10-K 1 t67375_10k.htm FORM 10-K t67375_10k.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
   
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal ended December 31, 2009.
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______________ to ______________.
 
Commission file number: 000-49792
 
JACKSONVILLE BANCORP, INC.
(Exact name of registrant as specified in its charter)
       
 
Federal
  33-1002258  
(State or other jurisdiction of
     (I.R.S. 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) 245-4111
 
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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). 

 
YES o
NO o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.          x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
     
Large accelerated filer o
Accelerated filer 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, 2009, as reported by the Nasdaq Capital Market, was approximately $8.5 million.
 
As of March 1, 2010, there was issued and outstanding 1,920,817 shares of the Registrant’s Common Stock.
 
DOCUMENTS INCORPORATED BY REFERENCE:
   
 
(1) Proxy Statement for the 2010 Annual Meeting of Stockholders of the Registrant (Part III).
 
(2) Annual Report to Stockholders (Parts II and IV).
 

 
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PART I
 
 
Jacksonville Bancorp, Inc.

Jacksonville Bancorp, Inc. is a Federal corporation.  On May 3, 2002, Jacksonville Savings Bank completed its reorganization into the two-tier form of mutual holding company ownership.  At that time each outstanding share of Jacksonville Savings Bank’s common stock was converted into a share of Jacksonville Bancorp, Inc.’s common stock.  Our only significant asset is our investment in Jacksonville Savings Bank.  We are majority owned by Jacksonville Bancorp, MHC, a Federally-chartered mutual holding company.  At December 31, 2009, Jacksonville Bancorp, Inc. had consolidated assets of $288.8 million, total deposits of $254.7 million, and stockholders’ equity of $25.3 million.
 
On January 19, 2010, Jacksonville Bancorp, Inc. announced that the Boards of Directors of Jacksonville Bancorp, MHC, Jacksonville Bancorp, Inc. and Jacksonville Savings Bank unanimously adopted a Plan of Conversion and Reorganization.  Under the terms of the Plan of Conversion and Reorganization, we will undertake a “second-step” conversion, and reorganize from a two-tier mutual holding company structure to a stock holding company structure.  As a result of the conversion, Jacksonville Savings Bank will become a wholly owned subsidiary of a new Maryland holding company and shares of common stock of Jacksonville Bancorp, Inc. held by persons other than Jacksonville Bancorp, MHC (whose shares will be canceled) will be converted into shares of common stock of the new holding company pursuant to an exchange ratio designed to preserve the percentage ownership interests of such persons.  The new holding company will offer and sell shares of its common stock to members of Jacksonville Bancorp, MHC, stockholders of Jacksonville Bancorp, Inc. and others in the manner and subject to the priorities set forth in the Plan of Conversion and Reorganization. The transactions contemplated by the Plan of Conversion and Reorganization are subject to approval of Jacksonville Bancorp, Inc.’s stockholders, the members of Jacksonville Bancorp, MHC and the Office of Thrift Supervision. We anticipate that the second-step conversion will be completed in the third quarter of the 2010 calendar year.

Jacksonville Savings Bank

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

We are a community-oriented savings bank engaged primarily in the business of attracting retail deposits from the general public in our market area and using such funds, together with borrowings and funds from other sources, to originate mortgage loans secured by one- to four-family residential real estate, commercial and agricultural real estate and consumer loans. We also originate commercial and agricultural business loans and multi-family real estate loans.  Additionally, we invest in United States Government agency securities, bank-qualified, general obligation municipal issues, and mortgage-backed securities issued or guaranteed by the United States Government or agencies thereof.  We maintain a portion of our assets in liquid investments, such as overnight funds at the Federal Home Loan Bank.
 
2

 
Our principal sources of funds are customer deposits, proceeds from the sale of loans, funds received from the repayment and prepayment of loans and mortgage-backed securities, and the sale, call, or maturity of investment securities.  Principal sources of income are interest income on loans and investments, sales of loans and securities, service charges, commissions, loan servicing fees and other fees.  Our principal expenses are interest paid on deposits, employee compensation and benefits, occupancy and equipment expense and Federal Deposit Insurance Corporation insurance premiums.
 
We operate an investment center at our main office.  The investment center is operated through Financial Resources Group, Inc., Jacksonville Savings Bank’s wholly-owned subsidiary.

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

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

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

Competition

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

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

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

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

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

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

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

 
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Loan Portfolio Composition. Set forth below are selected data relating to the composition of our loan portfolio, by type of loan as of the dates indicated, excluding loans held for sale of $814,000, $1.4 million, $1.9 million, $426,000 and $499,000 for the years ended December 31, 2009, 2008, 2007, 2006 and 2005, respectively.
 
   
At December 31,
 
   
2009
   
2008
   
2007
   
2006
   
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 %
_________________________________
(1)
Includes one- to four-family real estate construction loans of $54,000, $596,000, $352,000, $183,000 and $546,000 for the years ended December 31, 2009, 2008, 2007, 2006 and 2005, respectively.
(2)
Includes commercial and agricultural real estate construction loans of $4.2 million, $2.5 million, $472,000, $0 and $193,000 for the years ended December 31, 2009, 2008, 2007, 2006 and 2005, respectively.
(3)
Includes real estate construction loans of $3.6 million, $1.1 million, $1.4 million, $370,000 and $1.9 million for the years ended December 31, 2009, 2008, 2007, 2006 and 2005, respectively.
 
 
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One- to Four-Family Mortgage Loans.  Historically our primary lending origination activity has been one- to four-family, owner-occupied, residential mortgage loans secured by property located in our market area.  We generate loans through our marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses.  We generally limit our one- to four-family loan originations to the financing of loans secured by properties located within our market area.  At December 31, 2009, $38.6 million, or 22.2% of our net loan portfolio, was invested in mortgage loans secured by one- to four-family residences.

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

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

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

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

Our residential first mortgage loans customarily include due-on-sale clauses, which give us the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan.  Due-on-sale clauses are a means of imposing assumption fees and increasing the interest rate on our mortgage portfolio during periods of rising interest rates.
 
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When underwriting residential real estate loans, we review and verify each loan applicant’s income and credit history.  Management believes that stability of income and past credit history are integral parts in the underwriting process.  Generally, the applicant’s total monthly mortgage payment, including all escrow amounts, is limited to 28% of the applicant’s total monthly income.  In addition, total monthly obligations of the applicant, including mortgage payments, should not generally exceed 38% of total monthly income.  Written appraisals are generally required on real estate property offered to secure an applicant’s loan.  For one- to four-family real estate loans with loan to value ratios of over 80%, we require private mortgage insurance. We require fire and casualty insurance on all properties securing real estate loans.  We may require title insurance, or an attorney’s title opinion, as circumstances warrant.

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

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

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

Our underwriting standards for commercial and agricultural real estate and multi-family residential real estate loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.  The income approach is primarily utilized to determine whether income generated from the applicant’s business or real estate offered as collateral is adequate to repay the loan. We emphasize the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%).  In underwriting a loan, we consider the value of the real estate offered as collateral in relation to the proposed loan amount.  Generally, the loan amount cannot be greater than 80% of the value of the real estate.  We usually obtain written appraisals from either licensed or certified appraisers on all multi-family, commercial, and agricultural real estate loans in excess of $250,000.  We assess the creditworthiness of the applicant by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.
 
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Loans secured by commercial, agricultural, and multi-family real estate generally involve a greater degree of credit risk than one- to four-family residential mortgage loans and carry larger loan balances.  This increased credit risk is a result of several factors, including the effects of general economic conditions on income producing properties and the successful operation or management of the properties securing the loans.  Furthermore, the repayment of loans secured by commercial, agricultural, and multi-family real estate is typically dependent upon the successful operation of the related business and real estate property.  If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

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

Our underwriting standards for commercial and agricultural business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business.  We assess the financial strength of each applicant through the review of financial statements and tax returns provided by the applicant.  The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records.  We periodically review business loans following origination. We request financial statements at least annually and review them for substantial deviations or changes that might affect repayment of the loan.  Our loan officers also visit the premises of borrowers to observe the business premises, facilities, and personnel and to inspect the pledged collateral.  Underwriting standards for business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
 
Consumer Loans. As of December 31, 2009, consumer loans totaled $42.1million, or 24.2%, of our total loan portfolio.  The principal types of consumer loans we offer are home equity loans and lines of credit and automobile loans. We also originate loans secured by deposit accounts, unsecured loans and mobile home loans.  We generally offer consumer loans on a fixed-rate basis.  At December 31, 2009, home equity and home improvement loans totaled $28.1 million, or 16.2%, of our total loan portfolio. Our home equity loans and lines of credit are generally secured by the borrower’s principal residence.  The maximum amount of a home equity loan or line of credit is generally 95% of the appraised value of a borrower’s real estate collateral less the amount of any prior mortgages or related liabilities.  Home equity loans and lines of credit are approved with both fixed and adjustable interest rates which we determine based upon market conditions.  Such loans may be fully amortized over the life of the loan or have a balloon feature.  Generally, the maximum term for home equity loans is 10 years.
 
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At December 31, 2009, consumer loans secured by automobiles totaled $6.1 million, or 3.5% of  our total loan portfolio.  We offer automobile loans with maturities of up to 60 months for new automobiles.  Loans secured by used automobiles will have maximum terms which vary depending upon the age of the automobile.  We generally originate automobile loans with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value, although in the case of a new car loan the loan-to-value ratio may be greater or less depending on the borrower’s credit history, debt to income ratio, home ownership and other banking relationships with us.

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

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

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

   
One- to Four-Family Real Estate
   
Commercial and Agricultural Real Estate
   
Multi-Family Real Estate
   
Commercial and Agricultural 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 %

   
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 %
 
The following table sets forth at December 31, 2009, the dollar amount of all fixed-rate and adjustable-rate loans due after December 31, 2010.  At December 31, 2009, fixed-rate loans include $12.9 million in fixed-rate balloon payment loans with original maturities of five years or less.  The total dollar amount of fixed-rate loans and adjustable-rate loans due after December 31, 2010, was $69.9 million and $68.3 million, respectively.
 
   
Due after December 31, 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  
 
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Loan Origination, Solicitation and Processing.  Loan originations are derived from a number of sources such as real estate broker referrals, existing customers, builders, attorneys and walk-in customers.  Upon receipt of a loan application, a credit report is obtained to verify specific information relating to the applicant’s employment, income, and credit standing.  In the case of a real estate loan, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent appraiser approved by us.  A loan application file is first reviewed by a loan officer in our loan department who checks applications for accuracy and completeness, and verifies the information provided.  The financial resources of the borrower and the borrower’s credit history, as well as the collateral securing the loan, are considered an integral part of each risk evaluation prior to approval.  The board of directors has established individual lending authorities for each loan officer by loan type.  Loans over an individual officer’s lending limits must be approved by the officers’ loan committee consisting of the chairman of the board, president, chief lending officer and all lending officers, which meets three times a week, and has lending authority up to $500,000 depending on the type of loan.  Loans with a principal balance over this limit, up to $1.0 million, must be approved by the directors’ loan committee, which meets weekly and consists of the chairman of the board, president, senior vice president, chief lending officer and at least two outside directors, plus all lending officers as non-voting members.  The board of directors approves all loans with a principal balance over $1.0 million.  The board of directors ratifies all loans we originate.  Once the loan is approved, the applicant is informed and a closing date is scheduled.  We typically fund loan commitments within 30 days.

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

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

   
For the Years Ended December 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
   
(In Thousands)
 
       
Total loans receivable at beginning of year
  $ 184,991     $ 177,662     $ 156,731     $ 144,293     $ 127,855  
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.
 
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In addition to loan origination fees, we also receive other fees that consist primarily of extension fees and late charges.  We recognized fees of $110,000, $54,000 and $93,000 for the years ended December 31, 2009, 2008, and 2007, respectively.

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

Delinquencies and Classified Assets

Our collection procedures provide that when a mortgage loan is either ten days (in the case of adjustable-rate mortgage and balloon loans) or 15 days (in the case of fixed-rate loans) past due, a computer-generated late charge notice is sent to the borrower requesting payment and assessing a late charge. If the mortgage loan remains delinquent, a telephone call is made or a letter is sent to the borrower stressing the importance of reinstating the loan and obtaining reasons for the delinquency. We also send a 30 day notice pursuant to Illinois law if a borrower’s primary residence is the collateral at issue.  When a loan continues in a delinquent status for 60 days or more, and a repayment schedule has not been made or kept by the borrower, a notice of intent to foreclose upon the underlying property is then sent to the borrower, giving 10 days to cure the delinquency.  If not cured, foreclosure proceedings are initiated.  Consumer loans receive a ten-day grace period before a late charge is assessed.  Collection efforts begin after the grace period expires.  At December 31, 2009, 2008, and 2007 the percentage of non-performing loans to total loans receivable were 1.11%, 0.64% and 0.61%, respectively. At December 31, 2009, 2008, and 2007, the percentage of non-performing assets to total assets was 0.81%, 0.68%, and 0.51%, respectively.
 
Non-performing Assets and Delinquent Loans.  Loans are reviewed on a regular basis and are placed on nonaccrual status when, in the opinion of management, the collection of additional interest is doubtful.  The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the loan is well secured and in the process of collection. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is charged against interest income.  Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectability of the loan.

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

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

The second borrower had loans with an aggregate principal balance of $1.3 million at December 31, 2008 secured primarily by mobile homes. During 2009, the borrower’s business experienced a significant decline in financial condition and management determined that the value of the remaining collateral was not sufficient to secure the balance of the loans.  We recognized charge-offs totaling $224,000 on loans to this borrower during 2009.  Principal reductions of approximately $211,000 were received from this borrower during 2009, which reduced the outstanding principal balance to $901,000 as of December 31, 2009.  The non-performing portion of this lending relationship was $99,000 at December 31, 2009. We have provided an additional $242,000 to the allowance for loan losses during 2009 after the charge-offs noted above for any further potential losses on this lending relationship.
 
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        The third borrower had loans with an aggregate balance of $526,000 at December 31, 2008 secured by the borrower’s personal residence and commercial real estate. Principal reductions of approximately $50,000 were received from this borrower during 2009, which reduced the outstanding principal balance to $476,000 as of December 31, 2009. The loans became non-performing in 2009.  The borrower has been involved in a business-related dispute with his former partner and has been forced to file for bankruptcy.  He is attempting to sell his personal residence and all of the commercial properties in order to cure this delinquency.  We have provided $29,000 during 2009 to the allowance for loan losses for potential losses related to this lending relationship.

Management believes the increase in non-performing assets can be partially attributed to unique borrower circumstances as well as  the economy in general. We have an experienced chief lending officer and collections and loan review departments which monitor the loan portfolio and actively seek to prevent any deterioration of asset quality.
 
Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold.  When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan, or its fair market value, less estimated selling expenses.  Any further write-down of real estate owned is charged against earnings.  At December 31, 2009, we owned $383,000 of property classified as real estate owned.

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

   
At December 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
   
(Dollars in Thousands)
 
Non-accrual loans:
                             
Real estate loans:
                             
One- to four-family residential
  $ 484     $ 445     $ 310     $ 435     $ 624  
Commercial and agricultural
    98       34       218       100        
Multi-family residential
    132       152                    
Commercial and agricultural business loans
    416       48       82       704       290  
Consumer loans:
                                       
Home equity/home improvement
    407       318       89       100       222  
Automobile                                   
    8       3       12       1       1  
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  
 
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.
 
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At December 31, 2009, we had no loans that were not currently classified as nonaccrual, 90 days past due or troubled debt restructurings but where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.

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

   
Loans Delinquent 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  
 
15

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

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

 
16

 

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

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