2008
excludes 28,845 and 5,360 shares that are exercisable at prices of $10.00 and
$14.00 per share and were antidilutive.
  The total
intrinsic value of options exercised during the years ended December 31, 2008
was $0.  There were no shares exercised during 2009.
  As of
December 31, 2009, there was $0 of total unrecognized compensation cost related
to nonvested share-based compensation arrangements granted under the
Plan.  The total fair value of shares vested during the years ended
December 31, 2009 and 2008, was $972 and $1,863, respectively.
  Note
      16:
              Earnings
      Per Share
  Earnings
per share (EPS) were computed as follows:
  Year
      Ended December 31, 2009Income
              
              
              Weighted-AverageShares
              
              
              Per
      ShareAmountNet
      income
              
              $
              1,396,167Basic
      earnings per shareIncome
      available to common stockholders
              
              
              
              
              
              
              1,927,250
              
              
              $
              0.72Effect
      of dilutive securitiesStock
      options
              
              
              —
              
              
              
              —Diluted
      earnings per shareIncome
      available to common stockholders
              
              $
              1,396,167
              
              
              
              1,927,250
              
              
              $
              0.72
  Options
to purchases 28,845 and 4,500 shares of common stock at $10.00 and $14.00 per
share were outstanding at December 31, 2009, but were not included in the
computation of diluted EPS because the options’ exercise price was greater than
the average market price of the common shares.
  56
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Year
      Ended December 31, 2008Income
              
              
              Weighted-AverageShares
              
              
              Per
      ShareAmountNet
      income
              
              $
              1,517,922Basic
      earnings per share
              
              
              
              
              
              
              1,987,712Income
      available to common stockholders
              
              
              
              
              
              
              
              
              
              $
              .76Effect
      of dilutive securitiesStock
      options
              
              
              —
              
              
              
              —Diluted
      earnings per shareIncome
      available to common stockholders
              
              $
              1,517,922
              
              
              
              1,987,712
              
              
              $
              .76
  Options
to purchases 28,845 and 5,600 shares of common stock at $10.00 and $14.00 per
share were outstanding at December 31, 2008, but were not included in the
computation of diluted EPS because the options’ exercise price was greater than
the average market price of the common shares.
  Note
      17:
              Disclosures
      about Fair Value of Assets and
Liabilities
  ASC Topic
820, Fair
Value Measurements defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.  Topic 820 also
specifies a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value.  The standard describes three levels of inputs that may be
used to measure fair value:
  Level
      1
              Quoted
      prices in active markets for identical assets or
    liabilities
  Level
      2
              Observable
      inputs other than Level 1 prices, such as quoted prices for similar assets
      or liabilities; quoted prices in markets that are not active; or other
      inputs that are observable or can be corroborated by observable market
      data for substantially the full term of the assets or
      liabilities
  57
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Level
      3
              Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or
  liabilities
  Following
is a description of the valuation methodologies used for assets and liabilities
measured at fair value on a recurring basis and recognized in the accompanying
consolidated balance sheets, as well as the general classification of such
assets and liabilities pursuant to the valuation hierarchy.
  Available-for-sale
Securities
  Where
quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy.  The
Company has no Level 1 securities.  If quoted market prices are not
available, then fair values are estimated by using pricing models, quoted prices
of securities with similar characteristics or discounted cash
flows.  Level 2 securities include U.S. Government and agencies,
mortgage-backed securities (Government-sponsored enterprises – residential) and
municipal bonds.  In certain cases where Level 1 or Level 2
inputs are not available, securities are classified within Level 3 of the
hierarchy.  The Company did not have securities considered Level 3 as
of December 31, 2009.
  The
following table presents the fair value measurements of assets and liabilities
recognized in the accompanying balance sheets measured at fair value on a
recurring basis and the level within the fair value hierarchy in which the fair
value measurements fall at December 31, 2009 and 2008:
  2009Fair
      Value Measurements UsingFair
      Value
              
              
              Quoted
      Pricesin ActiveMarkets forIdenticalAssets(Level
      1)
              
              
              SignificantOtherObservableInputs(Level
      2)
              
              
              SignificantUnobservableInputs(Level
      3)U.S.
      Government and agencies
              
              $
              9,080,016
              
              
              $
              —
              
              
              $
              9,080,016
              
              
              $
              —Mortgage-backed
      securities (Government-sponsored enterprises -
residential)
              
              
              40,984,395
              
              
              
              —
              
              
              
              40,984,395
              
              
              
              —Municipal
      bonds
              
              
              28,116,282
              
              
              
              —
              
              
              
              28,116,282
              
              
              
              —
  58
 Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 2008Fair
      Value Measurements UsingFair
      Value
              
              
              Quoted
      Pricesin ActiveMarkets forIdenticalAssets(Level
      1)
              
              
              SignificantOtherObservableInputs(Level
      2)
              
              
              SignificantUnobservableInputs(Level
      3)U.S.
      Government and agencies
              
              $
              19,833,610
              
              
              $
              —
              
              
              $
              19,833,610
              
              
              $
              —Mortgage-backed
      securities (Government-sponsored enterprises -residential)
              
              
              27,795,119
              
              
              
              —
              
              
              
              27,795,119
              
              
              
              —Municipal
      bonds
              
              
              29,805,323
              
              
              
              —
              
              
              
              29,805,323
              
              
              
              —
  Following
is a description of the valuation methodologies used for assets and liabilities
measured at fair value on a nonrecurring basis and recognized in the
accompanying balance sheets, as well as the general classification of such
assets and liabilities pursuant to the valuation hierarchy.
  Impaired
Loans (Collateral Dependent)
  Loans for
which it is probable that the Company will not collect all principal and
interest due according to contractual terms are measured for
impairment.  Allowable methods for determining the amount of
impairment include estimating fair value using the fair value of the collateral
for collateral dependent loans.
  If the
impaired loan is identified as collateral dependent, then the fair value method
of measuring the amount of impairment is utilized.  This method
requires obtaining a current independent appraisal of the collateral and
applying a discount factor to the value.
  Impaired
loans that are collateral dependent are classified within Level 3 of the fair
value hierarchy when impairment is determined using the fair value
method.
  59
 Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
  Mortgage
Servicing Rights
  The fair
value used to determine the valuation allowance is estimated using discounted
cash flow models.  Due to the nature of the valuation inputs, mortgage
servicing rights are classified within Level 3 of the hierarchy.
  The
following table presents the fair value measurement of assets and liabilities
measured at fair value on a nonrecurring basis and the level within the fair
value hierarchy in which the fair value measurements fall at December 31, 2009
and 2008:
  2009Fair
      Value Measurements UsingFair
      Value
              
              
              Quoted
      Pricesin ActiveMarkets forIdenticalAssets
                (Level
      1)
              
              
              SignificantOtherObservableInputs
                (Level
      2)
              
              
              SignificantUnobservableInputs
                (Level
      3)Impaired
      loans (collateral dependent)
              
              $
              3,154,003
              
              
              $
              —
              
              
              $
              —
              
              
              $
              3,154,003Mortgage
      servicing rights
              
              
              850,313
              
              
              
              —
              
              
              
              —
              
              
              
              850,313
  2008Fair
      Value Measurements UsingFair
      Value
              
              
              Quoted
      Pricesin ActiveMarkets forIdenticalAssets
                (Level
      1)
              
              
              SignificantOtherObservableInputs
                (Level
      2)
              
              
              SignificantUnobservableInputs
                (Level
      3)Impaired
      loans (collateral dependent)
              
              $
              972,797
              
              
              $
              —
              
              
              $
              —
              
              
              $
              972,797Mortgage
      servicing rights
              
              
              545,494
              
              
              
              —
              
              
              
              —
              
              
              
              545,494
  60
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 The
following methods were used to estimate the fair value of all other financial
instruments recognized in the accompanying balance sheets at amounts other than
fair value.
  Cash
and Cash Equivalents and Federal Home Loan Bank Stock
  The
carrying amount approximates fair value.
  Other
investments
  The
carrying amount approximates fair value.
  Loans
Held for Sale
  For
homogeneous categories of loans, such as mortgage loans held for sale, fair
value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics.
  Loans
  The fair
value of loans is estimated by discounting the future cash flows using the
market rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.  Loans with
similar characteristics were aggregated for purposes of the
calculations.  The carrying amount of accrued interest approximates
its fair value.
  Deposits
  Deposits
include demand deposits, savings accounts, NOW accounts and certain money market
deposits.  The carrying amount approximates fair value.  The
fair value of fixed-maturity time deposits is estimated using a discounted cash
flow calculation that applies the rates currently offered for deposits of
similar remaining maturities.
  Short-term
Borrowings, Interest Payable and Advances From Borrowers for Taxes and
Insurance
  The
carrying amount approximates fair value.
  Federal
Home Loan Bank Advances
  Rates
currently available to the Company for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt.  Fair
value of long-term debt is based on quoted market prices or dealer quotes for
the identical liability when traded as an asset in an active
market.  If a quoted market price is not available, an expected
present value technique is used to estimate fair value.
  61
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
  Commitments
to Originate Loans, Letters of Credit and Lines of Credit
  The fair
value of commitments to originate loans is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties.  For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates.  The fair values of letters of credit and lines of
credit are based on fees currently charged for similar agreements or on the
estimated cost to terminate or otherwise settle the obligations with the
counterparties at the reporting date.
  The
following table presents estimated fair values of the Company’s financial
instruments at December 31, 2009 and 2008:
  December
      31, 2009
              
              
              December
      31, 2008CarryingAmount
              
              
              Fair
      Value
              
              
              CarryingAmount
              
              
              Fair
      ValueFinancial
      assetsCash
      and cash equivalents
              
              $
              15,696,474
              
              
              $
              15,696,474
              
              
              $
              7,145,288
              
              
              $
              7,145,288Available-for-sale
      securities
              
              
              78,180,693
              
              
              
              78,180,693
              
              
              
              77,434,052
              
              
              
              77,434,052Other
      investments
              
              
              149,902
              
              
              
              149,902
              
              
              
              240,321
              
              
              
              240,321Loans
      held for sale
              
              
              814,074
              
              
              
              814,074
              
              
              
              1,388,284
              
              
              
              1,388,284Loans,
      net of allowance for loan losses
              
              
              173,683,310
              
              
              
              171,479,887
              
              
              
              182,948,292
              
              
              
              181,308,061Federal
      Home Loan Bank stock
              
              
              1,108,606
              
              
              
              1,108,606
              
              
              
              1,108,606
              
              
              
              1,108,606Interest
      receivable
              
              
              1,988,394
              
              
              
              1,988,394
              
              
              
              2,344,502
              
              
              
              2,344,502Financial
      liabilitiesDeposits
              
              
              254,700,223
              
              
              
              257,948,804
              
              
              
              238,151,228
              
              
              
              240,721,801Short-term
      borrowings
              
              
              3,789,453
              
              
              
              3,789,453
              
              
              
              7,633,079
              
              
              
              7,633,079Federal
      Home Loan Bank advances
              
              
              —
              
              
              
              —
              
              
              
              13,500,000
              
              
              
              13,593,469Advances
      from borrowers for taxes and insurance
              
              
              508,356
              
              
              
              508,356
              
              
              
              445,077
              
              
              
              445,077Interest
      payable
              
              
              734,903
              
              
              
              734,903
              
              
              
              925,661
              
              
              
              925,661Unrecognized
      financial instruments (net of contract amount)Commitments
      to originate loans
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Letters
      of credit
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Lines
      of credit
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
  62
 Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 
 Note
      18:
              Significant
      Estimates and Concentrations
  Accounting
principles generally accepted in the United States of America require disclosure
of certain significant estimates and current vulnerabilities due to certain
concentrations.  Estimates related to the allowance for loan losses
are reflected in the footnote regarding loans.  Current
vulnerabilities due to certain concentrations of credit risk are discussed in
the footnote on commitments and credit risk.  Other significant
estimates and concentrations not discussed in those footnotes
include:
  Current
Economic Conditions
  The
current protracted economic decline continues to present financial institutions
with circumstances and challenges, which in some cases have resulted in large
and unanticipated declines in the fair values of investments and other assets,
constraints on liquidity and capital and significant credit quality problems,
including severe volatility in the valuation of real estate and other collateral
supporting loans.
  At
December 31, 2009 and 2008, the Company held $8,844,759 and $9,035,596 in
agricultural production loans and $26,220,405 and $23,321,662, respectively in
agricultural real estate loans in the Company’s geographic
area.  During 2009, prices for corn, beans and livestock remained
lower than previous years and due to weather patterns in Illinois, crops were
late in being harvested.  These issues could affect the repayment
ability for many agricultural loan customers.
  At
December 31, 2009 and 2008, the Company held $34,773,390 and $35,356,098 in
commercial real estate, respectively, including $11,080,199 and $7,938,535 that
are outside of the Company’s normal lending area.  Due to national,
state and local economic conditions, values for commercial and development real
estate have declined significantly, and the market for these properties is
depressed.
  The
accompanying financial statements have been prepared using values and
information currently available to the Company.
  Given the
volatility of current economic conditions, the values of assets and liabilities
recorded in the financial statements could change rapidly, resulting in material
future adjustments in asset values, the allowance for loan losses and capital
that could negatively impact the Company ‘s ability to meet regulatory capital
requirements and maintain sufficient liquidity.
  63
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Goodwill
  As
discussed in Note
1, the Company annually tests its goodwill for impairment.  At the
most recent testing date, the fair value of the banking  reporting
unit exceeded its carrying value.  Estimated fair value of the banking
reporting unit was based principally on forecasts of future
income.  Due to the volatility of the current economic environment,
coupled with the Company’s recent loan loss experience, management’s forecasts
of future income are subject to significantly more uncertainty than during more
stable environments.  Management believes it has applied reasonable
judgment in developing its estimates; however, unforeseen negative changes in
the national, state or local economic environment may negatively impact those
estimates in the near term.
  Note
      19:
              Commitments
      and Credit Risk
  The
Company grants agribusiness, commercial and residential loans to customers in
Cass, Morgan, Macoupin, Montgomery and surrounding counties in
Illinois.  The Company’s loans are generally secured by specific items
of collateral including real property, consumer assets and business
assets.  Although the Company has a diversified loan portfolio, a
substantial portion of its debtors’ ability to honor their contracts is
dependent upon economic conditions and the agricultural economy in these
counties.  The Company also purchases participation loans from out of
territory areas, as more fully described above in Note 4.
  Commitments
to Originate Loans
  Commitments
to originate loans are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since a portion of the commitments may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.  Each customer’s creditworthiness
is evaluated on a case-by-case basis.  The amount of collateral
obtained, if deemed necessary, is based on management’s credit evaluation of the
counterparty.  Collateral held varies, but may include accounts
receivable, inventory, property, plant and equipment, commercial real estate and
residential real estate.
  At
December 31, 2009 and 2008, the Company had outstanding commitments to originate
loans aggregating approximately $3,028,415 and $15,869,326,
respectively.  The commitments extended over varying periods of time
with the majority being disbursed within a one-year period.  Loan
commitments at fixed rates of interest amounted to $2,968,415 and $14,869,326 at
December 31, 2009 and 2008, respectively, with the remainder at floating market
rates.  The range of fixed rates was 4.375% to 10.90% as of December
31, 2009.
  64
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
  Standby
Letters of Credit
  Standby
letters of credit are irrevocable conditional commitments issued by the Company
to guarantee the performance of a customer to a third
party.  Financial standby letters of credit are primarily issued to
support public and private borrowing arrangements, including commercial paper,
bond financing and similar transactions.  Performance standby letters
of credit are issued to guarantee performance of certain customers under
non-financial contractual obligations.  The credit risk involved in
issuing standby letters of credit is essentially the same as that involved in
extending loans to customers.  Should the Company be obliged to
perform under the standby letters of credit, the Company may seek recourse from
the customer for reimbursement of amounts paid.
  The
Company had total outstanding standby letters of credit amounting to $488,388
and $773,700 at December 31, 2009 and 2008, respectively, with terms of one year
or less.  At December 31, 2009 and 2008, the Company’s deferred
revenue under standby letters of credit agreements was nominal.
  Lines
of Credit
  Lines of
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract.  Lines of credit generally
have fixed expiration dates.  Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements.  Each customer’s creditworthiness is
evaluated on a case-by-case basis.  The amount of collateral obtained,
if deemed necessary, is based on management’s credit evaluation of the
counterparty.  Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, commercial real estate and
residential real estate.  Management uses the same credit policies in
granting lines of credit as it does for on-balance-sheet
instruments.
  At
December 31, 2009, the Company had granted unused lines of credit to borrowers
aggregating approximately $22,936,541 and $10,980,694 for commercial lines and
open-end consumer lines, respectively.  At December 31, 2008, unused
lines of credit to borrowers aggregated approximately $23,531,125 for commercial
lines and $11,322,483 for open-end consumer lines.
  65
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Note
      20:
              Plan
      of Conversion
  On
January 19, 2010, the Company’s Board of Directors approved a plan of conversion
(the “Plan”).  Jacksonville Bancorp, Inc., a newly formed Maryland
corporation (“Jacksonville Bancorp-Maryland”), is offering shares of common
stock for sale in connection with the “second step” conversion of Jacksonville
Bancorp, MHC from the mutual to the stock form of organization.  Upon
completion of the conversion, Jacksonville Bancorp-Maryland will become the
holding company of Jacksonville Savings Bank and will succeed to all of the
business and operations of Jacksonville Bancorp, Inc. (“Jacksonville
Bancorp-Federal”), now owned by Jacksonville Bancorp, MHC, and each of
Jacksonville Bancorp-Federal and Jacksonville Bancorp, MHC will cease to
exist.  The Plan is subject to approval by the Office of Thrift
Supervision (OTS) and includes the filing of a registration statement with the
Securities and Exchange Commission.
  The Plan
calls for the common stock of the holding company to be offered to various
parties in a subscription offering at a price based on an independent appraisal
of the Company.  It is anticipated that any shares not purchased in
the subscription offering will be offered in a community
offering.  The Company may not declare or pay a cash dividend if the
effect thereof would cause its net worth to be reduced below either the amount
required for the liquidation account discussed below or the regulatory capital
requirements imposed by the OTS.
  At the
time of conversion, the Company will establish a liquidation account in an
amount equal to the Company’s stockholders equity as reflected in the latest
statement of financial condition contained in the final conversion
prospectus.  The liquidation account will be maintained for the
benefit of eligible account holders who continue to maintain their deposit
accounts in the Company after conversion.  In the event of a complete
liquidation of the Bank and Holding Company (and only in such event), following
all liquidation payments to creditors, eligible depositors who continue to
maintain accounts shall be entitled to receive a distribution from the
liquidation account before any liquidation may be made with respect to the
Company’s capital stock.
  Total
expenses related to the conversion were $14,184 at December 31, 2009 and have
been paid by Jacksonville Bancorp, MHC.  These costs are being
capitalized and will be offset against proceeds from the offering, should the
conversion be successful.  If the conversion is not successful, these
costs will immediately be recorded as an expense in the income
statement.
  66
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Note
      21:
              Quarterly
      Results of Operations (Unaudited)
  Year
      Ended December 31, 2009Three
      Months EndedDecember
      31
              
              
              September
      30
              
              
              June
      30
              
              
              March
      31Interest
      income
              
              $
              3,387,087
              
              
              $
              3,649,444
              
              
              $
              3,609,769
              
              
              $
              3,773,617Interest
      expense
              
              
              1,204,502
              
              
              
              1,314,222
              
              
              
              1,421,744
              
              
              
              1,491,060Net
      interest income
              
              
              2,182,585
              
              
              
              2,335,222
              
              
              
              2,188,025
              
              
              
              2,282,557Provision
      for loan losses
              
              
              425,000
              
              
              
              250,000
              
              
              
              1,550,000
              
              
              
              350,000Net
      interest income after provision for loan losses
              
              
              1,757,585
              
              
              
              2,085,222
              
              
              
              638,025
              
              
              
              1,932,557Other
      income
              
              
              1,184,528
              
              
              
              871,823
              
              
              
              1,247,162
              
              
              
              905,581Other
      expense
              
              
              2,419,836
              
              
              
              2,270,706
              
              
              
              2,219,603
              
              
              
              2,215,582Income
      before income taxes
              
              
              522,277
              
              
              
              686,339
              
              
              
              (334,416
              )
              
              
              622,556Income
      tax expense (benefit)
              
              
              91,752
              
              
              
              149,123
              
              
              
              (261,592
              )
              
              
              121,306Net
      income (loss)
              
              $
              430,525
              
              
              $
              537,216
              
              
              $
              (72,824
              )
              
              $
              501,250Basic
      earnings (loss) per share
              
              $
              0.22
              
              
              $
              0.28
              
              
              $
              (0.04
              )
              
              $
              0.26Diluted
      earnings (loss) per share
              
              $
              0.22
              
              
              $
              0.28
              
              
              $
              (0.04
              )
              
              $
              0.26
  67
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
  Year
      Ended December 31, 2008Three
      Months EndedDecember
      31
              
              
              September
      30
              
              
              June
      30
              
              
              March
      31Interest
      income
              
              $
              3,946,895
              
              
              $
              3,972,057
              
              
              $
              3,933,463
              
              
              $
              4,055,921Interest
      expense
              
              
              1,615,858
              
              
              
              1,856,923
              
              
              
              2,023,898
              
              
              
              2,219,738Net
      interest income
              
              
              2,331,037
              
              
              
              2,115,134
              
              
              
              1,909,565
              
              
              
              1,836,183Provision
      for loan losses
              
              
              145,000
              
              
              
              105,000
              
              
              
              30,000
              
              
              
              30,000Net
      interest income after provision for loan losses
              
              
              2,186,037
              
              
              
              2,010,134
              
              
              
              1,879,565
              
              
              
              1,806,183Other
      income
              
              
              718,730
              
              
              
              844,964
              
              
              
              800,069
              
              
              
              797,160Other
      expense
              
              
              2,713,605
              
              
              
              2,206,700
              
              
              
              2,160,897
              
              
              
              2,139,535Income
      before income taxes
              
              
              191,162
              
              
              
              648,398
              
              
              
              518,737
              
              
              
              463,808Income
      tax expense (benefit)
              
              
              (40,813
              )
              
              
              149,601
              
              
              
              94,956
              
              
              
              100,439Net
      income
              
              $
              231,975
              
              
              $
              498,797
              
              
              $
              423,781
              
              
              $
              363,369Basic
      earnings per share
              
              $
              0.12
              
              
              $
              0.25
              
              
              $
              0.21
              
              
              $
              0.18Diluted
      earnings per share
              
              $
              0.12
              
              
              $
              0.25
              
              
              $
              0.21
              
              
              $
              0.18
  68
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Note
      22:
              Condensed
      Financial Information (Parent Company
Only)
  Presented
below is condensed financial information as to financial position, results of
operations and cash flows of the Company:
  Condensed Balance
Sheets
  December
      31,2009
              
              
              2008AssetsCash
      and due from banks
              
              $
              146,663
              
              
              $
              203,417Investment
      in common stock of subsidiary
              
              
              25,023,244
              
              
              
              24,000,219Other
      assets
              
              
              190,588
              
              
              
              149,388Total
      assets
              
              $
              25,360,495
              
              
              $
              24,353,024LiabilitiesOther
      liabilities
              
              $
              97,075
              
              
              $
              93,584Total
      liabilities
              
              
              97,075
              
              
              
              93,584Stockholders’
      Equity
              
              
              25,263,420
              
              
              
              24,259,440Total
      liabilities and stockholders’ equity
              
              $
              25,360,495
              
              
              $
              24,353,024
  69
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 
 Condensed
Statements
of  Income
  Year
      Ending December 31,2009
              
              
              2008IncomeDividends
      from subsidiary
              
              $
              864,624
              
              
              $
              384,749Other
      income
              
              
              746
              
              
              
              854Total
      income
              
              
              865,370
              
              
              
              385,603ExpensesOther
      expenses
              
              
              218,720
              
              
              
              151,222Total
      expenses
              
              
              218,720
              
              
              
              151,222Income
      Before Income Tax and Equity in Undistributed Income of
      Subsidiary
              
              
              646,650
              
              
              
              234,381Income
      Tax Benefit
              
              
              (84,908
              )
              
              
              (58,702
              )Income
      Before Equity in Undistributed Income of Subsidiary
              
              
              731,558
              
              
              
              293,083Equity
      in Undistributed Income of Subsidiary
              
              
              664,609
              
              
              
              1,224,839Net
      Income
              
              $
              1,396,167
              
              
              $
              1,517,922
  70
  Jacksonville
Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 Years
Ended December 31, 2009 and 2008
 Condensed Statements of Cash
Flows
  Year
      Ending December 31,2009
              
              
              2008Operating
      ActivitiesNet
      income
              
              $
              1,396,167
              
              
              $
              1,517,922Items
      not providing cash, net
              
              
              (664,126
              )
              
              
              (1,223,081
              )Change
      in other assets and liabilities, net
              
              
              (37,710
              )
              
              
              (7,439
              )Net
      cash provided by operating activities
              
              
              694,331
              
              
              
              287,402Financing
      ActivitiesDividends
      paid
              
              
              (264,704
              )
              
              
              (284,679
              )Purchase
      and retirement of common stock
              
              
              —
              
              
              
              —Purchase
      of treasury stock
              
              
              (486,381
              )
              
              
              —Exercise
      of stock options
              
              
              —
              
              
              
              11,000Net
      cash used in financing activities
              
              
              (751,085
              )
              
              
              (273,679
              )Net
      Change in Cash and Cash Equivalents
              
              
              (56,754
              )
              
              
              13,723Cash
      and Cash Equivalents at Beginning of Year
              
              
              203,417
              
              
              
              189,694Cash
      and Cash Equivalents at End of Year
              
              $
              146,663
              
              
              $
              203,417
  71
  Common
Stock
Information
  Our
common stock is traded on the Nasdaq Capital Market under the symbol
“JXSB”.  As of December 31, 2009, we had approximately 543
stockholders of record, including our mutual holding company parent and brokers,
who held 1,920,817 shares of our outstanding shares of common
stock.  Our mutual holding company parent owns 1,038,738
shares.
  The
following table sets forth market price and dividend information for our common
stock for the two years in the period ending December 31, 2009.
  Price
      Per Share
              
              
              CashHigh
              
              
              Low
              
              
              Dividend
      Declared2009Fourth
      quarter
              
              $
              10.38
              
              
              $
              8.14
              
              
              $
              0.075Third
      quarter
              
              
              11.48
              
              
              
              8.12
              
              
              
              0.075Second
      quarter
              
              
              11.49
              
              
              
              7.84
              
              
              
              0.075First
      quarter
              
              
              9.75
              
              
              
              7.01
              
              
              
              0.0752008Fourth
      quarter
              
              $
              10.00
              
              
              $
              7.80
              
              
              $
              0.075Third
      quarter
              
              
              10.15
              
              
              
              9.03
              
              
              
              0.075Second
      quarter
              
              
              12.60
              
              
              
              10.15
              
              
              
              0.075First
      quarter
              
              
              13.25
              
              
              
              9.00
              
              
              
              0.075
  For a
discussion of the restrictions on the Company’s ability to pay dividends, see
Note 12 to the Consolidated Financial Statements.
  The
Company did not repurchase any Company stock during the fourth quarter of
2009.
  72
  Directors
and Officers
  Directors
              OfficersAndrew
      F. Applebee
                Chairman
      of the Board
              Andrew
      F. Applebee
                Chairman
      of the BoardRichard
      A. Foss
                President
      and Chief Executive Officer
              Richard
      A. Foss
                President
      and Chief Executive OfficerJohn
      C. Williams
                Senior
      Vice President and Trust Officer
              John
      C. Williams
                Senior
      Vice President and Trust OfficerJohn
      M. Buchanan
                Certified
      Funeral Service Practitioner
                Buchanan
      & Cody Funeral Home and Crematory, Inc.
              John
      D. Eilering
                Vice
      President – Operations / Corporate SecretaryHarmon
      B. Deal, III
                Investment
      Manager
                Deal
      Partners, L.P.
              Laura
      A. Marks
                Senior
      Vice President – Retail BankingJohn
      L. Eyth
                Certified
      Public Accountant
                Zumbahlen
      Eyth Surratt Foote & Flynn, Ltd.
              Chris
      A. Royal
                Vice
      President and Chief Lending OfficerDean
      H. Hess
                Self-employed
      farmer
              Diana
      S. Tone
                Chief
      Financial Officer and Compliance OfficerEmily
      J. Osburn
                Retired
      radio station manager
  73
  Corporate
Information
  Corporate
      Headquarters
              
              Transfer
      Agent1211
      West Morton
              
              Hickory
      Point Bank & Trust, fsbJacksonville,
      Illinois 62650
              
              P.O.
      Box 2557(217)
      245-4111
              
              Decatur,
      Illinois 62525-2557Website:
      www.jacksonvillesavings.com
              
              (217)
      872-6373E-mail:
      info@jacksonvillesavings.comSpecial
      Counsel
              
              Independent
      Registered Public Accounting FirmLuse
      Gorman Pomerenk & Schick, P.C.
              
              BKD,
      LLP5335
      Wisconsin Ave., N.W., Suite 780
              
              225
      North Water Street, Suite 400Washington,
      D.C. 20015
              
              Decatur,
      Illinois 62525-1580(202)
      274-2000
              
              (217)
      429-2411
  Annual
Meeting
  The
Annual Meeting of the Stockholders will be held April 27, 2010 at 1:30 p.m.,
central time, at our main office at 1211 West Morton, Jacksonville,
Illinois.
  GeneralInquiries
  A copy of
our Annual Report to the SEC on Form 10-K may be obtained without charge by
written request of stockholders to Diana Tone or by calling us at (217)
245-4111.  The Form 10-K is also available on our website at www.jacksonvillesavings.com.  Our
Code of Ethics, Nominating and Corporate Governance Committee Charter, and
Beneficial Ownership reports of our directors and executive officers are also
available on our website.
  FDIC Disclaimer
  This
Annual Report has not been reviewed or confirmed for accuracy or relevance by
the FDIC.
   74