UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

Tx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal ended December 31, ~~2008~~2009.

*o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________.

Commission file number: 000-49792

JACKSONVILLE BANCORP, INC.

(Exact name of registrant as specified in its charter)


	Federal	33-1002258
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

1211 West Morton Avenue, Jacksonville, Illinois		62650
(Address of principal executive offices)		(Zip Code)

Registrant'’s telephone number, including area code: (217) 245-~~41111~~4111

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered

Common Stock, $0.01 par value		The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES o

NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES o

NO x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x

NO o

Indicate by check mark ifwhether ~~disclosure~~the ofregistrant ~~delinquent~~has ~~filers~~submitted ~~pursuant~~electronically toand ~~Item~~posted ~~405 of~~on ~~Regulation~~its ~~S-K~~corporate ~~(§229.405~~website, ofif ~~this~~any, ~~chapter)~~every isInteractive ~~not~~Data ~~contained~~File ~~herein,~~required ~~and~~to ~~will not~~ be submitted ~~contained,~~and posted pursuant to ~~the~~Rule ~~best~~405 of ~~registrant’s~~Regulation ~~knowledge,~~S-T induring ~~definitive~~the ~~proxy or~~preceding ~~information~~12 ~~statements~~months ~~incorporated~~(or byfor ~~reference~~such inshorter ~~Part~~period ~~III~~that ofthe ~~this~~Registrant ~~Form~~was ~~10-K or~~required ~~any amendment~~ to ~~this~~submit and ~~Form~~post ~~10-K~~such files).x

YES o

NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, ~~2008~~2009, as reported by the Nasdaq Capital Market, was approximately $98.65 million.

As of March 1, ~~2009~~2010, there was issued and outstanding 1,920,817 shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

	(1)	Proxy Statement for the 2009 Annual Meeting of Stockholders of the Registrant (Part III).
	(2)	Annual Report to Stockholder (Part II and IV).


	(1) Proxy Statement for the 2010 Annual Meeting of Stockholders of the Registrant (Part III).
	(2) Annual Report to Stockholders (Parts II and IV).

TABLE OF CONTENTS

ITEM 1.	~~Business~~	1Business	2
ITEM 1A.	~~Risk Factors~~	27Risk Factors	38
ITEM 1B.	~~Unresolved Staff Comments~~	30Unresolved Staff Comments	44
ITEM 2.	~~Properties~~	30Properties	45
ITEM3.	Legal Proceedings	30
ITEM 3.		Legal Proceedings	45
ITEM 4.	~~Submission of Matters to a Vote of Security Holders~~	30Reserved	45
ITEM 5.	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~	31Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	45
ITEM 6.	~~Selected Financial Data~~	31Selected Financial Data	46
ITEM 7.	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	31Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
ITEM 7A.	~~Quantitative and Qualitative Disclosure about Market~~	31Quantitative and Qualitative Disclosures about Market Risk	46
ITEM 8.	~~Financial Statements and Supplementary Data~~	31Financial Statements and Supplementary Data	46
ITEM 9.	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~	31Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	46
ITEM 9A.	Controls and Procedures	31
ITEM 9A.(T)		Controls and Procedures	46
ITEM 9B.	~~Other Information~~	32Other Information	47
ITEM 10.	~~Directors, Executive Officers and Corporate Governance~~	32Directors, Executive Officers and Corporate Governance	47
ITEM 11.	~~Executive Compensation~~	33Executive Compensation	47
ITEM 12.	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~	33Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
ITEM 13.	~~Certain Relationships and Related Transactions and Director Independence~~	33Certain Relationships and Related Transactions and Director Independence	48
ITEM 14.	~~Principal Accountant Fees and Services~~	33Principal Accountant Fees and Services	48
ITEM 15.	~~Exhibits and Financial Statement Schedules~~	33Exhibits and Financial Statement Schedules	48

PART I

ITEM 1. Business

~~General~~Jacksonville Bancorp, Inc.

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

On January 19, 2010, Jacksonville ~~Savings~~Bancorp, ~~Bank~~Inc. isannounced anthat the Boards of ~~Illinois-chartered~~Directors ~~savings~~of ~~bank~~Jacksonville ~~headquartered~~Bancorp, inMHC, Jacksonville Bancorp, ~~Illinois~~ Inc. We ~~conduct~~and Jacksonville ~~our~~Savings ~~business~~Bank ~~from~~unanimously ~~our~~adopted ~~main~~a ~~office~~Plan ~~and~~of ~~six~~Conversion and ~~branches,~~Reorganization. Under ~~two~~the terms of ~~which~~the ~~are~~Plan ~~located~~of inConversion ~~Jacksonville~~ and Reorganization, ~~one~~we ofwill ~~which~~undertake isa ~~located~~“second-step” conversion, and reorganize infrom ~~each~~a oftwo-tier ~~the~~mutual ~~following~~holding ~~Illinois~~company ~~communities:~~structure ~~Virden,~~to ~~Litchfield,~~a ~~Chapin,~~stock ~~and~~holding company ~~Concord~~structure. WeAs ~~were~~a ~~originally~~result ~~chartered~~of inthe ~~1916~~conversion, asJacksonville aSavings ~~state-chartered~~Bank ~~savings~~will ~~and~~become ~~loan~~a ~~association~~wholly ~~and~~owned ~~converted~~subsidiary toof a ~~state-chartered~~new ~~savings~~Maryland ~~bank~~holding incompany and ~~1992~~shares of common stock of Jacksonville Bancorp, Inc. We ~~have~~held ~~been~~by apersons ~~member~~other than Jacksonville Bancorp, MHC (whose shares will be canceled) will be converted into shares of common stock of the ~~Federal~~new ~~Home~~holding ~~Loan~~company ~~Bank~~pursuant ~~System since~~to ~~1932. Our~~an ~~deposits~~exchange ~~are~~ratio designed ~~insured~~to bypreserve the ~~Federal~~percentage ~~Deposit~~ownership ~~Insurance~~interests of such ~~Corporation~~persons. AtThe ~~December~~new 31holding company will offer and sell shares of its common stock to members of Jacksonville Bancorp, ~~2008~~MHC, stockholders of Jacksonville Bancorp, ~~had~~Inc. ~~total~~and others in the manner and subject to the ~~assets~~priorities set forth in the Plan of ~~$288~~Conversion and Reorganization.3 ~~million,~~The transactions ~~total~~contemplated ~~deposits~~by the Plan of ~~$238.2~~Conversion ~~million~~and Reorganization are subject to approval of Jacksonville Bancorp, ~~and~~Inc.’s stockholders’, the members of ~~equity~~Jacksonville Bancorp, MHC and the Office of ~~$24~~Thrift Supervision.3 ~~million~~We anticipate that the second-step conversion will be completed in the third quarter of the 2010 calendar year.

~~We are a community-oriented savings~~Jacksonville ~~bank~~Savings 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 primarily originate mortgage loans secured by one- to four-family residential real estate, commercial and agricultural real estate loans, and consumer loans. We also originate multi-family real estate loans and commercial and agricultural business loans. Additionally, we invest in United States Government agency securities, bank-qualified, general obligation municipal issues, and mortgage-backed securities primarily issued or guaranteed by the United States Government or agencies thereof, and maintains a portion of its assets in liquid investments, such as overnight funds at the Federal Home Loan Bank.

~~Our~~Jacksonville ~~principal~~Savings ~~sources~~Bank ofis ~~funds are~~an ~~customer~~Illinois-chartered ~~deposits~~savings bank headquartered in Jacksonville, Illinois. We ~~proceeds~~conduct our business from ~~the~~our ~~sale~~main ofoffice ~~loans~~and six branches, ~~funds~~two ~~received~~of ~~from~~which ~~the repayment~~are located in Jacksonville and ~~prepayment~~one of ~~loans~~which is located in each of the following Illinois communities: Virden, Litchfield, Chapin, and Concord. We ~~mortgage~~were originally chartered in 1916 as an Illinois-~~backed~~chartered ~~securities~~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 ~~sale,~~mutual to the ~~call,~~mutual orholding ~~maturity~~company form of ~~investment securities~~organization. ~~Principal~~ ~~sources~~In of1997 and 2000, Jacksonville ~~income~~Savings ~~are~~Bank ~~interest~~acquired ~~income~~Litchfield onCommunity ~~residential~~Savings, ~~commercial~~ S.B. and ~~consumer~~Chapin ~~loans~~State Bank, ~~interest~~respectively. onIn ~~investments~~2002, ~~commissions~~Jacksonville ~~and~~Savings ~~fees~~Bank reorganized into the two-tiered mutual holding company form of organization. ~~Our~~We ~~principal~~have ~~expenses are~~been ~~interest~~a ~~paid~~member onof the ~~deposits,~~Federal ~~employee~~Home ~~compensation~~Loan ~~and~~Bank ~~benefits~~System ~~and~~since ~~occupancy~~1932. Our deposits are ~~and~~insured ~~equipment~~by ~~expense~~the Federal Deposit Insurance Corporation.

We ~~operate~~are ana ~~investment~~community-oriented ~~center~~savings bank atengaged primarily in the business of attracting retail deposits from the general public in our market area and using such funds, together with borrowings ~~main~~and ~~office. The~~funds ~~investment~~from ~~center~~other issources, ~~operated~~to ~~through~~originate ~~Financial~~mortgage loans secured by one- to ~~Resources~~four-family ~~Group~~residential real estate, ~~Inc~~commercial and agricultural real estate and consumer loans., ~~the~~We ~~Bank’s~~also ~~wholly~~originate commercial and agricultural business loans and multi-~~owned~~family ~~subsidiary~~real estate loans. ~~The~~Additionally, we invest in United ~~investment~~States ~~center~~Government ~~has~~agency ~~not~~securities, ~~had~~bank-qualified, ageneral ~~material~~obligation municipal ~~effect~~issues, onand ~~our~~mortgage-backed ~~ability~~securities toissued ~~attract~~or ~~retail~~guaranteed by the ~~deposits,~~United ~~and~~States isGovernment ~~not~~or ~~expected~~agencies tothereof. We ~~have~~maintain ana ~~impact~~portion of onour ~~attracting~~assets in liquid investments, such as overnight funds at the Federal Home ~~deposits~~Loan Bank.

~~Our principal executive office is located at 1211 W. Morton, Jacksonville, Illinois, and our telephone number at that address is (217) 245-4111.~~2

~~Recent~~Our principal sources of funds are ~~Market~~customer ~~Developments~~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.

InWe ~~response~~operate toan ~~the financial crises affecting the banking system and financial markets and going concern threats to~~ investment ~~banks~~center ~~and~~at ~~other financial institutions, on October 3, 2008, the~~our ~~Emergency~~main ~~Economic Stabilization Act of 2008 (the “EESA”) was signed into law~~office. ~~Under~~The ~~the~~investment ~~EESA,~~center ~~the~~is ~~U.S.~~operated ~~Department~~through ~~of the Treasury was given~~Financial ~~the~~Resources ~~authority to~~Group, ~~among other things~~Inc., ~~purchase~~Jacksonville upSavings toBank’s ~~$700 billion of securities~~wholly-owned ~~and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U~~subsidiary.~~S. financial markets.~~

OnOur ~~October~~principal ~~14,~~executive ~~2008,~~office ~~the Treasury~~is ~~Department~~located ~~announced~~at a1211 ~~Capital~~W. ~~Purchase~~Morton, ~~Program under which it would acquire equity investments~~Jacksonville, ~~usually preferred stock~~Illinois, ~~in banks~~ and ~~thrifts~~our ~~and~~telephone ~~their holding~~number ~~companies. In conjunction with the purchase of preferred~~at ~~stock,~~that ~~the~~address ~~Treasury~~is ~~Department~~(217) ~~also~~245-4111. ~~received~~Our ~~warrants~~website toaddress ~~purchase common stock~~is ~~from participating financial institutions~~www.jacksonvillesavings.com. ~~Participating~~Information ~~financial institutions~~on ~~also~~this ~~were~~website ~~required~~is tonot ~~adopt the Treasury Department’s standards for executive compensation~~ and ~~corporate governance for the period during which the~~ ~~department~~should ~~holds~~not ~~equity~~be ~~issued~~considered ~~under~~to ~~the~~be ~~Capital~~a ~~Purchase~~part ~~Program. We have~~of ~~determined~~this ~~that~~Annual ~~we would not participate in the Capital Purchase Program~~Report.

On November 21, 2008, the FDIC adopted a final rule relating to a Temporary Liquidity Guarantee Program, which the FDIC had previously announced as an initiative to counter the system-wide crisis in the nation’s financial sector. Under the Temporary Liquidity Guarantee Program the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008, and before June 30, 2009 and (ii) provide full FDIC deposit insurance coverage for non-interest bearing transaction deposit accounts, Negotiable Order of Withdrawal (“NOW”) accounts paying less than 0.5% interest per annum and certain other accounts held at participating FDIC-insured institutions through December 31, 2009. Coverage under the Temporary Liquidity Guarantee Program was available for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. We have elected to participate in the deposit insurance coverage program.

The American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package, was signed into law on February 17, 2009, by President Obama. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients until the recipient has repaid the Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.

Market Area

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

The economy of our market area consists primarily of agriculture and related businesses, light industry and state and local government. The largest employers in our ~~primary~~ market area are Pactiv Corporation, Passavant Area Hospital, and the State of Illinois. During 2008 and continuing into 2009, the local economy experienced a downturn, although not as severe as the nationwide recession. ~~While~~ ~~we have~~As ~~seen~~of anDecember ~~increase~~2009, in unemployment, ~~our~~rates ~~local~~in ~~economy~~our ~~benefits~~market ~~from~~area awere: ~~diverse~~8.0% ~~base~~in Cass ofCounty, ~~employers~~11. ~~Our~~1% ~~market~~in ~~area~~Macoupin ~~did~~County, ~~not~~14.1% ~~experience~~in ~~significant~~Montgomery ~~layoffs or~~County ~~company~~and ~~closings~~9.5% ~~during~~in ~~2008~~Morgan County. ~~However,~~ ~~ACH~~This ~~Food~~compared ~~Companies~~with ~~has recently~~unemployment ~~announced~~rates ~~the closing~~ of ~~its~~10.8% ~~Jacksonville~~in ~~plant~~Illinois ~~with~~and ~~approximately~~9.7 ~~200~~% in ~~employees~~the ~~sometime~~United inStates ~~2009~~as a whole. WeWhile ~~are~~increased ~~unable~~layoffs tohave ~~determine~~resulted in ~~what~~higher ~~impact, if~~unemployment ~~any~~levels, ~~the~~we ~~closing~~have ~~will~~not ~~have~~seen ona ~~our~~significant ~~financial~~impact ~~condition~~on orour ~~operations~~business.

Competition

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

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

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

Lending Activities

General. Historically, our principal lending activity has been the origination of mortgage loans ~~for~~ ~~the~~secured ~~purpose~~by ~~of financing or refinancing~~ one- to four-family residential properties in our local market ~~areas~~ area. Over the past several years, we have increased our emphasis on originating loans secured by commercial and agricultural real estate. We also originate ~~emphasize~~commercial ~~consumer~~and agricultural business loans secured by collateral other ~~lending,~~than ~~primarily~~real ~~the~~estate ~~origination~~as ofwell as unsecured commercial and agricultural business loans. We also originate consumer loans, primarily home equity loans and loans secured by automobiles. At December 31, ~~2008~~2009, our loans receivable ~~totaled~~ totaled $~~185~~176.0 million, of which $4638.8 6 million, or 2522.62%, consisted of one- to four-family residential mortgage loans. One- to four-family residential mortgage loans decreased $8.2 million, or 17.6%, during 2009 primarily due to the refinancing of loans in our portfolio which were subsequently sold in the secondary mortgage market. The remainder of our loans receivable at ~~such~~December ~~date~~31, 2009 consisted of commercial and agricultural real estate loans ~~(30~~totaling $56.~~9%)~~7 million, ~~multi-family~~or 32.6% of total loans, ~~residential~~consumer loans (2totaling $42.51 million, or 24.2%) of total loans, commercial and agricultural business loans (totaling $34.4 million, or 19.38%) of total loans, and multi-family ~~consumer~~residential loans ~~(22~~totaling $4.83 million, or 2.5%) of total loans. Of the amount included in consumer loans, $3028.0 1 million, or 16.42% of total loans consisted of home equity and home improvement ~~loans. During~~ ~~the year ended December 31~~loans, ~~2008 the loan portfolio~~and ~~increased to~~ $~~185~~6.~~0 million~~1 ~~from $177.7~~ million ~~at December 31~~, ~~2007. One-to-four~~or ~~family residential real estate loans decreased $~~3.~~7 million (7.2~~5%) ~~and commercial~~of ~~and agricultural~~total ~~real estate~~ loans, ~~increased $12.4~~consisted ~~million~~of ~~(28.2%)~~automobile ~~during 2008~~loans.

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

We originate fixed-rate residential mortgage loans secured by one- to four-family residential properties with terms up to 30 years. We sell a significant portion of our one- to four-family fixed-rate residential mortgage loan originations directly to Freddie Mac. We also sold one- to four-family fixed-rate residential mortgage loan originations to the Federal Home Loan Bank Mortgage Partnership Finance Program until the program was discontinued as of October 31, 2008. During the years ended December 31, ~~2008~~2009 and ~~2007~~2008, we sold $3066.17 million and $1030.2 1 million of fixed-rate residential mortgage loans, respectively. Loans are generally sold without recourse and with servicing retained. At December 31, 2008 we were servicing approximately $132.1 million in loans for which it received servicing income of approximately $352,000 for the year ended December 31, 2008. As a result of the weakening economy, we have taken a charge of $428,000 against the value of our mortgage servicing income. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 7 to our Consolidated Financials Statements.

3At December 31, 2009, we were servicing $148.0 million in loans for which we received servicing income of $360,000 for the year ended December 31, 2009. Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned as loan servicing fees in non-interest income. The amortization of mortgage servicing rights is netted from the gains on sale of loans, both cash gains as well as the capitalized gains, and is included in mortgage banking operations, net, in non-interest income. As a result of the low interest rate environment in 2008, we recognized an impairment of $428,000 against the value of our mortgage servicing income. Subsequently, as long term interest rates began to rise, we were able to recognize a partial recovery of $123,000 during 2009.

Analysis of Loan Portfolio

Set forth below are selected data relating to the composition of our loan portfolio, excluding loans held for sale, by type of loan as of the dates indicated.

	At December 31,
	2008					2007					2006					2005					2004
	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in Thousands)
Real estate loans:
One- to four-family residential (1)	$	46,807		25.6	%	$	50,459		28.7	%	$	40,635		26.2	%	$	40,126		28.2	%	$	41,616		33.1	%
Commercial and agricultural (1)		56,516		30.9			44,100		25.1			39,592		25.6			33,859		23.8			24,587		19.5
Multi-family residential		4,518		2.5			4,741		2.7			5,877		3.8			6,010		4.2			2,207		1.8
Total real estate loans	$	107,841		59.0			99,300		56.5			86,104		55.6			79,995		56.2			68,410		54.4
Commercial and agricultural business loans		35,356		19.3			36,539		20.8			32,837		21.2			28,679		20.2			26,227		20.8
Consumer loans:
Home equity/home improvement		30,002		16.4			30,087		17.1			27,202		17.6			26,382		18.5			24,322		19.3
Automobile		5,842		3.2			5,334		3.0			5,275		3.4			4,580		3.2			4,516		3.6
Other		5,950		3.2			6,402		3.6			5,313		3.4			4,657		3.3			4,380		3.5
Total consumer loans		41,794		22.8			41,823		23.7			37,790		24.4			35,619		25.0			33,218		26.4
Total loans receivable		184,991		101.1			177,662		101.0			156,731		101.2			144,293		101.4			127,855		101.6
Less:
Unearned premium on purchased loans, unearned discount and deferred loan fees, net		109		0.0			29		0.0			29		0.0			175		0.1			174		0.1
Allowance for loan losses		1,934		1.1			1,766		1.0			1,864		1.2			1,846		1.3			1,888		1.5
Total loans receivable, net	$	182,948		100.0	%	$	175,867		100.0	%	$	154,838		100.0	%	$	142,272		100.0	%	$	125,793		100.0	%

_________________________________

(1) Includes a portion of real estate construction loans.

~~One-~~Loan ~~to Four-Family Mortgage~~Portfolio ~~Loans~~Composition. ~~Our~~ Set ~~primary~~forth ~~lending~~below ~~activity~~are selected isdata relating to the ~~origination~~composition of ~~one- to~~our ~~four-family,~~loan ~~owner-occupied~~portfolio, ~~residential~~by ~~mortgage~~type ~~loans~~of ~~secured by property~~loan ~~located~~as inof ~~our~~the ~~market~~dates ~~area. We~~indicated, ~~generate~~excluding loans ~~through~~held ~~our~~for ~~marketing efforts,~~sale ~~existing~~of ~~customers and referrals~~$814, ~~real estate brokers~~000, ~~builders and~~$1.4 ~~local~~million, ~~businesses~~$1. We9 ~~generally~~million, ~~have~~$426,000 ~~limited~~and ~~our~~$499,000 ~~real~~for ~~estate loan originations to~~ the ~~financing~~years ofended ~~properties located within our market area. At~~ December 31, 2009, 2008, ~~we had $46.8 million~~2007, or2006 ~~25.6%~~and ~~of our net loan portfolio~~2005, ~~invested in mortgage loans secured by one- to four-family residences~~respectively.

We originate for resale to Freddie Mac fixed-rate residential one- to four-family loans with terms of 15 years or more. Our fixed-rate mortgage loans amortize monthly with principal and interest due each month. Residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. We offer fixed-rate one- to four-family mortgage loans with terms of up to 30 years.

	At December 31,
	2009					2008					2007					2006					2005
	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in Thousands)
Real estate loans:
One- to four-family residential (1)	$	38,581		22.2	%	$	46,807		25.6	%	$	50,459		28.7	%	$	40,635		26.2	%	$	40,126		28.2	%
Commercial and agricultural (2)		56,650		32.6			56,516		30.9			44,100		25.1			39,592		25.6			33,859		23.8
Multi-family residential		4,344		2.5			4,518		2.5			4,741		2.7			5,877		3.8			6,010		4.2
Total real estate loans		99,575		57.3			107,841		59.0			99,300		56.5			86,104		55.6			79,995		56.2

Commercial and agricultural business loans		34,393		19.8			35,356		19.3			36,539		20.8			32,837		21.2			28,679		20.2
Consumer loans:
Home equity/home improvement (3)		28,119		16.2			30,002		16.4			30,087		17.1			27,202		17.6			26,382		18.5
Automobile		6,118		3.5			5,842		3.2			5,334		3.0			5,275		3.4			4,580		3.2
Other		7,837		4.5			5,950		3.2			6,402		3.6			5,313		3.4			4,657		3.3
Total consumer loans		42,074		24.2			41,794		22.8			41,823		23.7			37,790		24.4			35,619		25.0
Total loans receivable		176,042		101.3			184,991		101.1			177,662		101.0			156,731		101.2			144,293		101.4

Less:
Unearned premium on purchased loans, unearned discount and deferred loan fees, net		69		—			109		—			29		—			29		—			175		0.1
Allowance for loan losses		2,290		1.3			1,934		1.1			1,766		1.0			1,864		1.2			1,846		1.3
Total loans receivable, net	$	173,683		100.0	%	$	182,948		100.0	%	$	175,867		100.0	%	$	154,838		100.0	%	$	142,272		100.0	%

We currently offer adjustable-rate mortgage loans for terms ranging up to 30 years. We generally offer adjustable-rate mortgage loans that adjust every year from the date of origination, with interest rate adjustment limitations up to two hundred basis points per year and with a cap of up to six hundred basis points on interest rate increases over the life of the loan. In a rising interest rate environment, such rate limitations may prevent adjustable-rate mortgage loans from repricing to market interest rates, which would have an adverse effect on net interest income. In the current low interest rate environment the repricing of our adjustable-rate portfolio has resulted in significantly lower interest income from this portion of our loan portfolio. We have used different interest indices for adjustable-rate mortgage loans in the past, and primarily use the one-year Constant Maturity Treasury Index. Adjustable-rate mortgage loans secured by residential one- to four-family real estate totaled $10.2 million, or 21.8% of our total one- to four-family residential real estate loans receivable at December 31, 2008. The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, our interest rate gap position and our competitors’ loan products. During 2008, we originated $29.4 million of fixed-rate residential mortgage loans and $9.3 million of adjustable-rate mortgage and balloon loans._________________________________

~~The~~(1) ~~primary~~Includes ~~purpose of offering adjustable~~one-~~rate~~ ~~mortgage loans is~~ to ~~make~~four-family ~~our~~real ~~loan~~estate ~~portfolio~~construction ~~more~~loans ~~interest~~of ~~rate sensitive. However~~$54,000, as$596,000, ~~the~~$352,000, ~~interest~~$183,000 ~~income~~and ~~earned on adjustable-rate mortgage loans varies with prevailing interest rates~~$546,000 ~~such~~for ~~loans do not offer predictable cash flows in~~ the ~~same~~years ~~manner~~ended asDecember ~~long-term~~31, ~~fixed-rate loans. Adjustable-rate~~2009, ~~mortgage loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase. It is possible~~2008, ~~that during periods of rising interest rates~~2007, ~~that~~2006 ~~the risk of delinquencies~~ and ~~defaults on adjustable-rate mortgage loans may increase due to the upward adjustment of interest costs to the borrower~~2005, ~~resulting in increased loan losses~~respectively.

~~Our~~(2) ~~residential~~Includes ~~first~~commercial ~~mortgage~~and ~~loans customarily~~agricultural ~~include~~real ~~due-on-sale~~estate ~~clauses,~~construction ~~which~~loans ~~give~~of us$4.2 ~~the~~million, ~~right~~$2.5 tomillion, ~~declare~~$472,000, ~~a loan~~$0 ~~immediately due~~ and ~~payable in the event~~$193,000 ~~among other things, that the borrower sells or otherwise disposes of the underlying real property serving as security~~ for the ~~loan. Due-on-sale~~years ~~clauses~~ended ~~are~~December a31, ~~means~~2009, of2008, ~~imposing assumption~~2007, ~~fees~~2006 and ~~increasing~~2005, ~~the interest rate on our mortgage portfolio during periods of rising interest rates~~respectively.

~~When~~(3) ~~underwriting~~Includes ~~residential~~ real estate construction loans, weof ~~review~~$3.6 ~~and~~million, ~~verify each loan applicant’s income and credit history~~$1. ~~Management~~1 ~~believes~~million, ~~that stability of income and past credit history are integral parts in the underwriting process~~$1. ~~Generally, the~~4 ~~applicant’s total monthly mortgage payment~~million, ~~including all escrow amounts~~$370,000 ~~is limited~~and to$1.9 ~~28%~~million offor the ~~applicant’s~~years ~~total~~ended ~~monthly~~December ~~income. In addition~~31, ~~total~~ ~~monthly obligations of the applicant~~2009, ~~including mortgage payments~~2008, should not generally exceed 38% of total monthly income. Written appraisals are generally required on real estate property offered to secure an applicant’s loan. For fixed-rate real estate loans with loan to value (“LTV”) ratios of between 80% and 95%2007, we2006 ~~require private mortgage insurance. We require fire~~ and ~~casualty insurance on all properties securing real estate loans. We may require title insurance~~2005, ~~or an attorney’s title opinion, as circumstances warrant~~respectively.

~~Commercial~~One- ~~and Agricultural Real~~to ~~Estate and Multi~~Four-Family ~~Residential~~Mortgage ~~Real Estate~~ Loans. ~~We originate~~Historically ~~commercial and agricultural real estate and multi-family residential real estate loans. At December 31, 2008, $56.5 million, or 30.9%, of~~ our ~~total loan portfolio consisted of commercial and agricultural real estate~~ ~~loans~~primary ~~and~~lending ~~$4.5~~origination ~~million,~~activity orhas ~~2.5%,~~been ~~consisted~~one- ofto ~~multi~~four-family ~~real estate~~, ~~loans. During 2008~~owner-occupied, ~~loan~~residential ~~originations~~mortgage loans secured by ~~commercial~~property ~~and agricultural~~located ~~real~~in ~~estate~~our market ~~totaled $29~~area.2 We ~~million,~~generate asloans ~~compared~~through toour ~~$11.0~~marketing ~~million in~~efforts, ~~2007. Our~~existing ~~commercial~~customers and ~~agricultural~~referrals, real estate ~~loans are secured primarily by improved properties such as retail facilities and office buildings~~brokers, ~~farms,~~ ~~churches~~builders and ~~other non-residential buildings~~local businesses. AtWe ~~December~~generally ~~31, 2008,~~limit our ~~commercial~~one- ~~real~~to ~~estate~~four-family loan ~~portfolio included $1.3 million in loans~~ ~~secured~~originations byto ~~churches,~~the ~~$28.5~~financing ~~million~~of in loans secured by ~~land,~~properties ~~and~~located ~~$26.7~~within ~~million~~our inmarket ~~loans secured by other commercial properties~~area. At December 31, ~~2008,~~ ~~our largest commercial and agricultural real estate loan was secured by farmland~~2009, ~~had a principal balance of~~ $338.16 million, ~~and~~or ~~was performing in accordance with its terms~~22. ~~The maximum LTV ratio for commercial real estate loans we originate is 80~~2%~~. The~~ ~~largest~~of ~~commercial~~our ~~real estate~~net loan ~~had a principal balance of $3.0 million~~portfolio, ~~all~~was ofinvested ~~which~~in ~~was~~mortgage loans secured by ~~an office~~one- ~~and~~to ~~distribution center. At December 31, 2008, the largest multi~~four-family ~~residential real estate loan had a principal balance of $2.3~~ ~~million and was performing in accordance with its terms~~residences.

Our ~~underwriting~~fixed-rate ~~standards~~one- ~~for commercial~~to ~~and agricultural real estate and multi~~four-family residential ~~real~~mortgage ~~estate~~ loans ~~include~~are agenerally ~~determination~~conforming ofloans, ~~the applicant’s credit history and an~~underwritten ~~assessment~~according ~~of the applicant’s ability~~ to ~~meet~~Freddie ~~existing~~Mac ~~obligations and payments on the proposed loan~~guidelines. ~~The~~ ~~income~~We ~~approach~~generally isoriginate ~~primarily~~both ~~utilized~~fixed- toand ~~determine~~adjustable-rate ~~whether~~mortgage ~~income~~loans ~~generated~~in ~~from~~amounts ~~the~~up ~~applicant’s business or real estate offered as collateral is adequate~~ to ~~repay~~ the ~~loan. In~~maximum ~~underwriting a~~conforming loan, limits weestablished ~~consider~~by the ~~value~~Federal ofHousing ~~the~~Finance ~~real~~Agency ~~estate~~for ~~offered~~Freddie asMac, ~~collateral in~~which ~~relation~~is tocurrently ~~the proposed loan amount. Generally~~$417,000 ~~the~~for ~~loan~~single-family ~~amount cannot be greater than 80% of the value of the real estate~~homes. ~~We usually~~ ~~obtain~~At ~~written~~December ~~appraisals~~31, ~~from~~2009, ~~either~~we ~~licensed~~had ~~or certified appraisers~~no onone- ~~all~~to ~~multi~~four-family, ~~commercial,~~residential ~~and~~mortgage ~~agricultural real estate~~ loans~~. We~~ ~~assess~~with ~~the~~principal ~~creditworthiness~~balances ofin ~~the applicant by reviewing a~~excess ~~credit~~of ~~report~~$417,000, ~~financial~~commonly ~~statements~~referred ~~and~~to ~~tax returns of the applicant,~~ as ~~well~~jumbo ~~as obtaining other public records regarding the applicant~~loans.

~~Loans~~We ~~secured~~originate byfor ~~commercial, agricultural,~~resale ~~and~~to ~~multi-family~~Freddie ~~real estate generally involve a greater degree of~~Mac ~~credit~~fixed-rate ~~risk than~~ one- to four-family residential mortgage loans ~~and~~with ~~carry~~terms ~~larger~~of 15 years ~~loan~~or ~~balances~~more. ~~This~~Our ~~increased~~fixed-rate ~~credit~~mortgage ~~risk~~loans isamortize amonthly ~~result of several~~with ~~factors,~~principal ~~including the effects of general economic conditions on income producing properties~~ and ~~the~~interest ~~successful~~due ~~operation~~each ~~or management of the properties securing the loans~~month. ~~Furthermore,~~Residential ~~the~~real ~~repayment~~estate of loans ~~secured~~often byremain ~~commercial,~~outstanding ~~agricultural,~~for ~~and~~significantly ~~multi-family~~shorter ~~real~~periods ~~estate~~than ~~is typically~~their ~~dependent~~contractual ~~upon~~terms ~~the~~because ~~successful~~borrowers ~~operation~~may ofrefinance ~~the~~or ~~related~~prepay ~~business~~loans ~~and~~at ~~real estate~~their ~~property~~option. IfWe ~~the~~offer ~~cash~~fixed-rate ~~flow~~one- ~~from~~to ~~the~~four-family ~~project~~residential ismortgage loans ~~reduced,~~with ~~the borrower’s~~terms ~~ability~~of up to ~~repay~~30 ~~the~~years ~~loan~~without ~~may~~prepayment ~~be impaired~~penalty.

~~Commercial~~We ~~and~~currently ~~Agricultural~~offer ~~Business~~adjustable-rate ~~Loans. We~~mortgage ~~originate~~loans ~~commercial~~for ~~and~~terms ~~agricultural~~ranging ~~business~~up ~~loans~~ to ~~borrowers~~30 ~~located~~years. We ingenerally ~~our~~offer adjustable-rate ~~market~~mortgage ~~area~~loans ~~which~~that ~~are~~adjust ~~secured~~between byone ~~collateral~~and ~~other than~~five ~~real~~years ~~estate~~on orthe anniversary ~~which~~date ~~can~~of ~~be unsecured~~origination. WeInterest ~~also~~rate ~~purchase participations~~adjustments ofare ~~commercial~~up ~~loans~~to two ~~from~~hundred ~~other~~basis ~~lenders,~~points ~~which~~per ~~may~~year, bewith ~~outside~~a ~~our market~~cap ~~area. Such~~of ~~business~~up ~~loans~~to ~~are~~six ~~generally~~hundred ~~secured~~basis ~~by equipment~~points ~~and~~on ~~inventory~~interest ~~and~~rate ~~generally~~increases ~~are~~over ~~offered~~the ~~with~~life ~~adjustable~~of ~~rates~~the ~~and~~loan. In ~~various~~a ~~terms~~rising ofinterest ~~maturity. We~~rate ~~will~~environment, ~~originate~~such ~~unsecured~~rate ~~business~~limitations ~~loans~~may inprevent ~~those~~adjustable-rate ~~instances~~mortgage ~~where~~loans ~~the~~from ~~applicant’s~~repricing ~~financial~~to ~~strength~~market ~~and~~interest ~~creditworthiness~~rates, ~~has~~which ~~been~~would have an ~~established. Commercial~~adverse ~~and~~effect ~~agricultural~~on ~~business~~our ~~loans~~net ~~generally bear~~interest ~~higher~~income. In the low interest ~~rates~~rate environment ~~than~~that ~~residential~~has ~~loans,~~existed ~~but~~over ~~they~~the ~~also~~past ~~may~~two ~~involve~~years, aour adjustable-rate ~~higher~~portfolio ~~risk~~has ofrepriced ~~default~~downward ~~since~~resulting ~~their~~in ~~repayment~~lower isinterest ~~generally~~income ~~dependent~~from ~~on the~~this ~~successful~~portion ~~operation~~ of ~~the~~our ~~borrower’s~~loan ~~business~~portfolio. We ~~generally~~have ~~obtain~~used different interest ~~personal~~indices ~~guarantees~~for ~~from~~adjustable-rate ~~the~~mortgage ~~borrower~~loans orin athe ~~third~~past ~~party~~such as athe ~~condition~~average yield on U.S. Treasury securities, adjusted to a constant maturity of either one year, ~~originating~~three ~~its~~years ~~business~~or ~~loans~~five years. ~~Commercial~~Adjustable-rate ~~and~~mortgage ~~agricultural~~loans ~~business~~secured by ~~loans~~one- to four-family residential real estate totaled $3511.48 million, or 1930.36%, of our total ~~loan~~one- ~~portfolio~~to atfour-family ~~December~~residential real estate loans receivable at December 31, ~~2008~~2009. WeThe ~~have~~origination ~~increased~~of ~~our~~fixed-rate ~~originations~~mortgage ofloans versus ~~business~~adjustable-rate mortgage loans ~~in response~~is tomonitored ~~customer~~on ~~demand. During~~an ongoing basis and is affected significantly by the ~~year~~level ~~ended~~of ~~December~~market ~~31,~~interest ~~2008~~rates, customer wepreference, ~~originated~~our ~~$36.5~~interest ~~million~~rate inrisk ~~commercial~~position and ~~agricultural~~our ~~business~~competitors’ loan ~~loans~~products. AtDuring ~~that date~~2009, ~~our~~we ~~largest~~originated ~~commercial~~$66.8 ~~business~~million ~~loan~~of ~~was~~fixed-rate residential amortgage ~~$5.0 million~~loans ~~line~~which ofwere ~~credit~~all ~~with~~subsequently asold ~~principal~~in ~~balance~~the ofsecondary mortgage market and $25.03 million~~. This loan~~ ~~was~~of ~~performing~~adjustable-rate inmortgage ~~accordance~~and ~~with~~balloon ~~its~~loans which ~~terms~~were atheld ~~December~~in ~~31, 2008~~our portfolio.

~~Our~~The ~~underwriting~~primary ~~standards~~purpose ~~for~~of offering ~~commercial~~adjustable-rate ~~and~~mortgage ~~agricultural business~~ loans ~~include~~is ato ~~determination~~make ofour ~~the applicant’s~~loan ~~ability~~portfolio tomore ~~meet~~interest ~~existing~~rate sensitive ~~obligations~~ and ~~payments~~to onprovide ~~the~~an ~~proposed loan~~alternative ~~from~~for ~~normal~~those ~~cash~~borrowers ~~flows~~who ~~generated~~meet ~~in the applicant’s business. We~~our ~~assess~~underwriting ~~the~~criteria, ~~financial~~but ~~strength~~are ofunable ~~each~~to ~~applicant~~qualify ~~through~~for ~~the~~a ~~review of financial~~fixed-rate ~~statements~~mortgage. However, ~~and~~as ~~tax~~the ~~returns~~interest ~~provided~~income byearned ~~the~~on ~~applicant. The~~adjustable-rate ~~creditworthiness~~mortgage ofloans anvaries ~~applicant~~with isprevailing ~~derived~~interest ~~from~~rates, asuch ~~review~~loans ofdo ~~credit~~not ~~reports as~~offer ~~well~~predictable ascash aflows ~~search~~in ofthe ~~public~~same ~~records. We~~manner ~~periodically~~as ~~review~~long-term, ~~business~~fixed-rate loans ~~following origination~~. Adjustable-rate Wemortgage ~~request~~loans ~~financial~~carry ~~statements~~increased atcredit ~~least annually~~risk ~~and~~associated ~~review~~with ~~them~~potentially ~~for~~higher ~~substantial~~monthly ~~deviations~~payments orby ~~changes~~borrowers ~~that~~as ~~might affect~~general ~~repayment~~market ofinterest ~~the~~rates ~~loan~~increase. ~~Our~~It ~~loan~~is ~~officers~~possible ~~also~~that ~~visit~~during ~~the~~periods ~~premises~~ of ~~borrowers~~rising tointerest ~~observe~~rates that the ~~business~~risk ~~premises,~~of ~~facilities,~~delinquencies and ~~personnel~~defaults ~~and to~~on ~~inspect~~adjustable-rate ~~the~~mortgage ~~pledged collateral. Underwriting standards for business~~ loans ~~are~~may ~~different~~increase ~~for~~due ~~each~~to ~~type of loan depending on~~ the ~~financial~~upward ~~strength~~adjustment of ~~the~~interest ~~applicant~~costs ~~and~~to the ~~value~~borrower, ofresulting ~~collateral~~in ~~offered~~increased asloan ~~security~~losses.

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

~~Consumer~~When ~~Loans. As of~~underwriting ~~December~~residential ~~31,~~real estate ~~2008~~loans, ~~consumer~~we ~~loans~~review ~~totaled~~and ~~$41.8~~verify ~~million,~~each orloan ~~22.8%,~~applicant’s ofincome ~~our total~~and ~~loan portfolio~~credit history. ~~The~~Management ~~principal~~believes ~~types~~that stability of ~~consumer~~income ~~loans~~and wepast ~~offer~~credit history are ~~home~~integral ~~equity~~parts ~~loans~~in ~~and~~the ~~automobile~~underwriting ~~loans~~process. WeGenerally, the ~~generally~~applicant’s ~~offer consumer~~total ~~loans~~monthly onmortgage apayment, ~~fixed-rate~~including ~~basis. The~~all ~~largest~~escrow ~~category~~amounts, ofis ~~consumer~~limited ~~loans~~to in28% ~~our~~of ~~portfolio~~the ~~consists~~applicant’s oftotal ~~home~~monthly ~~equity loans~~income. ~~At December~~In 31addition, total ~~2008,~~monthly ~~home~~obligations ~~equity~~of ~~and~~the ~~home~~applicant, ~~improvement~~including ~~loans~~mortgage ~~totaled $30.0 million~~payments, should ornot ~~16.4~~generally exceed 38%, of ~~our~~ total ~~loan~~monthly ~~portfolio~~income. ~~Our~~Written ~~home equity loans are~~appraisals are generally ~~secured~~required byon ~~the~~real ~~borrower’s~~estate ~~principal~~property ~~residence. The~~offered ~~maximum amount~~to ofsecure aan ~~home~~applicant’s loan. For ~~equity~~one- ~~line~~to offour-family ~~credit~~real isestate ~~generally~~loans ~~95%~~with ofloan ~~the~~to ~~appraised~~ value ratios of aover ~~borrower’s~~80%, ~~real~~we ~~estate~~require ~~collateral~~private ~~less~~mortgage ~~the amount of any prior mortgages or related liabilities~~insurance. ~~Home~~ ~~equity~~We ~~loans~~require ~~are~~fire ~~approved with both fixed~~ and casualty ~~adjustable~~insurance ~~interest~~on ~~rates~~all ~~which~~properties wesecuring ~~determine~~real ~~based~~estate ~~upon market conditions~~loans. ~~Such loans~~ We may berequire ~~fully~~title ~~amortized~~insurance, ~~over the life of the loan~~ or ~~have~~an aattorney’s ~~balloon~~title ~~feature. Generally~~opinion, ~~the~~as ~~maximum term for home~~circumstances ~~equity loans is 10 years~~warrant.

~~The~~We ~~second~~do ~~largest category of consumer~~not ~~loans~~offer inan ~~our~~“interest ~~portfolio~~only” ~~consists~~mortgage ofloan ~~loans~~product ~~secured~~on byone- ~~automobiles. At~~to four-family ~~December~~residential ~~31,~~properties ~~2008,~~(where ~~consumer~~the ~~loans~~borrower ~~secured~~pays byinterest ~~automobiles~~for ~~totaled~~an ~~$5.8~~initial ~~million~~period, orafter ~~3.2%,~~which ~~our~~the ~~total~~ loan ~~portfolio. We~~converts ~~offer~~to ~~automobile~~a ~~loans~~fully ~~with maturities~~amortizing ofloan). upWe toalso 60do ~~months~~not offer loans that provide for ~~new~~negative ~~automobiles. Loans~~amortization ~~secured~~of ~~by used~~principal, ~~automobiles~~such ~~will~~as ~~have~~“Option ~~maximum~~ARM” loans, ~~terms~~where ~~which~~the ~~vary~~borrower ~~depending~~can ~~upon~~pay ~~the~~less ~~age~~than of the ~~automobile. We~~interest ~~generally~~owed ~~originate~~on ~~automobile~~the ~~loans~~loan, resulting ~~with~~in an ~~LTV ratio~~increased ~~below~~principal ~~the~~balance ~~greater~~during ofthe ~~80%~~life of the loan. We ~~purchase~~do ~~price~~not oroffer ~~100%~~a of“subprime ~~NADA~~ loan” ~~value, although~~program in(loans ~~the~~that ~~case~~generally target ofborrowers awith ~~new~~weakened ~~car~~credit ~~loan~~histories ~~the~~typically ~~LTV~~characterized ~~ratio~~by payment ~~may~~delinquencies, beprevious ~~greater~~charge-offs, orjudgments, ~~less~~bankruptcies, or ~~depending~~borrowers onwith ~~the~~questionable ~~borrower’s~~repayment capacity as evidenced by low credit ~~history,~~scores or high debt-burden toratios) ~~income~~or ~~ratio,~~Alt-A ~~home~~loans ~~ownership and~~(traditionally ~~other~~defined ~~banking~~as ~~relationships~~loans having ~~with~~less usthan full documentation).

~~Consumer~~Commercial ~~loans~~and Agricultural ~~entail~~Real ~~greater~~Estate ~~risks than~~and ~~one~~Multi-Family toResidential ~~four~~Real Estate Loans. We originate and purchase commercial and agricultural real estate and multi-family residential ~~mortgage~~real estate loans. At December 31, ~~particularly~~2009, ~~consumer~~$56.7 million, or 32.6%, of our total loan portfolio consisted of commercial and agricultural real estate loans and $4.3 million, or 2.5%, consisted of multi-family real estate loans. During 2009, loan originations secured by ~~rapidly~~commercial ~~depreciating~~and ~~assets~~agricultural ~~such~~real estate totaled $9.2 million, as ~~automobiles~~compared orto $23.0 million in 2008. In 2008, commercial and agricultural real estate loan originations were greater than our historical levels. The increase in originations in 2008 was due to greater demand in our market area whereby we could make more loans ~~that~~to ~~are~~borrowers who were already known ~~unsecured~~to us. InOur commercial and agricultural real estate loans are secured primarily by improved properties such ~~cases~~as farms, ~~collateral~~retail ~~repossessed~~facilities ~~after~~and aoffice buildings, ~~default~~churches ~~may not~~and ~~provide~~other annon-residential ~~adequate~~buildings. At ~~source~~December 31, of2009, ~~repayment~~our ofcommercial ~~the~~and ~~outstanding~~agricultural real estate loan ~~balance~~portfolio included ~~because~~$26.2 ofmillion ~~damage,~~in ~~loss~~loans orsecured ~~depreciation~~by farmland and $30.5 million in loans secured by other commercial properties. ~~Further,~~The ~~consumer~~maximum loan-to-value ratio for ~~payments~~commercial ~~are~~and ~~dependent~~agricultural onreal ~~the~~estate ~~borrower’s~~loans ~~continuing~~we ~~financial~~originate ~~stability,~~is ~~and~~generally 80%. Our ~~therefore~~commercial and agricultural real estate loans are ~~more~~generally ~~likely~~written up to beterms of ~~adversely~~five ~~affected~~years bywith ~~job~~adjustable ~~loss,~~interest ~~divorce,~~rates. The ~~illness~~rates are generally tied orto ~~personal~~the ~~bankruptcy. Such~~prime ~~events~~rate ~~would~~and ~~increase~~generally ~~our~~have ~~risk~~a specified floor. Many of ~~loss~~our onadjustable-rate ~~unsecured~~commercial real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. ~~Finally,~~ ~~the~~We ~~application~~have $2.4 million of interest ~~various~~only ~~Federal~~commercial and agricultural real estate loans. We purchase from ~~state~~time ~~laws,~~to ~~including~~time ~~Federal~~commercial ~~and~~real ~~state~~estate ~~bankruptcy~~loan ~~and~~participations ~~insolvency~~primarily ~~laws,~~from ~~may~~outside ~~limit~~our ~~the~~market ~~amount~~area ~~which~~where ~~can~~we beare ~~recovered~~not onthe ~~such~~lead lender. All participation loans inare approved following a review to ensure that the ~~event~~loan ofsatisfies aour underwriting ~~default~~standards. At December 31, ~~2008~~2009, ~~consumer~~commercial ~~loans~~real 90estate ~~days~~loan ~~or more~~participations ~~delinquent,~~totaled ~~including~~$10.8 ~~those~~million, ~~for~~or ~~which~~19.1% of the ~~accrual~~commercial and agricultural real estate loan portfolio consisting primarily of ~~interest~~loan ~~has~~participations ~~been~~outside of our market ~~discontinued,~~area which totaled $~~212~~9.8 million,~~000,~~ or 017.513%, of ~~our~~the ~~total~~commercial ~~consumer~~and agricultural ~~loans~~real estate loan portfolio. At December 31, 2009, loan participations delinquent 60 days or more totaled $493,000.

~~Our~~At ~~underwriting~~December ~~standards~~31, ~~for~~2009, ~~consumer~~our largest ~~loans~~agricultural ~~include~~real aestate ~~determination~~loan ofwas ~~the~~secured ~~applicant’s~~by ~~credit~~farmland, ~~history~~had ~~and~~a ~~an assessment~~principal balance of ~~the~~$3.1 ~~applicant’s~~million ~~ability~~and towas ~~meet~~performing ~~existing~~in ~~obligations~~accordance ~~and~~with ~~payments on~~its ~~the proposed loan~~terms. ~~The~~At the ~~stability~~same ofdate, the ~~applicant’s~~largest ~~monthly~~commercial ~~income may~~real beestate ~~determined~~loan bywas ~~verification~~secured ofby ~~gross~~a ~~monthly income from primary~~funeral ~~employment,~~home ~~and additionally from any verifiable secondary income. We also consider the length of employment~~ with ~~the~~a ~~borrower’s~~principal ~~present~~balance ~~employer as well as the amount~~ of ~~time~~$3.2 ~~the~~million ~~borrower~~and ~~has~~was ~~lived~~performing in ~~the local~~accordance ~~area. Creditworthiness~~with ofits ~~the~~terms. ~~applicant~~At isDecember of31, ~~primary consideration; however~~2009, the ~~underwriting~~largest ~~process~~multi-family ~~also~~residential ~~includes a comparison of the value of the~~real ~~collateral~~estate ~~in relation to the proposed~~ loan ~~amount. Of~~was ~~the consumer loans 90 days or more delinquent, over 50% are~~ secured by ~~one-~~an toapartment ~~four-family real~~building ~~estate,~~with ~~upon which~~ a ~~material~~principal ~~loss~~balance isof $2.2 ~~not~~million ~~expected~~and towas ~~be realized. The~~performing ~~two~~in ~~largest~~accordance ~~loans~~with inits ~~this~~terms. ~~category~~At ~~total~~December ~~$82~~31,~~000 and~~ ~~are~~2009, ~~secured~~our bylargest ~~mortgages~~commercial ~~on residential~~ real estate~~. No~~ ~~assurance~~loan ~~can be~~participation ~~given,~~was ~~however,~~secured ~~that~~by condominiums ~~our~~with ~~delinquency~~a ~~rate~~principal orbalance ~~loss~~of ~~experience~~$2.3 onmillion ~~consumer loans~~and ~~will~~was ~~not~~performing ~~increase~~ in accordance ~~the~~with ~~future~~its terms.

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

~~Loan~~Loans ~~Maturity~~secured by commercial, ~~Schedule~~agricultural, and multi-family real estate generally involve a greater degree of credit risk than one- to four-family residential mortgage loans and carry larger loan balances. ~~The~~This ~~following~~increased ~~table~~credit ~~sets~~risk ~~forth~~is ~~certain~~a ~~information at~~result ~~December~~of 31several factors, ~~2008~~including ~~regarding~~ the ~~dollar~~effects ~~amount~~ of ~~loans~~general ~~maturing~~economic inconditions ~~our~~on income ~~portfolio~~producing ~~based~~properties onand ~~their~~the ~~contractual~~successful ~~terms~~operation toor ~~maturity~~management of the properties securing the loans. ~~Demand~~Furthermore, the repayment of loans secured by commercial, agricultural, and multi-family real estate is typically ~~loans~~dependent ~~having~~upon nothe ~~stated~~successful ~~schedule~~operation of ~~repayments~~the ~~and~~related nobusiness ~~stated~~and ~~maturity,~~real ~~and~~estate ~~overdraft~~property. If ~~loans~~the ~~are~~cash ~~reported~~flow asfrom ~~due~~the inproject ~~one~~is ~~year~~reduced, orthe borrower’s ~~less~~ability to repay the loan may be impaired.

	Within 1 Year		Over 1 Year to 5 Years		Beyond 5 Years		Total
	(In Thousands)
Real estate loans:
One- to four-family real estate	$	3,844	$	13,887	$	29,076	$	46,807
Commercial and agricultural real estate		11,939		10,600		33,977		56,516
Multi-family residential		115		560		3,843		4,518
Commercial and agricultural business loans		17,318		13,452		4,586		35,356
Consumer loans:
Home equity/home improvement		6,601		16,133		7,268		30,002
Automobile		488		5,354		—		5,842
Other		2,411		2,300		1,239		5,950
Total	$	42,716	$	62,286	$	79,989	$	184,991

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

~~The~~Our underwriting ~~following~~standards ~~table~~for ~~sets~~commercial ~~forth~~and ~~at December~~agricultural ~~31,~~business ~~2008,~~loans include a determination of the ~~dollar~~applicant’s ~~amount~~ability ofto ~~all~~meet ~~fixed-rate~~existing obligations and payments ~~adjustable-rate~~on ~~loans due~~the ~~after~~proposed ~~December~~loan ~~31,~~from ~~2009. At~~normal ~~December~~cash ~~31,~~flows ~~2008,~~generated ~~fixed-rate~~in ~~loans~~the ~~include~~applicant’s ~~$18~~business.5 We ~~million~~assess inthe ~~fixed-rate~~financial ~~balloon~~strength ~~payment~~of ~~loans~~each applicant ~~with~~through ~~original maturities~~the review of ~~five~~financial ~~years~~statements orand ~~less~~tax returns provided by the applicant. The ~~total~~creditworthiness ~~dollar~~of ~~amount~~an applicant is derived from a review of credit reports as well as a search of public records. We ~~fixed-rate~~periodically review business loans following origination. We request financial statements at least annually and ~~adjustable-rate~~review ~~loans~~them ~~due~~for ~~after~~substantial ~~December~~deviations ~~31,~~or changes ~~2009~~that might affect repayment of the loan. Our loan officers also visit the premises of borrowers to observe the business premises, facilities, ~~was~~and personnel and to inspect the pledged ~~$78~~collateral.7 Underwriting ~~million~~standards for business loans are different for each type of loan depending on the financial strength of the applicant and the ~~$63.6~~value ~~million,~~of ~~respectively~~collateral offered as security.

	Due after December 31, 2009
	Fixed		Adjustable		Total
	(In Thousands)
Real estate loans:
One- to four-family real estate	$	32,827	$	10,136	$	42,963
Commercial and agricultural real estate		8,690		35,886		44,576
Multi-family real estate		560		3,844		4,404
Commercial and agricultural business loans		11,619		6,419		18,038
Consumer loans		24,970		7,324		32,294
Total loans	$	78,666	$	63,609	$	142,275

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

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

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

~~Origination,~~At ~~Purchase~~December ~~and~~31, ~~Sale~~2009, ofconsumer loans ~~Loans. Set~~secured ~~forth~~by ~~below~~automobiles istotaled a$6.1 ~~table~~million, ~~showing~~or 3.5% of our ~~loan~~total ~~originations,~~loan ~~purchases,~~portfolio. We ~~sales~~offer ~~and~~automobile ~~repayments~~loans ~~for~~with ~~the~~maturities ~~periods~~of up to 60 ~~indicated~~months for new automobiles. ItLoans issecured ~~our~~by ~~policy~~used toautomobiles ~~originate~~will have ~~for~~maximum ~~sale~~terms ~~into~~which vary depending upon the ~~secondary~~age of the ~~market~~automobile. We ~~fixed-rate~~generally ~~mortgage~~originate automobile loans with ~~maturities~~a loan-to-value ofratio 15below ~~years~~the orgreater ~~more~~of ~~and~~80% ~~to originate~~of ~~for~~the ~~retention~~purchase inprice ~~our~~or ~~portfolio~~100% ~~adjustable-rate~~of NADA ~~mortgage~~loan ~~loans~~value, ~~and loans~~although ~~with~~in ~~balloon~~the ~~payments. Purchases~~case ~~consist~~ of ~~participations~~a ~~in loans~~new ~~originated~~car byloan ~~other~~the ~~financial~~loan-to-value ~~institutions. We~~ratio may ~~usually~~be ~~obtain commitments~~greater ~~prior~~or toless ~~selling~~depending ~~fixed-rate~~on ~~mortgage~~the ~~loans. It~~borrower’s iscredit ~~our policy~~history, debt to income ~~sell~~ratio, ~~fixed-rate~~home ~~mortgage~~ownership ~~loans~~and asother ~~market~~banking ~~conditions~~relationships with ~~permit~~us.

	For the Years Ended December 31,
	2008		2007		2006		2005		2004
	(In Thousands)
Total loans receivable at beginning of year	$	177,662	$	156,731	$	144,293	$	127,855	$	129,480
Originations:
Real estate loans:
One- to four-family residential		38,717		30,104		25,708		31,551		29,599
Commercial and agricultural		29,157		10,972		11,790		16,902		10,821
Multi-family residential		—		—		2,122		5,731		290
Commercial and agricultural business loans		36,477		33,560		34,004		23,434		21,907
Consumer loans:
Home equity/home improvement		20,133		19,309		17,874		19,021		15,009
Automobile		4,188		3,777		4,336		3,697		2,808
Other		5,072		6,360		4,916		4,560		3,805
Total originations		133,744		104,082		100,750		104,896		84,239
Participation loans purchased		3,729		6,231		3,152		4,634		1,700
Transfer of mortgage loans to foreclosed real estate owned		667		819		329		933		999
Repayments		99,400		78,407		74,574		70,891		69,634
Loan sales		30,077		10,156		16,561		21,268		16,931
Total loans receivable at end of year	$	184,991	$	177,662	$	156,731	$	144,293	$	127,855

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

~~Loan~~Consumer ~~Origination~~loans ~~and~~entail ~~Other~~greater risks ~~Fees. In~~than ~~addition~~one- to ~~interest~~four-family ~~earned~~residential onmortgage loans, weparticularly ~~may~~consumer ~~charge~~loans ~~loan~~secured ~~origination~~by ~~fees. Our~~rapidly ~~ability~~depreciating toassets ~~charge~~such ~~loan~~as ~~origination~~automobiles ~~fees~~or ~~is influenced by the demand for mortgage~~ loans ~~and~~that ~~competition from other lenders~~are ~~in our market area~~unsecured. In ~~December~~such ~~1986~~cases, ~~the~~collateral ~~Financial~~repossessed ~~Accounting Standards~~after ~~Board~~a ~~issued~~default ~~Statements~~may not ofprovide ~~Financial~~an ~~Accounting~~adequate ~~Standards~~source ~~No.~~of 91repayment on of the ~~accounting~~outstanding ~~for~~loan ~~non-refundable~~balance because ~~fees~~of ~~and~~damage, ~~costs~~loss ~~associated with originating~~ or ~~acquiring~~ ~~loans~~depreciation. ToFurther, ~~the~~consumer ~~extent~~loan payments ~~that~~are ~~loans~~dependent ~~are~~on ~~originated~~the orborrower’s ~~acquired for~~continuing ~~our~~financial ~~portfolio~~stability, ~~Statements of Financial Accounting Standards No. 91 requires~~and ~~that~~therefore weare ~~defer~~more ~~loan~~likely ~~origination~~to ~~fees~~be ~~and~~adversely ~~costs~~affected ~~and~~by ~~amortize~~job ~~such~~loss, ~~amounts~~divorce, ~~as an~~illness ~~adjustment~~or ofpersonal ~~yield~~bankruptcy. Such ~~over~~events ~~the~~would ~~life~~increase ofour ~~the~~risk ~~loan by use~~ of ~~the~~loss on ~~level~~unsecured ~~yield method~~loans. ~~Statements~~Finally, ~~of Financial Accounting Standards No. 91 reduces~~ the ~~amount~~application of ~~revenue~~various ~~recognized~~Federal byand state ~~many~~laws, ~~financial~~including ~~institutions~~Federal atand ~~the~~state ~~time~~bankruptcy ~~such loans~~and ~~are~~insolvency ~~originated~~laws, ~~or acquired. Fees deferred under Statements of~~may ~~Financial~~limit ~~Accounting~~the ~~Standards~~amount ~~No.~~which 91can ~~are~~be ~~recognized~~recovered ~~into~~on ~~income~~such ~~immediately upon~~loans in the ~~sale~~event of ~~the related loan~~a default. At December 31, ~~2008~~2009, weconsumer ~~had $26,000~~loans of90 ~~net~~days ~~deferred~~or ~~loan fees. Loan origination fees are volatile~~more ~~sources~~delinquent, ofincluding ~~income. Such~~those ~~fees~~for ~~vary~~which ~~with~~ the ~~volume~~accrual ~~and type~~ of ~~loans and~~interest ~~commitments~~has ~~made and purchased and with competitive conditions in the~~been ~~mortgage markets~~discontinued, ~~which~~totaled in$475,000, ~~turn~~or ~~respond~~1.13%, toof ~~the~~our ~~demand~~total ~~and availability of~~consumer ~~money~~loans.

In addition to loan origination fees, we also receive other fees and service charges that consist primarily of extension fees and late charges. We recognized fees and service charges of $54,000, $93,000 and $108,000 for the years ended December 31, 2008, 2007, and 2006, respectively.

Loan Concentrations. With certain exceptions, an Illinois-chartered savings bank may not make a loan or exceed credit for secured and unsecured loans for business, commercial, corporate or agricultural purposes to a single borrower in excess of 25% of the Jacksonville Savings Bank’s total capital, as defined by regulation. At December 31, 2008, our loans-to-one borrower limit was $5.7 million. At December 31, 2008 we had no lending relationships in excess of our loans-to-one borrower limitation.

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

Our collection procedures provide that when a mortgage loan is either ten days (in the case of adjustable-rate mortgage and balloon loans) or 15 days (in the case of fixed-rate loans) past due, a computer-generated late charge notice is sent to the borrower requesting payment plus a late charge. If the mortgage loan remains delinquent, a telephone call is made or a letter is sent to the borrower stressing the importance of reinstating the loan and obtaining reasons for the delinquency. When a loan continues in a delinquent status for 60 days or more, and a repayment schedule has not been made or kept by the borrower, a notice of intent to foreclose upon the underlying property is then sent to the borrower, giving 10 days to cure the delinquency. If not cured, foreclosure proceedings are initiated. Consumer loans receive a ten-day grace period before a late charge is assessed. Collection efforts begin after the grace period expires. At December 31, 2008, 2007, and 2006 the percentage of nonperforming loans to net loans receivable were 0.65%, 0.62% and 0.87%, respectively.

	One- to Four-Family Real Estate					Commercial and Agricultural Real Estate					Multi-Family Real Estate					Commercial and Agricultural Business
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in Thousands)
Due During the Years Ending December 31,
2010	$	3,748		7.51	%	$	11,647		6.06	%	$	15		9.50	%	$	14,906		5.72	%
2011		5,071		7.23			5,192		4.77			356		6.84			2,032		6.42
2012		4,051		7.27			1,809		6.23			167		6.50			3,462		5.54
2013 to 2014		3,689		7.10			1,694		6.21			106		6.00			9,364		5.85
2015 to 2019		3,641		5.67			2,515		5.98			37		6.50			1,717		5.62
2020 to 2024		3,592		6.35			8,575		5.34			—		—			1,225		5.66
2025 and beyond		14,789		6.22			25,218		5.78			3,663		5.69			1,687		6.64

Total	$	38,581		6.63	%	$	56,650		5.71	%	$	4,344		5.84	%	$	34,393		5.82	%

At December 31, 2008, 2007, and 2006, the percentage of nonperforming assets to total assets were 0.68%, 0.51%, and 0.56%, respectively. The increase in the level of nonperforming assets primarily reflects the delinquency and foreclosure of loans secured by residential real estate. Management believes the increase can be attributed more to unique borrower circumstances rather than the economy in general, and it does not believe the increase is indicative of a trend in asset quality. The majority of the foreclosed assets have been sold during the first quarter of 2009 without any additional loss. 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.

	Home Equity/Home Improvement					Automobile					Other Consumer					Total
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in Thousands)
Due During the Years Ending December 31,
2010	$	4,730		6.74	%	$	368		8.84	%	$	2,451		6.08	%	$	37,865		6.16	%
2011		3,577		7.37			1,060		8.28			888		7.61			18,176		6.53
2012		4,217		7.46			1,502		7.62			833		8.10			16,041		6.88
2013 to 2014		5,921		6.88			3,114		7.25			1,006		7.84			24,894		6.55
2015 to 2019		7,359		5.69			74		8.72			551		7.40			15,894		5.80
2020 to 2024		1,620		7.15			—		—			894		8.12			15,906		5.94
2025 and beyond		695		6.77			—		—			1,214		9.43			47,266		6.04

Total	$	28,119		6.71	%	$	6,118		7.63	%	$	7,837		7.54	%	$	176,042		6.23	%

~~Delinquent Loans and Nonperforming~~The ~~Assets. Loans~~following ~~are~~table ~~reviewed~~sets onforth aat ~~regular~~December ~~basis and are placed on nonaccrual status when~~31, ~~in the opinion of management~~2009, the ~~collection~~dollar amount of all ~~additional~~fixed-rate ~~interest is doubtful. Commercial~~ and ~~home~~adjustable-rate ~~equity~~ loans ~~are placed~~due onafter ~~nonaccrual~~December ~~status~~31, ~~when either principal or interest is 90 days or more past due~~2010. ~~Mortgages~~At December ~~and~~31, ~~other~~2009, ~~consumer~~fixed-rate loans ~~are~~include ~~placed~~$12.9 onmillion ~~nonaccrual status~~in ~~when~~fixed-rate ~~either principal or interest is 120 days or more past~~balloon ~~due. Interest~~payment ~~accrued~~loans ~~and~~with ~~unpaid~~original atmaturities ~~the~~of ~~time~~five ayears ~~loan~~or ~~is placed on nonaccrual status is charged against interest income~~less. ~~Subsequent~~The ~~payments~~total ~~are~~dollar ~~either~~amount ~~applied~~of tofixed-rate ~~the~~loans ~~outstanding~~and ~~principal~~adjustable-rate ~~balance~~loans ordue ~~recorded as~~after ~~interest~~December ~~income~~31, ~~depending~~2010, onwas ~~management’s~~$69.9 ~~assessment~~million ofand ~~the~~$68.3 ~~ultimate~~million, ~~collectibility of the loan~~respectively.

Management monitors all past due loans and nonperforming assets. Such loans are placed under close supervision with consideration given to the need for additional allowance for loan loss, and (if appropriate) partial or full charge-off. At December 31, 2008, we had $186,000 of loans 90 days or more delinquent that were still accruing interest.

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

At December 31, 2008, our largest nonperforming loan had a principal balance of $152,000 and was secured by residential real estate. The property is in the process of foreclosure and management believes that sufficient reserves have been established.

Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold. When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan, or its fair market value, less estimated selling expenses. Any further write-down of real estate owned is charged against earnings. At December 31, 2008, we owned $769,000 of property classified as real estate owned.

~~Delinquent~~Loan Origination, ~~Loans~~Solicitation and Processing. ~~The~~ Loan ~~following~~originations ~~table~~are ~~sets~~derived from ~~forth~~a number of sources such as real estate broker referrals, existing customers, builders, attorneys and walk-in customers. Upon receipt of a loan application, a credit report is obtained to verify specific information ~~regarding~~relating ~~our~~to ~~delinquent~~the ~~loans~~applicant’s employment, income, and ~~other~~credit standing. In the case of a real estate ~~owned~~loan, atan appraisal of the ~~dates~~real ~~indicated~~estate intended to secure the proposed loan is undertaken by an independent appraiser approved by us. AsA loan application file is first reviewed by a loan officer in our loan department who checks applications for accuracy and completeness, and verifies the information provided. The financial resources of the ~~dates~~borrower ~~indicated,~~and wethe ~~had~~borrower’s ~~immaterial~~credit ~~restructured~~history, as well ~~loans~~as ~~within~~the collateral securing the ~~meaning~~loan, are considered an integral part of ~~Statements~~each risk evaluation prior to approval. The board of ~~Financial~~directors ~~Accounting~~has established ~~Standards~~individual ~~Nos~~lending authorities for each loan officer by loan type. Loans over an individual officer’s lending limits must be 15approved by the officers’ loan committee consisting of the chairman of the board, ~~114~~president, chief lending officer and ~~118. At~~all ~~December~~lending 31officers, which meets ~~2008,~~three ~~loans~~times ~~delinquent~~a 60week, toand 89has ~~days~~lending ~~totaled~~authority up to $~~592~~500,000 depending on the type of loan. Loans with a principal balance over this limit, orup to $1.0 million, must be approved by the directors’ loan committee, which meets weekly and consists of the chairman of the board, president, senior vice president, chief lending officer and at least two outside directors, plus all lending officers as non-voting members.~~32%~~ The board of ~~net~~directors approves all loans with a principal balance over $1.0 million. The board of directors ratifies all loans we originate. Once the loan is approved, the applicant is informed and a closing date is scheduled. We typically fund loan commitments within 30 days.

	At December 31,
	2008			2007			2006			2005			2004
	(Dollars in Thousands)
Non-accruing loans:
One- to four-family residential	$	445		$	310		$	435		$	624		$	711
Commercial and agricultural real estate		34			218			759			—			181
Multi-family residential real estate		152			-			-			-			-
Commercial and agricultural business		48			82			45			290			57
Home equity/home improvement		318			89			100			222			652
Automobile		3			12			1			1			68
Other consumer		5			12			8			20			20
Total		1,005			723			1,348			1,157			1,689
Accruing loans delinquent more than 90 days:
One- to four-family residential		163		$	203		$	—		$	2		$	270
Commercial and agricultural real estate		—			156			—			—			—
Commercial and agricultural business		—			—			—			—			23
Automobile		18			—			—			17			4
Other consumer		5			9			4			2			1
Total		186			368			4			21			298
Foreclosed assets:
One- to four-family residential	$	565		$	115		$	37		$	276		$	426
Commercial and agricultural real estate		204			249			115			180			139
Automobile		9			23			—			15			19
Total		778			387			152			471			584
Total non-performing assets	$	1,969		$	1,478		$	1,504		$	1,649		$	2,571
Total as a percentage of total assets		0.68	%		0.51	%		0.56	%		0.65	%		1.01	%

~~Interest~~Origination, Purchase ~~income~~and ~~that~~Sale ~~would~~of ~~have~~Loans. Set ~~been~~forth below is a table showing ~~recorded~~our ~~under~~loan originations, purchases, sales and repayments for the ~~original~~years indicated. It ~~terms~~is ofour ~~loans~~policy ~~classified~~to asoriginate ~~non~~for sale into the secondary market fixed-~~accruing~~rate mortgage loans ~~totaled~~ ~~approximately~~with ~~$49,000~~maturities of 15 years or more and to originate for ~~the~~retention ~~year~~in ~~ended~~our ~~December~~portfolio ~~31,~~adjustable-rate mortgage loans and ~~2008~~loans with balloon payments. ~~Interest~~Purchased ~~income~~loans ~~from~~consist ~~such~~of participations ~~loans~~in ~~that~~commercial ~~was~~real ~~included~~estate inand ~~net~~commercial ~~income~~business loans ~~for~~originated ~~the~~by ~~year~~other ~~ended~~financial ~~December~~institutions. We ~~31,~~usually ~~2008~~obtain commitments ~~totaled~~prior ~~$43,000~~to selling fixed-rate mortgage loans.

Classified Assets. Federal and state regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examination of insured institutions, Federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. For assets classified “substandard” and “doubtful,” the institution is required to establish general loan loss reserves in accordance with accounting principles generally accepted in the United States of America. Assets classified “loss” must be either completely written off or supported by a 100% specific reserve. The Bank also maintains a category designated “special mention” which is established and maintained for assets not currently requiring classification but having potential weaknesses or risk characteristics that could result in future problems. An institution is required to develop an in-house program to classify its assets, including investments in subsidiaries, on a regular basis and set aside appropriate loss reserves on the basis of such classification. As part of the periodic exams of Jacksonville Savings Bank by the Federal Deposit Insurance Corporation and the Illinois Commissioner of Banks and Real Estate (“Commissioner”), the staff of such agencies reviews our classifications and determine whether such classifications are adequate. Such agencies have, in the past, and may in the future require us to classify certain assets which management has not otherwise classified or require a classification more severe than established by management. At December 31, 2008, our classified assets totaled $2.4 million, all of which were classified as substandard.

	For the Years Ended December 31,
	2009		2008		2007		2006		2005
	(In Thousands)

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

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

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

~~Management’s policy is to provide for~~Loan ~~estimated losses on our loan portfolio based on management’s evaluation of the probable losses that may be incurred~~Concentrations. ~~Management~~ With ~~regularly reviews~~certain ~~our loan portfolio~~exceptions, ~~including~~an ~~problem~~Illinois-chartered ~~loans,~~savings tobank ~~determine~~may ~~whether~~not ~~any~~make ~~loans require~~a ~~classification~~loan or ~~the establishment of appropriate reserves or~~exceed ~~allowances~~credit for ~~losses. Such~~secured ~~evaluation,~~and ~~which~~unsecured ~~includes a review of all~~ loans offor ~~which full collectibility of interest and principal may not be reasonably assured~~business, ~~considers~~commercial, ~~among~~corporate ~~other matters, the estimated net realizable~~or ~~value~~agricultural ofpurposes ~~the~~to ~~underlying~~a ~~collateral. Other~~single ~~factors~~borrower ~~considered~~in ~~by management~~excess ~~include the size and risk exposure~~ of ~~each~~25% ~~segment~~ of the ~~loan~~Jacksonville ~~portfolio,~~Savings ~~present~~Bank’s ~~indicators~~total ~~such~~capital, as ~~delinquency~~defined ~~rates~~by ~~and~~regulation. At ~~the borrower’s~~December ~~current~~31, ~~financial condition~~2009, ~~and~~our ~~the~~loans-to-one ~~potential~~borrower ~~for~~limit ~~losses~~was in$6.0 ~~future periods~~million. ~~Management~~At December ~~calculates~~31, ~~the~~2009 ~~general~~we ~~allowance~~had ~~for~~no ~~loan~~lending ~~losses~~ relationships in ~~part~~excess ~~based~~of onour ~~past~~loans-to-one borrower ~~experience~~limitation. ~~While~~At ~~current~~December ~~year~~31, ~~additions~~2009, towe ~~the general~~had ~~loss~~16 ~~allowances~~loans ~~are~~in ~~charged against earnings, a portion~~ excess of ~~general~~$1.0 ~~loan loss~~million ~~allowances~~totaling ~~are~~in ~~added~~the ~~back~~aggregate to$41.6 ~~capital~~million toor ~~the~~23.6% ~~extent~~of ~~permitted~~our ~~in computing~~total ~~risk-based~~loan ~~capital under Federal and state regulations~~portfolio.

~~The level of the allowance for loan~~Delinquencies losses is based on ongoing, quarterly assessments of the probable estimated losses in the loan portfolio. Our methodology for assessing the appropriateness of the allowance consists of applying several formula methods to identified problem loans and ~~portfolio~~Classified segments. The allowance is calculated by applying loss factors to outstanding loan balances, based on an internal risk grade of such loans or pools of loans. Changes in risk grades of both performing and nonperforming loans affect the amount of the allowance. Loss factors are based primarily on historical loss experience over the past five years, and may be adjusted for other significant conditions that, in management’s judgment, affect the collectibility of the loan portfolio.Assets

~~Since~~Our collection procedures provide that when a mortgage loan is either ten days (in the ~~adequacy~~case of ~~the~~adjustable-rate ~~allowance~~mortgage ~~for loan~~and ~~losses~~balloon isloans) ~~based~~or ~~upon~~15 ~~estimates~~days (in the case of ~~probable~~fixed-rate ~~losses~~loans) past due, ~~actual~~a ~~losses~~computer-generated ~~can~~late ~~vary significantly~~charge ~~from~~notice is sent to the ~~estimated~~borrower ~~amounts~~requesting payment and assessing a late charge. ~~The~~ ~~historical~~If ~~loss~~the ~~factors~~mortgage ~~attempt~~loan remains delinquent, a telephone call is made or a letter is sent to ~~reduce~~the borrower ~~this~~stressing ~~variance~~the byimportance ~~taking~~of ~~into~~reinstating ~~account~~the ~~recent~~loan ~~loss~~and obtaining reasons ~~experience~~for the delinquency. ~~Management~~ ~~evaluates~~We ~~several~~also ~~other~~send ~~conditions~~a ~~in connection~~30 ~~with~~day ~~the~~notice ~~allowance,~~pursuant ~~including~~to ~~general~~Illinois ~~economic~~law ~~and~~if ~~business~~a ~~conditions,~~borrower’s ~~credit~~primary ~~quality~~residence ~~trends,~~is the collateral ~~values,~~at issue. When a loan continues ~~volumes~~in a delinquent status for 60 days or more, and a repayment schedule ~~concentrations~~has not been made or kept by the borrower, ~~seasoning~~a notice of intent to foreclose upon the ~~portfolio~~underlying property is then sent to the borrower, ~~and~~giving ~~regulatory~~10 ~~examination~~days to cure the ~~results~~delinquency. ~~Management~~If ~~believes~~not ~~the~~cured, ~~current~~foreclosure ~~balance~~proceedings ofare initiated. Consumer ~~the~~loans ~~allowance~~receive ~~for~~a ten-day grace period before a ~~loan~~late ~~losses~~charge is ~~adequate~~assessed. ~~Management~~Collection ~~will~~efforts ~~continue~~begin toafter ~~monitor~~the grace period expires. At December 31, 2009, 2008, and 2007 the ~~loan~~percentage ~~portfolio~~of non-performing loans to total loans receivable were 1.11%, 0.64% and ~~assess~~0.61%, respectively. At December 31, 2009, 2008, and 2007, the ~~adequacy~~percentage of non-performing ~~the~~assets ~~allowance~~to attotal ~~least~~assets was 0.81%, 0.68%, and 0.51%, ~~quarterly~~respectively.

~~For the years ended December 31, 2008,~~Non-performing ~~2007,~~Assets and ~~2006,~~Delinquent ~~we provided $310,000, $155,000 and $60,000, respectively, to the allowance for loan losses~~Loans. ~~Our~~Loans ~~allowance~~are ~~for~~reviewed ~~loan~~on ~~losses~~a ~~totaled $1.9~~regular ~~million,~~basis ~~$1.8 million~~ and ~~$1.9~~are ~~million~~placed aton ~~December~~nonaccrual ~~31,~~status ~~2008~~when, ~~2007~~in ~~and~~the ~~2006, respectively. Although~~opinion weof ~~maintain our allowance for loan losses at a~~management, ~~level~~the ~~which~~collection itof ~~considers~~additional tointerest beis ~~adequate~~doubtful. The toaccrual ~~provide for potential losses, there~~of ~~can~~interest beon noloans ~~assurance~~is ~~that~~discontinued ~~such~~at ~~losses~~the ~~will~~time ~~not exceed~~ the ~~estimated~~loan ~~amounts~~is ~~or that~~90 wedays ~~will~~past ~~not~~due unless ~~be required to make additions to~~ the ~~allowance for~~ loan ~~losses in~~is ~~the~~well ~~future. Future~~secured ~~additions to our allowance for loan losses~~ and ~~changes~~ in the ~~related~~process ~~ratio~~ of ~~the~~collection. ~~allowance for loan losses to nonperforming~~Interest ~~loans~~accrued ~~are~~and ~~dependent~~unpaid ~~upon~~at the ~~economy,~~time ~~changes~~a inloan ~~real~~is ~~estate~~placed ~~values~~on ~~and~~nonaccrual ~~interest rates,~~status ~~the~~is ~~view of the regulatory authorities toward adequate loan loss reserve~~charged ~~levels,~~against ~~and~~interest ~~inflation~~income. ~~Management~~Subsequent ~~will~~payments ~~continue~~are toeither ~~review~~applied to the ~~entire loan~~outstanding ~~portfolio~~principal tobalance ~~determine~~or ~~the~~recorded ~~extent,~~as ifinterest ~~any~~income, todepending ~~which~~on management’s ~~further~~assessment ~~additional~~of ~~loan loss~~the ~~provisions~~ultimate ~~may~~collectability beof ~~deemed~~the ~~necessary~~loan.

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

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

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

~~Analysis~~ The third borrower had loans with an aggregate balance of $526,000 at December 31, 2008 secured by the ~~Allowance~~borrower’s ~~for~~personal ~~Loan~~residence and commercial real ~~Losses~~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 ~~following~~borrower ~~table~~has ~~summarizes~~been ~~changes~~involved in ~~the~~a business-related dispute ~~allowance~~with ~~for~~his ~~loan~~former ~~losses~~partner byand ~~loan~~has ~~categories~~been forced to file for bankruptcy. He ~~each~~is ~~year~~attempting ~~indicated~~to sell his personal residence and all ~~additions~~of the commercial properties in order to cure this delinquency. We have provided $29,000 during 2009 to the allowance for loan losses, ~~which~~for ~~have~~potential losses ~~been~~related ~~charged~~ to ~~operations~~ this lending relationship.

	For the Years Ended December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands)
Balance at beginning of year	$	1,766		$	1,864		$	1,846		$	1,888		$	2,186
Charge-offs:
One- to four-family residential		149			165			55			161			179
Commercial and agricultural real estate		—			38			30			53			244
Commercial and agricultural business		—			35			16			8			186
Home equity/home improvement		46			18			101			145			294
Automobile		8			—			2			30			137
Other consumer		3			45			14			36			33
Total		206			301			218			433			1,073
Recoveries:
One- to four-family residential		14			5			78			14			36
Commercial and agricultural real estate		15			6			8			—			119
Commercial and agricultural business		16			—			—			—			12
Home equity/home improvement		4			3			34			98			14
Automobile		5			13			17			17			23
Other consumer		10			21			39			17			21
Total		64			48			176			146			225
Net loans charge-offs		142			253			42			287			848
Additions charged to operations		310			155			60			245			550
Balance at end of year	$	1,934		$	1,766		$	1,864		$	1,846		$	1,888
Total loans outstanding	$	184,991		$	177,662		$	156,731		$	144,293		$	127,855
Average net loans outstanding	$	177,963		$	165,715		$	149,238		$	137,740		$	128,279
Allowance for loan losses as a percentage of total loans at end of year		1.05	%		0.99	%		1.19	%		1.28	%		1.48	%
Net loans charged off as a percent of average net loans outstanding		0.08	%		0.15	%		0.03	%		0.21	%		0.66	%
Ratio of allowance for loan losses to nonperforming loans		162.38	%		161.90	%		137.90	%		156.71	%		95.02	%
Ratio of allowance for loan losses to total nonperforming assets at end of period		98.22	%		119.49	%		123.94	%		111.95	%		73.43	%

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

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

~~Allocation of Allowance for Loan~~Non-Performing ~~Losses~~Assets. The ~~following~~ table below sets forth the ~~allocation~~amounts ofand categories ~~allowance~~of ~~for~~our ~~loan~~non-performing ~~losses~~assets ~~by loan category~~ at the dates indicated. At ~~The~~December ~~table~~31, ~~reflects~~2009, ~~the~~2008, ~~allowance~~2007, ~~for~~2006 ~~loan~~and ~~losses~~2005, aswe ahad ~~percentage~~troubled ofdebt ~~net~~restructurings (loans for ~~receivable. Management~~which ~~believes~~a ~~that~~portion ~~the~~of ~~allowance~~interest ~~can~~or beprincipal ~~allocated by~~has ~~category~~been ~~only~~forgiven onand anloans ~~approximate~~modified ~~basis. The allocation of the~~at ~~allowance~~interest byrates ~~category~~materially isless ~~not~~than ~~necessarily~~current ~~indicative~~market rates) of ~~future~~$1.3 ~~losses and does~~million, ~~not~~$435,000, ~~restrict~~$323,000, ~~the~~$273,000 ~~use~~and of$292,000, ~~the allowance to absorb losses in any category~~respectively.

	At December 31,
	2008						2007						2006
	2009			2008			2007			2006			2005
	Amount			% of Loans in Each Category to Net Loans			Amount			% of Loans in Each Category to Net Loans			Amount			% of Loans in Each Category to Net Loans
	(Dollars in Thousands)
	(Dollars in Thousands)
Non-accrual loans:
One- to four-family residential	$	510			25.6	%	$	595			28.7	%	$	512			26.2	%
Real estate loans:
Commercial and agricultural real estate		537			30.9			346			25.1			244			25.6
One- to four-family residential	$	484		$	445		$	310		$	435		$	624
Multi-family residential		12			2.5			28			2.7			37			3.8
Commercial and agricultural		98			34			218			100			—
Commercial and agricultural business		304			19.3			146			20.8			275			21.2
Multi-family residential		132			152			—			—			—
Home equity/home improvement		301			16.4			465			17.1			561			17.6
Commercial and agricultural business loans		416			48			82			704			290
Automobile		33			3.2			74			3.0			96			3.4
Consumer loans:
Other consumer		52			3.2			112			3.6			139			3.4
Home equity/home improvement		407			318			89			100			222
Unallocated		185			—			—			—			—			—
Automobile		8			3			12			1			1
Total	$	1,934			101.1	%	$	1,766			101.00	%	$	1,864			101.2	%
Other		52			5			12			8			20
Total non-accrual loans		1,597			1,005			723			1,348			1,157
Loans delinquent 90 days or greater and still accruing:
Real estate loans:
One- to four-family residential		349			163			203			—			2
Commercial and agricultural		—			—			156			—			—
Multi-family residential		—			—			—			—			—
Commercial and agricultural business loans		—			—			—			—			—
Consumer loans:
Home equity/home improvement		—			—			—			—			—
Automobile		3			18			—			—			17
Other		5			5			9			4			2
Total loans delinquent 90 days or greater and still accruing		357			186			368			4			21
Total non-performing loans		1,954			1,191			1,091			1,352			1,178
Other real estate owned and foreclosed assets:
Real estate loans:
One- to four-family residential		324			565			115			37			276
Commercial and agricultural		59			204			249			115			180
Multi-family residential		—			—			—			—			—
Commercial and agricultural business loans		—			—			—			—			—
Consumer loans:
Home equity/home improvement		—			—			—			—			—
Automobile		—			9			23			—			15
Other		—			—			—			—			—
Total other real estate owned and foreclosed assets		383			778			387			152			471
Total non-performing assets	$	2,337		$	1,969		$	1,478		$	1,504		$	1,649
Ratios:
Non-performing loans to total loans		1.11	%		0.64	%		0.61	%		0.86	%		0.82	%
Non-performing assets to total assets		0.81			0.68			0.51			0.56			0.65

	At December 31,
	2005					2004
	Amount		% of Loans in Each Category to Net Loans			Amount		% of Loans in Each Category to Net Loans
	(Dollars in Thousands)
One- to four-family residential	$	448		28.2	%	$	520		33.1	%
Commercial and agricultural real estate		199		23.8			198		19.5
Multi-family residential		40		4.2			8		1.8
Commercial and agricultural business		129		20.2			71		20.8
Home equity/home improvement		785		18.5			845		19.3
Automobile		110		3.2			140		3.6
Other consumer		135		3.3			106		3.5
Total	$	1,846		101.4	%	$	1,888		101.6	%

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

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

~~Our investment portfolio includes available-for-sale investment securities and mortgage backed securities, other investments, and Federal Home Loan Bank stock.~~ The ~~portfolio consists~~ ~~primarily~~following oftable U.sets S.forth ~~government~~certain ~~and~~information ~~agency securities, along~~ with ~~mortgage-backed securities~~respect ~~(discussed~~to below), interest-earning deposits in other financial institutions, Federal funds sold, municipal bonds and Federal Home Loan Bank stock. Our portfolio of equity investment securities totaled $48,000 at December 31, 2008 consisting of an interest in a local community development corporation and Farmer Mac stock. In addition, our ~~investment~~loan portfolio ~~included~~delinquencies ~~$30.0 million of local municipal bonds. Federal funds sold totaled $460,000~~ at December 31, 2008. Our portfolio of U.S. Government and agency Securities totaled $19.8 million at December 31, 2008. Our holdings of Federal Home Loan Bank stock totaled $1.1 million at December 31, 2008. We had $393,000 in interest-earning deposits at December 31, 2008 consisting of deposits in the ~~Federal~~dates ~~Home Loan Bank and other correspondent accounts~~indicated. Total long-term investments at December 31, 2008 were $49.7 million. We expect our short-term and long-term investment portfolio to continue to change based on liquidity needs associated with loan origination activities. During the year ended December 31, 2008, we had no investments that were deemed to be other than temporarily impaired.

Under Federal regulations, we are required to maintain a minimum amount of liquid assets that may be invested in specified short-term securities and certain other investments. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management’s judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of the level of yield that will be available in the future, as well as management’s projections as to the short-term demand for funds to be used in our loan originations and other activities. Our liquidity ratio at December 31, 2008 was 24.1%, which was adequate to meet our normal business activities.

	Loans Delinquent For
	60-89 Days				90 Days and Over				Total
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in Thousands)

At December 31, 2009
Real estate loans:
One- to four-family residential		6	$	215		13	$	907		19	$	1,122
Commercial and agricultural		3		668		2		75		5		743
Multi-family residential		—		—		—		—		—		—
Commercial and agricultural business loans		1		14		2		109		3		123
Consumer loans:
Home equity/home improvement		4		43		11		203		15		246
Automobile		2		7		2		4		4		11
Other		3		1		7		31		10		32

Total loans		19	$	948		37	$	1,329		56	$	2,277

At December 31, 2008
Real estate loans:
One- to four-family residential		4	$	436		15	$	695		19	$	1,131
Commercial and agricultural		—		—		—		—		—		—
Multi-family residential		—		—		—		—		—		—
Commercial and agricultural business loans		—		—		—		—		—		—
Consumer loans:
Home equity/home improvement		7		102		9		188		16		290
Automobile		5		22		5		18		10		40
Other		9		32		7		6		16		38

Total loans		25	$	592		36	$	907		61	$	1,499

At December 31, 2007
Real estate loans:
One- to four-family residential		1	$	79		12	$	610		13	$	689
Commercial and agricultural		—		—		1		102		1		102
Multi-family residential		—		—		—		—		—		—
Commercial and agricultural business loans		—		—		2		115		2		115
Consumer loans:
Home equity/home improvement		5		76		4		78		9		154
Automobile		4		21		3		15		7		36
Other		3		23		4		6		7		29

Total loans		13	$	199		26	$	926		39	$	1,125

At December 31, 2006
Real estate loans:
One- to four-family residential		9	$	323		6	$	270		15	$	593
Commercial and agricultural		—		—		2		145		2		145
Multi-family residential		—		—		—		—		—		—
Commercial and agricultural business loans		—		—		1		659		1		659
Consumer loans:
Home equity/home improvement		7		146		5		191		12		337
Automobile		2		1		1		1		3		2

Mortgage-Backed Securities. We also invest in mortgage-backed securities issued or guaranteed by the United States Government or agencies thereof. These securities, which consist primarily of mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, had an amortized cost of $27.4 million, $15.5 million and $8.5 million at December 31, 2008, 2007, and 2006, respectively. At December 31, 2008, all of the mortgage-backed securities in the investment portfolio had fixed-rates of interest. The market value of our mortgage-backed securities portfolio was $27.8 million, $15.4 million and $8.2 million at December 31, 2008, 2007, and 2006, respectively, and the weighted average rate as of December 31, 2008, 2007, and 2006 was 4.95%, 4.85% and 4.27%, respectively.

Set forth below is a table showing our purchases, sales and repayments of mortgage-backed securities for the years indicated.

	For the Years Ended December 31,
	2008			2007		2006			2005			2004
	(In Thousands)
Mortgage-backed securities at beginning of year	$	15,415		$	8,210	$	8,646		$	15,171		$	7,597
Purchases		27,733			9,386		1,096			686			12,605
Sales		11,560			456		—			4,556			1,470
Repayments		4,254			1,896		1,485			2,351			3,439
Premium (amortization) accretion		(29	)		2		(25	)		(66	)		(113	)
Net unrealized gain (loss)		490			169		(22	)		(238	)		(9	)
Mortgage-backed securities at end of year	$	27,795		$	15,415	$	8,210		$	8,646		$	15,171

Investment Securities and Short-Term Investment Portfolio. The following table sets forth the carrying value of our investment securities portfolio and short-term investments at the dates indicated. At December 31, 2008, the market value of our short-term investment portfolio approximated its cost.

	Loans Delinquent For
	60-89 Days				90 Days and Over				Total
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in Thousands)

Other		2		7		2		7		4		14

Total loans		20	$	477		17	$	1,273		37	$	1,750

At December 31, 2005
Real estate loans:
One- to four-family residential		6	$	155		9	$	465		15	$	620
Commercial and agricultural		—		—		3		260		3		260
Multi-family residential		—		—		—		—		—		—
Commercial and agricultural business loans		2		5		—		—		2		5
Consumer loans:
Home equity/home improvement		6		134		5		213		11		347
Automobile		4		13		3		18		7		31
Other		3		12		3		30		6		42

Total loans		21	$	319		23	$	986		44	$	1,305

	At December 31,
	2008		2007		2006		2005		2004
	(In Thousands)
Investment securities:
FHLB stock	$	1,109	$	1,109	$	1,109	$	1,539	$	1,466
Municipal bonds and equity securities		30,045		15,224		5,634		1,199		2,015
U.S. Government and agency securities		19,834		49,962		73,215		78,083		83,192
Total investment securities	$	50,988	$	66,295	$	79,978	$	80,821	$	86,673
Short-term investments:
Interest-earning deposits in other depository institutions	$	393	$	5,130	$	3,127	$	1,444	$	4,793
Federal funds sold		460		—		—		—		—
Total short-term investments	$	853	$	5,130	$	3,127	$	1,444	$	4,793

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

The ~~following~~total amount ~~table~~of ~~sets~~classified ~~forth~~and ~~the~~special mention assets increased $1.6 million, or ~~maturities~~16.4%, to $11.4 million at December 31, 2009 from $9.8 million at December 31, 2008. The increase in classified and ~~weighted~~special ~~average~~mention ~~yields~~assets during 2009 was primarily due to an increase of ~~our~~$2.5 ~~securities~~million ~~portfolio~~in substandard loans, partially ~~excluding~~offset by a decrease of $880,000 in special mention ~~FHLB~~loans. The ~~stock~~decrease in special mention loans was primarily due to $2.4 million in loans that were downgraded to a substandard rating and ~~equity~~$500,000 in ~~securities~~principal reductions on these loans, atpartially ~~December~~offset 31by $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 ~~2008~~of additional loans rated as substandard during 2009, partially offset by charge-offs of $427,000 and principal reductions of $164,000.

	Carrying Value at December 31, 2008
	Less than 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total Investment Securities
	(Dollars in Thousands)
Securities available-for-sale:
U.S. Government and agency securities	$	—		$	6,044		$	12,768		$	1,022		$	19,834
Municipal bonds		146			5,434			16,357			8,060			29,997
Total	$	146		$	11,478		$	29,125		$	9,082		$	49,831
Weighted average yield		4.25	%		3.85	%		4.34	%		4.44	%		4.25	%

Sources of Funds

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

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

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

The following table sets forth our deposit activities for the years indicated.

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

	For the Years Ended December 31,
	2008			2007		2006		2005			2004
	(In Thousands)
Deposits	$	1,264,153		$	1,037,465	$	934,581	$	880,758		$	820,349
Withdrawals		1,278,592			1,030,118		924,401		891,454			833,264
Net increase (decrease) before interest credited		(14,439	)		7,347		10,180		(10,696	)		(12,915	)
Interest credited		6,869			5,461		4,364		3,332			3,476
Net increase (decrease) in deposits	$	(7,570	)	$	12,808	$	14,544	$	(7,364	)	$	(9,439	)

Allowance for Loan Losses

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

~~Our~~The allowance ~~deposits~~for asloan losses is evaluated on a regular basis by management and is based upon management’s periodic review of ~~December~~the 31collectability of the loans in light of historical experience, ~~2008~~the nature and volume of the loan portfolio, ~~were~~adverse ~~represented~~situations bythat may affect the ~~various~~borrower’s ~~types~~ability to repay, estimated value of ~~deposit~~any ~~programs~~underlying ~~described~~collateral and prevailing economic ~~below:~~conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Weighted Average Interest Rate	Minimum Term	Demand Accounts	Minimum Amount		Balances		Percentage of Total Deposits
			(In Thousands)
0.00%	None	Noninterest-bearing checking	$	50	$	19,526		8.20	%
0.35	None	Interest-bearing checking		50		28,381		11.92
0.86	None	Money market deposit accounts		2,500		4,433		1.86
2.15	None	Money market savings account		2,500		22,591		9.49
0.98	None	Savings		50		22,724		9.54
		Certificates of Deposit
3.35	Less than 1 year	Fixed term, fixed rate	$	500	$	106,480		44.71
3.99	1-2 years	Fixed term, fixed rate		500		23,848		10.01
4.12	2-3 years	Fixed term, fixed rate		500		6,108		2.57
4.46	3-4 years	Fixed term, fixed rate		500		2,220		0.93
4.30	Over 4 years	Fixed term, fixed rate		500		1,840		0.77
					$	238,151		100.00	%

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

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

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

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

●	changes in lending policies and procedures, including underwriting standards and collection practices;

●	changes in national and local economic and business conditions and developments, including the condition of various market segments;

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

~~The~~Commercial and ~~following~~agricultural ~~table~~real ~~sets~~estate ~~forth~~loans ~~the~~generally have higher credit risks compared ~~change~~to inone- ~~dollar~~to ~~amount~~four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of ~~savings~~related borrowers. In ~~deposits~~addition, inpayment experience on loans secured by income-producing properties typically depend on the ~~various~~successful ~~types~~operation of ~~savings~~the ~~accounts~~related wereal ~~offer~~estate ~~between~~project and this may be subject to a greater extent to adverse conditions in the ~~dates~~real ~~indicated~~estate market and in the general economy.

	At December 31,
	2008								2007								2006								2005
	Balance		Percent			Change			Balance		Percent			Change			Balance		Percent			Change			Balance		Percent			Change
	(Dollars in Thousands)
Club accounts	$	121		0.05	%	$	(12	)	$	133		0.05	%	$	(13	)	$	146		0.06	%	$	9		$	137		0.06	%	$	11
Noninterest-bearing checking		19,526		8.20			1,466			18,060		7.35			2,947			15,113		6.49			599			14,514		6.65			290
Interest-bearing checking		28,381		11.92			1,097			27,284		11.10			266			27,018		11.60			(238	)		27,256		12.48			19
Savings		22,603		9.49			1,702			20,901		8.51			(1,528	)		22,429		9.63			(6,441	)		28,870		13.29			(960	)
Money market deposit accounts		4,433		1.86			(18	)		4,451		1.81			(814	)		5,265		2.26			(3,515	)		8,780		4.02			(470	)
Money market savings accounts		22,591		9.49			(1,968	)		24,559		10.00			7,719			16,840		7.23			16,840			—		—			—
Certificates of deposit that mature:
Within 12 months		106,480		44.71			(11,795	)		118,275		48.13			10,630			107,645		46.22			7,777			99,868		45.67			(6,499	)
Within 12-36 months		29,956		12.58			2,241			27,715		11.28			(2,136	)		29,851		12.82			2,119			27,732		12.70			(578	)
Beyond 36 months		4,060		1.70			(283	)		4,343		1.77			(4,263	)		8,606		3.69			(2,607	)		11,213		5.13			823
Total	$	238,151		100.00	%	$	(7,570	)	$	245,721		100.00	%	$	12,808		$	232,913		100.00	%	$	14,543		$	218,370		100.00	%	$	(7,364	)

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

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

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

~~Large~~Although ~~Certificates~~we ofmaintain our allowance for ~~Deposit~~loan losses at a level which we consider to be adequate to provide for potential losses, there can be no assurance that such losses will not exceed the estimated amounts or that we will not be required to make additions to the allowance for loan losses in the future. ~~The~~Future ~~following~~additions ~~table~~to ~~indicates~~our allowance for loan losses and changes in the ~~balances~~related ratio of the allowance for loan losses to ~~certificates~~non-performing ofloans ~~deposit~~are ofdependent ~~$100~~upon the economy,~~000~~ orchanges ~~more~~in byreal ~~time~~estate values ~~remaining~~and ~~until~~interest ~~maturity~~rates, as the view of ~~December~~the 31regulatory authorities toward adequate loan loss reserve levels, ~~2008~~and inflation. Management will continue to review the entire loan portfolio to determine the extent, if any, to which further additional loan loss provisions may be deemed necessary.

Maturity Period	Certificates of Deposit
	(In Thousands)
Less than 3 months	$	14,655
3-6 months		11,106
6-12 months		24,146
Over 12 months		9,356
Total	$	59,263

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

Borrowings

	For the Years Ended December 31,
	2009			2008			2007			2006			2005
	(Dollars in Thousands)

Balance at beginning of year	$	1,934		$	1,766		$	1,864		$	1,846		$	1,888

Charge-offs:
One- to four-family residential		147			149			165			55			161
Commercial and agricultural real estate		112			—			38			30			53
Commercial and agricultural business		1,883			—			35			16			8
Home equity/home improvement		58			46			18			101			145
Automobile		20			8			—			2			30
Other consumer		23			3			45			14			36
Total charge-offs		2,243			206			301			218			433

Recoveries:
One- to four-family residential		1			14			5			78			14
Commercial and agricultural real estate		4			15			6			8			—
Commercial and agricultural business		—			16			—			—			—
Home equity/home improvement		4			4			3			34			98
Automobile		7			5			13			17			17
Other consumer		8			10			21			39			17
Total recoveries		24			64			48			176			146

Net loans charge-offs		2,219			142			253			42			287
Additions charged to operations		2,575			310			155			60			245

Balance at end of year	$	2,290		$	1,934		$	1,766		$	1,864		$	1,846

Total loans outstanding	$	176,042		$	184,991		$	177,662		$	156,731		$	144,293
Average net loans outstanding	$	182,813		$	177,963		$	165,715		$	149,238		$	137,740

Allowance for loan losses as a percentage of total loans at end of year		1.29	%		1.05	%		0.99	%		1.19	%		1.28	%
Net loans charged off as a percent of average net loans outstanding		1.21	%		0.08	%		0.15	%		0.03	%		0.21	%
Allowance for loan losses to non-performing loans		117.20	%		162.47	%		161.90	%		137.90	%		156.75	%
Allowance for loan losses to total non-performing assets at end of year		97.99	%		98.22	%		119.49	%		123.94	%		111.95	%

Deposits are our primary source of funds for lending and investment activities. If the need arises, the Bank may rely upon advances from the Federal Home Loan Bank to supplement its supply of available funds and to fund deposit withdrawals. We typically secure advances from the Federal Home Loan Bank with one- to four-family residential mortgage loans, United States Government and agency securities and mortgage-backed securities. The Federal Home Loan Bank functions as a central reserve bank providing credit for us and other member savings associations and financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain of our home mortgages, provided certain standards related to creditworthiness have been met. Advances are made pursuant to several different programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of a member institution’s stockholders’ equity or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness. At December 31, 2008, we had $13.5 million in Federal Home Loan Bank advances outstanding.

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

The following table sets forth certain information regarding our borrowings for the years indicated.

	For the Years Ended December 31,
	2008			2007			2006			2005			2004
	(In Thousands)
Weighted average rate paid on:(1)
FHLB advances		3.91	%		5.02	%		4.53	%		3.91	%		1.68	%
Other borrowings		1.29	%		4.26	%		4.55	%		3.14	%		1.40	%
FHLB advances:
Maximum balance	$	21,000		$	18,000		$	10,000		$	15,500		$	9,000
Average balance	$	12,029		$	8,629		$	6,103		$	8,071		$	2,993
Other:
Maximum balance	$	7,633		$	5,838		$	5,035		$	3,350		$	3,372
Average balance	$	6,031		$	4,665		$	3,499		$	2,116		$	2,185

____________________________________

(1) Calculated using the daily weighted average interest rates.

~~The~~Allocation of Allowance for Loan Losses. The following table ~~summarizes~~sets ~~significant~~forth ~~contractual~~the allocation ~~obligations~~of allowance for loan losses by loan category at the dates indicated. The table reflects the allowance for loan losses as a percentage of total loans receivable. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance by category is not necessarily indicative of future losses and ~~other~~does ~~commitments~~not atrestrict ~~December~~the ~~31,~~use ~~2008~~of the allowance to absorb losses in any category.

	At December 31, 2008
	At December 31,
	Less than 1 year		1-3 years			3-5 years		More than 5 years			Total
	2009					2008					2007
	(In Thousands)
	Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans
Time deposits	$	106,480	$	29,956		$	4,060	$			$	140,496
	(Dollars in Thousands)
FHLB advances		13,500		—			—		—			13,500
One- to four-family residential	$	392		21.9	%	$	510		25.3	%	$	595		28.4	%
Other borrowings		7,633		—			—		—			7,633
Commercial and agricultural real estate		739		32.2			537		30.6			346		24.8
Total contractual obligations	$	127,613	$	29,956		$	4,060	$	—		$	161,629
Multi-family residential		73		2.5			12		2.4			28		2.7
Commercial and agricultural business		653		19.5			304		19.1			146		20.6
Home equity/home improvement		249		16.0			301		16.2			465		16.9
Automobile		26		3.5			33		3.2			74		3.0
Other consumer		62		4.4			52		3.2			112		3.6
Unallocated		96		—			185		—			—		—
Total	$	2,290		100	%	$	1,934		100	%	$	1,766		100	%

Trust Services

	At December 31,
	2006					2005
	Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in Thousands)

One- to four-family residential	$	512		25.9	%	$	448		27.8	%
Commercial and agricultural real estate		244		25.3			199		23.4
Multi-family residential		37		3.7			40		4.2
Commercial and agricultural business		275		21.0			129		19.9
Home equity/home improvement		561		17.3			785		18.3
Automobile		96		3.4			110		3.2
Other consumer		139		3.4			135		3.2
Total	$	1,864		100	%	$	1,846		100	%

~~We operate a full-service trust~~Investment department. As of December 31, 2008, our trust department was managing $48.9 million in trust assets. Trust fees collected in 2008 and 2007 totaled $221,000 and $104,000, respectively. The increase in fees is due to both asset growth and additional trust work performed during 2008.Activities

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

~~Jacksonville~~The investment ~~Savings~~policy ~~Bank~~is ~~has~~reviewed ~~one wholly~~at ~~owned~~least ~~subsidiary,~~annually ~~Financial~~by ~~Resources~~the ~~Group,~~full ~~Inc.~~board ~~(“Financial~~of ~~Resources”), an Illinois corporation~~directors. ~~Financial~~This ~~Resources~~policy isdictates ~~engaged in~~that ~~the~~investment ~~business~~decisions ofbe ~~originating~~made based ~~commercial~~on ~~business~~providing ~~loans~~liquidity, ~~and~~meeting ~~commercial~~pledging ~~real estate loans. In addition~~requirements, ~~Financial~~generating ~~Resources operates an investment~~a ~~center~~reasonable ~~engaged~~rate ~~in the business~~ of ~~buying and selling stocks~~return, ~~bonds,~~minimizing ~~annuities and~~our ~~mutual~~tax ~~funds~~liability ~~for~~through ~~its~~the ~~customers’~~purchase ~~accounts. At~~of municipal ~~December 31~~securities, ~~2008, we~~minimizing ~~had~~exposure ~~$3.2~~to ~~million~~credit inrisk ~~equity~~ and ~~retained earnings in Financial~~ensuring ~~Resources. For~~consistency ~~the~~with ~~year~~our ~~ended~~interest ~~December~~rate ~~31,~~risk ~~2008, Financial Resources~~management ~~had net income of $365,000~~strategy.

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

We encounter significant competition both in attracting deposits and in originating real estate and other loans. Our most direct competition for deposits has come historically from commercial banks, other savings banks, savings associations and credit unions in our market area, and we expect continued strong competition from such financial institutions in the foreseeable future. We compete for savings by offering depositors a high level of personal service and expertise together with a wide range of financial services.

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

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

Our market areas consist of Morgan, Macoupin, and Montgomery Counties, Illinois. Our market areas have a number of financial institutions, however, we are the largest independent financial institution headquartered in Jacksonville.

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

~~General. Jacksonville Bancorp,~~The ~~Inc.~~accounting ~~and~~rules ~~Jacksonville~~require ~~Bancorp~~that, ~~MHC are nondiversified savings and loan~~at ~~holding companies within~~ the ~~meaning~~time of ~~the Home Owners’ Loan Act. As such~~purchase, ~~they~~we ~~are~~designate ~~registered~~a ~~with~~security ~~the~~as ~~Office~~held ~~of Thrift Supervision and are subject~~ to ~~regulation by the Office of Thrift Supervision. Jacksonville~~maturity, ~~Savings Bank is an Illinois~~available-chartered savings bank subject to extensive regulation by the Illinois Commissioner of Banks and Real Estate (the “Commissioner”) and the Federal Deposit Insurance Corporation. Jacksonville Savings Bank’s deposit accounts are insured up to applicable limits by the Federal Deposit Insurance Corporation. Jacksonville Savings Bank must file reports with the Commissioner and the Federal Deposit Insurance Corporation concerning its activities and financial conditionfor-sale, ~~in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers~~ or ~~acquisitions~~ ~~with~~trading, ~~other~~depending ~~depository~~on ~~institutions. There~~our ~~are~~ability ~~periodic examinations of the Bank by the Commissioner~~ and ~~the Federal Deposit Insurance~~ ~~Corporation to review Jacksonville Savings Bank’s compliance with various regulatory requirements~~intent. ~~Jacksonville~~Securities ~~Savings~~available Bank is also subject to certain reserve requirements established by the Board of Governors of the Federal Reserve (the “FRB”). This regulation and supervision establishes a comprehensive framework of activities in which a savings bank can engage and is intended primarily for ~~the~~sale ~~protection~~are ofreported ~~the~~at ~~Federal~~fair Deposit Insurance Corporation and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policiesvalue, ~~including~~ ~~policies~~while ~~with~~securities ~~respect~~held to ~~the~~maturity ~~classification~~are ofreported ~~assets~~at ~~and~~amortized ~~the establishment of adequate loan loss reserves for regulatory purposes~~cost. ~~Any~~ ~~change~~We inonly ~~such~~maintain ~~regulation, whether by the Commissioner, the Federal Deposit Insurance Corporation, or Congress could have~~ a ~~material~~securities ~~impact~~available-for-sale ~~on the operations of Jacksonville Savings Bank~~portfolio. ~~Certain of the regulatory requirements applicable to Jacksonville Savings Bank are referred to below or elsewhere herein.~~

~~Capital Maintenance. Under~~The ~~Federal~~portfolio ~~Deposit~~consists ~~Insurance~~primarily ~~Corporation~~of ~~regulations~~mortgage-backed securities, ~~Jacksonville~~municipal ~~Savings~~bonds ~~Bank~~and ~~must~~U.S. ~~maintain~~government ~~minimum~~and ~~levels of~~agency ~~capital. The~~securities ~~regulations~~all ~~establish~~of awhich ~~minimum~~are ~~leverage~~classified ~~capital requirement~~as ofavailable ~~not~~for ~~less~~sale. ~~than~~Mortgage-backed securities 3%totaled ~~core~~$41.0 ~~capital~~million toat ~~total~~December ~~assets~~31, ~~for~~2009. General obligation ~~banks~~municipal inbonds, ~~the strongest~~most ~~financial~~of ~~and~~which ~~managerial~~have ~~condition,~~been ~~with~~issued within the ~~highest supervisory~~ ~~rating~~States of ~~the~~Illinois ~~federal~~and ~~regulators~~Missouri ~~for~~totaled ~~banks~~$28. ~~For~~1 ~~all~~million ~~other~~at ~~banks~~December 31, ~~the~~2009. Our ~~minimum~~portfolio ~~leverage~~of ~~capital~~U.S. ~~requirement~~Government isand ~~between~~agency 4%securities ~~and~~totaled 5%$9.1 ofmillion ~~total~~at ~~assets~~December 31, 2009. ~~Core~~We ~~capital~~expect ~~is composed of~~ the ~~sum~~composition of ~~common~~our ~~stockholders’~~investment ~~equity,~~portfolio ~~noncumulative~~to ~~perpetual~~continue ~~preferred~~to ~~stock~~change ~~(including~~based ~~any~~on ~~related~~liquidity ~~surplus) and~~needs ~~minority~~associated ~~interests~~with ~~in consolidated subsidiaries, minus all intangible assets~~loan ~~(other~~origination ~~than~~activities. During ~~qualifying~~the ~~mortgage~~year ~~servicing~~ended ~~rights~~December ~~and~~31, ~~qualifying~~2009, ~~supervisory~~we ~~intangible~~had ~~core~~no ~~deposits),~~investment ~~identified~~securities ~~losses,~~that ~~investments~~were indeemed ~~certain subsidiaries,~~to ~~and~~be ~~unrealized~~other ~~gains~~than ~~(losses) on investment~~temporarily ~~securities~~impaired.

~~The~~Under Federal ~~Deposit~~regulations, ~~Insurance~~we are ~~Corporation~~required ~~also~~to ~~requires~~maintain ~~that savings banks meet~~ a ~~risk-based~~minimum ~~capital standard. The~~amount ~~risk-based~~of ~~capital~~liquid ~~standard~~assets ~~requires~~that ~~the~~may ~~maintenance~~be ofinvested in ~~total~~specified ~~capital~~short-term ~~(which~~securities ~~is defined as core capital~~ and ~~supplementary~~certain ~~capital) to~~other ~~risk weighted assets of 8~~investments.~~0%.~~ InLiquidity ~~determining~~levels ~~the~~may ~~amount~~be ~~of risk-weighted~~increased ~~assets,~~or ~~all~~decreased ~~assets, including certain off balance sheet assets,~~depending ~~are~~upon ~~multiplied~~the byyields ~~a risk-weight of 0% to 100%, based~~ on ~~the~~investment ~~risks~~alternatives ~~the~~and ~~federal regulators~~upon ~~believe~~management’s ~~are~~judgment ~~inherent~~as in to the ~~type~~attractiveness of ~~asset. The~~the ~~components of~~yields ~~core~~then ~~capital~~available ~~are~~in ~~equivalent~~relation to ~~those~~other opportunities ~~discussed~~and ~~earlier~~its ~~under~~expectation of the 3%level ~~leverage requirement. The components~~ of ~~supplementary~~yield ~~capital~~that ~~currently include~~will ~~cumulative~~be ~~perpetual preferred stock, long-term perpetual preferred~~available ~~stock,~~in ~~mandatory~~the ~~convertible securities~~future, ~~subordinated~~as ~~debt~~well ~~and~~as ~~intermediate preferred~~management’s ~~stock~~projections ~~and~~as ~~allowance~~to ~~for~~the ~~loan~~short-term ~~and lease losses. Allowance~~demand for ~~loan~~funds ~~and~~to ~~lease~~be ~~losses~~used ~~includible~~ in ~~supplementary~~our ~~capital~~loan isoriginations ~~limited~~and toother ~~a maximum of 1~~activities.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At December 31, 2008, the Bank exceeded its applicable capital requirements.

~~Illinois Savings Bank~~Mortgage-Backed ~~Regulation~~Securities. AsWe aninvest ~~Illinois~~in mortgage-~~chartered~~backed ~~savings~~securities ~~bank,~~insured or ~~Jacksonville~~guaranteed ~~Savings~~by ~~Bank~~the isUnited ~~subject~~States toGovernment ~~regulation~~or ~~and~~government ~~supervision by the~~sponsored ~~Commissioner~~enterprises. ~~The~~These ~~Commissioner’s~~securities, ~~regulation~~which consist of ~~Jacksonville Savings~~mortgage-backed ~~Bank~~securities ~~covers,~~issued ~~among~~by ~~other~~Ginnie ~~things~~Mae, ~~Jacksonville~~Fannie ~~Savings Bank’s internal organization (i.e.~~Mae, ~~charter,~~ ~~bylaws,~~and ~~capital~~Freddie ~~requirements~~Mac, ~~transactions~~had ~~with~~an ~~directors and officers,~~amortized ~~and~~cost ~~composition~~ of ~~the~~$40.4 ~~board of directors)~~million, as$27.4 ~~well~~million asand ~~supervision~~$15.5 ~~of permissible~~million ~~activities~~at ~~and~~December ~~mergers~~31, 2009, 2008, and ~~acquisitions~~2007, respectively. ~~Jacksonville Savings~~The ~~Bank~~fair isvalue ~~required~~of toour ~~file~~mortgage-backed securities ~~periodic~~portfolio ~~reports~~was ~~with~~$41.0 million, ~~and~~$27.8 ismillion ~~subject~~and ~~to periodic~~$15.4 ~~examinations~~million at December ~~least~~31, ~~once~~2009, ~~within~~2008, ~~every~~and ~~18-month~~2007, ~~period~~respectively, byand the ~~Commissioner. The~~ ~~lending~~weighted ~~and~~average ~~investment~~rate as ~~authority~~ of ~~Jacksonville Savings~~December ~~Bank~~31, is2009, ~~prescribed~~2008, byand ~~Illinois~~2007 ~~law~~was ~~and regulations~~4.21%, as4.95% ~~well~~and as4.85%, ~~applicable~~respectively. ~~Federal~~At ~~laws~~December ~~and~~31, ~~regulations~~2009, ~~and~~$37.9 ~~Jacksonville~~million ~~Savings~~of ~~Bank~~the ismortgage-backed ~~prohibited~~securities ~~from engaging~~ in ~~any~~the ~~activities~~investment ~~not~~portfolio ~~permitted~~had byfixed-rates ~~such~~of ~~laws~~interest and $3.1 ~~regulations~~million had variable rates of interest.

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

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

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

~~Under~~U.S. ~~Illinois law, savings banks are~~Government ~~required~~and toAgency ~~maintain a minimum core capital to total assets ratio of 3%~~Securities. ~~The~~At ~~Commissioner~~December is31, ~~authorized~~2009, towe ~~require~~held ~~a savings bank to~~U.S. ~~maintain~~Government aand ~~higher~~agency ~~minimum~~securities ~~capital~~with ~~level~~a iffair ~~the~~value ~~Commissioner~~of ~~determines~~$9.1 ~~that~~million. ~~the~~These ~~savings~~securities ~~bank’s~~have ~~financial~~an ~~condition~~average orexpected ~~history,~~life ~~management~~of or2.44 ~~earnings~~years. ~~prospects are~~While ~~not~~these ~~adequate. If~~securities generally aprovide ~~savings~~lower ~~bank’s~~yields ~~core~~than ~~capital~~other ~~ratio~~investments ~~falls~~such ~~below the~~as ~~required level~~mortgage-backed securities, ~~the~~our ~~Commissioner~~current ~~may~~investment ~~direct~~strategy ~~the~~is ~~savings bank~~ to ~~adhere~~maintain toinvestments ain such ~~specific~~instruments ~~written~~to ~~plan established by~~ the ~~Commissioner~~extent toappropriate ~~correct~~for ~~the~~liquidity ~~savings bank’s capital deficiency~~purposes, as ~~well~~collateral ~~as a number of other restrictions on the~~for ~~savings bank’s operations~~borrowings, ~~including~~and afor ~~prohibition~~prepayment ~~on the declaration of dividends by the savings bank’s board of directors~~protection.

~~Under Illinois law, a savings bank may~~Investment ~~make~~Securities ~~both secured and unsecured loans~~Portfolio. ~~However,~~The ~~loans~~following ~~for~~table ~~business, corporate,~~sets ~~commercial~~forth ~~or agricultural purposes, whether secured or unsecured,~~the ~~may~~composition ~~not in the aggregate exceed 15%~~ of aour ~~savings~~investment ~~bank’s~~securities ~~total~~portfolio ~~assets~~at ~~unless authorized by~~ the ~~Commissioner. With~~dates ~~the prior written consent of the~~indicated. ~~Commissioner,~~Investment ~~savings~~securities ~~banks~~do ~~may also engage in real estate development activities, provided that the total investment in any one project may~~ not ~~exceed 15%~~include ofFederal ~~total~~Home ~~capital,~~Loan ~~and~~Bank ~~the total investment in all projects may not exceed 50%~~ of ~~total~~Chicago ~~capital. The~~stock ~~total loans and extensions~~ of ~~credit~~ ~~outstanding~~$1.1 ~~at one time, both direct and indirect, by a savings bank to any borrower may not exceed 25% of the savings bank’s total capital~~million. ~~At December~~All ~~31,~~of ~~2008,~~such ~~Jacksonville~~securities ~~Savings~~were ~~Bank~~classified ~~did~~as ~~not~~available ~~have any loans-to-one~~for ~~borrower which exceeded these limitations~~sale.

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

	At December 31,
	2009				2008				2007
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)

Mortgage-backed securities:
Fannie Mae	$	10,646	$	10,855	$	14,422	$	14,654	$	7,439	$	7,433
Freddie Mac		6,938		7,096		6,085		6,192		4,561		4,536
Ginnie Mae		22,844		23,034		6,877		6,949		3,495		3,446
Total mortgage-backed securities		40,428		40,985		27,384		27,795		15,495		15,415
U.S. government and agencies		9,037		9,080		19,472		19,834		50,107		49,962
Municipal bonds		27,661		28,116		30,067		29,805		14,796		14,933

Total	$	77,126	$	78,181	$	76,923	$	77,434	$	80,398	$	80,310

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