UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2014.

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

For the transition period from ______________ to ______________.

Commission file number: 001-34821

JACKSONVILLE BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

	Title of each class	Name of each exchange on which registered

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

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

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

YES ☐

NO ☒

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

YES ☐

NO ☒

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

YES ☒

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 that the Registrant was required to submit and post such files).

YES ☒

NO ☐

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

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

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☒

(Do not check if a smaller reporting company)

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2014, as reported by the Nasdaq Capital Market, was approximately $38.6 million.

As of March 1, 2015, there were issued and outstanding 1,800,123 shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

(1) Proxy Statement for the 2015 Annual Meeting of Stockholders of the Registrant (Part III).

(2) Annual Report to Stockholders (Parts II and IV).

TABLE OF CONTENTS

ITEM 1.	Business	2
ITEM 1A.	Risk Factors	38
ITEM 1B.	Unresolved Staff Comments	44
ITEM 2.	Properties	45
ITEM 3.	Legal Proceedings	45
ITEM 4.	Mine Safety Disclosures	45
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	46
ITEM 6.	Selected Financial Data	46
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	47
ITEM 8.	Financial Statements and Supplementary Data	47
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	47
ITEM 9A.	Controls and Procedures	47
ITEM 9B.	Other Information	48
ITEM 10.	Directors, Executive Officers and Corporate Governance	48
ITEM 11.	Executive Compensation	48
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
ITEM 13.	Certain Relationships and Related Transactions and Director Independence	48
ITEM 14.	Principal Accountant Fees and Services	48
ITEM 15.	Exhibits and Financial Statement Schedules	48

PART I

ITEM 1. Business

Jacksonville Bancorp, Inc.

Jacksonville Bancorp, Inc. (or the “Company”) is a Maryland corporation. On July 14, 2010, Jacksonville Bancorp, Inc. completed its conversion from the mutual holding company structure and the related public offering and is now a stock holding company that is fully owned by the public. Jacksonville Savings Bank is 100% owned by the Company and the Company is 100% owned by public stockholders. On June 28, 2013, Jacksonville Savings Bank terminated its election to be regulated as a savings and loan holding company pursuant to Section 10(l) of the Home Owners Loan Act. On this same date, Jacksonville Bancorp, Inc. became a bank holding company.

The Company’s only significant asset is its investment in Jacksonville Savings Bank. At December 31, 2014, Jacksonville Bancorp, Inc. had consolidated assets of $311.9 million, total deposits of $245.9 million, and stockholders’ equity of $45.0 million.

Jacksonville Savings Bank

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

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

Our principal sources of funds are customer deposits, proceeds from the sale of loans, short-term borrowings, funds received from the repayment and prepayment of loans and mortgage-backed securities, and the sale, call, or maturity of investment securities. Principal sources of income are interest income on loans and investments, sales of loans and securities, service charges, commissions, card interchange income and other fees. Our principal expenses are interest paid on deposits, employee compensation and benefits, occupancy and equipment expense and data processing and telecommunications expense.

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

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

Market Area

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

The economy of our market area consists primarily of agriculture and related businesses, light industry and state and local government. The largest employers in our market area are Reynolds, Passavant Area Hospital, and the State of Illinois. As of December 2014, unemployment rates in our market area were: 5.7% in Cass County, 6.2% in Macoupin County, 8.2% in Montgomery County and 6.0% in Morgan County. This compared with unemployment rates of 6.2% in Illinois and 5.6% in the United States as a whole.

Competition

We encounter significant competition both in attracting deposits and in originating real estate and other loans. Our most direct competition for deposits historically has come from commercial banks, other savings banks, savings associations and credit unions in our market area, and we expect continued strong competition from such financial institutions in the foreseeable future. We compete for deposits by offering depositors a high level of personal service and expertise together with a wide range of financial services. Our deposit sources are primarily concentrated in the communities surrounding our banking offices located in Morgan, Macoupin and Montgomery counties, Illinois. As of June 30, 2014, our FDIC-insured deposit market share in the counties we serve (out of 30 bank and thrift institutions with offices in Morgan, Macoupin and Montgomery Counties, Illinois) was 10.2%. Such data does not reflect deposits held by credit unions.

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

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

Lending Activities

General. Historically, our principal lending activity has been the origination of mortgage loans secured by one- to four-family residential properties in our local market area. Over the past several years, we have increased our emphasis on originating loans secured by commercial and agricultural real estate. We also originate commercial and agricultural business loans secured by collateral other than real estate as well as unsecured commercial and agricultural business loans. We also originate home equity and consumer loans. At December 31, 2014, our loans receivable totaled $187.7 million, of which $44.6 million, or 24.2%, consisted of one- to four-family residential mortgage loans. The remainder of our loans receivable at December 31, 2014 consisted of commercial real estate loans totaling $40.5 million, or 21.9% of net loans, agricultural real estate loans totaling $40.1 million, or 21.7% of net loans, commercial business loans totaling $26.8 million, or 14.5% of net loans, consumer loans totaling $12.6 million, or 6.8% of net loans, agricultural business loans totaling $11.8 million, or 6.4% of net loans, and home equity loans totaling $11.3 million, or 6.1% of net loans.

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

We originate fixed-rate residential mortgage loans secured by one- to four-family residential properties with terms up to 30 years. We sell a significant portion of our one- to four-family fixed-rate residential mortgage loan originations with terms of generally 15 years or greater directly to the secondary market. During the years ended December 31, 2014 and 2013, we sold $12.5 million and $24.5 million of fixed-rate residential mortgage loans, respectively. Loans are generally sold without recourse and with servicing retained.

At December 31, 2014, we were servicing $137.9 million in loans for which we received servicing income of $362,000 for the year ended December 31, 2014. Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned as loan servicing fees in noninterest income. The amortization of mortgage servicing rights is netted from the gains on sale of loans, both cash gains as well as the capitalized gains, and is included in mortgage banking operations, net, in noninterest income.

Loan Portfolio Composition. Set forth below are selected data relating to the composition of our loan portfolio, by type of loan as of the dates indicated, excluding loans held for sale of $236,000, $262,000, $712,000, $447,000 and $280,000 for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.

	At December 31,
	2014					2013					2012						2011					2010
	Amount		Percent			Amount		Percent			Amount			Percent			Amount		Percent			Amount		Percent
	(Dollars in Thousands)
Real estate loans:
One- to four-family residential (1)	$	44,561		24.2	%	$	44,286		24.5	%	$	41,386			23.8	%	$	39,472		23.1	%	$	37,227		21.1	%
Commercial (2)		40,475		21.9			38,921		21.5			30,973			17.8			40,170		23.5			45,362		25.7
Agricultural		40,119		21.7			35,006		19.4			37,392			21.5			29,971		17.5			28,164		16.0
Home equity (3)		11,283		6.1			11,729		6.5			12,734			7.4			16,043		9.4			19,526		11.1
Total real estate loans		136,438		73.9			129,942		71.9			122,485			70.5			125,656		73.5			130,279		73.9

Commercial business loans		26,814		14.5			29,947		16.6			29,046			16.7			23,198		13.6			22,810		12.9
Agricultural business loans		11,845		6.4			10,560		5.9			10,983			6.3			9,591		5.6			8,176		4.6
Consumer loans		12,587		6.8			13,606		7.5			14,572			8.4			15,756		9.2			18,190		10.3
Total loans receivable		187,684		101.6			184,055		101.9			177,086			101.9			174,201		101.9			179,455		101.7

Less:
Unearned premium on purchased loans, unearned discount and deferred loan fees, net		9		—			9		—			(6	)		—			39		—			49		—
Allowance for loan losses		2,956		1.6			3,406		1.9			3,339			1.9			3,297		1.9			2,964		1.7
Total loans receivable, net	$	184,719		100.0	%	$	180,640		100.0	%	$	173,753			100.0	%	$	170,865		100.0	%	$	176,442		100.0	%

(1)

Includes one- to four-family real estate construction loans of $1.2 million, $328,000, $1.9 million, $686,000 and $503,000 for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.

(2)

Includes commercial real estate construction loans of $3.3 million, $4.7 million, $495,000, $0 and $2.1 million for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.

(3)	Includes real estate construction loans of $140,000, $0, $40,000, $0 and $453,000 for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.

One- to Four-Family Mortgage Loans. Historically our primary lending origination activity has been one- to four-family, owner-occupied, residential mortgage loans secured by property located in our market area. We generate loans through our marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses. We generally limit our one- to four-family loan originations to the financing of loans secured by properties located within our market area. At December 31, 2014, $44.6 million, or 24.2% of our net loan portfolio, was invested in mortgage loans secured by one- to four-family residences.

Our fixed-rate one- to four-family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines. We generally originate both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency, which is currently $417,000 for single-family homes. At December 31, 2014, we had two one- to four-family residential mortgage loans with principal balances in excess of $417,000, commonly referred to as jumbo loans.

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

We currently offer adjustable-rate mortgage loans for terms ranging up to 30 years. We generally offer adjustable-rate mortgage loans that adjust between one and five years on the anniversary date of origination. Interest rate adjustments are up to two hundred basis points per year, with a cap of up to six hundred basis points on interest rate increases over the life of the loan. In a rising interest rate environment, such rate limitations may prevent adjustable-rate mortgage loans from repricing to market interest rates, which would have an adverse effect on our net interest income. In the low interest rate environment that has existed over the past few years, our adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of our loan portfolio. We have used different interest indices for adjustable-rate mortgage loans in the past such as the average yield on U.S. Treasury securities, adjusted to a constant maturity of either one-year, three-years or five-years. Adjustable-rate mortgage loans secured by one- to four-family residential real estate totaled $16.6 million, or 37.3% of our total one- to four-family residential real estate loans receivable at December 31, 2014. The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, our interest rate risk position and our competitors’ loan products. During 2014, we originated $19.5 million of fixed-rate residential mortgage loans, most of which were subsequently sold in the secondary market, and $4.3 million of adjustable-rate mortgage loans which were held in our portfolio.

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

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

When underwriting residential real estate loans, we review and verify each loan applicant’s income and credit history. Management believes that stability of income and past credit history are integral parts in the underwriting process. Generally, the applicant’s total monthly mortgage payment, including all escrow amounts, is limited to 30% of the applicant’s total monthly income. In addition, total monthly obligations of the applicant, including mortgage payments, should not generally exceed 43% of total monthly income. Written appraisals are generally required on real estate property offered to secure an applicant’s loan. For one- to four-family real estate loans with loan to value ratios of over 80%, we generally require private mortgage insurance. We require fire and casualty insurance on all properties securing real estate loans. We may require title insurance, or an attorney’s title opinion, as circumstances warrant.

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

Commercial Real Estate Loans. We originate and purchase commercial real estate loans. At December 31, 2014, $40.5 million, or 21.9%, of our net loan portfolio consisted of commercial real estate loans. During 2014, loan originations secured by commercial real estate totaled $15.5 million as compared to $11.1 million in 2013. Our commercial real estate loans are secured primarily by improved properties such as multi-family residential properties, retail facilities and office buildings, restaurants, and other non-residential buildings. At December 31, 2014, our commercial real estate loan portfolio included $6.8 million in loans secured by multi-family residential properties, $4.5 million in loans secured by restaurants, $5.4 million in loans secured by hotels, and $23.8 million in loans secured by other commercial properties. The maximum loan-to-value ratio for commercial real estate loans we originate is generally 80%. Our 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 our fixed-rate commercial real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. We have $6.5 million of interest only commercial real estate loans. We purchase from time to time commercial real estate loan participations primarily from outside our market area where we are not the lead lender. All participation loans are approved following a review to ensure that the loan satisfies our underwriting standards. At December 31, 2014, commercial real estate loan participations totaled $8.4 million, or 20.7% of the commercial real estate loan portfolio consisting primarily of loan participations outside of our market area which totaled $6.1 million, or 15.1% of the commercial real estate loan portfolio. At December 31, 2014, we had one loan participation located in central Illinois with a balance of $794,000 delinquent 60 days or more.

At December 31, 2014, our largest commercial real estate loan was secured by a hotel with a principal balance of $3.5 million and was performing in accordance with its terms. At December 31, 2014, our largest commercial real estate loan participation was secured by a manufacturing facility with a principal balance of $1.3 million and was performing in accordance with its terms.

Our underwriting standards for commercial 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 business or real estate offered as collateral is adequate to repay the loan. We emphasize the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%). In underwriting a loan, we consider the value of the real estate offered as collateral in relation to the proposed loan amount. Generally, the loan amount cannot be greater than 80% of the value of the real estate. We usually obtain written appraisals from either licensed or certified appraisers on all commercial 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 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. We originate and purchase agricultural real estate loans. At December 31, 2014, $40.1 million, or 21.7% of our net loan portfolio, consisted of agricultural real estate loans. During 2014, loan originations secured by agricultural real estate totaled $6.7 million, as compared to $4.6 million in 2013. The maximum loan-to-value ratio for agricultural real estate loans we originate is generally 75%. 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 either 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. At December 31, 2014, agricultural real estate loan participations totaled $4.3 million, or 10.7% of the agricultural real estate loan portfolio. At December 31, 2014, we had no agricultural real estate loan participations delinquent 60 days or more. At December 31, 2014, our largest agricultural real estate loan was secured by farmland, had a principal balance of $2.8 million and was performing in accordance with its terms.

Our 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 75% 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 and carry larger loan balances than one- to four-family residential mortgage loans. 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. At December 31, 2014, home equity loans totaled $11.3 million, or 6.1%, of our net loan portfolio. Our home equity loans and lines of credit are generally secured by the borrower’s principal residence. The maximum amount of a home equity loan or line of credit is generally 95% of the appraised value of a borrower’s real estate collateral less the amount of any prior mortgages or related liabilities. Home equity loans and lines of credit are approved with both fixed and adjustable interest rates which we determine based upon market conditions. Such loans may be fully amortized over the life of the loan or have a balloon feature. Generally, the maximum term for home equity loans is 10 years.

Our 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. At December 31, 2014, home equity loans 90 days or more delinquent totaled $58,000, or 0.5% of total home equity loans. The largest delinquent loan in this category at December 31, 2014 had a principal balance of $27,000 and was secured by a residential mortgage. No assurance can be given, however, that our delinquency rate or loss experience on home equity loans will not increase in the future.

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. We originate commercial business loans to borrowers located in our market area which are secured by collateral other than real estate or which can be unsecured. We also purchase participations of commercial business loans from other lenders, which may be made to borrowers outside our market area. Commercial business loans totaled $26.8 million, or 14.5% of our net loan portfolio at December 31, 2014. At December 31, 2014, commercial business loan participations totaled $1.2 million, or 4.5% of the commercial business loan portfolio. Of this amount, commercial business loan participations outside of our market area represented $1.2 million, or 4.5% of the commercial business loan portfolio. 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. On a limited basis, we will originate unsecured business loans in those instances where the applicant’s financial strength and creditworthiness has been established. Commercial business loans generally bear higher interest rates than residential loans, but they also may involve a higher risk of default since their repayment is generally dependent on the successful operation of the borrower’s business. We generally obtain personal guarantees from the borrower or a third party as a condition to originating business loans. During the year ended December 31, 2014, we originated $19.5 million in commercial business loans. At that date, our largest commercial business loan was a $6.0 million line of credit. This loan was performing in accordance with its terms at December 31, 2014.

Our underwriting standards for commercial business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business. We assess the financial strength of each applicant through the review of financial statements and tax returns provided by the applicant. The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records. We periodically review business loans following origination. We request financial statements at least annually and review them for substantial deviations or changes that might affect repayment of the loan. Our loan officers may 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. We originate 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 totaled $11.8 million, or 6.4% of our net loan portfolio at December 31, 2014. 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. While the repayment of our agricultural business loans is generally dependent on the successful operation of the farm operation, we have experienced a good history of low default rates. We generally obtain personal guarantees from the borrower as a condition to originating agricultural business loans. During the year ended December 31, 2014, we originated $11.5 million in agricultural business loans. At December 31, 2014, our largest agricultural business loan was a line of credit of $600,000. This loan was performing in accordance with its terms at December 31, 2014.

Our 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. We assess the financial strength of each applicant 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. We request financial statements at least annually and review them for substantial deviations or changes that might affect repayment of the loan. Our loan officers 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. As of December 31, 2014, consumer loans totaled $12.6 million, or 6.8%, of our net loan portfolio. The principal types of consumer loans we offer are automobile loans, loans secured by deposit accounts, unsecured loans and mobile home loans. We generally offer consumer loans on a fixed-rate basis.

At December 31, 2014, consumer loans secured by automobiles totaled $5.2 million, or 2.8% of our net loan portfolio. We offer automobile loans with maturities of up to 60 months for new automobiles. Loans secured by used automobiles will have maximum terms which vary depending upon the age of the automobile. We generally originate automobile loans with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value, although the loan-to-value ratio may be greater or less depending on the borrower’s credit history, debt to income ratio, home ownership and other banking relationships with us.

Our underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area. Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount. Consumer loans 90 days or more delinquent at December 31, 2014 totaled $17,000, or 0.1% of total consumer loans. No assurance can be given, however, that our delinquency rate or loss experience on consumer loans will not increase in the future.

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

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2014. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

	One- to Four-Family Real Estate					Commercial Real Estate					Agricultural Real Estate					Home Equity
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in Thousands)
Due During the Years Ending December 31,
2015	$	7,110		5.93	%	$	11,480		5.55	%	$	2,532		3.20	%	$	1,160		6.32	%
2016		2,742		6.24			4,171		4.20			181		6.31			1,254		6.70
2017		2,658		6.32			1,517		5.10			102		4.25			959		6.48
2018 to 2019		4,141		5.20			12,983		4.62			209		5.21			2,684		6.56
2020 to 2024		2,484		6.05			3,824		5.12			3,025		4.71			4,206		5.42
2025 to 2029		7,191		4.76			3,828		5.42			2,561		4.75			542		6.09
2030 and beyond		18,235		5.20			2,672		4.93			31,509		4.30			478		5.86

Total	$	44,561		5.43	%	$	40,475		5.01	%	$	40,119		4.31	%	$	11,283		6.07	%

	Commercial Business					Agricultural Business					Consumer					Total
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in Thousands)
Due During the Years Ending December 31,
2015	$	13,375		4.00	%	$	10,022		4.01	%	$	1,519		7.33	%	$	47,198		4.80	%
2016		1,972		4.30			131		4.00			2,170		7.42			12,621		5.49
2017		2,050		4.75			116		5.56			2,223		7.29			9,625		5.99
2018 to 2019		5,660		5.18			800		5.02			3,495		5.85			29,972		5.14
2020 to 2024		1,840		5.03			776		4.31			646		7.92			16,801		5.32
2025 to 2029		1,917		3.34			—		—			776		8.53			16,815		4.97
2030 and beyond		—		—			—		—			1,758		8.43			54,652		4.78

Total	$	26,814		4.37	%	$	11,845		4.12	%	$	12,587		7.19	%	$	187,684		5.02	%

The following table sets forth at December 31, 2014, the dollar amount of all fixed-rate and adjustable-rate loans due after December 31, 2015. At December 31, 2014, fixed-rate loans include $10.6 million in fixed-rate balloon payment loans with original maturities of five years or less. The total dollar amount of fixed-rate loans and adjustable-rate loans due after December 31, 2015, was $67.1 million and $73.4 million, respectively.

	Due after December 31, 2015
	Fixed		Adjustable		Total
	(In Thousands)
Real estate loans:
One- to four-family residential	$	20,856	$	16,595	$	37,451
Commercial		17,790		11,205		28,995
Agricultural		752		36,835		37,587
Home equity/home improvement		4,312		5,811		10,123
Commercial business loans		10,655		2,784		13,439
Agricultural business loans		1,823		—		1,823
Consumer		10,905		163		11,068
Total loans	$	67,093	$	73,393	$	140,486

Loan Origination, Solicitation and Processing. Loan originations are derived from a number of sources such as real estate broker referrals, existing customers, builders, attorneys and walk-in customers. Upon receipt of a loan application, a credit report is obtained to verify specific information relating to the applicant’s employment, income, and credit standing. In the case of a real estate loan, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent appraiser approved by us. A loan application file is first reviewed by a loan officer in our loan department who checks applications for accuracy and completeness, and verifies the information provided. The financial resources of the borrower and the borrower’s credit history, as well as the collateral securing the loan, are considered an integral part of each risk evaluation prior to approval. All residential real estate loans are then verified by our loan risk management department prior to closing. 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 $750,000 depending on the type of loan. Loans to borrowers with an aggregate 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 to borrowers with an aggregate principal balance over $1.0 million. The board of directors ratifies all loans we originate. Once the loan is approved, the applicant is informed and a closing date is scheduled. We typically fund loan commitments within 45 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 is generally required on loans secured by real property.

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

	For the Years Ended December 31,
	2014		2013		2012		2011		2010
	(In Thousands)

Total loans receivable at beginning of year	$	184,055	$	177,086	$	174,201	$	179,455	$	176,042
Originations:
Real estate loans:
One- to four-family residential		23,848		39,825		68,471		44,583		54,052
Commercial		15,510		11,071		2,823		7,435		18,388
Agricultural		6,698		4,585		11,480		15,482		7,112
Home equity		3,236		3,598		3,243		4,081		5,073
Commercial business loans		19,508		19,397		20,920		14,326		11,692
Agricultural business loans		11,542		10,008		12,091		15,500		14,929
Consumer loans		7,255		9,239		8,375		10,833		16,355
Total originations		87,597		97,723		127,403		112,240		127,601
Participation loans purchased		2,678		3,878		6,093		3,227		4,328
Transfer of mortgage loans to foreclosed real estate owned		374		129		262		461		670
Repayments		73,728		70,043		77,672		88,033		80,471
Loan sales to secondary market		12,544		24,460		52,677		32,227		47,375
Total loans receivable at end of year	$	187,684	$	184,055	$	177,086	$	174,201	$	179,455

Loan Origination and Other Fees. In addition to interest earned on loans, we may charge loan origination fees. Our ability to charge loan origination fees is influenced by the demand for mortgage loans and competition from other lenders in our market area. To the extent that loans are originated or acquired for our portfolio, accounting standards require that we defer loan origination fees and costs and amortize such amounts as an adjustment of yield over the life of the loan by use of the level yield method. Fees deferred are recognized into income immediately upon the sale of the related loan. At December 31, 2014, we had $185,000 of deferred loan fees. Loan origination fees are a volatile source of income. Such fees vary with the volume and type of loans and commitments made and purchased and with competitive conditions in the mortgage markets, which in turn respond to the demand and availability of money.

In addition to loan origination fees, we also receive other fees that consist primarily of extension fees and late charges. We recognized fees of $92,000, $97,000 and $103,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

Loan Concentrations. With certain exceptions, an Illinois-chartered savings bank may not make a loan or exceed credit for secured and unsecured loans for business, commercial, corporate or agricultural purposes to a single borrower in excess of 25% of the Bank’s total capital, as defined by regulation. At December 31, 2014, our loans-to-one borrower limit was $10.1 million. At December 31, 2014 we had no lending relationships in excess of our loans-to-one borrower limitation. At December 31, 2014, we had 28 borrowers with outstanding borrowings in excess of $1.0 million totaling in the aggregate $75.0 million or 39.9% of our total loan portfolio.

Delinquencies and Classified Assets

Our collection procedures provide that when a mortgage loan is either ten days (in the case of adjustable-rate mortgage and balloon loans) or 15 days (in the case of fixed-rate loans) past due, a computer-generated late charge notice is sent to the borrower requesting payment and assessing a late charge. If the mortgage loan remains delinquent, a telephone call is made or a letter is sent to the borrower stressing the importance of reinstating the loan and obtaining reasons for the delinquency. We also send a 30 day notice pursuant to Illinois law if a borrower’s primary residence is the collateral at issue. When a loan continues in a delinquent status for 90 days or more, and a repayment schedule has not been made or kept by the borrower, a notice of intent to foreclose upon the underlying property is then sent to the borrower, giving 10 days to cure the delinquency. If not cured, foreclosure proceedings are initiated. Consumer loans receive a ten-day grace period before a late charge is assessed. Collection efforts begin after the grace period expires. At December 31, 2014, 2013 and 2012, the percentage of non-performing loans to total loans receivable were 1.21%, 0.97% and 1.25%, respectively. At December 31, 2014, 2013 and 2012, the percentage of non-performing assets to total assets was 0.78%, 0.65% and 0.73%, respectively.

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

Management monitors all past due loans and nonperforming assets. Such loans are placed under close supervision with consideration given to the need for additions to the allowance for loan losses and (if appropriate) partial or full charge-off. At December 31, 2014, we had no loans 90 days or more delinquent that were still accruing interest. Nonperforming assets increased by $375,000 to $2.4 million at December 31, 2014 as compared to $2.1 million at December 31, 2013. The increase in the level of nonperforming assets primarily reflected an increase of $482,000 in nonperforming loans, partially offset by a decrease of $107,000 in foreclosed assets. The increase in nonperforming loans primarily reflected the non-accrual status of a $794,000 loan participation secured by commercial real estate, which is in the process of foreclosure.

Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold. When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan, or its fair market value, less estimated selling expenses. Any further write-down of real estate owned is charged against earnings. At December 31, 2014, we owned $177,000 of property classified as real estate owned.

Nonperforming Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. At December 31, 2014, 2013, 2012, 2011 and 2010, we had troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates) of $2.3 million, $2.6 million, $2.2 million, $2.0 million and $1.2 million, respectively.

	At December 31,
	2014			2013			2012			2011			2010
	(Dollars in Thousands)
Nonaccrual loans: (1)
Real estate loans:
One- to four-family residential	$	995		$	1,339		$	1,203		$	1,298		$	1,019
Commercial		932			208			560			362			1,360
Agricultural		123			—			—			—			—
Home equity		121			134			277			423			566
Commercial business loans		22			38			52			67			84
Agricultural business loans		—			—			—			—			—
Consumer loans		71			63			122			251			106

Total nonaccrual loans		2,264			1,782			2,214			2,401			3,135

Loans delinquent 90 days or greater and still accruing:
Real estate loans:
One- to four-family residential		—			—			—			—			—
Commercial		—			—			—			—			—
Agricultural		—			—			—			—			—
Home equity		—			—			—			—			—
Commercial business loans		—			—			—			—			—
Agricultural business loans		—			—			—			—			—
Consumer loans		—			—			—		—			—

Total loans delinquent 90 days or greater and still accruing		—			—			—		—				—

Total nonperforming loans		2,264			1,782			2,214			2,401			3,135

Real estate owned and foreclosed assets:
Real estate loans:
One- to four-family residential		40			133			—			49			207
Commercial		137			149			137			416			253
Agricultural		—			—			—			—			—
Home equity		—			—			—			—			—
Commercial business loans		—			—			—			—			—
Agricultural business loans		—			—			—			—			—
Consumer loans		—			2			—			—			—

Total real estate owned and foreclosed assets		177			284			137			435			460

Total nonperforming assets	$	2,441		$	2,066		$	2,351		$	2,836		$	3,595

Ratios:
Nonperforming loans to total loans		1.21	%		0.97	%		1.25	%		1.38	%		1.75	%
Nonperforming assets to total assets		0.78	%		0.65	%		0.73	%		0.92	%		1.19	%

(1)

Includes nonaccrual troubled debt restructurings of $1.1 million, $412,000, $361,000, $211,000, and $746,000 for the years ended December 31, 2014, 2013, 2012, 2011, and 2010, respectively.

For the year ended December 31, 2014, gross interest income that would have been recorded had our nonaccrual loans and troubled debt restructurings been current in accordance with their original terms was $140,000. We did not recognize any interest income on such loans for the year ended December 31, 2014.

At December 31, 2014, we had no loans that were not currently classified as nonaccrual, 90 days past due or troubled debt restructurings where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.

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

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

At December 31, 2014
Real estate loans:
One- to four-family residential		5		287		9		613		14		900
Commercial		1		794		3		39		4		833
Agricultural		—		—		1		123		1		123
Home equity		2		12		5		58		7		70
Commercial business loans		—		—		—		—		—		—
Agricultural business loans		—		—		—		—		—		—
Consumer loans		3		5		6		17		9		22

Total loans		11	$	1,098		24	$	850		35	$	1,948

At December 31, 2013
Real estate loans:
One- to four-family residential		2	$	96		12	$	807		14	$	903
Commercial		2		68		2		78		4		146
Agricultural		—		—		—		—		—		—
Home equity		3		48		4		55		7		103
Commercial business loans		—		—		—		—		—		—
Agricultural business loans		—		—		—		—		—		—
Consumer loans		5		26		2		10		7		36

Total loans		12	$	238		20	$	950		32	$	1,188

At December 31, 2012
Real estate loans:
One- to four-family residential		5	$	213		15	$	985		20	$	1,198
Commercial		—		—		4		280		4		280
Agricultural		—		—		—		—		—		—
Home equity		4		71		6		136		10		207
Commercial business loans		—		—		—		—		—		—
Agricultural business loans		—		—		—		—		—		—
Consumer loans		2		64		4		34		6		98

Total loans		11	$	348		29	$	1,435		40	$	1,783

At December 31, 2011
Real estate loans:
One- to four-family residential		4	$	162		12	$	1,021		16	$	1,183
Commercial		—		—		2		49		2		49
Agricultural		—		—		—		—		—		—
Home equity		5		50		11		197		16		247
Commercial business loans		—		—		—		—		—		—
Agricultural business loans		—		—		—		—		—		—
Consumer loans		4		126		3		37		7		163

Total loans		13	$	338		28	$	1,304		41	$	1,642

At December 31, 2010
Real estate loans:
One- to four-family residential		4	$	162		15	$	847		19	$	1,009
Commercial		2		146		2		521		4		667
Agricultural		—		—		—		—		—		—
Home equity		2		10		9		275		11		285
Commercial business loans		—		—		—		—		—		—
Agricultural business loans		—		—		—		—		—		—
Consumer loans		6		77		4		9		10		86

Total loans		14	$	395		30	$	1,652		44	$	2,047

Classified Assets. Federal and state regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examination of insured institutions, Federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three categories for classified assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. For assets classified “substandard” and “doubtful,” the institution is required to establish general loan loss reserves in accordance with accounting principles generally accepted in the United States of America. Assets classified “loss” must be either completely written off or supported by a 100% specific reserve. We also maintain a category designated “special mention” which is established and maintained for assets not considered classified but having potential weaknesses or risk characteristics that could result in future problems. An institution is required to develop an in-house program to classify its assets, including investments in subsidiaries, on a regular basis and set aside appropriate loss reserves on the basis of such classification. As part of the periodic exams of Jacksonville Savings Bank by the Federal Deposit Insurance Corporation and the Illinois Department of Financial and Professional Regulation, the staff of such agencies reviews our classifications and determine whether such classifications are adequate. Such agencies have, in the past, and may in the future require us to classify certain assets which management has not otherwise classified or require a classification more severe than established by management. At December 31, 2014, our classified assets totaled $5.5 million, all of which were classified as substandard.

The total amount of classified and special mention loans increased $361,000, or 5.0%, to $7.6 million at December 31, 2014 from $7.2 million at December 31, 2013. The increase in classified and special mention loans during 2014 was due to an increase of $1.0 million in special mention loans, partially offset by a decrease of $678,000 in substandard loans. The increase in special mention loans reflects $1.3 million in additional loans listed as special mention, partially offset by $219,000 in principal reductions and $157,000 in loans that were upgraded to a pass rating during 2014. The decrease in substandard loans was primarily related to $796,000 in principal reductions, $690,000 in charge-offs, and $374,000 in loans transferred to foreclosed assets, partially offset by $1.3 million in additional loans classified as substandard during 2014.

The following table shows the principal amount of special mention and classified loans at December 31, 2014 and December 31, 2013.

	12/31/14		12/31/13
	(In Thousands)
Special Mention loans	$	2,096	$	1,057
Substandard loans		5,454		6,132
Total Special Mention and Substandard loans	$	7,550	$	7,189

Allowance for Loan Losses

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

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

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

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

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

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

●

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

●

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

●

changes in the nature and volume of the loan portfolio;

●

changes in the experience, ability and depth of management and the lending staff;

●

changes in the trend of the volume and severity of the past due, nonaccrual, and classified loans;

●

changes in the quality of our loan review system and the degree of oversight by the board of directors;

●

the existence of any concentrations of credit, and changes in the level of such concentrations; and

●

the effect of external factors, such as competition and legal and regulatory requirements on the level of estimated credit losses in our current portfolio.

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

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

The allowance for loan losses decreased $450,000, or 13.2%, to $3.0 million at December 31, 2014 from $3.4 million at December 31, 2013. The decrease in the allowance was the result of net charge-offs exceeding the provision for loan losses. Net charge-offs increased $587,000 to $690,000 during 2014 from $103,000 during 2013.

Nonperforming assets increased $375,000 to $2.4 million at December 31, 2014, compared to $2.1 million at December 31, 2013. The increase in nonperforming assets was due to an increase of $482,000 in non-performing loans, partially offset by a decrease of $107,000 in foreclosed assets held at December 31, 2014 as compared to at December 31, 2013. The allowance for loan losses to nonperforming loans decreased to 130.57% at December 31, 2014 as compared to 191.14% at December 31, 2013.

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

Analysis of the Allowance for Loan Losses. The following table summarizes changes in the allowance for loan losses by loan categories for each year indicated and additions to the allowance for loan losses, which have been charged to operations.

	For the Years Ended December 31,
	2014			2013			2012			2011			2010
	(Dollars in Thousands)

Balance at beginning of year	$	3,406		$	3,339		$	3,297		$	2,964		$	2,290

Charge-offs:
One- to four-family residential		100			162			82			130			99
Commercial real estate		288			—			357			306			787
Agricultural real estate		—			—			—			—			—
Home equity		5			63			80			25			88
Commercial business		285			—			—			—			144
Agricultural business		—			—			—			—			—
Consumer		26			67			67			25			11
Total charge-offs		704			292			586			486			1,129

Recoveries:
One- to four-family residential		2			16			27			—			21
Commercial real estate		5			136			89			25			25
Agricultural real estate		—			—			—			—			—
Home equity		3			15			14			7			13
Commercial business		—			7			3			156			6
Agricultural business		—			—			—			—			—
Consumer		4			15			6			6			13
Total recoveries		14			189			139			194			78

Net loans charge-offs		690			103			447			292			1,051
Additions charged to operations		240			170			490			625			1,725

Balance at end of year	$	2,956		$	3,406		$	3,339		$	3,297		$	2,964

Total loans outstanding	$	187,684		$	184,055		$	177,086		$	174,201		$	179,455
Average net loans outstanding	$	180,936		$	174,685		$	173,600		$	177,597		$	177,840

Allowance for loan losses as a percentage of total loans at end of year		1.57	%		1.85	%		1.89	%		1.89	%		1.65	%
Net loans charged off as a percent of average net loans outstanding		0.38	%		0.06	%		0.26	%		0.16	%		0.59	%
Allowance for loan losses to nonperforming loans		130.57	%		191.14	%		150.85	%		137.33	%		94.56	%
Allowance for loan losses to total nonperforming assets at end of year		121.10	%		164.90	%		142.05	%		116.24	%		82.46	%

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

	At December 31,
	2014					2013					2012
	Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in Thousands)

One- to four-family residential	$	999		23.7	%	$	856		24.1	%	$	741		23.4	%
Commercial real estate		855		21.6			746		21.1			829		17.5
Agricultural real estate		196		21.4			175		19.0			150		21.1
Home equity		206		6.0			202		6.4			329		7.2
Commercial business		422		14.3			1,034		16.3			934		16.4
Agricultural business		58		6.3			53		5.7			44		6.2
Consumer		167		6.7			185		7.4			151		8.2
Unallocated		53		—			155		—			161		—
Total	$	2,956		100	%	$	3,406		100	%	$	3,339		100	%

	At December 31,
	2011					2010
	Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in Thousands)

One- to four-family residential	$	697		22.7	%	$	561		20.7	%
Commercial real estate		1,108		23.1			1,194		25.3
Agricultural real estate		115		17.2			93		15.7
Home equity		309		9.2			300		10.9
Commercial business		712		13.3			473		12.7
Agricultural business		59		5.5			58		4.6
Consumer		138		9.0			164		10.1
Unallocated		159		—			121		—
Total	$	3,297		100	%	$	2,964		100	%

Investment Activities

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

The investment policy is reviewed at least annually by the full board of directors. This policy dictates that investment decisions be made based on providing liquidity, meeting pledging requirements, generating a reasonable rate of return, minimizing our tax liability through the purchase of municipal securities, minimizing exposure to credit risk and ensuring consistency with our interest rate risk management strategy. During the prolonged period of low interest rates and weak loan demand, our investment activities are a more pronounced part of our operations.

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

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

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

The portfolio consists primarily of mortgage-backed securities, municipal bonds and U.S. government and agency securities all of which are classified as available for sale. Mortgage-backed securities totaled $41.4 million at December 31, 2014. General obligation municipal bonds, most of which have been issued within the States of Illinois, Texas, and Missouri totaled $45.3 million at December 31, 2014. Our portfolio of U.S. Government and agency securities totaled $10.0 million at December 31, 2014. We expect the composition of our investment portfolio to continue to change based on liquidity needs associated with loan origination activities. During the year ended December 31, 2014, we had no investment securities that were deemed to be other than temporarily impaired.

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

Mortgage-Backed Securities. We invest in mortgage-backed securities insured or guaranteed by the United States Government or government sponsored enterprises. These securities, which consist of mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, had an amortized cost of $41.2 million, $49.5 million and $50.9 million at December 31, 2014, 2013 and 2012, respectively. The fair value of our mortgage-backed securities portfolio was $41.4 million, $48.3 million and $52.0 million at December 31, 2014, 2013 and 2012, respectively, and the weighted average rate as of December 31, 2014, 2013 and 2012 was 2.33%, 2.27% and 2.54%, respectively. At December 31, 2014, $41.4 million of the mortgage-backed securities in the investment portfolio had fixed rates of interest.

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

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

Municipal Bonds. At December 31, 2014, we held municipal bonds with a fair value of $45.3 million. All of our municipal bonds are general obligation bonds with full taxing authority and ratings (when available) of A or above. Nearly all of our municipal bonds are issued by local municipalities or school districts located in Illinois, Texas, or Missouri.

U.S. Government and Agency Securities. At December 31, 2014, we held U.S. Government and agency securities with a fair value of $10.0 million. These securities have an average expected life of 5.1 years. While these securities generally provide lower yields than other investments such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes, as collateral for borrowings, and for prepayment protection.

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

	At December 31,
	2014				2013				2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)

Mortgage-backed securities:
Fannie Mae	$	24,023	$	24,241	$	23,435	$	23,013	$	25,565	$	26,245
Freddie Mac		12,492		12,491		14,447		14,022		11,067		11,264
Ginnie Mae		4,682		4,688		11,604		11,311		14,285		14,447
Total mortgage-backed securities		41,197		41,420		49,486		48,346		50,917		51,956
U.S. government and agencies		10,032		9,958		10,711		10,420		10,091		10,329
Municipal bonds		44,378		45,307		50,889		50,219		49,991		53,103

Total	$	95,607	$	96,685	$	111,086	$	108,985	$	110,999	$	115,388

Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at December 31, 2014 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. All of such securities were classified as available for sale.

	One Year or Less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in Thousands)

Mortgage-backed securities:
Fannie Mae	$	—		—	%	$	—		—	%	$	862		2.69	%	$	23,161		2.41	%	$	24,023	$	24,241		2.42	%
FreddieMac		—		—			—		—			426		2.04			12,066		2.17			12,492		12,491		2.17
Ginnie Mae		—		—			—		—			306		3.19			4,376		2.24			4,682		4,688		2.31
Total mortgage-backed securities		—		—			—		—			1,594		2.61			39,603		2.32			41,197		41,420		2.33
U.S. government and agencies		500		2.30			3,980		2.02			3,491		2.13			2,061		1.97			10,032		9,958		2.06
Municipal bonds(1)		35		1.10			5,204		3.55			22,258		2.98			16,881		3.31			44,378		45,307		3.17

Total	$	535		2.22	%	$	9,184		2.89	%	$	27,343		2.81	%	$	58,545		2.59	%	$	95,607	$	96,685		2.68	%

(1)

We used an assumed 34% tax rate in computing tax equivalent adjustments. The tax equivalent yield of municipal bonds was 1.67% for maturities of one year or less, 5.38% for maturities of more than one year through five years, 4.51% for maturities for more than five years through ten years, 5.01% for maturities of more than 10 years and 4.80% for the total municipal bonds securities portfolio at December 31, 2014. The tax equivalent adjustments to interest income of municipal bonds was less than $1,000 for maturities of one year or less, $95,000 for maturities of more than one year through five years, $341,000 for maturities for more than five years through ten years, $287,000 for maturities of more than 10 years and $723,000 for the total municipal bonds securities portfolio for the year ended December 31, 2014.

Sources of Funds

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

Deposits. We attract consumer and commercial deposits principally from within our market areas through the offering of a broad selection of deposit instruments including interest-bearing checking accounts, noninterest-bearing checking accounts, savings accounts, money market accounts, term certificate accounts and individual retirement accounts. We will accept deposits of $100,000 or more and may offer negotiated interest rates on such deposits. At December 31, 2014, we had deposits of $100,000 or more from public entities that totaled $13.3 million. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. We regularly evaluate our internal cost of funds, survey rates offered by competing institutions, review our cash flow requirements for lending and liquidity and execute rate changes when deemed appropriate. We do not obtain funds through brokers, nor do we solicit funds outside our market area.

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

	For the Years Ended December 31,
	2014								2013								2012
	Average Balance		Percent			Weighted Average Rate			Average Balance		Percent			Weighted Average Rate			Average Balance		Percent			Weighted Average Rate
	(Dollars in Thousands)

Deposit type:
Non-interest bearing checking	$	27,315		11.0	%		—	%	$	25,089		9.8	%		—	%	$	23,671		9.2	%		—	%
Interest-bearing checking		38,080		15.3			0.14			37,595		14.7			0.14			34,810		13.4			0.19
Savings accounts		37,323		15.0			0.21			34,860		13.7			0.22			31,791		12.3			0.38
Money market deposits		8,026		3.2			0.15			8,441		3.3			0.16			7,582		2.9			0.29
Money market savings		35,408		14.2			0.31			33,554		13.1			0.34			29,848		11.5			0.43
Certificates of deposit		102,890		41.3			1.15			116,036		45.4			1.30			131,527		50.7			1.48

Total deposits	$	249,042		100.00	%		0.58	%	$	255,575		100.00	%		0.69	%	$	259,229		100.00	%		0.88	%

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

	At December 31,
	2014		2013		2012
	(In Thousands)

Interest Rate:
Less than 1.00%	$	53,255	$	21,405	$	49,380
1.00% to 1.99%		21,607		60,177		43,290
2.00% to 2.99%		13,324		15,707		17,680
3.00% to 3.99%		6,414		10,863		11,793
4.00% to 4.99%		—		—		307
5.00% to 5.99%		—		—		415


Total	$	94,600	$	108,152	$	122,865

The following table sets forth, by interest rate ranges and scheduled maturity, information concerning our certificates of deposit at December 31, 2014.

	At December 31, 2014
	Period to Maturity
	Less Than or Equal to One Year		More Than One to Two Years		More Than Two to Three Years		More Than Three Years		Total		Percent of Total
	(Dollars in Thousands)

Interest Rate Range:
Less than 1.00%	$	37,486	$	13,620	$	1,600	$	549	$	53,255		56.3	%
1.00% to 1.99%		2,698		780		6,269		11,860		21,607		22.8
2.00% to 2.99%		5,313		5,814		2,188		9		13,324		14.1
3.00% to 3.99%		6,414		—		—		—		6,414		6.8

Total	$	51,911	$	20,214	$	10,057	$	12,418	$	94,600		100.0	%

As of December 31, 2014, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $37.5 million, of which $5.1 million were deposits from public entities. The following table set forth the maturity of those certificates as of December 31, 2014.

	At December 31, 2014
	(In Thousands)

Three months or less	$	6,271
Over three months through six months		5,263
Over six months through one year		8,367
Over one year to three years		11,956
Over three years		5,691

Total	$	37,548

Borrowings. Deposits are our primary source of funds for lending and investment activities. If the need arises, we may rely upon advances from the Federal Home Loan Bank to supplement our supply of available funds and to fund deposit withdrawals. We typically secure advances from the Federal Home Loan Bank with one- to four-family residential mortgage loans, United States Government and agency securities and mortgage-backed securities. The Federal Home Loan Bank functions as a central reserve bank providing credit for us and other member savings associations and financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain of our home mortgages, provided certain standards related to creditworthiness have been met. Advances are made pursuant to several different programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of a member institution’s stockholders’ equity or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness. At December 31, 2014, we had $5.0 million in Federal Home Loan Bank advances outstanding.

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

Our borrowings consist of advances from the Federal Home Loan Bank of Chicago and funds borrowed under repurchase agreements. At December 31, 2014, we had access to Federal Home Loan Bank advances of up to $27.0 million. The following table sets forth information concerning balances and interest rates on our Federal Home Loan Bank advances at or for the years indicated.

	At or For the Years Ended December 31,
	2014			2013			2012
	(Dollars in thousands)

Balance at end of year	$	5,000		$	10,800		$	700
Average balance during year	$	4,803		$	4,518		$	3
Maximum outstanding at any month end	$	12,000		$	15,500		$	700
Weighted average interest rate at end of year		0.33	%		0.13	%		0.30	%
Average interest rate during year		0.20	%		0.14	%		0.30	%

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

	At or For the Years Ended December 31,
	2014			2013			2012
	(Dollars in thousands)

Balance at end of year	$	8,822		$	8,810		$	12,041
Average balance during year	$	5,996		$	6,208		$	6,367
Maximum outstanding at any month end	$	9,484		$	9,446		$	23,464
Weighted average interest rate at end of year		0.07	%		0.10	%		0.09	%
Average interest rate during year		0.08	%		0.13	%		0.23	%

Trust Services

We operate a full-service trust department which is primarily engaged in asset management. Investment securities and farm real estate comprise most of the $78.6 million of assets administered in 114 accounts as of December 31, 2014. We also provide institutional trust services for regional bond issuers. Trust fees collected in 2014 and 2013 totaled $291,000 and $253,000, respectively.

Subsidiary Activities

Jacksonville Savings Bank has one wholly owned subsidiary, Financial Resources Group, Inc. (“Financial Resources”), an Illinois corporation. Financial Resources operates an investment center engaged in the business of buying and selling stocks, bonds, annuities and mutual funds for its customers’ accounts. In addition, Financial Resources has historically engaged in the business of originating commercial business loans and commercial real estate loans. For the years ended December 31, 2014 and 2013, Financial Resources had gross revenues of $1.3 million and $1.2 million, respectively.

REGULATION AND SUPERVISION

General

Jacksonville Bancorp, Inc. is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended. As such, it is registered with, subject to examination and supervision by and otherwise required to comply with the rules and, regulations of, the Federal Reserve Board. Jacksonville Bancorp, Inc., was previously regulated as a savings and loan holding company. However, in June 2013, Jacksonville Savings Bank revoked its previous election to have Jacksonville, Bancorp, Inc. regulated as a savings and loan holding company. As a result, Jacksonville Bancorp, Inc. is now regulated as a bank holding company.

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

Set forth below is a brief description of material regulatory requirements that are or will be applicable to Jacksonville Bancorp, Inc. and Jacksonville Savings Bank. The description is limited to certain material aspects of the statutes and regulations addressed, is not intended to be a complete description of such statutes and regulations and their effects on Jacksonville Bancorp, Inc. and Jacksonville Savings Bank and is qualified in its entirety by reference to the actual statutes and regulations involved.

Federal Legislation

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was enacted in 2010. The Dodd-Frank Act has significantly changed the bank regulatory structure and is affecting the lending, investment, trading and operating activities of depository institutions and their holding companies. The Dodd-Frank Act eliminated the Office of Thrift Supervision, Jacksonville Bancorp, Inc.’s previous primary federal regulator, as of July 21, 2011.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau with expansive powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, such as Jacksonville Savings Bank, will continue to be examined for compliance with these laws by their applicable federal bank regulators. The legislation gave state attorneys general the ability to enforce applicable federal consumer protection laws and weakened federal preemption of state laws as to federal saving banks in certain respects.

The Dodd-Frank Act also broadened the base for Federal Deposit Insurance Corporation assessments for deposit insurance, permanently increased the maximum amount of deposit insurance to $250,000 per depositor. The Dodd-Frank Act also provided for originators of certain securitized loans to retain a percentage of the risk for transferred credits, directed the Federal Reserve Board to regulate pricing of certain debit card interchange fees, repealed restrictions on paying interest on checking accounts and contained a number of reforms related to mortgage origination. The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders a non-binding vote on executive compensation and so-called “golden parachute” payments.

The Dodd-Frank Act also required the Consumer Financial Protection Bureau to issue regulations requiring lenders to make a reasonable, good faith determination as to the ability of a prospective borrower to repay a residential mortgage loan. The “Ability to Repay” final rule, effective January 10, 2014, establishes a “qualified mortgage” safe harbor from liability for loans which have terms and features which are deemed to make the loan less risky.

Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates and/or require the issuance of implementing regulations. Their impact on operations cannot yet fully be assessed. However, it is likely that the Dodd-Frank Act will increase regulatory burden, compliance costs and interest expense for Jacksonville Bancorp, Inc. and Jacksonville Savings Bank.

Illinois Savings Bank Regulation

As an Illinois-chartered savings bank, Jacksonville Savings Bank is subject to regulation and supervision by the Illinois Department of Financial and Professional Regulation. The Illinois Department of Financial and Professional Regulation’s regulation of Jacksonville Savings Bank covers, among other things, Jacksonville Savings Bank’s internal organization (i.e., charter, bylaws, capital requirements, transactions with directors and officers, and composition of the board of directors), as well as supervision of permissible activities and mergers and acquisitions. The lending and investment authority of Jacksonville Savings Bank is prescribed by Illinois law and regulations, as well as applicable Federal laws and regulations, and Jacksonville Savings Bank is prohibited from engaging in any activities not permitted by such laws and regulations. Jacksonville Savings Bank is required to file reports with, and is subject to periodic examinations at least once within every 18-month period by the Illinois Department of Financial and Professional Regulation. The Illinois Department of Financial and Professional Regulation also maintains extensive enforcement power to assure compliance with law and regulations and correct unsafe practices, including cease and desist orders, civil penalties and removal of directors and officers. The Illinois Department of Financial and Professional Regulation also may appoint a receiver or conservator for a savings bank under certain circumstances.

Under Illinois law, savings banks are required to maintain a minimum total capital to total assets ratio of 3%. The Illinois Department of Financial and Professional Regulation is authorized to require a savings bank to maintain a higher minimum capital level if the Illinois Department of Financial and Professional Regulation determines that the savings bank’s financial condition or history, management or earnings prospects are not adequate. If a savings bank’s total capital ratio falls below the required level, the Illinois Department of Financial and Professional Regulation may direct the savings bank to adhere to a specific written plan established by the Illinois Department of Financial and Professional Regulation to correct the savings bank’s capital deficiency, as well as a number of other restrictions on the savings bank’s operations, including a prohibition on the declaration of dividends by the savings bank’s board of directors.

Under Illinois law, a savings bank may make both secured and unsecured loans. However, loans for business, corporate, commercial or agricultural purposes, whether secured or unsecured, may not in the aggregate exceed 15% of a savings bank’s total assets unless authorized by the Illinois Department of Financial and Professional Regulation. With the prior written consent of the Illinois Department of Financial and Professional Regulation, savings banks may also engage in real estate development activities, provided that the total investment in any one project may not exceed 15% of total capital, and the total investment in all projects may not exceed 50% of total capital. The investment authority of state chartered banks is also constrained by federal law, as is explained later. The total loans and extensions of credit outstanding at one time, both direct and indirect, by a savings bank to any borrower may not exceed 25% of the savings bank’s total capital. At December 31, 2014, Jacksonville Savings Bank did not have any loans-to-one borrower which exceeded these limitations.

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

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

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

Investment Activities. Under federal law, all state-chartered banks and savings banks, and their subsidiaries, generally limited to activities as principal and equity investments of the type and in the amount authorized are national banks. There are certain exceptions. For example, the Federal Deposit Insurance Corporation is authorized to permit institutions to engage in state-authorized activities or investments not permitted for national banks (other than non-subsidiary equity investments) for institutions that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the deposit insurance fund. Federal law and Federal Deposit Insurance Corporation regulations impose certain quantitative and qualitative restrictions on such activities and on a bank’s dealings with a subsidiary that engages in specified activities.

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

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

(i)

be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and

(ii)

not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Jacksonville Savings Bank’s capital.

In addition, extensions of credit in excess of certain limits must be approved in advance by Jacksonville Savings Bank’s board of directors. Extensions of credit to executive officers of Jacksonville Savings Bank are subject to additional restrictions based on the type of loan.

Capital Maintenance. Under Federal Deposit Insurance Corporation regulations, Jacksonville Savings Bank must maintain minimum levels of capital. The regulations established a minimum leverage capital requirement in 2014 of not less than 3% core capital to total assets for banks in the strongest financial and managerial condition, with the highest supervisory rating of the federal regulators for banks. For all other banks, the minimum leverage capital requirement was at least 4% of total assets in 2014. Core capital is composed of the sum of common stockholders’ equity, noncumulative perpetual preferred stock (including any related surplus) and minority interests in consolidated subsidiaries, minus all intangible assets (other than qualifying mortgage servicing rights and qualifying supervisory intangible core deposits), identified losses, investments in certain subsidiaries and unrealized gains (losses) on investment securities.

The Federal Deposit Insurance Corporation also requires that savings banks meet a risk-based capital standard. The risk-based capital standard required the maintenance of total capital (which is defined as core capital and supplementary capital) to risk weighted assets of 8.0% in 2014. In determining the amount of risk-weighted assets, all assets, including certain off balance sheet assets, are multiplied by a risk-weight of 0% to 200%, based on the risks the federal regulators believe are inherent in the type of asset. The components of core capital are equivalent to those discussed earlier under the leverage requirement. The components of supplementary capital currently include cumulative perpetual preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock and allowance for loan and lease losses. Allowance for loan and lease losses includible in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At December 31, 2014, Jacksonville Savings Bank exceeded its applicable capital requirements.

In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the international Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), sets a uniform minimum leverage requirement at 4% of total assets, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. The rule limits a bank’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule became effective January 1, 2015. The “capital conservation buffer” is being phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer will be effective.

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

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

At December 31, 2014, Jacksonville Savings Bank is “well capitalized” under the prompt corrective action rules.

The previously mentioned final regulatory capital rule that increases regulatory capital requirements adjusted the prompt corrective action categories accordingly effective January 1, 2015. Under the revised requirements, an institution must meet the following in order to be classified as “well capitalized”: (1) a common equity Tier 1 risk-based ratio of 6.5% (new standard); (2) a Tier 1 risk-based capital ratio of 8% (increased from 6%); (3) a total risk-based ratio of 10% (unchanged) and (4) a Tier 1 leverage ratio of 5% (unchanged).

Insurance of Deposit Accounts. Jacksonville Savings Bank is a member of the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. Deposit accounts in Jacksonville Savings Bank are insured up to a maximum of $250,000 for each separately insured depositor.

The Federal Deposit Insurance Corporation imposes an assessment for deposit insurance on all depository institutions. Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned to risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by Federal Deposit Insurance Corporation regulations, with institutions deemed less risky paying lower rates. Assessment rates (inclusive of possible adjustments) currently range from 2 ½ to 45 basis points of each institution’s total assets less tangible capital. The Federal Deposit Insurance Corporation may increase or decrease the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment rulemaking. The Federal Deposit Insurance Corporation’s current system represents a change, required by the Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s volume of deposits.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the Federal Deposit Insurance Corporation and the Federal Deposit Insurance Corporation has exercised that discretion by establishing a long term fund ratio of 2%.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Jacksonville Savings Bank. Management cannot predict what assessment rates will be in the future.

In addition to the Federal Deposit Insurance Corporation assessments, the Financing Corporation is authorized to impose and collect, through the Federal Deposit Insurance Corporation, assessments for anticipated payments, issuance costs and custodial fees on bonds issued in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the Financing Corporation are due to mature in 2017 through 2019. For the quarter ended December 31, 2014, the annualized Financing Corporation assessment was equal to 0.60 basis point of assessable assets less tangible capital.

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

Enforcement

The Federal Deposit Insurance Corporation has primary federal enforcement responsibility over state savings banks. The Federal Deposit Insurance Corporation has authority to bring enforcement actions against such institutions and their “institution-related parties,” including officers, directors, certain shareholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution or receivership or conservatorship in certain circumstances. Potential civil money penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1.0 million per day.

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

Federal Home Loan Bank System. Jacksonville Savings Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the Federal Home Loan Bank of Chicago, Jacksonville Savings Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank. As of December 31, 2014, Jacksonville Savings Bank was in compliance with this requirement.

Federal Reserve System

Federal Reserve Board regulations require savings banks to maintain interest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. At December 31, 2014, Jacksonville Savings Bank was in compliance with these reserve requirements.

Other Regulations

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

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Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

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Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

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Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

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Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

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Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

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Truth in Savings Act;

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Illinois High Risk Home Loan Act, which protects borrowers who enter into high risk home loans;

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Illinois Predatory Lending Database Program, which helps provide counseling for homebuyers in connection with certain loans; and

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rules and regulations of the various federal and state agencies charged with the responsibility of implementing such laws.

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

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Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

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Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

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Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

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The USA PATRIOT Act, which requires savings banks operating to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

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The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

In June 2013, Jacksonville Bancorp, Inc. changed its status from that of a savings and loan holding company to that of a bank holding company through Jacksonville Savings Bank’s revocation of a previously-made election. By so doing, the previously applicable requirement that Jacksonville Savings Bank comply with the “Qualified Thrift Lender Test,” which limited commercial lending, was eliminated.

Jacksonville Bancorp, Inc. is now subject to examination, regulation, and periodic reporting as a bank holding company under the Bank Holding Company Act of 1956, as amended. Jacksonville Bancorp, Inc. will be required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval would be required for the Jacksonville Bancorp, Inc. to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. In addition to the approval of the Federal Reserve Board, prior approval may also be necessary from other agencies having supervisory jurisdiction over the bank to be acquired before any bank acquisition can be completed.

A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.

The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.

The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated capital requirements for bank and savings and loan holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to their subsidiary depository institutions. Instruments such as cumulative preferred stock and trust-preferred securities, which are currently includable as Tier 1 capital, by bank holding companies within certain limits are no longer includable as Tier 1 capital, subject to certain grandfathering. The previously discussed final rule regarding regulatory capital requirements implements the Dodd-Frank Act’s directives as to holding company capital requirements.

In December 2014, legislation was passed by Congress that requires the Federal Reserve Board to revise its “Small Bank Holding Company Policy Statement” to exempt bank and savings and loan holding companies of less than $1.0 billion of consolidated assets from the consolidated capital requirements, provided that such companies meet certain other conditions such as not engaging in significant nonbanking activities. Currently, the small bank exemption applies only to bank holding companies (not savings and loan holding companies) of less than $500 million in consolidated assets. The Federal Reserve Board maintains authority to apply the consolidated capital requirements to any bank or savings and loan holding company as warranted for supervisory purposes. This legislation, when implemented by the Federal Reserve Board, may exempt Jacksonville Bancorp, Inc. from the consolidated capital requirements until its consolidated assets reach $1.0 billion.

A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.

The Federal Reserve Board’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength doctrine.

The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to dividends in certain circumstances such as where the company’s net income for the past four quarters, net of dividends’ previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also provides for regulatory consultation prior to a holding company redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of a quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies could affect the ability of Jacksonville Bancorp, Inc. to pay dividends, repurchase shares of its stock or otherwise engage in capital distributions.

The status of Jacksonville Bancorp, Inc. as a registered bank holding company under the Bank Holding Company Act does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

Change in Control Regulations

Under the Change in Bank Control Act, no person may acquire control of a bank holding company such as Jacksonville Bancorp, Inc. unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the company’s directors, or a determination by the regulator that the acquiror has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, is the case with Jacksonville Bancorp, Inc., the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.

Sarbanes-Oxley Act of 2002

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

TAXATION

Federal Taxation

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

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

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

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

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

At December 31, 2014, Jacksonville Savings Bank’s total federal pre-base year reserve was approximately $2.6 million. However, under current law, base-year reserves remain subject to recapture if Jacksonville Savings Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.

Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended (the “Code”), imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of AMT may be used as credits against regular tax liabilities in future years.

Net Operating Loss Carryovers. Generally, a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. However, as a result of recent legislation, subject to certain limitations, the carryback period for net operating losses incurred in 2008 or 2009 (but not both years) has been expanded to five years. At December 31, 2014, Jacksonville Bancorp, Inc. had no federal tax loss carryforward. The Company has an Illinois carryforward of approximately $99,000 at December 31, 2014. Illinois legislation suspended the use of these loss carryforwards for tax year 2011. For tax years 2012 and 2013, the State of Illinois allowed up to $100,000 of loss to be utilized in each year. There is no limitation for tax year 2014. Three years have been added to the expiration of said net loss years.

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

State Taxation

The State of Illinois imposes a tax on the Illinois taxable income of corporations, including savings banks, at the rate of 9.50%.

Illinois taxable income is generally similar to federal taxable income except that interest from state and municipal obligations is taxable and no deduction is allowed for state income taxes. However, a deduction is allowed for certain U.S. Government and agency obligations. Jacksonville Savings Bank’s state income tax returns have not been audited by Illinois tax authorities during the past five years. As a Maryland business corporation, Jacksonville Bancorp, Inc. is required to file annual returns and pay annual fees to the State of Maryland.

Personnel

As of December 31, 2014, Jacksonville Savings Bank and its subsidiary had a total of 87 full-time and 15 part-time employees. None of Jacksonville Savings Bank’s employees is represented by a collective bargaining group. Management believes that it has good working relations with its employees.

Availability of Annual Report on Form 10-K

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

ITEM 1A. Risk Factors

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

Non-residential loans increase our exposure to credit risks.

Over the last several years, we have increased our non-residential lending in order to improve the average yield of our interest-earning assets and reduce the average maturity of our loan portfolio. At December 31, 2014, our portfolio of commercial real estate loans totaled $40.5 million, or 21.9% of our total loans, compared to $38.9 million, or 21.5% of our total loans at December 31, 2013. At December 31, 2014, our portfolio of agricultural real estate loans totaled $40.1 million, or 21.7% of our total loans, compared to $35.0 million, or 19.4% of our total loans at December 31, 2013. Our portfolio of agricultural business loans totaled $11.8 million, or 6.4% of our total loans at December 31, 2014, compared to $10.6 million, or 5.9% of our total loans at December 31, 2013. Our portfolio of commercial business loans totaled $26.8 million, or 14.5% of our total loans at December 31, 2014, compared to $29.9 million, or 16.6% of our total loans at December 31, 2013. These business loans are typically secured by equipment or inventory. It is difficult to assess the future performance of our non-residential loan portfolio due to the recent origination or purchase of many of these loans. These loans may have delinquency or charge-off rates above our historical experience, which could adversely affect our future performance.

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

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

As a result of large loan concentrations among a relatively small number of borrowers, we could incur significant losses if these borrowers are unable to repay their loans. At December 31, 2014, we had 28 borrowers with aggregate loan balances of $75.0 million, which represented 39.9% of our total loan portfolio at that date. These loans are primarily commercial and agricultural real estate loans and commercial and agricultural business loans, including purchased loan participations. Aggregate loan balances to these borrowers ranged from $1.0 million to $8.2 million for our largest borrower. While we seek to control our risk and minimize losses on these large loan concentrations, if one or more of our large borrowers were to default on their loans we could incur significant losses.

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

We occasionally purchase commercial real estate and commercial business loan participations secured by properties outside our market area in which we are not the lead lender. We have purchased loan participations secured by properties in diverse geographic areas such as in Nebraska, Missouri, Minnesota, North Dakota, Wisconsin, Iowa, and Tennessee. These participations are secured by various types of collateral such as office buildings, hotels, and condominium developments. Loan participations may have a higher risk of loss than loans we originate because we rely on the lead lender to monitor the performance of the loan. Moreover, our decision regarding the classification of a loan participation and loan loss provisions associated with a loan participation are made in part based upon information provided by the lead lender. A lead lender also may not monitor a participation loan in the same manner as we would for loans that we originate. At December 31, 2014, our loan participations totaled $14.1 million, or 7.5% of our loan portfolio. At December 31, 2014, commercial real estate loan participations outside our market area totaled $6.1 million, or 15.1% of the commercial real estate loan portfolio, and commercial business loan participations outside our market area totaled $1.2 million, or 4.5% of the commercial business loan portfolio. At December 31, 2014, one loan participation located in central Illinois with a balance of $794,000 was delinquent 60 days or more. If our underwriting of these participation loans is not sufficient, our non-performing loans may increase and our earnings may decrease.

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

Our customers may not repay their loans according to the original terms, and the collateral, if any, securing the payment of these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which may have a material adverse effect on our operating results. We make various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. If our assumptions are incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to the allowance. Additions to the allowance would decrease our net income. At December 31, 2014, our allowance for loan losses was $3.0 million, or 1.57% of total loans and 130.57% of non-performing loans, compared to $3.4 million, or 1.85% of total loans and 191.14% of non-performing loans, at December 31, 2013.

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

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

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

At December 31, 2014, our non-performing assets (which consist of non-accrual loans, loans 90 days or more delinquent, and foreclosed real estate assets) totaled $2.4 million, which is an increase of $375,000 from our non-performing assets at December 31, 2013. Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans or real estate owned. We must reserve for probable losses which results in additional provisions for loan losses. As circumstances warrant, we must write down the value of properties in our other real estate owned portfolio to reflect changing market values. Additionally, we have legal fees associated with the resolution of problem assets as well as additional costs such as taxes, insurance and maintenance related to our other real estate owned. The resolution of non-performing assets also requires the active involvement of management, which can adversely affect the amount of time we devote to the income-producing activities of Jacksonville Savings Bank. If our estimate of the allowance for loan losses is inadequate, we will have to increase the allowance accordingly.

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

A significant aspect of our business is the origination of one- to four-family residential mortgage loans for sale on a servicing retained basis. The fees we receive for servicing such loans are referred to as mortgage servicing rights. At December 31, 2014, the unpaid principal balance of mortgage loans serviced for others was $137.9 million. Mortgage servicing rights fair values are sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. If the fair value of our mortgage servicing rights is less than the carrying value of such rights, we may be required to recognize an impairment loss. Such impairment can occur due to changes in interest rates, loan performance or prepayment of the underlying mortgage. We did not recognize any impairment during 2014.

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

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

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

Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2014, the fair value of our portfolio of investment securities and mortgage-backed securities totaled $96.7 million. Gross unrealized losses on these securities totaled $879,000 at December 31, 2014.

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

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

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

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

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

During 2014, management reviewed goodwill for impairment on a quarterly basis. Management’s analysis concluded that our goodwill was not impaired as of December 31, 2014. It is possible that the assumptions and conclusions regarding the valuation of our business could change adversely, which could result in the recognition of impairment for our goodwill, which could have a material adverse effect on our financial condition and results of operations.

Our business may be adversely affected by a decline in the national and local economies.

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

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

●

demand for our products and services may decline;

●

loan delinquencies, problem assets and foreclosures may increase;

●

collateral for our loans may continue to decline in value; and

●

the amount of our low-cost or non-interest bearing deposits may decrease.

Strong competition may limit growth and profitability.

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

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

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

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

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

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

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

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

We will become subject to more stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or constrain us from paying dividends or repurchasing shares.

In July 2013, the FDIC approved a new rule that will substantially amend the regulatory risk-based capital rules applicable to Jacksonville Savings Bank. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

The final rule includes new minimum risk-based capital and leverage ratios, which will be effective for Jacksonville Savings Bank on January 1, 2015, and revised the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements will be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 to risk-based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.

The application of more stringent capital requirements for Jacksonville Savings Bank could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions such as the inability to pay dividends or repurchase shares if we were to be unable to comply with such requirements.

Income from secondary mortgage market operations is volatile, and we may incur losses with respect to our secondary mortgage market operations that could negatively affect our earnings.

A key component of our strategy is to sell in the secondary market the longer term, conforming fixed-rate residential mortgage loans that we originate, earning non-interest income in the form of gains on sale. When interest rates rise, the demand for mortgage loans tend to fall and may reduce the number of loans we can originate for sale. Weak or deteriorating economic conditions also tend to reduce loan demand. Although we sell, and intend to continue selling, most loans in the secondary market with limited or no recourse, we are required, and will continue to be required, to give customary representations and warranties to the buyers relating to compliance with applicable law. If we breach those representations and warranties, the buyers will be able to require us to repurchase the loans and we may incur a loss on the repurchase.

New regulations could restrict our ability to originate and sell mortgage loans.

The Consumer Financial Protection Bureau has issued a rule which became effective in January, 2014 designed to clarify for lenders how they can avoid monetary damages under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that meet this “qualified mortgage“ definition will be presumed to have complied with the new ability-to-repay standard. Under the Consumer Financial Protection Bureau’s rule, a “qualified mortgage” loan must not contain certain specified features, including:

●

excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for prime loans);

●

interest-only payments;

●

negative-amortization; and

●

terms longer than 30 years.

Also, to qualify as a “qualified mortgage,” a borrower’s total monthly debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The Consumer Financial Protection Bureau’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive/and or time consuming to make these loans, which could limit our growth or profitability.

Our stock price may be volatile due to limited trading volume.

Our common stock is traded on the NASDAQ Capital Market. However, the average daily trading volume in Jacksonville Bancorp, Inc.’s common stock has been relatively small, averaging less than 1,000 shares per day during 2014. As a result, trades involving a relatively small number of shares may have a significant effect on the market price of the common stock, and it may be difficult for investors to acquire or dispose of large blocks of stock without significantly affecting the market price.

ITEM 1B. Unresolved Staff Comments

Not applicable.

ITEM 2. Properties

We conduct our business through our main office and two branch offices located in Jacksonville, and branch offices located in Virden, Litchfield, and Chapin, Illinois. The following table sets forth certain information concerning the main office and each branch office at December 31, 2014. At December 31, 2014, our premises and equipment had an aggregate net book value of approximately $4.9 million. We believe that our branch facilities are adequate to meet the present and immediately foreseeable needs. All facilities are owned.

Location	Year Occupied	Net Book Value at December 31, 2014
		(In Thousands)
Main Office
1211 West Morton Avenue
Jacksonville, Illinois	1994	$	3,475

Branch Office (1)
225 West State Street
Jacksonville, Illinois	1961		244

Branch Office (1)
903 South Main
Jacksonville, Illinois	1989		132

Branch Office
501 North State Street
Litchfield, Illinois	1997		469

Branch Office
100 North Dye
Virden, Illinois	1986		159

Branch Office
510 Superior
Chapin, Illinois	2000		467

(1) Transaction facilities only.

ITEM 3. Legal Proceedings

At December 31, 2014, we were not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts which management believes are immaterial to our financial condition, our results of operations and our cash flows.

ITEM 4. Mine Safety Disclosures.

None.

PART II

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

The “Stockholder Information” section of our annual report to stockholders for the fiscal year ended December 31, 2014 (the “2014 Annual Report to Stockholders”) is filed as an exhibit to this Form 10-K and is incorporated herein by reference.

During the fourth quarter of 2014, the Company repurchased shares of its common stock as follows:

Period	Number of shares purchased	Average purchase price paid per share	Total shares purchased	Maximum number of shares that may be purchased under the repurchase program (1)

Oct 1 – Oct 31	—	—	—	61,018
Nov 1 – Nov 30	11,760	21.50	11,760	49,258
Dec 1 – Dec 31	7,500	22.00	7,500	41,758
Total	19,260	21.69	19,260	41,758

(1)

On October 16, 2013, the Company announced the adoption of a stock repurchase program under which the Company could repurchase up to 92,018 shares of its common stock, or approximately 5% of the then current outstanding shares. The program provided for repurchases through open market or private transactions, through block trades, and pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The Company has completed the purchase of 50,260 shares permitted under the program.

Set forth below is information as of December 31, 2014 regarding equity compensation plans. The plan that has been approved by the stockholders is the 2012 Stock Option Plan. Other than our Employee Stock Ownership Plan, we do not have any equity compensation plans that were not approved by our stockholders.

Plan	Number of securities to be issued upon exercise of outstanding options and rights	Weighted average exercise price	Number of securities remaining available for issuance under plan
Equity compensation plans approved by stockholders	85,835	15.65	1,785
Equity compensation plans not approved by stockholders	—	—	—
Total	85,835	15.65	1,785

ITEM 6. Selected Financial Data

The “Selected Consolidated Financial Information” section of the 2014 Annual Report to Stockholders is filed as an exhibit to this Form 10-K and is incorporated herein by reference.

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

The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2014 Annual Report to Stockholders is filed as an exhibit to this Form 10-K and is incorporated herein by reference.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

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

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

None.

ITEM 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined by the Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

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

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

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

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (1992). Based on that assessment, management concludes that, as of December 31, 2014, the Company’s internal control over financial reporting is effective.

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

There were no significant changes made in our internal control over financial reporting during the quarter ended December 31, 2014 that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

ITEM 9B. Other Information

None.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

Information concerning our directors and certain officers is incorporated by reference hereunder in the Proxy Statement for the 2015 Annual Meeting.

ITEM 11. Executive Compensation

Information with respect to management compensation required under this item is incorporated by reference hereunder in the Proxy Statement for the 2015 Annual Meeting.

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

Information required under this item is incorporated by reference to the Proxy Statement for the 2015 Annual Meeting.

ITEM 13. Certain Relationships and Related Transactions and Director Independence

Information required under this item is incorporated by reference to the Proxy Statement for the 2015 Annual Meeting.

ITEM 14. Principal Accountant Fees and Services

Information required under this item is incorporated by reference to the Proxy Statement for the 2015 Annual Meeting.

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

The documents filed as a part of this Form 10-K are:

(A)

Report of Independent Registered Public Accounting Firm;

(B)

Consolidated Balance Sheets - December 31, 2014 and 2013;

(C)

Consolidated Statements of Income - years ended December 31, 2014 and 2013;

(D)

Consolidated Statements of Comprehensive Income – years ended December 31, 2014 and 2013;

(E)

Consolidated Statements of Stockholders’ Equity - years ended December 31, 2014 and 2013;

(F)

Consolidated Statements of Cash Flows - years ended December 31, 2014 and 2013; and

(G)

Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules

All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.

(a)(3) Exhibits


	3.1	Articles of Incorporation(1)
	3.2	Bylaws(2)
	4	Stock Certificate of Jacksonville Bancorp, Inc.(3)
	10.1	Employment Agreement between Jacksonville Savings Bank and Andrew F. Applebee(4)
	10.2	Employment Agreement between Jacksonville Savings Bank and Richard A. Foss(5)
	10.3	Employment Agreement between Jacksonville Savings Bank and John Williams(6)
	10.4	Change in Control Agreement between Jacksonville Savings Bank and Diana S. Tone(7)
	10.5	Amendments to the Jacksonville Savings Bank and Jacksonville Bancorp, MHC Stock Option Plans(8)
	10.6	Jacksonville Savings Bank Supplemental Life Insurance Plan(9)
	10.7	Amended and Restated Jacksonville Savings Bank Salary Continuation Plan 1(10)
	10.8	Jacksonville Savings Bank Long-Term Deferred Compensation Plan, as amended(11)
	10.9	Deferred Compensation Agreement between Chapin State Bank and John C. Williams(12)
	10.10	Director’s Compensation Agreement between Chapin State Bank and John C. Williams(13)
	10.11	Deferred Compensation Agreement between Chapin State Bank and Dean H. Hess(14)
	10.12	Director’s Compensation Agreement between Chapin State Bank and Dean H. Hess(15)
	10.13	Jacksonville Bancorp 2012 Stock Option Plan(16)
	13	2014 Annual Report to Stockholders
	14	Code of Ethics(17)
	21	Subsidiaries
	23	Consent of BKD LLP to incorporate financial statements into Registration Statements on Form S-8
	31.1	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	(1)	Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(2)	Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(3)	Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).

	(4)	Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2009 (File No. 000-49792).
	(5)	Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2008 (File No. 000-49792).
	(6)	Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2008 (File No. 000-49792).
	(7)	Incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(8)	Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(9)	Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(10)	Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2012 (File No. 001-34821).
	(11)	Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(12)	Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(13)	Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(14)	Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(15)	Incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(16)	Incorporated by reference to Exhibit 10 to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on February 20, 2013 (File No. 333-186754).
	(17)	Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2004 (File No. 000-49792).

Signatures

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Jacksonville Bancorp, Inc.

Date: March 13, 2015	By:	/s/ Richard A. Foss
		Richard A. Foss, President
		and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


By:	/s/ Richard A. Foss	By:	/s/ Andrew F. Applebee
	Richard A. Foss, President,		Andrew F. Applebee, Chairman of the Board
	Chief Executive Officer and Director

Date: March 13, 2015		Date: March 13, 2015

By:	/s/ Diana S. Tone	By:	/s/ Dean H. Hess
	Diana S. Tone		Dean H. Hess, Director
	Chief Financial Officer

Date: March 13, 2015		Date: March 13, 2015

By:	/s/ John L. Eyth	By:	/s/ Peggy S. Davidsmeyer
	John L. Eyth, Director		Peggy S. Davidsmeyer, Director

Date: March 13, 2015		Date: March 13, 2015

By:	/s/ Harmon B. Deal, III	By:	/s/ John C. Williams
	Harmon B. Deal, III, Director		John C. Williams, Director
			Senior Vice President and Trust Officer

Date: March 13, 2015		Date: March 13, 2015

By:	/s/ John M. Buchanan
	John M. Buchanan, Director

Date: March 13, 2015

EXHIBIT INDEX


	3.1	Articles of Incorporation(1)
	3.2	Bylaws(2)
	4	Stock Certificate of Jacksonville Bancorp, Inc.(3)
	10.1	Employment Agreement between Jacksonville Savings Bank and Andrew F. Applebee(4)
	10.2	Employment Agreement between Jacksonville Savings Bank and Richard A. Foss(5)
	10.3	Employment Agreement between Jacksonville Savings Bank and John Williams(6)
	10.4	Change in Control Agreement between Jacksonville Savings Bank and Diana S. Tone(7)
	10.5	Amendments to the Jacksonville Savings Bank and Jacksonville Bancorp, MHC Stock Option Plans(8)
	10.6	Jacksonville Savings Bank Supplemental Life Insurance Plan(9)
	10.7	Amended and Restated Jacksonville Savings Bank Salary Continuation Plan 1(10)
	10.8	Jacksonville Savings Bank Long-Term Deferred Compensation Plan, as amended(11)
	10.9	Deferred Compensation Agreement between Chapin State Bank and John C. Williams(12)
	10.10	Director’s Compensation Agreement between Chapin State Bank and John C. Williams(13)
	10.11	Deferred Compensation Agreement between Chapin State Bank and Dean H. Hess(14)
	10.12	Director’s Compensation Agreement between Chapin State Bank and Dean H. Hess(15)
	10.13	Jacksonville Bancorp 2012 Stock Option Plan(16)
	13	2014 Annual Report to Stockholders
	14	Code of Ethics(17)
	21	Subsidiaries
	23	Consent of BKD LLP to incorporate financial statements into Registration Statements on Form S-8
	31.1	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(1)	Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(2)	Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(3)	Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(4)	Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2009 (File No. 000-49792).
	(5)	Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2008 (File No. 000-49792).
	(6)	Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2008 (File No. 000-49792).
	(7)	Incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(8)	Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(9)	Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(10)	Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2012 (File No. 001-34821).
	(11)	Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(12)	Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).

	(13)	Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(14)	Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(15)	Incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 12, 2010 (File No. 333-165466).
	(16)	Incorporated by reference to Exhibit 10 to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on February 20, 2013 (File No. 333-186754).
	(17)	Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2004 (File No. 000-49792).