10-Q 1 t74923_10q.htm FORM 10-Q t74923_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q
 
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
  For the quarterly period ended September 30, 2012  
     
OR  
     
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
  For the transition period of _________ to _________  
     
  Commission File Number   001-34821  
     
Jacksonville Bancorp, Inc.
 (Exact name of registrant as specified in its charter)
 
Maryland   36-4670835
(State or other jurisdiction of incorporation)   (I.R.S. Employer Identification Number)
     
1211 West Morton Avenue
Jacksonville, Illinois
   62650 
(Address of principal executive office)   (Zip Code) 
 
Registrant’s telephone number, including area code:  (217) 245-4111

Indicate by check whether issuer (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  x Yes o No  
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period the registrant was required to submit and post such filings).
  x Yes o No  
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.
  o Large Accelerated Filer  o Accelerated Filer  
  o Non-Accelerated Filer x Smaller Reporting Company  
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  o Yes x No  
 
As of November 1, 2012, there were 1,908,556 shares of the Registrant’s common stock issued and outstanding.
 
 
 

 
 
JACKSONVILLE BANCORP, INC.
 
FORM 10-Q
 
September 30, 2012
TABLE OF CONTENTS
 
       
Page
PART I
 
FINANCIAL INFORMATION
     
           
Item 1.
 
Financial Statements
     
           
   
Condensed Consolidated Balance Sheets
 
1
 
           
   
Condensed Consolidated Statements of Income
 
2
 
           
   
Condensed Consolidated Statements of Comprehensive Income
 
3
 
           
   
Condensed Consolidated Statement of Stockholders’ Equity
 
4
 
           
   
Condensed Consolidated Statements of Cash Flows
 
5
 
           
   
Notes to the Condensed Consolidated Financial Statements
 
7
 
           
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and
     
   
Results of Operations
 
38
 
           
Item 3.
 
Quantitative and Qualitative Disclosures about Market Risk
 
54
 
           
Item 4
 
Controls and Procedures
 
56
 
           
           
PART II
 
OTHER INFORMATION
 
57
 
           
Item 1.
 
Legal Proceedings
     
Item 1.A.
 
Risk Factors
     
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
     
Item 3.
 
Defaults Upon Senior Securities
     
Item 4.
 
Mine Safety Disclosures
     
Item 5.
 
Other Information
     
Item 6.
 
Exhibits
     
           
   
Signatures
 
58
 
           
EXHIBITS
         
           
   
Section 302 Certifications
     
   
Section 906 Certification
     
   
XBRL Instance Document
     
   
XBRL Taxonomy Extension Schema Document
     
   
XBRL Taxonomy Calculation Linkbase Document
     
   
XBRL Taxonomy Extension Definition Linkbase Document
     
   
XBRL Taxonomy Label Linkbase Document
     
   
XBRL Taxonomy Presentation Linkbase Document
     

 
 

 
 
PART I – FINANCIAL INFORMATION
 
 
 

 
 
JACKSONVILLE BANCORP, INC.
           
ITEM 1. FINANCIAL STATEMENTS
           
             
CONDENSED CONSOLIDATED BALANCE SHEETS
           
   
September 30,
   
December 31,
 
ASSETS
 
2012
   
2011
 
   
(Unaudited)
       
Cash and cash equivalents
  $ 9,207,604     $ 11,387,947  
Interest-earning time deposits in banks
    2,972,000       2,476,000  
Investment securities - available for sale
    61,309,756       62,257,962  
Mortgage-backed securities - available for sale
    48,066,624       40,364,086  
Federal Home Loan Bank stock
    1,113,800       1,113,800  
Other investment securities
    102,080       116,088  
Loans held for sale - net
    527,986       446,818  
Loans receivable - net of allowance for loan losses of $3,151,742 and $3,296,607 as of September 30, 2012 and December 31, 2011
    171,749,599       170,865,102  
Premises and equipment - net
    5,657,451       5,532,720  
Cash surrender value of life insurance
    6,560,174       4,402,602  
Accrued interest receivable
    2,853,789       2,071,534  
Goodwill
    2,726,567       2,726,567  
Capitalized mortgage servicing rights, net of valuation allowance of $138,796 and $173,791 as of September 30, 2012 and December 31, 2011
    668,944       697,733  
Real estate owned
    167,193       435,480  
Deferred income taxes
    -       413,110  
Other assets
    1,877,855       1,981,808  
                 
Total Assets
  $ 315,561,422     $ 307,289,357  
                 
LIABILITIES AND STOCKHOLDERS EQUITY
               
                 
Deposits
  $ 258,532,061     $ 254,240,060  
Other borrowings
    6,569,633       6,517,750  
Advance payments by borrowers for taxes and insurance
    476,984       740,083  
Accrued interest payable
    306,013       349,121  
Deferred compensation payable
    3,587,318       3,295,827  
Income taxes payable
    165,786       -  
Other liabilities
    1,342,947       981,093  
Total liabilities
    270,980,742       266,123,934  
                 
Commitments and contingencies
    -       -  
                 
Preferred stock, $0.01 par value - authorized 10,000,000 shares;
               
none issued and outstanding
    -       -  
Common stock, $0.01 par value - authorized 25,000,000 shares; issued 1,922,156 shares
               
as of September 30, 2012 and 1,920,955 shares as of December 31, 2011
    19,222       19,210  
Additional paid-in-capital
    16,137,999       16,066,624  
Retained earnings
    25,135,369       22,767,719  
Less: Unallocated ESOP shares
    (344,370 )     (360,620 )
Accumulated other comprehensive income
    3,632,460       2,672,490  
Total stockholders’ equity
    44,580,680       41,165,423  
                 
Total Liabilities and Stockholders’ Equity
  $ 315,561,422     $ 307,289,357  
 
See accompanying notes to the unaudited condensed consolidated financial statements.
 
 
1

 

JACKSONVILLE BANCORP, INC.
                       
                         
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
   
(Unaudited)
   
(Unaudited)
 
INTEREST INCOME:
                       
Loans
  $ 2,515,263     $ 2,724,942     $ 7,517,252     $ 8,091,921  
Investment securities
    477,945       508,445       1,504,186       1,510,676  
Mortgage-backed securities
    187,018       309,750       645,212       956,464  
Other
    10,931       281       34,696       2,620  
Total interest income
    3,191,157       3,543,418       9,701,346       10,561,681  
                                 
INTEREST EXPENSE:
                               
Deposits
    573,449       680,693       1,761,913       2,227,822  
Other borrowings
    4,056       3,936       10,739       13,801  
Total interest expense
    577,505       684,629       1,772,652       2,241,623  
                                 
NET INTEREST INCOME
    2,613,652       2,858,789       7,928,694       8,320,058  
                                 
PROVISION FOR LOAN LOSSES
    120,000       150,000       370,000       475,000  
                                 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    2,493,652       2,708,789       7,558,694       7,845,058  
                                 
NON-INTEREST INCOME:
                               
Fiduciary activities
    72,443       50,613       211,163       168,321  
Commission income
    206,130       349,543       718,359       1,109,470  
Service charges on deposit accounts
    237,477       247,577       636,971       699,600  
Mortgage banking operations, net
    183,827       100,920       397,560       167,496  
Net realized gains on sales of available-for-sale securities
    399,280       29,073       926,188       138,291  
Loan servicing fees
    90,336       91,403       269,365       278,007  
Other
    170,180       132,132       490,236       399,547  
Total non-interest income
    1,359,673       1,001,261       3,649,842       2,960,732  
                                 
NON-INTEREST EXPENSE:
                               
Salaries and employee benefits
    1,594,741       1,549,788       4,770,124       4,633,564  
Occupancy and equipment
    242,599       258,596       732,610       753,424  
Data processing and telecommunications
    130,885       136,737       401,079       421,099  
Professional
    61,809       54,428       195,058       151,036  
Postage and office supplies
    63,124       62,400       197,373       202,252  
Deposit insurance premium
    40,586       47,689       118,004       198,145  
Impairment on mortgage servicing rights asset
    -       48,386       -       48,386  
Other
    271,858       334,727       919,152       909,190  
Total non-interest expense
    2,405,602       2,492,751       7,333,400       7,317,096  
                                 
INCOME  BEFORE INCOME TAXES
    1,447,723       1,217,299       3,875,136       3,488,694  
INCOME TAXES
    417,870       345,616       1,083,471       977,438  
                                 
NET INCOME
  $ 1,029,853     $ 871,683     $ 2,791,665     $ 2,511,256  
                                 
NET INCOME PER COMMON SHARE - BASIC
  $ 0.55     $ 0.46     $ 1.48     $ 1.33  
NET INCOME PER COMMON SHARE - DILUTED
  $ 0.55     $ 0.46     $ 1.48     $ 1.33  
 
See accompanying notes to the unaudited condensed consolidated financial statements.
 
 
2

 
 
JACKSONVILLE BANCORP, INC.
                       
                         
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
   
(Unaudited)
   
(Unaudited)
 
                         
Net Income
  $ 1,029,852     $ 871,683     $ 2,791,665     $ 2,511,256  
                                 
Other Comprehensive Income
                               
Unrealized appreciation on available-for-sale securities, net of taxes of $325,334 and $685,332 for the three months ended September 30, 2012 and 2011, respectively, and $809,433 and $1,571,588 for the nine months ended September 30, 2012 and 2011, respectively.
    631,530       1,330,350       1,571,254       3,050,730  
Less:  reclassification adjustment for realized gains included in net income, net of taxes of $135,755 and $9,885, for the three months ended September 30, 2012 and 2011, respectively, and $314,904 and $47,019 for the nine months ended September 30, 2012 and 2011, respectively.
    263,525       19,188       611,284       91,272  
      368,005       1,311,162       959,970       2,959,458  
                                 
Comprehensive Income
  $ 1,397,857     $ 2,182,845     $ 3,751,635     $ 5,470,714  
 
See accompanying notes to unaudited condensed consolidated financial statements.

 
3

 

JACKSONVILLE BANCORP, INC.
                                   
                                     
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2012
                                   
                           
Accumulated
       
         
Additional
               
Other
   
Total
 
   
Common
   
Paid-in
   
Retained
   
Unallocated
   
Comprehensive
   
Stockholders’
 
(Unaudited)
 
Stock
   
Capital
   
Earnings
   
ESOP Shares
   
Income (Loss)
   
Equity
 
                                     
BALANCE, DECEMBER 31, 2011
  $ 19,210     $ 16,066,624     $ 22,767,719     $ (360,620 )   $ 2,672,490     $ 41,165,423  
                                                 
Net Income
    -       -       2,791,665       -       -       2,791,665  
                                                 
Other comprehensive income
    -       -       -       -       959,970       959,970  
                                                 
Exercise of stock options
    12       15,487       -       -       -       15,499  
Tax benefit related to stock options exercised
    -       1,291       -       -       -       1,291  
Stock option compensation expense
    -       45,205       -       -       -       45,205  
                                                 
Shares held by ESOP, commited to be released
    -       9,392       -       16,250       -       25,642  
                                                 
Dividends ($0.225 per share)
    -       -       (424,015 )     -       -       (424,015 )
                                                 
BALANCE, SEPTEMBER 30, 2012
  $ 19,222     $ 16,137,999     $ 25,135,369     $ (344,370 )   $ 3,632,460     $ 44,580,680  
 
See accompanying notes to unaudited condensed consolidated financial statements.

 
4

 

JACKSONVILLE BANCORP, INC.
           
             
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
             
   
Nine Months Ended
 
   
September 30,
 
   
2012
   
2011
 
   
(Unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 2,791,665     $ 2,511,256  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation, amortization and accretion:
               
        Premises and equipment
    249,543       238,976  
        Amortization of investment premiums and discounts, net
    559,673       323,001  
        Accretion of loan discounts
    (37,228 )     (4,351 )
Net realized gains on sales of available-for-sale securities
    (926,188 )     (138,291 )
Provision for loan losses
    370,000       475,000  
Mortgage banking operations, net
    (397,560 )     (167,496 )
Gain on sale of real estate owned
    (50,185 )     (27,495 )
Impairment on mortgage servicing rights asset
    -       48,386  
Shares held by ESOP commited to be released
    25,642       19,972  
Tax benefit related to stock options exercised
    1,291       4,609  
Stock option compensation expense
    45,205       -  
Changes in income taxes payable
    213,219       (220,062 )
Changes in assets and liabilities
    (333,400 )     (696,909 )
Net cash provided by operations before loan sales
    2,511,677       2,366,596  
Origination of loans for sale to secondary market
    (37,156,903 )     (18,354,636 )
Proceeds from sales of loans to secondary market
    37,502,084       17,995,747  
Net cash provided by operating activities
    2,856,858       2,007,707  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of investment and mortgage-backed securities
    (44,506,127 )     (36,192,203 )
Purchase of interest-earning time deposits in other banks
    (496,000 )     -  
Maturity or call of investment securities available-for-sale
    8,328,000       6,255,000  
Sale of investment securities available-for-sale
    23,198,514       22,745,055  
Principal payments on mortgage-backed and investment securities
    8,060,305       5,405,958  
Purchase of bank-owned life insurance
    (2,000,000 )     -  
Proceeds from sale of real estate owned
    332,261       295,052  
Net (increase) decrease in loans
    (1,252,149 )     3,649,895  
Additions to premises and equipment
    (374,274 )     (129,044 )
                 
Net cash provided by (used in) investing activities
    (8,709,470 )     2,029,713  

 
5

 
 
JACKSONVILLE BANCORP, INC.
           
             
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
             
   
Nine Months Ended
 
   
September 30,
 
   
2012
   
2011
 
CASH FLOWS FROM FINANCING ACTIVITIES:
           
Net increase (decrease) in deposits
  $ 4,292,001     $ (889,258 )
Net increase in other borrowings
    51,883       1,161,065  
Decrease in advance payments by borrowers for taxes and insurance
    (263,099 )     (199,044 )
Exercise of stock options
    15,499       211,568  
Purchase and retirement of treasury stock related to stock options
    -       (181,941 )
Dividends paid - common stock
    (424,015 )     (421,949 )
                 
Net cash provided by (used in) financing activities
    3,672,269       (319,559 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (2,180,343 )     3,717,861  
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    11,387,947       8,943,400  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 9,207,604     $ 12,661,261  
                 
ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION:
               
Cash paid during the year for:
               
Interest on deposits
  $ 1,805,020     $ 2,395,113  
Interest on other borrowings
    10,739       13,801  
Income taxes paid
    872,000       1,197,500  
                 
NONCASH INVESTING AND FINANCING ACTIVITIES:
               
Real estate acquired in settlement of loans
  $ 217,130     $ 449,396  
Loans to facilitate sales of real estate owned
    182,250       131,834  
 
See accompanying notes to unaudited condensed consolidated financial statements
 
 
6

 
 
JACKSONVILLE BANCORP, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.
FINANCIAL STATEMENTS
 
The accompanying interim condensed consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. and its wholly-owned subsidiary, Jacksonville Savings Bank (the “Bank”) and its wholly-owned subsidiary, Financial Resources Group, Inc. collectively (the “Company”).  All significant intercompany accounts and transactions have been eliminated.
 
In the opinion of management, the preceding unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of September 30, 2012 and December 31, 2011 and the results of its operations for the three and nine month periods ended September 30, 2012 and 2011.  The results of operations for the three and nine month periods ended September 30, 2012 are not necessarily indicative of the results which may be expected for the entire year.  These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2011 filed as an exhibit to the Company’s Form 10-K filed in March, 2012.  The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP) and to prevailing practices within the industry.
 
Certain amounts included in the 2011 consolidated statements have been reclassified to conform to the 2012 presentation.
 
2.  
NEW ACCOUNTING PRONOUNCEMENTS
 
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements by U.S. GAAP and IFRSs.  The amendments in this ASU generally represent clarifications of FASB ASC Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed.  This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs.  The amendments in this ASU are to be applied prospectively.  For public entities, the amendments are effective for interim and annual periods beginning after December 15, 2011.  Early application by public entities was not permitted.  The adoption of this ASU is reflected in Note 8 – Disclosures about Fair Value of Assets and Liabilities.
 
In June 2011, the FASB issued ASU No. 2011-05, Amendments to Topic 220, Comprehensive Income.  Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  The amendments in this ASU should be applied retrospectively.  For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Early adoption was permitted.  The Company retrospectively adopted the ASU during the first quarter of 2012 with separate condensed consolidated statements of comprehensive income.
 
 
7

 
 
In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment.  The update provides entities with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.  However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit.  If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any.  Under the amendments in ASU No. 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test.  An entity may resume performing the qualitative assessment in any subsequent period.  The amendments enacted by ASU No. 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for the nonpublic entities, have not yet been made available for issuance.  The adoption of this update did not have any impact on the Company’s consolidated financial position or results of operations.
 
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities.  ASU 2011-11 requires an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement.  ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2012, and interim periods within those annual periods.  Retrospective disclosure is required for all comparative periods presented.  The adoption of this update did not have any impact on the Company’s consolidated financial position or results of operations.
 
3.  
EARNINGS PER SHARE
 
Earnings Per Share - Basic earnings per share is determined by dividing net income for the period by the weighted average number of common shares.  Diluted earnings per share considers the potential effects of the exercise of the outstanding stock options under the Company’s stock option plans.
 
 
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The following reflects earnings per share calculations for basic and diluted methods:

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Net income available to common
                       
  shareholders
  $ 1,029,853     $ 871,683     $ 2,791,665     $ 2,511,256  
                                 
Basic average shares outstanding
    1,887,359       1,892,637       1,886,216       1,890,032  
 
                               
Diluted potential common shares:
                               
Stock option equivalents
    479       -       377       -  
Diluted average shares outstanding
    1,887,838       1,892,637       1,886,593       1,890,032  
                                 
Basic earnings per share
  $ 0.55     $ 0.46     $ 1.48     $ 1.33  
                                 
Diluted earnings per share
  $ 0.55     $ 0.46     $ 1.48     $ 1.33  

Stock options for 104,035 shares of common stock were not considered in computing diluted earnings per share for the three and nine month periods ending September 30, 2012, because they were anti-dilutive.  Stock options for 4,504 shares of common stock were not considered in computing diluted earnings per share for the three and nine month periods ending September 30, 2011, because they were anti-dilutive.

4.  
STOCK-BASED COMPENSATION
 
In connection with the 2010 conversion and related stock offering, the Bank purchased an additional 41,614 shares for its Employee Stock Ownership Plan (ESOP) for the exclusive benefit of eligible employees.  The ESOP borrowed funds from the Company in an amount sufficient to purchase the 41,614 shares (approximately 4% of the common stock issued in the offering).  The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Bank and dividends received by the ESOP, with funds from any contributions on ESOP assets.  Contributions will be applied to repay interest on the loan first, and the remainder will be applied to principal.  The loan is expected to be repaid over a period of up to 20 years.  Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid.  Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants.  Participants will vest on a pro-rata basis and reach 100% vesting in the accrued benefits under the ESOP after six years.  Vesting is accelerated upon retirement, death, or disability of the participant or a change in control of the Bank.  Forfeitures will be reallocated to remaining plan participants.  Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP.  Since the Bank’s annual contributions are discretionary, benefits payable under the ESOP cannot be estimated.
 
In the event a terminated ESOP participant desires to sell his or her shares of the Company’s stock, the ESOP includes a put option, which is a right to demand that the Company buy any shares of its stock distributed to participants at fair value.
 
 
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The Company is accounting for its ESOP in accordance with ASC Topic 718, “Employers Accounting for Employee Stock Ownership Plans.”  Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet.  Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement.  As shares are committed to be released from the collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations.  Dividends, if any, on unallocated shares are recorded as a reduction of debt and accrued interest.
 
A summary of ESOP shares at September 30, 2012 and 2011, is shown below.
 
   
September 30, 2012
   
September 30, 2011
 
Unearned shares
    32,812       37,976  
Shares committed for release
    1,625       1,557  
Allocated shares
    51,438       49,344  
Total ESOP shares
    85,875       88,877  
                 
Fair value of unearned shares
  $ 541,398     $ 503,182  
 
On April 24, 2012, the compensation committee of the board of directors approved the awards of 104,035 options to purchase Company common stock.  The stock options vest over a five-year period and expire ten years after the date of the grant.  Apart from the vesting schedule, there are no performance-based conditions or any other material conditions applicable to the options issued.

The following table summarizes stock option activity for the nine months ended September 30, 2012.

               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
   
Aggregate
 
         
Exercise
   
Contractual
   
Instrinsic
 
   
Options
   
Price/Share
   
Life (in years)
   
Value
 
                         
Outstanding, December 31, 2011
    4,504     $ 13.98              
Granted
    104,035       15.65              
Exercised
    (1,201 )     13.98              
Forfeited
    -       -              
                             
Outstanding, September 30, 2012
    107,338     $ 15.60       9.50     $ 96,753  
                                 
Exercisable, September 30, 2012
    3,303     $ 13.98       1.75     $ 8,324  

Intrinsic value for stock options is defined as the difference between the current market value and the exercise price.  The value is based upon a closing price of $16.50 per share on September 30, 2012.
 
 
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The fair value for each option grant is estimated on the date of grant using the Black-Scholes option pricing model that uses the following assumptions.  The Company uses the U.S. Treasury yield curve in effect at the time of the grant to determine the risk-free interest rate.  The expected dividend yield is estimated using the projected annual dividend level and the recent stock price of the Company’s common stock at the date of grant.  Expected volatility is based upon historical volatility of the Company’s stock.  The expected term of the options granted represents the period of time that options are expected to be outstanding.

The weighted average assumptions used in the Black-Scholes option pricing model for the year indicated were as follows:

   
2012
 
Risk-free interest rate
    1.37 %
Expected dividend yield
    2.19 %
Expected stock volatility
    33.41 %
Expected life (years)
    7.00  
Fair value
  $ 4.34  

5.  
LOAN PORTFOLIO COMPOSITION
 
At September 30, 2012 and December 31, 2011, the composition of the Company’s loan portfolio is shown below.
 
   
September 30, 2012
   
December 31, 2011
 
   
Amount
   
Percent
   
Amount
   
Percent
 
Real estate loans:
                       
One-to-four family residential
  $ 42,323,156       24.6 %   $ 39,472,008       23.1 %
Commercial
    34,826,019       20.3       40,169,813       23.5  
Agricultural
    34,614,339       20.2       29,971,649       17.5  
Home equity
    13,188,975       7.7       16,042,788       9.4  
Total real estate loans
    124,952,489       72.8       125,656,258       73.5  
                                 
Commercial loans
    26,449,502       15.4       23,198,454       13.6  
Agricultural loans
    8,813,230       5.1       9,590,745       5.6  
Consumer loans
    14,678,893       8.5       15,755,973       9.2  
Total loans receivable
    174,894,114       101.8       174,201,430       102.0  
                                 
Less:
                               
Net deferred loan fees
    (7,227 )     (0.0 )     39,721       0.0  
Allowance for loan losses
    3,151,742       1.8       3,296,607       1.9  
Total loans receivable, net
  $ 171,749,599       100.0 %   $ 170,865,102       100.0 %
 
The Company believes that sound loans are a necessary and desirable means of employing funds available for investment.  Recognizing the Company’s obligations to its depositors and to the communities it serves, authorized personnel are expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords.  The Company maintains lending policies and procedures in place designed to focus lending efforts on the types, locations, and duration of loans most appropriate for the business model and markets.  The Company’s principal lending activities include the origination of one-to four-family residential mortgage loans, multi-family loans, commercial real estate loans, agricultural loans, home equity lines of credits, commercial business loans, and consumer loans.  The primary lending market includes the Illinois counties of Morgan, Macoupin and Montgomery.  Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals.  The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.
 
 
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Loan originations are derived from a number of sources such as real estate broker referrals, existing customers, builders, attorneys and walk-in customers.  Upon receipt of a loan application, a credit report is obtained to verify specific information relating to the applicant’s employment, income, and credit standing.  In the case of a real estate loan, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent appraiser approved by the Company.  A loan application file is first reviewed by a loan officer in the loan department who checks applications for accuracy and completeness, and verifies the information provided.  The financial resources of the borrower and the borrower’s credit history, as well as the collateral securing the loan, are considered an integral part of each risk evaluation prior to approval.  The board of directors has established individual lending authorities for each loan officer by loan type.  Loans over an individual officer’s lending limit must be approved by the officers’ loan committee consisting of the chairman of the board, president, chief lending officer and all lending officers, which meets three times a week, and has lending authority up to $500,000 depending on the type of loan.  Loans with a principal balance over this limit, up to $1.0 million, must be approved by the directors’ loan committee, which meets weekly and consists of the chairman of the board, president, senior vice president, chief lending officer and at least two outside directors, plus all lending officers as non-voting members.  The board of directors approves all loans with a principal balance over $1.0 million.  The board of directors ratifies all loans that are originated.  Once the loan is approved, the applicant is informed and a closing date is scheduled.  Loan commitments are typically funded within 30 days.
 
If the loan is approved, the borrower must provide proof of fire and casualty insurance on the property serving as collateral which insurance must be maintained during the full term of the loan; flood insurance is required in certain instances.  Title insurance or an attorney’s opinion based on a title search of the property is generally required on loans secured by real property.
 
One-to-Four Family Mortgage Loans - Historically, the primary lending origination activity has been one-to-four family, owner-occupied, residential mortgage loans secured by property located in the Company’s market area.  The Company generates loans through marketing efforts, existing customers and referrals, real estate brokers, builders and local businesses.  Generally, one-to-four family loan originations are limited to the financing of loans secured by properties located within the Company’s market area.  
 
Fixed rate one-to-four family residential mortgage loans are generally conforming loans, underwritten according to secondary market guidelines.  The Company generally originates both fixed and adjustable rate mortgage loans in amounts up to the maximum conforming loan limits established by the Federal Housing Finance Agency.
 
The Company originates for resale to Freddie Mac and the Federal Home Loan Bank fixed-rate one-to-four family residential mortgage loans with terms of 15 years or more.  The fixed-rate mortgage loans amortize monthly with principal and interest due each month.  Residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option.  The Company offers fixed-rate one-to-four family residential mortgage loans with terms of up to 30 years without prepayment penalty.
 
 
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The Company currently offers adjustable-rate mortgage loans for terms ranging up to 30 years.  They generally offer adjustable-rate mortgage loans that adjust between one and five years on the anniversary date of origination.  Interest rate adjustments are up to two hundred basis points per year, with a cap of up to six hundred basis points on interest rate increases over the life of the loan.  In a rising interest rate environment, such rate limitations may prevent adjustable-rate mortgage loans from repricing to market interest rates, which would have an adverse effect on the net interest income.  In the low interest rate environment that has existed over the past two years, the adjustable-rate portfolio has repriced downward resulting in lower interest income from this portion of the loan portfolio.  The Company has used different interest indices for adjustable-rate mortgage loans in the past such as the average yield on U.S. Treasury securities, adjusted to a constant maturity of one-year, three-years or five-years.  The origination of fixed-rate mortgage loans versus adjustable-rate mortgage loans is monitored on an ongoing basis and is affected significantly by the level of market interest rates, customer preference, interest rate risk position and competitors’ loan products.
 
Adjustable-rate mortgage loans make the loan portfolio more interest rate sensitive and provide an alternative for those borrowers who meet the underwriting criteria, but are unable to qualify for a fixed-rate mortgage.  However, as the interest income earned on adjustable-rate mortgage loans varies with prevailing interest rates, such loans do not offer predictable cash flows in the same manner as long-term, fixed-rate loans.  Adjustable-rate mortgage loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase.  It is possible that during periods of rising interest rates that the risk of delinquencies and defaults on adjustable-rate mortgage loans may increase due to the upward adjustment of interest costs to the borrower, resulting in increased loan losses.
 
Residential first mortgage loans customarily include due-on-sale clauses, which gives the Company the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as collateral for the loan.  Due-on-sale clauses are a means of imposing assumption fees and increasing the interest rate on mortgage portfolio during periods of rising interest rates.
 
When underwriting residential real estate loans, the Company reviews and verifies each loan applicant’s income and credit history.  Management believes that stability of income and past credit history are integral parts in the underwriting process.  Generally, the applicant’s total monthly mortgage payment, including all escrow amounts, is limited to 28% of the applicant’s total monthly income.  In addition, total monthly obligations of the applicant, including mortgage payments, should not generally exceed 38% of total monthly income.  Written appraisals are generally required on real estate property offered to secure an applicant’s loan.  For one-to-four family real estate loans with loan to value ratios of over 80%, private mortgage insurance is required.  Fire and casualty insurance is also required on all properties securing real estate loans.  Title insurance, or an attorney’s title opinion, may be required, as circumstances warrant.
 
The Company does not offer an “interest only” mortgage loan product on one-to-four family residential properties (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan).  They also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan.  The Company does not offer a “subprime loan” program (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as loans having less than full documentation).
 
 
13

 
 
Commercial Real Estate Loans - The Company originates and purchases commercial real estate loans.  Commercial real estate loans are secured primarily by improved properties such as multi-family residential, retail facilities and office buildings, restaurants and other non-residential buildings.  The maximum loan-to-value ratio for commercial real estate loans originated is generally 80%.  Commercial real estate loans are generally written up to terms of five years with adjustable interest rates.  The rates are generally tied to the prime rate and generally have a specified floor.  Many of the fixed-rate commercial real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity.  The Company purchases from time to time commercial real estate loan participations primarily from outside the Company’s market area. All participation loans are approved following a review to ensure that the loan satisfies the underwriting standards.
 
Underwriting standards for commercial real estate loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.  The income approach is primarily utilized to determine whether income generated from the applicant’s business or real estate offered as collateral is adequate to repay the loan.  There is an emphasis on the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%).  In underwriting a loan, the value of the real estate offered as collateral in relation to the proposed loan amount is considered.  Generally, the loan amount cannot be greater than 80% of the value of the real estate.  Written appraisals are usually obtained from either licensed or certified appraisers on all commercial real estate loans in excess of $250,000.  Creditworthiness of the applicant is assessed by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.
 
Loans secured by commercial real estate generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances.  This increased credit risk is a result of several factors, including the effects of general economic conditions on income producing properties and the successful operation or management of the properties securing the loans.  Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related business and real estate property.  If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.
 
Agricultural Real Estate Loans - The Company originates and purchases agricultural real estate loans.  The maximum loan-to-value ratio for agricultural real estate loans we originate is generally 80%. Our agricultural real estate loans are generally written up to terms of five years with adjustable interest rates.  The rates are generally tied to the average yield on U.S. Treasury securities, adjusted to a constant maturity of one-year, three-years, or five-years and generally have a specified floor. Many of our fixed-rate agricultural real estate loans are not fully amortizing and therefore require a “balloon” payment at maturity. We purchase from time to time agricultural real estate loan participations primarily from other local institutions within our market area. All participation loans are approved following a review to ensure that the loan satisfies our underwriting standards

Underwriting standards for agricultural real estate include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.  The income approach is primarily utilized to determine whether income generated from the applicant’s farm operation or real estate offered as collateral is adequate to repay the loan. We emphasize the ratio of the property’s projected cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%).  In underwriting a loan, we consider the value of the real estate offered as collateral in relation to the proposed loan amount.  Generally, the loan amount cannot be greater than 80% of the value of the real estate.  We usually obtain written appraisals from either licensed or certified appraisers on all agricultural real estate loans in excess of $250,000.  We assess the creditworthiness of the applicant by reviewing a credit report, financial statements and tax returns of the applicant, as well as obtaining other public records regarding the applicant.
 
 
14

 
 
Loans secured by agricultural real estate generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances.  This increased credit risk is a result of several factors, including the effects of general economic and market conditions on farm operations and the successful operation or management of the properties securing the loans.  The repayment of loans secured by agricultural estate is typically dependent upon the successful operation of the farm and real estate property.  If the cash flow is reduced, the borrower’s ability to repay the loan may be impaired.
 
Home Equity Loans – The Company originates home equity and lines of credit, which are generally secured by the borrower’s principal residence.  The maximum amount of a home equity loan or line of credit is generally 95% of the appraised value of a borrower’s real estate collateral less the amount of any prior mortgages or related liabilities.  Home equity loans and lines of credit are approved with both fixed and adjustable interest rates which we determine based upon market conditions.  Such loans may be fully amortized over the life of the loan or have a balloon feature.  Generally, the maximum term for home equity loans is 10 years.

Underwriting standards for home equity loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.  The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income.  We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area.  Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.

Home equity loans entail greater risks than one-to-four family residential mortgage loans, which are secured by first lien mortgages.  In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage or depreciation in the value of the property or loss of equity to the first lien position.  Further, home equity loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.  Finally, the application of various Federal and state laws, including Federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans in the event of a default.

Commercial Business Loans - The Company originates commercial business loans to borrowers located in the Company’s market area which are secured by collateral other than real estate or which can be unsecured.  Commercial business loan participations are also purchased from other lenders, which may be made to borrowers outside the Company’s market area.  Commercial business loans are generally secured by equipment and inventory and generally are offered with adjustable rates tied to the prime rate or the average yield on U.S. Treasury securities, adjusted to a constant maturity of either one-year, three-years or five-years and various terms of maturity generally from three years to five years.  Unsecured business loans are originated on a limited basis in those instances where the applicant’s financial strength and creditworthiness has been established.  Commercial business loans generally bear higher interest rates than residential loans, but they also may involve a higher risk of default since their repayment is generally dependent on the successful operation of the borrower’s business.  Personal guarantees are generally obtained from the borrower or a third party as a condition to originating its business loans.  
 
 
15

 
 
Underwriting standards for commercial and agricultural business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business.  Financial strength of each applicant is assessed through the review of financial statements and tax returns provided by the applicant.  The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records.  Business loans are periodically reviewed following origination.  Financial statements are requested at least annually and review them for substantial deviations or changes that might affect repayment of the loan.  Loan officers also visit the premises of borrowers to observe the business premises, facilities, and personnel and to inspect the pledged collateral.  Underwriting standards for business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
 
Agricultural Business Loans - The Company originates agricultural business loans to borrowers located in our market area which are secured by collateral other than real estate or which can be unsecured. Agricultural business loans are generally secured by equipment and blanket security agreements on all farm assets.  These loans are generally offered with fixed rates with terms up to five years.  Agricultural business loans generally bear lower interest rates than residential loans due to competitive market pressures.  The repayment of agricultural business loans is generally dependent on the successful operation of the farm operation.  Personal guarantees are generally obtained from the borrower as a condition to originating agricultural business loans.

Underwriting standards for agricultural business loans include a determination of the applicant’s ability to meet existing obligations and payments on the proposed loan from normal cash flows generated in the applicant’s business.  The financial strength of each applicant is assessed through the review of financial statements, pro-forma cash flow statements, and tax returns provided by the applicant.  The creditworthiness of an applicant is derived from a review of credit reports as well as a search of public records.  Financial statements are requested at least annually and reviewed for substantial deviations or changes that might affect repayment of the loan.  Loan officers may also visit the premises of borrowers to observe the operation, facilities, equipment, and personnel and to inspect the pledged collateral.  Underwriting standards for agricultural business loans are different for each type of loan depending on the financial strength of the applicant and the value of collateral offered as security.
 
Drought conditions have reduced 2012 crop yields.  The repayment of agricultural business loans generally is dependent on the successful operation of a farm and can be adversely affected by fluctuations in crop prices, increase in interest rates, and changes in weather conditions.  These developments may result in smaller harvests and less income for farmers which may adversely affect such borrower’s ability to repay a loan, and potentially result in an increase in the level of problem loans and loan losses in our agricultural portfolio.  While not required, the majority of our agricultural business loans are covered by crop insurance, which provides protection against loss due to lower crop yields as a result of drought conditions.  The Company expects minimal impact on our agricultural borrowers and is currently evaluating the impact these conditions may have on the local economy.
 
Consumer Loans – The Company originates consumer loans, including automobile loans, loans secured by deposit accounts, unsecured loans and mobile home loans.  Consumer loans are generally offered on a fixed-rate basis.  Automobile loans are offered with maturities of up to 60 months for new automobiles.  Loans secured by used automobiles will have maximum terms which vary depending upon the age of the automobile.  Automobile loans are generally originated with a loan-to-value ratio below the greater of 80% of the purchase price or 100% of NADA loan value.  In the case of a new car loan, the loan-to-value ratio may be greater or less depending on the borrower’s credit history, debt to income ratio, home ownership and other banking relationships with us.
 
 
16

 
 
Underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.  The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income.  We also consider the length of employment with the borrower’s present employer as well as the amount of time the borrower has lived in the local area.  Creditworthiness of the applicant is of primary consideration; however, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.

Consumer loans entail greater risks than one-to-four family residential mortgage loans, particularly consumer loans secured by rapidly depreciating assets such as automobiles or loans that are unsecured.  In such cases, collateral repossessed after a default may not provide an adequate source of repayment of the outstanding loan balance because of damage, loss or depreciation.  Further, consumer loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.  Such events would increase our risk of loss on unsecured loans.  Finally, the application of various Federal and state laws, including Federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans in the event of a default.
 
 
17

 
 
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the periods ending September 30, 2012, September 30, 2011, and December 31, 2011.
 
   
September 30, 2012
 
         
Commercial
   
Agricultural
                                     
   
1-4 Family
   
Real Estate
   
Real Estate
   
Home Equity
   
Commercial
   
Agricultural
   
Consumer
   
Unallocated
   
Total
 
Allowance for Loan Losses:
                                                 
Beginning Balance, July 1, 2012
  $ 629,452     $ 961,695     $ 48,918     $ 325,931     $ 811,630     $ 36,034     $ 159,451     $ 157,392     $ 3,130,503  
Provision charged to expense
    (11,330 )     (74,191 )     89,538       (37,447 )     73,497       30,963       (11,365 )     60,335       120,000  
Losses charged off
    (6,410 )     (99,227 )     -       (13,382 )     -       -       (11,416 )     -       (130,435 )
Recoveries
    2,810       17,716       -       6,607       2,969       -       1,572       -       31,674  
Ending balance, September 30, 2012
  $ 614,522     $ 805,993     $ 138,456     $ 281,709     $ 888,096     $ 66,997     $ 138,242     $ 217,727     $ 3,151,742  
                                                                         
Beginning Balance, January 1, 2012
  $ 697,223     $ 1,107,585     $ 115,154     $ 309,409     $ 711,864     $ 58,428     $ 138,385     $ 158,559     $ 3,296,607  
Provision charged to expense
    (31,049 )     36,962       23,302       39,314       172,947       8,569       60,787       59,168       370,000  
Losses charged off
    (76,705 )     (356,270 )     -       (80,126 )     -       -       (64,801 )     -       (577,902 )
Recoveries
    25,053       17,716       -       13,112       3,285       -       3,871       -       63,037  
Ending balance, September 30, 2012
  $ 614,522     $ 805,993     $ 138,456     $ 281,709     $ 888,096     $ 66,997     $ 138,242     $ 217,727     $ 3,151,742  
                                                                         
Ending balance:
                                                                       
individually evaluated for impairment
  $ -     $ 139,523     $ -     $ -     $ 567,536     $ -     $ 6,616     $ -     $ 713,675  
Ending balance:
                                                                       
collectively evaluated for impairment
  $ 614,522     $ 666,470     $ 138,456     $ 281,709     $ 320,560     $ 66,997     $ 131,626     $ 217,727     $ 2,438,067  
                                                                         
Loans:
                                                                       
Ending balance
  $ 42,323,156     $ 34,826,019     $ 34,614,339     $ 13,188,975     $ 26,449,502     $ 8,813,230     $ 14,678,893     $ -     $ 174,894,114  
Ending balance:
                                                                       
individually evaluated for impairment
  $ 285,550     $ 1,288,367     $ -     $ 43,698     $ 741,497     $ -     $ 6,616     $ -     $ 2,365,728  
Ending balance:
                                                                       
collectively evaluated for impairment
  $ 42,037,606     $ 33,537,652     $ 34,614,339     $ 13,145,277     $ 25,708,005     $ 8,813,230     $ 14,672,277     $ -     $ 172,528,386  
 
 
18

 
 
   
September 30, 2011
 
         
Commercial
   
Agricultural
                                     
   
1-4 Family
   
Real Estate
   
Real Estate
   
Home Equity
   
Commercial
   
Agricultural
   
Consumer
   
Unallocated
   
Total
 
Allowance for Loan Losses:
                                                 
Beginning Balance, July 1, 2011
  $ 561,982     $ 1,144,788     $ 112,208     $ 277,648     $ 607,533     $ 152,419     $ 127,164     $ 177,084     $ 3,160,826  
Provision charged to expense
    177,058       (16,574 )     2,438       9,572       38,975       (77,509 )     1,272       14,768       150,000  
Losses charged off
    (61,751 )     -       -       (5,081 )     -       -       -       -       (66,832 )
Recoveries
    -       16,000       -       1,161       2,025       -       869       -       20,055  
Ending balance, September 30, 2011
  $ 677,289     $ 1,144,214     $ 114,646     $ 283,300     $ 648,533     $ 74,910     $ 129,305     $ 191,852     $ 3,264,049  
                                                                         
Beginning Balance, January 1, 2011
  $ 561,309     $ 1,193,928     $ 92,988     $ 300,257     $ 472,376     $ 58,250     $ 163,690     $ 121,487     $ 2,964,285  
Provision charged to expense
    209,942       186,229       21,658       (14,017 )     20,323       16,660       (36,160 )     70,365       475,000  
Losses charged off
    (93,962 )     (260,785 )     -       (9,243 )     -       -       (1,097 )     -       (365,087 )
Recoveries
    -       24,842       -       6,303       155,834       -       2,872       -       189,851  
Ending balance, September 30, 2011
  $ 677,289     $ 1,144,214     $ 114,646     $ 283,300     $ 648,533     $ 74,910     $ 129,305     $ 191,852     $ 3,264,049  
                                                                         
Ending balance:
                                                                       
individually evaluated for impairment
  $ 89,795     $ 358,563     $ -     $ -     $ 266,478     $ -     $ -     $ -     $ 714,836  
Ending balance:
                                                                       
collectively evaluated for impairment
  $ 587,494     $ 785,651     $ 114,646     $ 283,300     $ 382,055     $ 74,910     $ 129,305     $ 191,852     $ 2,549,213  
                                                                         
Loans:
                                                                       
Ending balance
  $ 38,110,058     $ 43,056,142     $ 30,844,997     $ 16,960,319     $ 20,239,457     $ 9,760,290     $ 16,343,071     $ -     $ 175,314,334  
Ending balance:
                                                                       
individually evaluated for impairment
  $ 609,439     $ 1,784,114     $ -     $ 25,754     $ 558,570     $ -     $ -     $ -     $ 2,977,877  
Ending balance:
                                                                       
collectively evaluated for impairment
  $ 37,500,619     $ 41,272,028     $ 30,844,997     $ 16,934,565     $ 19,680,887     $ 9,760,290     $ 16,343,071     $ -     $ 172,336,457  

 
19

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