Edgar Filing: Jacksonville Bancorp, Inc.

t73473_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2012

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period of _________ to _________

Commission File Number 001-34821

Jacksonville Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	36-4670835
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification Number)

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

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

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

x Yes

o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period the registrant was required to submit and post such filings).

x Yes

o No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.

	o Large Accelerated Filer	o Accelerated Filer
	o Non-Accelerated Filer	x Smaller Reporting Company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes

x No

As of May 1, 2012, there were 1,920,955 shares of the Registrant’s common stock issued and outstanding.

JACKSONVILLE BANCORP, INC.

FORM 10-Q


March 31, 2012 TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Income	2

	Condensed Consolidated Statements of Comprehensive Income	3

	Condensed Consolidated Statement of Stockholders’ Equity	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to the Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46

Item 4.	Controls and Procedures	48

PART II	OTHER INFORMATION	49

Item 1.	Legal Proceedings	49
Item 1.A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	49

	Signatures	50

EXHIBITS

	Section 302 Certifications
	Section 906 Certification

PART I – FINANCIAL INFORMATION

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
ASSETS	2012			2011
	(Unaudited)
Cash and cash equivalents	$	19,443,499		$	11,387,947
Interest-earning time deposits in banks		2,972,000			2,476,000
Investment securities - available for sale		61,850,949			62,257,962
Mortgage-backed securities - available for sale		44,469,481			40,364,086
Federal Home Loan Bank stock		1,113,800			1,113,800
Other investment securities		113,671			116,088
Loans held for sale - net		962,402			446,818
Loans receivable - net of allowance for loan losses of $3,330,911 and $3,296,607 as of
March 31, 2012 and December 31, 2011		166,123,058			170,865,102
Premises and equipment - net		5,539,671			5,532,720
Cash surrender value of life insurance		6,442,482			4,402,602
Accrued interest receivable		2,038,603			2,071,534
Goodwill		2,726,567			2,726,567
Capitalized mortgage servicing rights, net of valuation allowance of $161,557 and $173,791
as of March 31, 2012 and December 31, 2011		678,893			697,733
Real estate owned		514,975			435,480
Deferred income taxes		436,675			413,110
Other assets		1,848,303			1,981,808

Total Assets	$	317,275,029		$	307,289,357

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits	$	264,979,686		$	254,240,060
Other borrowings		4,327,909			6,517,750
Advance payments by borrowers for taxes and insurance		1,129,750			740,083
Accrued interest payable		337,341			349,121
Deferred compensation payable		3,340,690			3,295,827
Income taxes payable		269,631			-
Other liabilities		989,387			981,093
Total liabilities		275,374,394			266,123,934

Commitments and contingencies		-			-

Preferred stock, $0.01 par value - authorized 10,000,000 shares;
none issued and outstanding		-			-
Common stock, $0.01 par value - authorized 25,000,000 shares; issued 1,920,955 shares
as of March 31, 2012 and December 31, 2011		19,210			19,210
Additional paid-in-capital		16,068,929			16,066,624
Retained earnings		23,541,361			22,767,719
Less: Unallocated ESOP shares		(355,610	)		(360,620	)
Accumulated other comprehensive income		2,626,745			2,672,490
Total stockholders’ equity		41,900,635			41,165,423

Total Liabilities and Stockholders’ Equity	$	317,275,029		$	307,289,357

See accompanying notes to the unaudited condensed consolidated financial statements.

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended
	March 31,
	2012		2011
	(Unaudited)
INTEREST INCOME:
Loans	$	2,540,544	$	2,655,406
Investment securities		524,501		485,898
Mortgage-backed securities		205,326		279,763
Other		11,520		1,700
Total interest income		3,281,891		3,422,767

INTEREST EXPENSE:
Deposits		604,745		800,089
Other borrowings		2,791		4,628
Total interest expense		607,536		804,717

NET INTEREST INCOME		2,674,355		2,618,050

PROVISION FOR LOAN LOSSES		80,000		175,000

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		2,594,355		2,443,050

NON-INTEREST INCOME:
Fiduciary activities		77,776		60,019
Commission income		246,418		412,740
Service charges on deposit accounts		190,501		219,164
Mortgage banking operations, net		117,126		7,888
Net realized gains on sales of available-for-sale securities		225,328		53,505
Loan servicing fees		90,261		94,362
Other		156,975		137,084
Total non-interest income		1,104,385		984,762

NON-INTEREST EXPENSE:
Salaries and employee benefits		1,572,942		1,529,118
Occupancy and equipment		248,253		239,240
Data processing and telecommunications		129,643		146,426
Professional		51,429		50,381
Marketing		27,332		21,319
Postage and office supplies		66,159		77,260
Deposit insurance premium		38,967		96,626
Other		282,377		269,288
Total non-interest expense		2,417,102		2,429,658

INCOME BEFORE INCOME TAXES		1,281,638		998,154
INCOME TAXES		366,889		263,415

NET INCOME	$	914,749	$	734,739

NET INCOME PER COMMON SHARE - BASIC	$	0.49	$	0.39
NET INCOME PER COMMON SHARE - DILUTED	$	0.49	$	0.39

See accompanying notes to the unaudited condensed consolidated financial statements.

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended
	March 31,
	2012			2011
	(Unaudited)

Net Income	$	914,749		$	734,739

Other Comprehensive Income (Loss)
Unrealized appreciation on available-for-sale
securities, net of taxes of $53,047 and $169,818
for 2012 and 2011, respectively.		102,971			329,645
Less: reclassification adjustment for realized gains
included in net income, net of taxes of $76,612 and
$18,192, for 2012 and 2011, respectively.		148,716			35,313
		(45,745	)		294,332

Comprehensive Income	$	869,004		$	1,029,071

See accompanying notes to unaudited condensed consolidated financial statements.

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

											Accumulated
			Additional								Other			Total
	Common		Paid-in		Retained			Unallocated			Comprehensive			Stockholders’
(Unaudited)	Stock		Capital		Earnings			ESOP Shares			Income			Equity

BALANCE, DECEMBER 31, 2011	$	19,210	$	16,066,624	$	22,767,719		$	(360,620	)	$	2,672,490		$	41,165,423

Net Income		-		-		914,749			-			-			914,749

Other comprehensive income (loss)		-		-		-			-			(45,745	)		(45,745	)

Shares held by ESOP, commited to be released		-		2,305		-			5,010			-			7,315

Dividends ($0.075 per share)		-		-		(141,107	)		-			-			(141,107	)

BALANCE, MARCH 31, 2012	$	19,210	$	16,068,929	$	23,541,361		$	(355,610	)	$	2,626,745		$	41,900,635

See accompanying notes to unaudited condensed consolidated financial statements.

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	March 31,
	2012			2011
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	914,749		$	734,739
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and accretion:
Premises and equipment		82,809			75,686
Amortization of investment and loan premiums and discounts, net		132,934			148,459
Net realized gains on sales of available-for-sale securities		(225,328	)		(53,505	)
Provision for loan losses		80,000			175,000
Mortgage banking operations, net		(117,126	)		(7,888	)
Loss (gain) on sale of real estate owned		1,085			(21,059	)
Shares held by ESOP committed to be released		7,315			6,562
Changes in income taxes payable		317,064			213,415
Changes in assets and liabilities		(1,879,500	)		182,604
Net cash provided by (used in) operations before loan sales		(685,998	)		1,454,013
Origination of loans for sale to secondary market		(13,261,462	)		(2,987,479	)
Proceeds from sales of loans to secondary market		12,881,844			2,809,002
Net cash provided by (used in) operating activities		(1,065,616	)		1,275,536

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment and mortgage-backed securities		(21,347,879	)		(19,184,356	)
Purchases of interest-earning time deposits in other banks		(496,000	)		-
Maturity or call of investment securities available-for-sale		5,318,000			4,250,000
Sale of investment securities available-for-sale		10,126,795			6,281,988
Principal payments on mortgage-backed and investment securities		2,192,975			2,063,293
Proceeds from sale of real estate owned		25,129			167,216
Net decrease in loans		4,593,563			1,960,948
Additions to premises and equipment		(89,760	)		(120,234	)

Net cash provided by (used in) investing activities		322,823			(4,581,145	)

				(Continued)

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

	Three Months Ended
	March 31,
	2012			2011
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	$	10,739,626		$	4,698,193
Net increase (decrease) in other borrowings		(2,189,841	)		31,468
Increase in advance payments by borrowers for taxes and insurance		389,667			331,648
Exercise of stock options		-			151,226
Purchase and retirement of treasury stock related to stock options		-			(151,988	)
Tax benefit of nonqualified stock options		-			2,815
Dividends paid - common stock		(141,107	)		(144,476	)

Net cash provided by financing activities		8,798,345			4,918,886

NET INCREASE IN CASH AND CASH EQUIVALENTS		8,055,552			1,613,277

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		11,387,947			8,943,400

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	19,443,499		$	10,556,677

ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits	$	616,525		$	873,288
Interest on other borrowings		2,791			4,628
Income taxes paid		50,000			50,000

NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired in settlement of loans	$	105,709		$	384,046
Loans to facilitate sales of real estate owned		-			73,334

See accompanying notes to unaudited condensed consolidated financial statements

JACKSONVILLE BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	FINANCIAL STATEMENTS

The accompanying interim condensed consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. and its wholly-owned subsidiary, Jacksonville Savings Bank (the “Bank”) and its wholly-owned subsidiary, Financial Resources Group, Inc. collectively (the “Company”). All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the preceding unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for 1) a fair presentation and 2) to make the financial statements not misleading relating to the financial condition of the Company as of March 31, 2012 and December 31, 2011 and the results of its operations for the three month periods ended March 31, 2012 and 2011. The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the results which may be expected for the entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2011 filed as an exhibit to the Company’s Form 10-K filed in March, 2012. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP), the requirements of Form 10-Q, and to prevailing practices within the industry.

Certain amounts included in the 2011 consolidated statements have been reclassified to conform to the 2012 presentation.

2.	NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements by U.S. GAAP and IFRSs. The amendments in this ASU generally represent clarifications of FASB ASC Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective for interim and annual periods beginning after December 15, 2011. Early application by public entities was not permitted. The adoption of this ASU is reflected in Note 8 – Disclosures about Fair Value of Assets and Liabilities.

In June 2011, the FASB issued ASU No. 2011-05, Amendments to Topic 220, Comprehensive Income. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption was permitted. The Company retrospectively adopted the ASU during the first quarter of 2012 with separate condensed consolidated statements of comprehensive income.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The update provides entities with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. Under the amendments in ASU No. 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The amendments enacted by ASU No. 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for the nonpublic entities, have not yet been made available for issuance. The adoption of this update did not have any impact on the Company’s consolidated financial position or results of operations.

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2012, and interim periods within those annual periods. Retrospective disclosure is required for all comparative periods presented. The adoption of this update did not have any impact on the Company’s consolidated financial position or results of operations.

3.	EARNINGS PER SHARE

Earnings Per Share - Basic earnings per share is determined by dividing net income for the period by the weighted average number of common shares. Diluted earnings per share considers the potential effects of the exercise of the outstanding stock options under the Company’s stock option plans.

The following reflects earnings per share calculations for basic and diluted methods:

	Three Months Ended
	March 31,
	2012		2011

Net income	$	914,749	$	734,739

Basic average shares outstanding		1,885,066		1,885,601

Diluted potential common shares:
Stock option equivalents		173		2,151
Diluted average shares outstanding		1,885,239		1,887,752

Basic earnings per share	$	0.49	$	0.39

Diluted earnings per share	$	0.49	$	0.39

Stock options for 4,504 shares of common stock were not considered in computing diluted earnings per share for the three month period ending March 31, 2011, because they were anti-dilutive.

4.	EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

In connection with the conversion and related stock offering, the Bank purchased an additional 41,614 shares for its ESOP for the exclusive benefit of eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase the 41,614 shares (approximately 4% of the common stock issued in the offering). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Bank and dividends received by the ESOP, with funds from any contributions on ESOP assets. Contributions will be applied to repay interest on the loan first, and the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants will vest on a pro-rata basis and reach 100% vesting in the accrued benefits under the ESOP after six years. Vesting is accelerated upon retirement, death, or disability of the participant or a change in control of the Bank. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Since the Bank’s annual contributions are discretionary, benefits payable under the ESOP cannot be estimated.

In the event a terminated ESOP participant desires to sell his or her shares of the Company’s stock, the ESOP includes a put option, which is a right to demand that the Company buy any shares of its stock distributed to participants at fair value.

The Company is accounting for its ESOP in accordance with ASC Topic 718, “Employers Accounting for Employee Stock Ownership Plans.” Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from the collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends, if any, on unallocated shares are recorded as a reduction of debt and accrued interest.

A summary of ESOP shares at March 31, 2012 and 2011 is shown below.

	March 31, 2012		March 31, 2011
Unearned shares		35,561		39,015
Shares committed for release		501		2,599
Allocated shares		52,815		49,398
Total ESOP shares		88,877		91,012

Fair value of unearned shares	$	540,527	$	495,491

5.	LOAN PORTFOLIO COMPOSITION

At March 31, 2012 and December 31, 2011, the composition of the Company’s loan portfolio is shown below.

	March 31, 2012			December 31, 2011

Mortgage loans on real estate
One-to-four family residential	$	41,499,618		$	39,472,008
Commercial		39,090,310			40,169,813
Agricultural		29,203,258			29,971,649
Home equity		15,001,318			16,042,788
Total mortgage loans on real estate		124,794,504			125,656,258

Commercial business		21,268,348			23,198,454
Agricultural business		8,538,738			9,590,745
Consumer		14,838,656			15,755,973
		169,440,246			174,201,430

Less
Net deferred loan fees		(13,723	)		39,721
Allowance for loan losses		3,330,911			3,296,607

Net loans	$	166,123,058		$	170,865,102

The Company believes that sound loans are a necessary and desirable means of employing funds available for investment. Recognizing the Company’s obligations to its depositors and to the communities it serves, authorized personnel are expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures in place designed to focus lending efforts on the types, locations, and duration of loans most appropriate for the business model and markets. The Company’s principal lending activities include the origination of one-to four-family residential mortgage loans, multi-family loans, commercial real estate loans, agricultural loans, home equity lines of credits, commercial business loans, and consumer loans. The primary lending market includes the Illinois counties of Morgan, Macoupin and Montgomery. Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals. The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

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 the Company. A loan application file is first reviewed by a loan officer in the 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 that are originated. Once the loan is approved, the applicant is informed and a closing date is scheduled. Loan commitments are typically funded 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.

One –to-Four Family Mortgage Loans - Historically, the primary lending origination activity has been one- to four-family, owner-occupied, residential mortgage loans secured by property located in the Company’s market area. The Company generates loans through marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses. Generally, one- to four-family loan originations are limited to the financing of loans secured by properties located within the Company’s market area.

Fixed-rate one- to four-family residential mortgage loans are generally conforming loans, underwritten according to Freddie Mac guidelines. The Company generally originates 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.

The Company originates for resale to Freddie Mac fixed-rate one- to four-family residential mortgage loans with terms of 15 years or more. The 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. The Company offers fixed-rate one- to four-family residential mortgage loans with terms of up to 30 years without prepayment penalty.

The Company currently offers adjustable-rate mortgage loans for terms ranging up to 30 years. They 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 the net interest income. In the low interest rate environment that has existed over the past two years, the adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of the loan portfolio. The Company has 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 one-year, three-years or five-years. 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, interest rate risk position and competitors’ loan products.

Adjustable-rate mortgage loans make the loan portfolio more interest rate sensitive and provide an alternative for those borrowers who meet the 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.

Residential first mortgage loans customarily include due-on-sale clauses, which gives the Company 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 mortgage portfolio during periods of rising interest rates.

When underwriting residential real estate loans, the Company reviews and verifies 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%, private mortgage insurance is required. Fire and casualty insurance is also required on all properties securing real estate loans. Title insurance, or an attorney’s title opinion, may be required, as circumstances warrant.

The Company does 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). They 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. The Company does 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 Real Estate Loans - The Company originates and purchases commercial real estate loans. Commercial real estate loans are secured primarily by improved properties such as multi-family residential, retail facilities and office buildings, restaurants and other non-residential buildings. The maximum loan-to-value ratio for commercial real estate loans originated is generally 80%. Commercial 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 the fixed-rate commercial real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. The Company purchases from time to time commercial real estate loan participations primarily from outside the Company’s market area. All participation loans are approved following a review to ensure that the loan satisfies the underwriting standards.

Underwriting standards for commercial 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. There is an emphasis on 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, the value of the real estate offered as collateral in relation to the proposed loan amount is considered.

Generally, the loan amount cannot be greater than 80% of the value of the real estate. Written appraisals are usually obtained from either licensed or certified appraisers on all commercial real estate loans in excess of $250,000. Creditworthiness of the applicant is assessed by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.

Loans secured by commercial 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 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.

Agricultural Real Estate Loans - The Company originates and purchases agricultural real estate loans. The maximum loan-to-value ratio for agricultural real estate loans we originate is generally 80%. Our agricultural real estate loans are generally written up to terms of five years with adjustable interest rates. The rates are generally tied to the average yield on U.S. Treasury securities, adjusted to a constant maturity of one-year, three-years, or five-years and generally have a specified floor. Many of our fixed-rate agricultural real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. We purchase from time to time agricultural real estate loan participations primarily from other local institutions within our market area. All participation loans are approved following a review to ensure that the loan satisfies our underwriting standards

Underwriting standards for agricultural real estate 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 farm operation or real estate offered as collateral is adequate to repay the loan. We emphasize the ratio of the property’s projected 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 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.

Loans secured by agricultural 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 and market conditions on farm operations and the successful operation or management of the properties securing the loans. The repayment of loans secured by agricultural estate is typically dependent upon the successful operation of the farm and real estate property. If the cash flow is reduced, the borrower’s ability to repay the loan may be impaired.

Home Equity Loans – The Company originates home equity and lines of credit, which 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.

Underwriting standards for home equity 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.

Home equity loans entail greater risks than one- to four-family residential mortgage loans, which are secured by first lien mortgages. In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage or depreciation in the value of the property or loss of equity to the first lien position. Further, home equity 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. 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.

Commercial Business Loans - The Company originates commercial business loans to borrowers located in the Company’s market area which are secured by collateral other than real estate or which can be unsecured. Commercial business loan participations are also purchased from other lenders, which may be made to borrowers outside the Company’s market area. Commercial 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. Unsecured business loans are originated on a limited basis in those instances where the applicant’s financial strength and creditworthiness has been established. Commercial 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. Personal guarantees are generally obtained from the borrower or a third party as a condition to originating its business loans.

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. Financial strength of each applicant is assessed 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. Business loans are periodically reviewed following origination. Financial statements are requested at least annually and review them for substantial deviations or changes that might affect repayment of the loan. 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.

Agricultural Business Loans - The Company originates agricultural business loans to borrowers located in our market area which are secured by collateral other than real estate or which can be unsecured. Agricultural business loans are generally secured by equipment and blanket security agreements on all farm assets. These loans are generally offered with fixed rates with terms up to five years. Agricultural business loans generally bear lower interest rates than residential loans due to competitive market pressures. The repayment of agricultural business loans is generally dependent on the successful operation of the farm operation. Personal guarantees are generally obtained from the borrower as a condition to originating agricultural business loans.

Underwriting standards for 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. The financial strength of each applicant is assessed through the review of financial statements, pro-forma cash flow 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. Financial statements are requested at least annually and reviewed for substantial deviations or changes that might affect repayment of the loan. Loan officers may also visit the premises of borrowers to observe the operation, facilities, equipment, and personnel and to inspect the pledged collateral. Underwriting standards for agricultural 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 – The Company originates consumer loans, including automobile loans, loans secured by deposit accounts, unsecured loans and mobile home loans. Consumer loans are generally offered on a fixed-rate basis. Automobile loans are offered 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. Automobile loans are generally originated with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value. 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.

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.

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.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the periods ended March 31, 2012, March 31, 2011, and December 31, 2011.

	March 31, 2012
	1-4 Family			Commercial Real Estate			Agricultural Real Estate		Commercial			Agricultural		Home Equity			Consumer			Unallocated		Total

Allowance for loan losses:
Balance, beginning of period	$	697,223		$	1,107,585		$	115,154	$	711,864		$	58,428	$	309,409		$	138,385		$	158,559	$	3,296,607
Provision charged to expense		(31,207	)		(8,747	)		7,951		(4,164	)		4,134		86,277			(8,040	)		33,796		80,000
Losses charged off		—			—			—		—			—		(46,744	)		(2,964	)		—		(49,708	)
Recoveries		1,625			—			—		316			—		525			1,546			—		4,012
Balance, end of period	$	667,641		$	1,098,838		$	123,105	$	708,016		$	62,562	$	349,467		$	128,927		$	192,355	$	3,330,911
Ending balance:
individually evaluated for impairment	$	36,300		$	340,784		$	—	$	319,777		$	—	$	—		$	7,569		$	—	$	704,430
Ending balance:
collectively evaluated for impairment	$	631,341		$	758,054		$	123,105	$	388,239		$	62,562	$	349,467		$	121,358		$	192,355	$	2,626,481

Loans:
Ending balance	$	41,499,618		$	39,090,310		$	29,203,258	$	21,268,348		$	8,538,738	$	15,001,318		$	14,838,656		$	—	$	169,440,246
Ending balance:
individually evaluated for impairment	$	551,611		$	1,673,654		$	—	$	541,619		$	—	$	28,481		$	7,569		$	—	$	2,802,934
Ending balance:
collectively evaluated for impairment	$	40,948,007		$	37,416,656		$	29,203,258	$	20,726,729		$	8,538,738	$	14,972,837		$	14,831,087		$	—	$	166,637,312

	March 31, 2011
	1-4 Family			Commercial Real Estate			Agricultural Real Estate		Commercial		Agricultural		Home Equity			Consumer			Unallocated		Total

Allowance for loan losses:
Balance, beginning of period	$	561,309		$	1,193,928		$	92,988	$	472,376	$	58,250	$	300,257		$	163,690		$	121,487	$	2,964,285
Provision charged to expense		(39,577	)		152,268			11,879		33,741		82,794		(32,302	)		(41,922	)		8,119		175,000
Losses charged off		(7,402	)		(260,785	)		—		—		—		(4,162	)		(1,097	)		—		(273,446	)
Recoveries		—			8,142			—		200		—		3,867			1,202			—		13,411
Balance, end of period	$	514,330		$	1,093,553		$	104,867	$	506,317	$	141,044	$	267,660		$	121,873		$	129,606	$	2,879,250
Ending balance:
individually evaluated for impairment	$	67,118		$	216,320		$	—	$	99,632	$	—	$	—		$	—		$	—	$	383,070
Ending balance:
collectively evaluated for impairment	$	447,212		$	877,233		$	104,867	$	406,685	$	141,044	$	267,660		$	121,873		$	129,606	$	2,496,180

Loans:
Ending balance	$	37,782,788		$	44,049,716		$	29,607,376	$	22,573,869	$	7,844,104	$	18,764,445		$	16,292,900		$	—	$	176,915,198
Ending balance:
individually evaluated for impairment	$	643,002		$	1,741,709		$	—	$	585,106	$	—	$	—		$	—		$	—	$	2,969,817
Ending balance:
collectively evaluated for impairment	$	37,139,786		$	42,308,007		$	29,607,376	$	21,988,763	$	7,844,104	$	18,764,445		$	16,292,900		$	—	$	173,945,381

	December 31, 2011
	1-4 Family			Commercial Real Estate			Agricultural Real Estate		Commercial		Agricultural		Home Equity			Consumer			Unallocated		Total

Allowance for loan losses:
Balance, beginning of year	$	561,309		$	1,193,928		$	92,988	$	472,376	$	58,250	$	300,257		$	163,690		$	121,487	$	2,964,285
Provision charged to expense		266,296			195,118			22,166		83,654		178		26,863			(6,347	)		37,072		625,000
Losses charged off		(130,382	)		(306,303	)		—		—		—		(24,904	)		(25,289	)		—		(486,878	)
Recoveries		—			24,842			—		155,834		—		7,193			6,331			—		194,200
Balance, end of year	$	697,223		$	1,107,585		$	115,154	$	711,864	$	58,428	$	309,409		$	138,385		$	158,559	$	3,296,607
Ending balance:
individually evaluated for impairment	$	36,300		$	357,880		$	—	$	296,149	$	—	$	—		$	—		$	—	$	690,329
Ending balance:
collectively evaluated for impairment	$	660,923		$	749,705		$	115,154	$	415,715	$	58,428	$	309,409		$	138,385		$	158,559	$	2,606,278

Loans:
Ending balance	$	39,472,008		$	40,169,813		$	29,971,649	$	23,198,454	$	9,590,745	$	16,042,788		$	15,755,973		$	—	$	174,201,430
Ending balance:
individually evaluated for impairment	$	551,921		$	1,727,406		$	—	$	552,814	$	—	$	29,353		$	7,569		$	—	$	2,869,063
Ending balance:
collectively evaluated for impairment	$	38,920,087		$	38,442,407		$	29,971,649	$	22,645,640	$	9,590,745	$	16,013,435		$	15,748,404		$	—	$	171,332,367

Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.

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

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

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

A loan is considered impaired when, based on current information and events, it is probable that the scheduled payments of principal or interest will not be able to be collected 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, individual consumer and residential loans are not separately identified 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 the 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.

There have been no changes to the Company’s accounting policies or methodology from the prior periods.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination. In addition, lending relationships over $500,000, new commercial and commercial real estate loans, and watch list credits are reviewed annually by our loan review department in order to verify risk ratings. All watch list credits are reviewed by management and reported to the Board monthly. The Company uses the following definitions for risk ratings:

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2012 and December 31, 2011.

	1-4 Family				Commercial Real Estate				Agricultural Real Estate				Commercial Business				Agricultural Business
	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011

Pass	$	38,530,773	$	36,040,795	$	35,924,894	$	36,936,906	$	28,798,666	$	29,567,057	$	20,336,386	$	22,253,904	$	8,284,892	$	9,336,899
Special Mention		1,203,898		1,642,602		569,544		574,484		404,592		404,592		2,758		3,402		253,846		253,846
Substandard		1,764,947		1,788,611		2,595,872		2,658,423		—		—		929,204		941,148		—		—

Total	$	41,499,618	$	39,472,008	$	39,090,310	$	40,169,813	$	29,203,258	$	29,971,649	$	21,268,348	$	23,198,454	$	8,538,738	$	9,590,745

	Home Equity					Consumer
	March 31, 2012		December 31, 2011			March 31, 2012		December 31, 2011

Rating:
Pass	$	13,753,525		$	14,746,631	$	14,570,621		$	15,409,729
Special Mention		190,578			278,323		151,783			153,316
Substandard		1,057,215			1,017,834		116,252			192,928

Total	$	15,001,318		$	16,042,788	$	14,838,656		$	15,755,973

The following tables present the Company’s loan portfolio aging analysis as of March 31, 2012 and December 31, 2011.

	March 31, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing

One-to-four family residential	$	236,172	$	139,750	$	715,831	$	1,091,753	$	40,407,865	$	41,499,618	$	—
Agricultural real estate		—		—		—		—		29,203,258		29,203,258		—
Commercial real estate		93,135		—		52,751		145,886		38,944,424		39,090,310		—
Agricultural business		—		—		—		—		8,538,738		8,538.738		—
Commercial business		9		—		—		9		21,268,339		21,268,348		—
Home equity		47,034		22,379		456,922		526,335		14,474,983		15,001,318		—
Consumer		170,181		18,282		59,938		248,401		14,590,255		14,838,656		—

Total	$	546,531	$	180,411	$	1,285,442	$	2,012,384	$	167,427,862	$	169,440,246	$	—

	December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing

One-to-four family residential	$	289,337	$	161,654	$	1,020,862	$	1,471,853	$	38,000,155	$	39,472,008	$	—
Agricultural real estate		—		—		—		—		29,971,649		29,971,649		—
Commercial real estate		75,924		—		48,428		124,352		40,045,461		40,169,813		—
Agricultural business		—		—		—		—		9,590,745		9,590,745		—
Commercial business		—		—		—		—		23,198,454		23,198,454		—
Home equity		511,562		50,455		197,191		759,208		15,283,580		16,042,788		—
Consumer		156,404		126,077		37,337		319,818		15,436,155		15,755,973		—

Total	$	1,033,227	$	338,186	$	1,303,818	$	2,675,231	$	171,526,199	$	174,201,430	$	—

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

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

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Impairment is measured on a loan-by-loan basis by either the present value of the expected future cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. Significant restructured loans are considered impaired in determining the adequacy of the allowance for loan losses.

The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlement with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring.

The Company will restructure loans when the borrower demonstrates the inability to comply with the terms of the loan, but can demonstrate the ability to meet acceptable restructured terms. Restructurings generally include one or more of the following restructuring options; reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection. Restructured loans in compliance with modified terms are classified as impaired.

The following tables present impaired loans at or for the three months ended March 31, 2012 and 2011 and the year ended December 31, 2011.

	March 31, 2012
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest Income Recognized Cash Basis

Loans without a specific valuation allowance
1-4 Family	$	236,034	$	236,034	$	—	$	235,619	$	2,456	$	2,287
Commercial real estate		25,024		25,024		—		33,942		853		916
Home equity		28,481		28,481		—		28,910		731		749
Loans with a specific valuation allowance
1-4 family		315,576		315,576		36,300		362,143		6,207		880
Commercial real estate		1,648,631		1,648,631		340,784		1,694,673		24,228		25,290
Commercial		541,619		541,619		319,777		572,467		9,065		9,111
Consumer		7,569		7,569		7,569		7,569		168		100
Total:
1-4 family		551,610		551,610		36,300		597,762		8,663		3,167
Commercial real estate		1,673,655		1,673,655		340,784		1,728,615		25,081		26,206
Commercial		541,619		541,619		319,777		572,467		9,065		9,111
Consumer		7,569		7,569		7,569		7,569		168		100
Home equity		28,481		28,481		—		28,910		731		749

Total	$	2,802,934	$	2,802,934	$	704,430	$	2,935,323	$	43,708	$	39,333

	March 31, 2011
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized

Loans without a specific valuation allowance
One-to-four family	$	273,527	$	273,527	$	—	$	275,332	$	3,115
Commercial real estate		124,882		124,882		—		126,207		975
Loans with a specific valuation allowance
One-to-four family		369,475		369,475		67,118		401,190		6,357
Commercial real estate		1,616,827		1,616,827		216,320		1,796,665		19,877
Commercial business		585,106		585,106		99,632		679,026		10,542
Total:
One-to-four family		643,002		643,002		67,118		676,522		9,472
Commercial real estate		1,741,709		1,741,709		216,320		1,922,872		20,852
Commercial business		585,106		585,106		99,632		684,132		10,542

Total	$	2,969,817	$	2,969,817	$	383,070	$	3,278,420	$	40,866

	December 31, 2011
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest Income Recognized Cash Basis

Loans without a specific valuation allowance
1-4 Family	$	235,856	$	235,856	$	—	$	249,103	$	10,446	$	11,162
Commercial real estate		69,249		69,249		—		71,972		457		254
Home equity		29,353		29,353		—		21,954		1,933		1,605
Loans with a specific valuation allowance
1-4 family		316,065		316,065		36,300		368,040		25,241		18,341
Commercial real estate		1,658,157		1,658,157		357,880		1,726,905		88,084		117,289
Commercial		552,814		552,814		296,149		592,796		37,192		36,628
Consumer		7,569		7,569		—		7,569		37		—
Total:
1-4 family		551,921		551,921		36,300		617,143		35,687		29,503
Commercial real estate		1,727,406		1,727,406		357,880		1,798,877		88,541		117,543
Commercial		552,814		552,814		296,149		592,796		37,192		36,628
Consumer		7,569		7,569		—		7,569		37		—
Home equity		29,353		29,353		—		21,954		1,933		1,605

Total	$	2,869,063	$	2,869,063	$	690,329	$	3,038,339	$	163,390	$	185,279

Included in certain loan categories in the impaired loans are troubled debt restructurings (TDR’s), where economic concessions have been granted to borrowers who have experienced financial difficulties, that were classified as impaired. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. TDR’s are considered impaired at the time of restructuring and typically are returned to accrual status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.

When loans are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or based upon on the current fair value of the collateral, less selling costs for collateral dependent loans. If the Company determined that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, the Company evaluates all TDR’s, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.

The following table presents the recorded balance, at original cost, of TDR’s, as of March 31, 2012 and December 31, 2011.

	March 31, 2012		December 31, 2011

One-to-four family	$	256,905	$	213,966
Agricultural real estate		—		—
Commercial real estate		1,053,411		1,075,483
Agricultural business		—		—
Commercial business		467,364		477,798
Home equity		131,694		125,588
Consumer		81,587		83,962

Total	$	1,990,961	$	1,976,797

The following table presents the recorded balance, at original cost, of TDR’s, which were performing according to the terms of the restructuring, as of March 31, 2012 and December 31, 2011.

	March 31, 2012		December 31, 2011

One-to-four family	$	176,959	$	131,990
Agricultural real estate		—		—
Commercial real estate		958,483		1,007,723
Agricultural business		—		—
Commercial business		467,364		477,798
Home equity		101,874		95,769
Consumer		3,054		83,962

Total	$	1,707,734	$	1,797,242

The following table presents loans modified as TDR’s during the three months ended March 31, 2012.

	Three Months Ended March 31, 2012
	Number of Modifications		Recorded Investment

One-to-four family		1	$	44,969
Agricultural real estate		—		—
Commercial real estate		—		—
Agricultural business		—		—
Commercial business		—		—
Home equity		1		6,233
Consumer		—		—

Total		2	$	51,202

During the three month period ended March 31, 2012, the Company modified one one-to-four family residential real estate loan, with a recorded investment of $44,969, which was deemed to be a TDR. The modification was made to change the payment schedule to interest-only for a period of time. The modification did not result in a reduction of the contractual interest rate or a write-off of the principal balance.

The Company also modified one home equity loan with a recorded investment of $6,233. The modification was made to change the payment schedule to interest-only for a period of time. The modification did not result in a reduction of the contractual interest rate or a write-off of the principal balance.

Management considers the level of defaults within the various portfolios when evaluating qualitative adjustments used to determine the adequacy of the allowance for loan losses. During the three month period ended March 31, 2012, one residential real estate loan of $54,454, one commercial real estate loan of $28,000, and one home equity loan of $29,818 that were considered TDR’s defaulted as they were more than 90 days past due at March 31, 2012. Default occurs when a loan is 90 days or more past due, transferred to nonaccrual or charged-off, and is within twelve months of restructuring.

The following table presents the Company’s nonaccrual loans at March 31, 2012 and December 31, 2011. This table excludes performing TDR’s.

	March 31, 2012		December 31, 2011

One-to-four family	$	1,051,505	$	1,297,953
Agricultural real estate		—		—
Commercial real estate		355,609		361,524
Agricultural business		—		—
Commercial business		63,455		66,852
Home equity		702,018		423,113
Consumer		180,972		251,025

Total	$	2,353,559	$	2,400,467

6.	INVESTMENTS

The amortized cost and approximate fair value of securities, all of which are classified as available-for-sale, are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
March 31, 2012:
U.S. government and agencies	$	11,556,884	$	196,051	$	(30,570	)	$	11,722,365
Mortgage-backed securities (government-
sponsored enterprises - residential)		43,666,043		857,371		(53,933	)		44,469,481
Municipal bonds		47,117,586		3,087,868		(76,870	)		50,128,584
	$	102,340,513	$	4,141,290	$	(161,373	)	$	106,320,430

December 31, 2011:
U.S. government and agencies	$	14,132,240	$	211,540	$	(8,137	)	$	14,335,643
Mortgage-backed securities (government-
sponsored enterprises - residential)		39,479,133		905,509		(20,556	)		40,364,086
Municipal bonds		44,961,448		2,995,639		(34,768	)		47,922,319
	$	98,572,821	$	4,112,688	$	(63,461	)	$	102,622,048

The amortized cost and fair value of available-for-sale securities at March 31, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	Cost		Value
Within one year	$	101,399	$	101,904
One to five years		8,115,045		8,407,695
Five to ten years		28,578,437		30,044,857
After ten years		21,879,589		23,296,493
		58,674,470		61,850,949
Mortgage-backed securities (government-
sponsored enterprises - residential)		43,666,043		44,469,481
	$	102,340,513	$	106,320,430

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $24,502,000 at March 31, 2012 and $25,424,000 at December 31, 2011.

The book value of securities sold under agreement to repurchase amounted to $5,669,000 at March 31, 2012 and $6,785,000 at December 31, 2011.

Gross gains of $225,000 and $54,000 and gross losses of $0 resulting from sales of available-for-sale securities were realized during the three months ended March 31, 2012 and 2011, respectively.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at March 31, 2012 was $17,791,000, which is approximately 16.7% of the Company’s available-for-sale investment portfolio.

Management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

The following table shows the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at March 31, 2012 and December 31, 2011.

	Less Than Twelve Months					Twelve Months or More				Total
	Gross					Gross				Gross
	Unrealized			Fair		Unrealized		Fair		Unrealized			Fair
March 31, 2012	Losses			Value		Losses		Value		Losses			Value

Municipal bonds	$	(76,870	)	$	2,779,063	$	-	$	-	$	(76,870	)	$	2,779,063
U.S. government and agencies		(30,570	)		3,473,806		-		-		(30,570	)		3,473,806
Subtotal		(107,440	)		6,252,869		-		-		(107,440	)		6,252,869

Mortgage-backed securities
(government sponsored
enterprises - residential)		(53,933	)		11,538,534		-		-		(53,933	)		11,538,534

Total	$	(161,373	)	$	17,791,403	$	-	$	-	$	(161,373	)	$	17,791,403

	Less Than Twelve Months					Twelve Months or More					Total
	Gross					Gross					Gross
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
December 31, 2011	Losses			Value		Losses			Value		Losses			Value

Municipal bonds	$	(34,768	)	$	2,234,403	$	-		$	-	$	(34,768	)	$	2,234,403
U.S. government and agencies		(8,137	)		1,491,864		-			-		(8,137	)		1,491,864
Subtotal		(42,905	)		3,726,267		-			-		(42,905	)		3,726,267

Mortgage-backed securities
(government sponsored
enterprises - residential)		(18,488	)		4,910,314		(2,068	)		623,455		(20,556	)		5,533,769

Total	$	(61,393	)	$	8,636,581	$	(2,068	)	$	623,455	$	(63,461	)	$	9,260,036

The unrealized losses on the Company’s investments in municipal bonds, U.S. government and agencies, and mortgage-backed securities were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2012 and December 31, 2011.

7.	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) components and related taxes were as follows:

	March 31, 2012			March 31, 2011
Net unrealized gain on securities available-for-sale	$	156,018		$	499,463
Less reclassification adjustment for realized gains
included in income		225,328			53,505
Other comprehensive income (loss) before tax effect		(69,310	)		445,958
Less tax expense (benefit)		(23,565	)		151,626
Other comprehensive income (loss)	$	(45,745	)	$	294,332

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:

	March 31, 2012			December 31, 2011
Net unrealized gain on securities available-for-sale	$	3,979,917		$	4,049,227
Tax effect		(1,353,172	)		(1,376,737	)
Net-of-tax amount	$	2,626,745		$	2,672,490

8.	DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities.

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2012 and December 31, 2011:

			March 31, 2012
			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
U.S. Government and
agencies	$	11,722,365	$	-	$	11,722,365	$	-
Mortgage-backed securities
(Government sponsored
enterprises - residential)		44,469,481		-		44,469,481		-
Municipal bonds		50,128,584		-		50,128,584		-

			December 31, 2011
			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
U.S. Government and
agencies	$	14,335,643	$	-	$	14,335,643	$	-
Mortgage-backed securities
(Government sponsored
enterprises - residential)		40,364,086		-		40,364,086		-
Municipal bonds		47,922,319		-		47,922,319		-

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended March 31, 2012.

Available-for-Sale Securities - Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Company has no Level 1 securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For those investments, the inputs used by the pricing service to determine fair value may include one, or a combination of, observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data market research publications are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government and agencies, mortgage-backed securities (Government-sponsored enterprises – residential) and municipal bonds. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company did not have securities considered Level 3 as of March 31, 2012 or December 31, 2011.

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2012 and December 31, 2011:

March 31, 2012

Fair Value Measurements Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Impaired loans

(collateral dependent)

246,912

Real estate owned

514,975

December 31, 2011

Fair Value Measurements Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Impaired loans

(collateral dependent)

867,318

Mortgage servicing rights

697,733

Real estate owned

435,480

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Impaired Loans (Collateral Dependent) - The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. Fair value adjustments on impaired loans were $(6,532) at March 31, 2012 and $(393,319) at December 31, 2011.

Mortgage Servicing Rights – Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed and default rate. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

Mortgage servicing rights are tested for impairment on at least an annual basis. The Company uses a third-party to measure mortgage servicing rights through the completion of a proprietary model. Inputs to the model are reviewed by the Company. Fair value adjustments on mortgage servicing rights were $0 at March 31, 2012 and $(58,818) at December 31, 2011.

Real Estate Owned – Real estate owned (REO) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of REO is based on appraisals or evaluations. REO is classified within Level 3 of the fair value hierarchy.

Appraisals of REO are obtained when the real estate is acquired and subsequently as deemed necessary. Appraisals are reviewed for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by management. Fair value adjustments on real estate owned were $(20,099) at March 31, 2012 and $32,352 at December 31, 2011.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements (dollars in thousands).

	Fair Value at 3/31/12		Valuation Technique	Unobservable Inputs	Range (Weighted Average)

Foreclosed assets	$	514,975	Market comparable properties	Comparability adjustments (%)	Not available

Collateral-dependent impaired loans		246,912	Market comparable properties	Marketability discount		20% – 30% (25%)

Fair Value of Financial Instruments

The following table presents estimated fair values of the Company’s other financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2012 and December 31, 2011:

			March 31, 2012
			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash and cash equivalents	$	19,443,499	$	19,443,499	$	-	$	-
Interest earning time deposits in banks		2,972,000		-		2,972,000		-
Other investments		113,671		-		113,671		-
Loans held for sale		962,402		-		962,402		-
Loans, net of allowance for loan losses		166,123,058		-		-		165,106,874
Federal Home Loan Bank stock		1,113,800		-		1,113,800		-
Interest receivable		2,038,603		-		2,038,603		-
Financial Liabilities
Deposits		264,979,686		-		130,875,621		136,720,120
Short-term borrowings		4,327,909		-		4,327,909		-
Advances from borrowers for taxes
and insurance		1,129,750		-		1,129,750		-
Interest payable		337,341		-		337,341		-
Unrecognized financial instruments (net
of contract amount)
Commitments to originate loans		-		-		-		-
Letters of credit		-		-		-		-
Lines of credit		-		-		-		-

	December 31, 2011
	Carrying		Fair
	Amount		Value
Financial Assets
Cash and cash equivalents	$	11,387,947	$	11,387,947
Interest earning time deposits in banks		2,476,000		2,476,000
Other investments		116,088		116,088
Loans held for sale		446,818		446,818
Loans, net of allowance for loan losses		170,865,102		169,667,091
Federal Home Loan Bank stock		1,113,800		1,113,800
Interest receivable		2,071,534		2,071,534
Financial Liabilities
Deposits		254,240,060		265,515,126
Short-term borrowings		6,517,750		6,517,750
Advances from borrowers for taxes
and insurance		740,083		740,083
Interest payable		349,121		349,121
Unrecognized financial instruments (net
of contract amount)
Commitments to originate loans		-		-
Letters of credit		-		-
Lines of credit		-		-

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.

Cash and Cash Equivalents, Interest Receivable, Federal Home Loan Bank Stock, and Other Investments - The carrying amount approximates fair value.

Loans Held for Sale - For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.

Loans - The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value.

Deposits - Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Short-term Borrowings, Interest Payable, and Advances from Borrowers for Taxes and Insurance - The carrying amount approximates fair value.

Commitments to Originate Loans, Letters of Credit, and Lines of Credit - The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

9.	FEDERAL HOME LOAN BANK STOCK

The Company owns $1,113,800 of Federal Home Loan Bank stock as of March 31, 2012. The Federal Home Loan Bank of Chicago (FHLB) has been operating under a Cease and Desist Order from their regulator, the Federal Housing Finance Agency (FHFA). The FHFA terminated the Cease and Desist Order during April 2012. The FHLB’s new capital structure and excess stock repurchase plan has been approved by the FHFA. The repurchase plan allows for the FHLB to repurchase approximately $500 million in excess capital stock held by members which will represent 45% of the excess stock outstanding. The FHLB will continue to provide liquidity and funding through advances and purchasing loans through the MPF program. In 2012 and 2011, the FHLB declared and paid quarterly dividends at an annualized rate of return of 10 basis points per share. Management performed an analysis and deemed the cost method investment in FHLB stock was ultimately recoverable.

10.	MORTGAGE SERVICING RIGHTS

Activity in the balance of mortgage servicing rights, measured using the amortization method, for the three month period ending March 31, 2012 and the year ended December 31, 2011 was as follows:

	March 31, 2012			December 31, 2011
Balance, beginning of year	$	697,733		$	797,327
Servicing rights capitalized		55,027			137,206
Amortization of servicing rights		(86,101	)		(226,998	)
Change in valuation allowance		12,234			(9,802	)
Balance, end of period	$	678,893		$	697,733

Activity in the valuation allowance for mortgage servicing rights for the three month period ending March 31, 2012 and the year ended December 31, 2011 was as follows:

	March 31, 2012			December 31, 2011
Balance, beginning of year	$	173,791		$	163,989
Additions		-			58,818
Reductions		(12,234	)		(49,016	)
Balance, end of period	$	161,557		$	173,791

11.	INCOME TAXES

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the three months ended March 31, 2012 and 2011 is shown below.

	March 31, 2012			March 31, 2011
Computed at the statutory rate (34%)	$	435,757		$	339,372
Increase (decrease) resulting from
Tax exempt interest		(132,057	)		(122,552	)
State income taxes, net		75,310			59,953
Increase in cash surrender value		(12,325	)		(13,557	)
Other, net		204			199

Actual tax expense	$	366,889		$	263,415

12.	COMMITMENTS AND CONTINGENCIES

The Company is a defendant in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the resolution of these actions will not have any material adverse effect on the Company’s consolidated financial statements.

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers in the way of commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. Substantially all of the Company’s loans are to borrowers located in Cass, Morgan, Macoupin, Montgomery, and surrounding counties in Illinois.

JACKSONVILLE BANCORP, INC.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Forward Looking Statements

This Form 10-Q contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, the effect of the current state of the financial markets and the United States government programs introduced to restore stability and liquidity of the financial markets, changes in interest rates, general economic conditions and the weak state of the United States economy, deposit flows, demand for mortgage and other loans, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing of products and services.

Critical Accounting Policies and Use of Significant Estimates

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

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

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

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

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

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

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

The above listing is not intended to be a comprehensive list of all our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgement in their application. There are also areas in which management’s judgement in selecting any available alternative would not produce a materially different result.

Financial Condition

March 31, 2012 Compared to December 31, 2011

Total assets increased by $10.0 million, or 3.3%, to $317.3 million at March 31, 2012 from $307.3 million at December 31, 2011. Net loans decreased $4.7 million, or 2.8%, to $166.1 million at March 31, 2012 from $170.9 million at December 31, 2011. The decrease in loans reflects low loan demand as a result of the current weakened economy, as well as normal loan repayments. Available-for-sale mortgage-backed securities increased $4.1 million, or 10.2%, to $44.5 million at March 31, 2012 from $40.4 million at December 31, 2011 reflecting the investment of funds from deposit growth at a time when loan demand is weak. Cash and cash equivalents also increased $8.1 million to $19.4 million at March 31, 2012 from $11.4 million at December 31, 2011.

Total deposits increased $10.7 million, or 4.2%, to $265.0 million at March 31, 2012, primarily due to an $8.9 million increase in transaction accounts. Transaction accounts have continued to grow as customers have preferred to maintain short-term, liquid deposits in the current low-rate environment. Deposit growth reflects customer preference for insured deposits versus alternative investments. Other borrowings, which consisted of overnight repurchase agreements, decreased $2.2 million during this same time frame.

Stockholders’ equity increased $735,000, or 1.8%, to $41.9 million at March 31, 2012. The increase in stockholders’ equity was the result of net income of $915,000, which was partially offset by the payment of $141,000 in dividends and $46,000 in other comprehensive income. Other comprehensive income consisted of a decrease in net unrealized gains, net of tax, on available-for-sale securities reflecting changes in market prices for securities in our portfolio. Other comprehensive income does not include changes in the fair value of other financial instruments included on the balance sheet.

Results of Operations

Comparison of Operating Results for the Three Months Ended March 31, 2012 and 2011

General: Net income for the three months ended March 31, 2012 was $915,000, or $0.49 per common share, basic and diluted, compared to net income of $735,000, or $0.39 per common share, basic and diluted, for the three months ended March 31, 2011. The $180,000 increase in net income was due to increases of $56,000 in net interest income and $119,000 in non-interest income and decreases of $95,000 in provision for loan loss expense and $13,000 in non-interest expense, partially offset by an increase of $103,000 in income taxes. Our net interest income continues to benefit from low short-term market interest rates, which have resulted in our cost of funds being lower than the yield on our loans.

Interest Income: Total interest income for the three months ended March 31, 2012 decreased $141,000, or 4.1%, to $3.3 million from $3.4 million for the same period of 2011. The decrease in interest income reflected a $115,000 decrease in interest income on loans, a $39,000 increase in interest income on investment securities, a $75,000 decrease in interest income on mortgage-backed securities, and a $10,000 increase in interest income on other interest-earning assets. As noted below, the changes in the composition of our interest-earning assets reflects the investment in investment and mortgage-backed securities during a time when satisfactory loan origination opportunities were lacking.

Interest income on loans decreased $115,000 to $2.5 million for the first quarter of 2012 due to a decrease in the average volume of loans, partially offset by an increase in the average yield of loans. The average balance of the loan portfolio decreased $9.2 million to $170.0 million for the first quarter of 2012. The decrease in the average balance of the loan portfolio reflected a decrease in the average balance of residential real estate and home equity loans, reflecting the volume of loans refinanced and subsequently sold into the secondary market. The average yield increased to 5.98% during the first quarter of 2012 from 5.93% during the first quarter of 2011.

Interest income on investment securities increased $39,000 to $525,000 for the first quarter of 2012 from $486,000 for the first quarter of 2011. The increase reflected increases in both the average balance and average yield of the investment securities portfolio during the first quarter of 2012. The average balance of investment securities increased $2.9 million to $59.0 million during the first quarter of 2012, compared to $56.1 million during the first quarter of 2011. The average yield of investment securities increased to 3.56% during the first quarter of 2012 from 3.47% during the first quarter of 2011. The average yield does not reflect the benefit of the higher tax-equivalent yield of our municipal bonds, which is reflected in income tax expense.

Interest income on mortgage-backed securities decreased $75,000 to $205,000 for the first quarter of 2012, compared to $280,000 for the first quarter of 2011. The decrease reflected a 66 basis point decrease in the average yield of mortgage-backed securities to 1.97% for the first quarter of 2012, compared to 2.63% for the first quarter of 2011. The average yield was impacted by higher premium amortization resulting from faster national prepayment speeds on mortgage-backed securities. The amortization of premiums on mortgage-backed securities, which reduces the average yield, increased to $166,000 during the first quarter of 2012, compared to $131,000 during the first quarter of 2011. Interest income on mortgage-backed securities also reflected a $803,000 decrease in the average balance of mortgage-backed securities to $41.7 million during the first quarter of 2012.

Interest income on other interest-earning assets, which consisted of interest-earning demand and time deposit accounts and federal funds sold, increased $10,000 during the first quarter of 2012. The average balance of these accounts increased $9.3 million to $15.7 million for the three months ended March 31, 2012 compared to $6.4 million for the three months ended March 31, 2011. The average yield on other interest-earning assets increased to 0.29% during the first quarter of 2012 from 0.11% during the first quarter of 2011.

Interest Expense: Total interest expense decreased $197,000, or 24.5%, to $608,000 for the three months ended March 31, 2012 compared to $805,000 for the three months ended March 31, 2011. The lower interest expense was due to a $195,000 decrease in the cost of deposits and a $2,000 decrease in the cost of borrowed funds.

Interest expense on deposits decreased $195,000 to $605,000 for the three months ended March 31, 2012 compared to $800,000 for the three months ended March 31, 2011. The decrease in interest expense on deposits was primarily due to a 32 basis point decrease in the average rate paid to 1.03% during the first quarter of 2012 from 1.35% during the first quarter of 2011. The decrease reflected ongoing low short-term market interest rates during the first quarter of 2012. The average balance of deposits decreased $1.8 million to $235.8 million for the first quarter of 2012. The decrease was primarily due to a $9.0 million decrease in the average balance of time deposit accounts, partially offset by a $7.2 million increase in the average balance of lower cost transaction accounts..

Interest paid on borrowed funds, which consist of overnight repurchase agreements, decreased $2,000 to $2,800 for the first quarter of 2012 due to a decrease in the average cost of borrowings. The average rate paid on borrowed funds decreased to 0.25% during the first quarter of 2012 compared to 0.54% during the first quarter of 2011. The average balance of borrowed funds increased to $4.5 million during the first quarter of 2012 compared to $3.4 million during the same period of 2011.

Net Interest Income. As a result of the changes in interest income and interest expense noted above, net interest income increased by $56,000, or 2.2%, to $2.7 million for the three months ended March 31, 2012 from $2.6 million for the three months ended March 31, 2011. Our interest rate spread increased to 3.57% during the first quarter of 2012 from 3.48% during the first quarter of 2011. Our net interest margin increased to 3.74% for the first quarter of 2012 from 3.69% for the first quarter of 2011.

Provision for Loan Losses: The provision for loan losses is determined by management as the amount needed to replenish the allowance for loan losses, after net charge-offs have been deducted, to a level considered adequate to absorb inherent losses in the loan portfolio, in accordance with accounting principles generally accepted in the United States of America. The following table shows the activity in the allowance for loan losses for the three months ended March 31, 2012 and 2011.

	Three Months Ended
	March 31, 2012		March 31, 2011

Balance at beginning of period	$	3,296,607	$	2,964,285
Charge-offs:
One-to-four family residential		-		7,402
Commercial real estate		-		260,785
Home equity		46,744		4,162
Consumer		2,964		1,097
Total		49,708		273,446
Recoveries:
One-to-four family residential		1,625		-
Commercial real estate		-		8,142
Commercial business		316		200
Home equity		525		3,867
Consumer		1,546		1,202
Total		4,012		13,411
Net loan charge-offs		45,696		260,035
Provisions charged to expense		80,000		175,000
Balance at end of period	$	3,330,911	$	2,879,250

The provision for loan losses totaled $80,000 during the first quarter of 2012, compared to $175,000 during the first quarter of 2011. The decrease in the provision for loan losses reflected the decline in loan volume during the first quarter of 2012 and a lower level of net charge-offs. The allowance for loan losses increased $34,000 to $3.3 million at March 31, 2012. The $214,000 decrease in net charge-offs during the first quarter of 2012, compared to the same quarter of 2011, primarily reflected the charge-off of $261,000 on a single commercial real estate property during the first quarter of 2011. Loans delinquent 30 days or more decreased $663,000 to$2.0 million, or 1.19% of total loans, as of March 31, 2012, from $2.7 million, or 1.54% of total loans, as of December 31, 2011.

Provisions for loan losses have been made to bring the allowance for loan losses to a level deemed adequate following management’s evaluation of the repayment capacity and collateral protection afforded by each problem credit. This review also considered the local economy and the level of bankruptcies and foreclosures in our market area. The following table sets forth information regarding nonperforming assets at the dates indicated.

	March 31, 2012			December 31, 2011

Non-accruing loans:
One-to-four family residential	$	1,051,505		$	1,297,953
Commercial real estate		355,609			361,524
Commercial business		63,455			66,852
Home equity		702,018			423,113
Consumer		180,972			251,025
Total	$	2,353,559		$	2,400,467

Accruing loans delinquent more than 90 days:
Total	$	-		$	-

Foreclosed assets:
One-to-four family residential	$	98,295		$	18,800
Commercial real estate		416,680			416,680
Total	$	514,975		$	435,480

Total nonperforming assets	$	2,868,534		$	2,835,947

Total nonperforming assets as a percentage
of total assets		0.90	%		0.92	%

Nonperforming assets increased $33,000 to $2.9 million, or 0.90% of total assets, as of March 31, 2012, compared to $2.8 million, or 0.92% of total assets, as of December 31, 2011. The increase in nonperforming assets was due to a $47,000 decrease in nonperforming loans and an $80,000 increase in real estate owned. The following table shows the aggregate principal amount of potential problem credits on the Company’s watch list at March 31, 2012 and December 31, 2011. All non-accruing loans are automatically placed on the watch list. The decrease in special mention credits was primarily due to the payoff of a $343,000 loan secured by residential real estate during the first quarter of 2012.

	March 31, 2012		December 31, 2011

Special Mention credits	$	2,776,999	$	3,310,565
Substandard credits		6,463,490		6,598,944
Total watch list credits	$	9,240,489	$	9,909,509

Non-Interest Income: Non-interest income increased $119,000, or 12.2%, to $1.1 million for the three months ended March 31, 2012 from $985,000 for the same period in 2011. The increase in non-interest income resulted primarily from increases of $172,000 in gains on the sale of available-for-sale securities and $109,000 in income from mortgage banking operations, partially offset by a decrease of $166,000 in commission income. The increased gains on the sale of securities reflected a higher volume of $10.1 million in sales during the first quarter of 2012, compared to $6.3 million in sales during the first quarter of 2011. The sales during 2012 were primarily made to eliminate factored-down mortgage-backed securities, which were subject to increased prepayment risk due to new government-assisted homeowner refinancing programs. The increase in mortgage banking income was due to a higher volume of loan sales in 2012, as we sold $12.9 million of loans to the secondary market during the first quarter of 2012, compared to $2.8 million during the same period of 2011. The decrease in commission income reflected changing market conditions and reduced account rollover activity.

Non-Interest Expense: Total non-interest expense decreased $13,000 to $2.4 million for the three months ended March 31, 2012. The decrease in non-interest expense consisted mainly of decreases of $58,000 in FDIC deposit insurance premiums and $17,000 in data processing and telecommunications expense, partially offset by increases of $44,000 in compensation and benefits expense and $9,000 in occupancy and equipment expense. FDIC insurance premiums reflect reduced premium rates which became effective during the second quarter of 2011. The decrease in data processing and telecommunications expense is due to the higher expense during 2011 as we upgraded our network and telecommunications equipment. The increase in occupancy and equipment expense reflects the higher depreciation expense of the new equipment during the first quarter of 2012. The increase in compensation and benefits expense resulted from normal salary and benefit cost increases, higher commissions, and expenses related to funding of benefit plans.

Income Taxes: The provision for income taxes increased $103,000 to $367,000 during the first quarter of 2012 compared to the same period of 2011. The increase in the income tax provision reflected an increase in taxable income due to higher income levels, partially offset by an increase in tax-exempt income. The effective tax rate was 28.6% and 26.4% for the first quarters of 2012 and 2011, respectively.

Liquidity and Capital Resources

The Company’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on the Company’s operating, financing, and investing activities. At March 31, 2012 and December 31, 2011, cash and cash equivalents totaled $19.4 million and $11.4 million, respectively. The Company’s primary sources of funds include principal and interest repayments on loans (both scheduled payments and prepayments), maturities of investment securities and principal repayments from mortgage-backed securities (both scheduled payments and prepayments). During the past three months, the most significant sources of funds have been growth in deposits, calls and sales of investment securities, and principal repayments on loans and mortgage-backed securities. These funds have been used primarily for purchases of short-term investment and mortgage-backed securities.

While scheduled loan repayments and proceeds from maturing investment securities and principal repayments on mortgage-backed securities are relatively predictable, deposit flows and prepayments are more influenced by interest rates, general economic conditions, and competition. The Company attempts to price its deposits to meet asset-liability objectives and stay competitive with local market conditions.

Liquidity management is both a short- and long-term responsibility of management. The Company adjusts its investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) projected purchases of investment and mortgage-backed securities, (iii) expected deposit flows, (iv) yields available on interest-earning deposits, and (v) liquidity of its asset/liability management program. Excess liquidity is generally invested in interest-earning overnight deposits and other short-term U.S. agency obligations. If the Company requires funds beyond its ability to generate them internally, it has the ability to borrow funds from the FHLB. The Company may borrow from the FHLB under a blanket agreement which assigns all investments in FHLB stock as well as qualifying first mortgage loans equal to 150% of the outstanding balance as collateral to secure the amounts borrowed. This borrowing arrangement is limited to a maximum of 30% of the Company’s total assets or twenty times the balance of FHLB stock held by the Company. At March 31, 2012, the Company had no outstanding FHLB advances and approximately $22.3 million remaining available to it under the above-mentioned borrowing arrangement.

The Company maintains minimum levels of liquid assets as established by the Board of Directors. The Company’s liquidity ratios at March 31, 2012 and December 31, 2011 were 44.3% and 40.4%, respectively. This ratio represents the volume of short-term liquid assets as a percentage of net deposits and borrowings due within one year.

The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above. The following table summarizes these commitments at March 31, 2012 and December 31, 2011.

	March 31, 2012		December 31, 2011

Commitments to fund loans	$	45,548,732	$	40,878,143
Standby letters of credit		405,914		400,914

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital (as defined) to average assets (as defined). Management believes that at March 31, 2012, the Company met all its capital adequacy requirements.

Under Illinois law, Illinois-chartered savings banks are required to maintain a minimum core capital to total assets ratio of 3%. The Illinois Commissioner of Savings and Residential Finance (the “Commissioner”) is authorized to require a savings bank to maintain a higher minimum capital level if the Commissioner determines that the savings bank’s financial condition or history, management or earnings prospects are not adequate. If a savings bank’s core capital ratio falls below the required level, the Commissioner may direct the savings bank to adhere to a specific written plan established by the Commissioner to correct the savings bank’s capital deficiency, as well as a number of other restrictions on the savings bank’s operations, including a prohibition on the declaration of dividends by the savings bank’s board of directors. At March 31, 2012, the Bank’s core capital ratio was 10.19% of total average assets, which substantially exceeded the required amount.

The Bank is also required to maintain regulatory capital requirements imposed by the Federal Deposit Insurance Corporation. The Bank must have: (i) Tier 1 Capital to Average Assets of 4.0%, (ii) Tier 1 Capital to Risk-Weighted Assets of 4.0%, and (iii) Total Capital to Risk-Weighted Assets of 8.0%. At March 31, 2012, minimum requirements and the Bank’s actual ratios are as follows:

	March 31, 2012			December 31, 2011			Minimum
	Actual			Actual			Required
Tier 1 Capital to Average Assets		10.19	%		10.35	%		4.00	%
Tier 1 Capital to Risk-Weighted Assets		15.19	%		15.42	%		4.00	%
Total Capital to Risk-Weighted Assets		16.45	%		16.67	%		8.00	%

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data presented herein have been prepared in accordance with GAAP which require the measurement of financial position and operating results in terms of historical dollars, without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

The following table sets forth the average balances and interest rates (costs) on the Company’s assets and liabilities during the periods presented.

Consolidated Average Balance Sheet and Interest Rates
(Dollars in thousands)
	Three Months Ended March 31,
	2012							2011
	Average							Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost

Interest-earnings assets:
Loans	$	169,969	$	2,541		5.98	%	$	179,150	$	2,655		5.93	%
Investment securities		58,965		525		3.56	%		56,080		486		3.47	%
Mortgage-backed securities		41,716		205		1.97	%		42,519		280		2.63	%
Other		15,721		12		0.29	%		6,423		2		0.11	%
Total interest-earning assets		286,371		3,283		4.58	%		284,172		3,423		4.82	%

Non-interest earnings assets		21,763							20,371
Total assets	$	308,134						$	304,543

Interest-bearing liabilities:
Deposits	$	235,837	$	605		1.03	%	$	237,673	$	800		1.35	%
Other borrowings		4,468		3		0.25	%		3,440		5		0.54	%
Total interest-bearing liabilities		240,305		608		1.01	%		241,113		805		1.66	%

Non-interest bearing liabilities		25,805							27,429
Stockholders’ equity		42,024							36,001

Total liabilities/stockholders’ equity	$	308,134						$	304,543

Net interest income			$	2,675						$	2,618

Interest rate spread (average yield earned
minus average rate paid)						3.57	%						3.48	%

Net interest margin (net interest income
divided by average interest-earning assets)						3.74	%						3.69	%

The following table sets forth the changes in rate and changes in volume of the Company’s interest earning assets and liabilities.

Analysis of Volume and Rate Changes
(In thousands)
Three Months Ended March 31,
	2012 Compared to 2011
	Increase(Decrease) Due to
	Rate			Volume			Net

Interest-earnings assets:
Loans	$	22		$	(137	)	$	(115	)
Investment securities		14			25			39
Mortgage-backed securities		(69	)		(6	)		(75	)
Other		5			5			10
Total net change in income on
interest-earning assets		(28	)		(113	)		(141	)

Interest-bearing liabilities:
Deposits		(189	)		(6	)		(195	)
Other borrowings		(3	)		1			(2	)
Total net change in expense on
interest-bearing liabilities		(192	)		(5	)		(197	)

Net change in net interest income	$	164		$	(108	)	$	56

JACKSONVILLE BANCORP, INC.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

The following table shows projected results at March 31, 2012 and December 31, 2011 of the impact on net interest income from an immediate change in interest rates, as well as the benchmarks established by the ALCO. The results are shown as a dollar and percentage change in net interest income over the next twelve months.

	Change in Net Interest Income
	(Dollars in thousands)
	March 31, 2012						December 31, 2011						ALCO
Rate Shock:	$ Change			% Change			$ Change			% Change			Benchmark
+ 200 basis points		24			0.21	%		(84	)		-0.71	%	> (20.00)%
+ 100 basis points		48			0.42	%		(21	)		-0.18	%	> (12.50)%
- 100 basis points		(255	)		-2.21	%		(200	)		-1.70	%	> (12.50)%
- 200 basis points		(544	)		-4.72	%		(415	)		-3.51	%	> (20.00)%

The table above indicates that as of March 31, 2012, in the event of a 200 basis point increase in interest rates, we would experience a 0.21% increase in net interest income. In the event of a 100 basis point decrease in interest rates, we would experience a 2.21% decrease in net interest income.

The foregoing computations are based upon numerous assumptions, including relative levels of market interest rates, prepayments, and deposit mix. The computed estimates should not be relied upon as a projection of actual results. Despite the limitations on precision inherent in these computations, management believes that the information provided is reasonably indicative of the effect of changes in interest rate levels on the net earning capacity of the Company’s current mix of interest earning assets and interest bearing liabilities. Management continues to use the results of these computations, along with the results of its computer model projections, in order to maximize current earnings while positioning the Company to minimize the effect of a prolonged shift in interest rates that would adversely affect future results of operations.

At the present time, the most significant market risk affecting the Company is interest rate risk. Other market risks such as foreign currency exchange risk and commodity price risk do not occur in the normal business of the Company. The Company also is not currently using trading activities or derivative instruments to control interest rate risk.

JACKSONVILLE BANCORP, INC.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13(a)-15(e) that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

At March 31, 2012, the Company is not involved in any pending legal proceedings other than non-material legal proceedings undertaken in the normal course of business.

Item 1.A. Risk Factors

There have been no material changes in the Company’s risk factors from those disclosed in its annual report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

At March 31, 2012, we had 86,547 shares available under a previously announced share repurchase program, of which no shares were repurchased during the past three months.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

31.1 - Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)

31.2 - Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)

32.1 - Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	JACKSONVILLE BANCORP, INC. Registrant

Date: 05/10/2012	/s/ Richard A. Foss
	Richard A. Foss
	President and Chief Executive Officer

	/s/ Diana S. Tone
	Diana S. Tone
	Chief Financial Officer

EXHIBITS