**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, 2008





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





For
      the
      transition period from __________ to ____________.





Commission
      file number 000-30248





**JACKSONVILLE
      BANCORP, INC.**


(Exact
      name of registrant as specified in its charter)





Florida
            
            59-3472981(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)





100
      North Laura Street, Suite 1000, Jacksonville, Florida 32202


(Address
      of principal executive offices)





(904)
      421-3040


(Registrant’s
      telephone number)





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





Yes  x  No   ̈





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
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filer
             ̈
            Accelerated
                filer
             ̈Non-accelerated
                filer
             ̈
            Smaller
                reporting company
            x





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





Yes   ̈  No  x





As
      of
      November 6, 2008, the latest practicable date, 1,748,799 **** of
      the
      Registrant’s common shares, $.01 par value, were issued and
      outstanding.








JACKSONVILLE
      BANCORP, INC.





TABLE
      OF
      CONTENTS




PagePART
                I—FINANCIAL INFORMATIONItem
                1.
            Financial
                StatementsConsolidated
                Balance Sheets
            3Consolidated
                Statements of Income
            4Consolidated
                Statements of Changes in Shareholders’ Equity
            5Consolidated
                Statements of Cash Flows
            6Notes
                to Consolidated Financial Statements
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            14Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            24Item
                4.
            Controls
                and Procedures
            24PART
                II—OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            26Item
                1A.
            Risk
                Factors
            26Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            26Item
                3.
            Defaults
                Upon Senior Securities
            26Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            26Item
                5.
            Other
                Information
            26Item
                6.
            Exhibits
            26SIGNATURES
            27EXHIBIT
                INDEX
            28CERTIFICATIONSCertification
                of Gilbert J. Pomar, III under Section 302 of the Sarbanes-Oxley
                Act of
                2002
            29Certification
                of Valerie A. Kendall under Section 302 of the Sarbanes-Oxley Act
                of
                2002
            30Certification
                under Section 906 of the Sarbanes-Oxley Act of 2002
            31




2


JACKSONVILLE
      BANCORP, INC.


**PART
      I—FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





CONSOLIDATED
      BALANCE SHEETS


(Dollars
      in thousands, except per share amounts)





September 30,
            
            December 31,2008
            
            2007(Unaudited)**ASSETS**Cash
                and due from banks
            
            $
            6,744
            
            $
            5,584Federal
                funds sold
            
            
            1,002
            
            
            451Total
                cash and cash equivalents
            
            
            7,746
            
            
            6,035Securities
                available for sale
            
            
            28,924
            
            
            29,727Securities
                held to maturity
            
            
            50
            
            
            50Loans,
                net of allowance for loan losses of $4,337****at
                2008 and $3,116 at 2007
            
            
            376,344
            
            
            339,265Premises
                and equipment, net
            
            
            4,046
            
            
            4,342Bank-owned
                life insurance (BOLI)
            
            
            8,696
            
            
            5,010Federal
                Home Loan Bank (FHLB) stock
            
            
            2,591
            
            
            3,638Accrued
                interest receivable
            
            
            2,091
            
            
            2,275Other
                assets
            
            
            2,684
            
            
            1,620Total
                assets
            
            $
            433,172
            
            $
            391,962**LIABILITIES**DepositsNoninterest
                bearing
            
            $
            44,656
            
            $
            35,382Money
                market, NOW and savings deposits
            
            
            86,035
            
            
            116,181Time
                deposits
            
            
            220,125
            
            
            137,330Total
                deposits
            
            
            350,816
            
            
            288,893FHLB
                advances
            
            
            40,300
            
            
            67,830Subordinated
                debt
            
            
            14,550
            
            
            7,000Accrued
                expenses and other liabilities
            
            
            1,055
            
            
            1,610Total
                liabilities
            
            
            406,721
            
            
            365,333**SHAREHOLDERS’
                EQUITY**Common
                stock, $.01 par value, 8,000,000 shares authorized, 1,748,799****and
                1,747,981 shares issued
            
            
            17
            
            
            17Additional
                paid–in capital
            
            
            18,537
            
            
            18,459Retained
                earnings
            
            
            8,145
            
            
            8,186Treasury
                stock, 168 and 1,650 shares
            
            
            (2
            )
            
            (40
            )Accumulated
                other comprehensive income
            
            
            (246
            )
            
            7Total
                shareholders’ equity
            
            
            26,451
            
            
            26,629Total
                liabilities and shareholders’ equity
            
            $
            433,172
            
            $
            391,962





See
      accompanying notes to unaudited consolidated financial
      statements.


3


JACKSONVILLE
      BANCORP, INC.


CONSOLIDATED
      STATEMENTS OF INCOME


(Unaudited)


(Dollars
      in thousands, except per share amounts)








Three Months Ended
            
            Nine Months EndedSeptember 30,
            
            September 30,2008
            
            2007
            
            2008
            
            2007Interest
                and dividend incomeLoans,
                including fees
            
            $
            6,096
            
            $
            6,747
            
            $
            18,331
            
            $
            18,733Securities
            
            
            366
            
            
            369
            
            
            1,100
            
            
            1,009Other
            
            
            (5
            )
            
            18
            
            
            28
            
            
            47Total
                interest income
            
            
            6,457
            
            
            7,134
            
            
            19,459
            
            
            19,789Interest
                expenseDeposits
            
            $
            2,778
            
            $
            3,285
            
            $
            8,560
            
            $
            9,109FHLB
                advances
            
            
            405
            
            
            504
            
            
            1,237
            
            
            1,132Subordinated
                debt
            
            
            223
            
            
            140
            
            
            456
            
            
            414Other
            
            
            3
            
            
            2
            
            
            6
            
            
            10Total
                interest expense
            
            
            3,409
            
            
            3,931
            
            
            10,259
            
            
            10,665Net
                interest income
            
            
            3,048
            
            
            3,203
            
            
            9,200
            
            
            9,124Provision
                for loan losses
            
            
            665
            
            
            32
            
            
            2,783
            
            
            480Net
                interest income after provision for loan losses
            
            
            2,383
            
            
            3,171
            
            
            6,417
            
            
            8,644Noninterest
                incomeService
                charges on deposit accounts
            
            
            170
            
            
            169
            
            
            496
            
            
            470Other
                income
            
            
            130
            
            
            115
            
            
            316
            
            
            391Total
                noninterest income
            
            
            300
            
            
            284
            
            
            812
            
            
            861Noninterest
                expenseSalaries
                and employee benefits
            
            
            1,141
            
            
            1,122
            
            
            3,428
            
            
            3,197Merger
                costs
            
            
            —
            
            
            —
            
            
            430
            
            
            —Occupancy
                and equipment
            
            
            449
            
            
            437
            
            
            1,338
            
            
            1,343Other
            
            
            749
            
            
            729
            
            
            2,281
            
            
            1,804Total
                noninterest expense
            
            
            2,339
            
            
            2,288
            
            
            7,477
            
            
            6,344Income
                (loss) before income taxes
            
            
            344
            
            
            1,167
            
            
            (248
            )
            
            3,161Income
                tax expense (benefit)
            
            
            77
            
            
            386
            
            
            (212
            )
            
            1,143Net
                income (loss)
            
            $
            267
            
            $
            781
            
            $
            (36
            )
            $
            2,018Weighted
                average:Common
                shares
            
            
            1,748,567
            
            
            1,745,143
            
            
            1,748,183
            
            
            1,743,585Dilutive
                stock options and warrants
            
            
            28,725
            
            
            70,441
            
            
            —
            
            
            76,052Dilutive
                shares
            
            
            1,777,292
            
            
            1,815,584
            
            
            1,748,183
            
            
            1,819,637Basic
                earnings (loss) per common share
            
            $
            .15
            
            $
            .45
            
            $
            (.02
            )
            $
            1.16Diluted
                earnings (loss) per common share
            
            $
            .15
            
            $
            .43
            
            $
            (.02
            )
            $
            1.11




See
      accompanying notes to unaudited consolidated financial
      statements.


4





JACKSONVILLE
      BANCORP, INC.


CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


(Unaudited)


(Dollars
      in thousands)





Common Stock
            
            Additional
            
            
            
            
            
            Accumulated OtherOutstanding
            
            Paid-In
            
            Retained
            
            Treasury Stock
            
            ComprehensiveShares
            
            Amount
            
            Capital
            
            Earnings
            
            Amount
            
            Income (Loss)
            
            TotalBalance
                at January 1, 2007
            
            
            1,741,688
            
            
            $17
            
            
            $18,230
            
            
            $5,241
            
            
            $(57
            )
            
            $(293
            )
            
            $23,138Comprehensive
                income:Net
                income (loss)
            
            
            
            
            
            
            
            
            
            
            
            2,018
            
            
            
            
            
            
            
            
            2,018Change
                in unrealized gain (loss) on securities available for sale, net of
                tax
                effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            75
            
            
            75Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,093Purchase
                of treasury stock
            
            
            (4,716
            )
            
            
            
            
            
            
            
            
            
            
            (148
            )
            
            
            
            
            (148
            )Issuance
                of treasury stock
            
            
            4,950
            
            
            
            
            
            1
            
            
            (6
            )
            
            165
            
            
            
            
            
            160Share-based
                compensation expense
            
            
            
            
            
            
            
            
            137
            
            
            
            
            
            
            
            
            
            
            
            137Exercise
                of common stock options
            
            
            4,643
            
            
            
            
            
            77
            
            
            
            
            
            
            
            
            
            
            
            77Balance
                at September 30, 2007
            
            
            1,746,565
            
            
            $17
            
            
            $18,445
            
            
            $7,253
            
            
            $(40
            )
            
            $(218
            )
            
            $25,457Balance
                at January 1, 2008
            
            
            1,746,331
            
            
            $17
            
            
            $18,459
            
            
            $8,186
            
            
            $(40
            )
            
            $7
            
            
            $26,629Comprehensive
                income:Net
                income (loss)
            
            
            
            
            
            
            
            
            
            
            
            (36
            )
            
            
            
            
            
            
            
            (36
            )Change
                in unrealized gain (loss) on securities available for sale, net of
                tax
                effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (253
            )
            
            (253
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (289
            )Purchase
                of treasury stock
            
            
            (3,018
            )
            
            
            
            
            
            
            
            
            
            
            (62
            )
            
            
            
            
            (62
            )Issuance
                of treasury stock
            
            
            4,500
            
            
            
            
            
            (7
            )
            
            (5
            )
            
            100
            
            
            
            
            
            88Share-based
                compensation expense
            
            
            
            
            
            
            
            
            82
            
            
            
            
            
            
            
            
            
            
            
            82Common
                stock issued
            
            
            618
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            —Exercise
                of common stock options
            
            
            200
            
            
            
            
            
            3
            
            
            
            
            
            
            
            
            
            
            
            3Balance
                at September 30, 2008
            
            
            1,748,631
            
            
            $17
            
            
            $18,537
            
            
            $8,145
            
            
            $(2
            )
            
            $(246
            )
            
            $26,451




See
      accompanying notes to unaudited consolidated financial
      statements.


5





JACKSONVILLE
      BANCORP, INC.


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited)


(Dollars
      in thousands)





Nine Months EndedSeptember 30,2008
            
            2007Cash flows
                from operating activitiesNet
                income (loss)
            
            $
            (36
            )
            $
            2,018Adjustments
                to reconcile net income to net cash from operating
                activities:Depreciation
                and amortization
            
            
            387
            
            
            416Net
                amortization of deferred loan fees
            
            
            54
            
            
            95Provision
                for loan losses
            
            
            2,783
            
            
            480Premium
                amortization, net of accretion
            
            
            (18
            )
            
            14Earnings
                on Bank Owned Life Insurance
            
            
            (186
            )
            
            (130
            )Share-based
                compensation
            
            
            170
            
            
            297Loss
                on disposal of assets
            
            
            38
            
            
            —Net
                change in accrued interest receivable and other assets
            
            
            (766
            )
            
            333Net
                change in accrued expenses and other liabilities
            
            
            (555
            )
            
            (10
            )Net
                cash from operating activities
            
            
            1,871
            
            
            3,513Cash
                flows from investing activitiesPurchases
                of securities available for sale
            
            
            (5,107
            )
            
            (6,244
            )Proceeds
                from maturities, calls and paydown of securities available for
                sale
            
            
            5,521
            
            
            2,495Loan
                (originations) payments, net
            
            
            (39,916
            )
            
            (53,246
            )Investment
                in Bank Owned Life Insurance
            
            
            (3,500
            )
            
            —Additions
                to premises and equipment, net
            
            
            (89
            )
            
            (167
            )Net
                change in Federal Home Loan Bank stock
            
            
            1,047
            
            
            (1,812
            )Net
                cash from investing activities
            
            
            (42,044
            )
            
            (58,974
            )Cash
                flows from financing activitiesNet
                change in deposits
            
            
            61,923
            
            
            16,880Net
                change in overnight FHLB advances
            
            
            (8,530
            )
            
            18,400Net
                change in Fed funds purchased
            
            
            —
            
            
            (134
            )Proceeds
                from issuance of subordinated debt
            
            
            7,550
            
            
            —Proceeds
                from fixed rate FHLB advances
            
            
            —
            
            
            21,000Proceeds
                from exercise of stock options
            
            
            3
            
            
            46Excess
                tax benefits from stock-based payment arrangements
            
            
            —
            
            
            31Repayment
                of fixed rate FHLB advance
            
            
            (19,000
            )
            
            —Purchase
                of treasury stock
            
            
            (62
            )
            
            (148
            )Net
                cash from financing activities
            
            
            41,884
            
            
            56,075Net
                change in cash and cash equivalents
            
            
            1,711
            
            
            614Cash
                and cash equivalents at beginning of period
            
            
            6,035
            
            
            4,478Cash
                and cash equivalents at end of period
            
            $
            7,746
            
            $
            5,092Supplemental
                disclosures of cash flow informationCash
                paid during the period forInterest
            
            $
            10,338
            
            $
            10,355Income
                taxes
            
            
            795
            
            
            1,155





See
      accompanying notes to unaudited consolidated financial
      statements.


6





JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)








**NOTE
      1**–**BASIS OF PRESENTATION**


Jacksonville
      Bancorp, Inc. is a bank holding company headquartered in Jacksonville, Florida.
      Jacksonville Bancorp, Inc. owns and operates The Jacksonville Bank, which has
      a
      total of five operating branches in Jacksonville, Florida.




The
      consolidated financial statements include the accounts of Jacksonville Bancorp,
      Inc. and its wholly owned subsidiary, The Jacksonville Bank, and The
      Jacksonville Bank’s wholly owned subsidiary, Fountain Financial, Inc. The
      consolidated entity is referred to as the “Company” and The Jacksonville Bank
      and its subsidiary are collectively referred to as the “Bank.” The Company’s
      financial condition and operating results principally reflect those of the
      Bank.
      All intercompany balances and amounts have been eliminated. For further
      information refer to the consolidated financial statements and notes thereto
      included in the Company's Annual Report on Form 10-K for the year ended December
      31, 2007, as filed with the U.S. Securities and Exchange Commission (the “SEC”)
      on March 27, 2008.





The
      accounting and reporting policies of the Company reflect banking industry
      practice and conform to U.S. generally accepted accounting principles. In
      preparing the consolidated financial statements, management is required to
      make
      estimates and assumptions that affect the reported asset and liability balances
      and revenue and expense amounts and the disclosure of contingent assets and
      liabilities. Actual results could differ significantly from those estimates.





The
      consolidated financial information included herein as of and for the periods
      ended September 30, 2008 and 2007 is unaudited; however, such information
      reflects all adjustments which are, in the opinion of management, necessary
      for
      a fair statement of results for the interim periods. The December 31, 2007
      consolidated balance sheet was derived from the Company's December 31, 2007
      audited consolidated financial statements.





**Adoption
      of New Accounting Standards**





In
      September 2006, the FASB issued Statement No. 157, *Fair
      Value Measurements* . 
      This Statement defines fair value, establishes a framework for measuring fair
      value and expands disclosures about fair value measurements.  This
      Statement establishes a fair value hierarchy about the assumptions used to
      measure fair value and clarifies assumptions about risk and the effect of a
      restriction on the sale or use of an asset.  The standard is effective for
      fiscal years beginning after November 15, 2007.  In February 2008, the FASB
      issued Staff Position (FSP) 157-2, *Effective
      Date of FASB Statement No. 157* . 
      This FSP delays the effective date of FAS 157 for all nonfinancial assets and
      nonfinancial liabilities, except those that are recognized or disclosed at
      fair
      value on a recurring basis (at least annually) to fiscal years beginning after
      November 15, 2008, and interim periods within those fiscal years. In October
      2008, the FASB issued Staff Position (FSP) 157-3 *Determining
      the Fair Value of a Financial Asset when the Market for that Asset is Not
      Active.* This FSP
      clarifies the application of FASB Statement No. 157, *Fair
      Value Measurements* and
      provides key considerations in determining the fair value of a financial asset
      when the market for that financial asset is not active. The impact of adoption
      was not material.





In
      February 2007, the FASB issued Statement No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* . 
      The standard provides companies with an option to report selected financial
      assets and liabilities at fair value and establishes presentation and disclosure
      requirements designed to facilitate comparisons between companies that choose
      different measurement attributes for similar types of assets and
      liabilities.  The Company did not elect the fair value option for any
      financial assets or financial liabilities as of January 1, 2008, the
      effective date of the standard.


7





JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)





In  September
      2006, the FASB Emerging Issues Task Force finalized Issue No.  06-4,
      Accounting for D eferred
      Compensation and Postretirement Benefit  Aspects
      of Endorsement Split-Dollar Life Insurance Arrangements. This  issue
      requires that a liability be recorded during the service period when  a
      split-dollar life insurance agreement continues  after
      participants’  employment  or
      retirement. The required accrued liability will be based on  either
      the post-employment benefit cost for the continuing life insurance  or
      based
      on the future death benefit depending on the contractual terms of  the
      underlying  agreement.
      This issue is effective for fiscal years  beginning
      after December 15, 2007. T he
      adoption of EITF 06-4 had
      no material
      impact on the financial statements.








**NOTE
      2**–**LOAN PORTFOLIO COMPOSITION**


The
      composition of the Bank’s loan portfolio at September 30, 2008 and December 31,
      2007 is indicated below along with the growth from December 31, 2007 to
      September 30, 2008.





% Increase (Decrease)Total Loans
            
            Total Loans
            
            from December 31, 2007September 30, 2008
            
            December 31, 2007
            
            to September 30, 2008Real estate mortgage loans:Commercial
            
            $
            225,508
            
            $
            210,614
            
            
            7.1
            %Residential
            
            
            84,779
            
            
            75,141
            
            
            12.8
            %Construction(1)
            
            
            35,187
            
            
            29,737
            
            
            18.3
            %Farmland
            
            
            2,582
            
            
            2,325
            
            
            11.1
            %Commercial
                loans
            
            
            28,650
            
            
            20,291
            
            
            41.2
            %Consumer
                loans
            
            
            4,387
            
            
            4,631
            
            
            (5.3
            %)Subtotal
            
            
            381,093
            
            
            342,739
            
            
            11.2
            %Less:
                Net deferred loan fees
            
            
            (412
            )
            
            (358
            )
            
            15.1
            %Total
            
            $
            380,681
            
            $
            342,381
            
            
            11.2
            %





(1)  Includes
      construction, land development and other land loans.


8


JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)





**NOTE
      3**–**ALLOWANCE FOR LOAN LOSSES**


Activity
      in the allowance for loan losses for the nine months ended September 30, 2008
      and 2007 follows:





Nine Months Ended September 30,2008
            
            2007Balance,
                January 1
            
            $
            3,116
            
            $
            2,621Provisions
                for loan losses charged to expense
            
            
            2,783
            
            
            480Loans
                charged off
            
            
            (1,675
            )
            
            (51
            )Recoveries
                of loans previously charged off
            
            
            113
            
            
            10Balance,
                September 30
            
            $
            4,337
            
            $
            3,060





Impaired
      loans were as follows:





September 30,
            
            December 31,2008
            
            2007Loans with
                no allocated allowance for loan losses
            
            $
            3,946
            
            $
            590Loans
                with allocated allowance for loan losses
            
            
            4,741
            
            
            100Total
            
            $
            8,687
            
            $
            690Amount
                of the allowance for loan losses allocated
            
            $
            650
            
            $
            50


9


JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)





**NOTE
      4**–**CAPITAL ADEQUACY**


Federal
      banking regulators have established certain capital adequacy standards required
      to be maintained by banks and bank holding companies. The minimum requirements
      established in the regulations are set forth in the table below, along with
      the
      actual ratios at September 30, 2008 and December 31, 2007:





**Actual**
            
            **For Capital**
              **Adequacy**
              **Purposes**
            
            **To Be Well**
              **Capitalized Under**
              **Prompt Corrective**
              **Action Provisions**Amount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            RatioSeptember
                30, 2008Total
                Capital to riskweighted
                assetsConsolidated
            
            
            $45,584
            
            
            11.79
            %
            
            $30,942
            
            
            8.00
            %
            
            N/A
            
            
            N/ABank
            
            
            40,493
            
            
            10.49
            %
            
            30,872
            
            
            8.00
            %
            
            $38,590
            
            
            10.00
            %Tier
                1 (Core) Capital to Riskweighted
                assetsConsolidated
            
            
            35,507
            
            
            9.18
            %
            
            15,471
            
            
            4.00
            %
            
            N/A
            
            
            N/ABank
            
            
            36,156
            
            
            9.37
            %
            
            15,436
            
            
            4.00
            %
            
            23,154
            
            
            6.00
            %Tier
                1 (Core) Capital toaverage
                assetsConsolidated
            
            
            35,507
            
            
            8.24
            %
            
            17,231
            
            
            4.00
            %
            
            N/A
            
            
            N/ABank
            
            
            36,156
            
            
            8.41
            %
            
            17,202
            
            
            4.00
            %
            
            21,503
            
            
            5.00
            %December
                31, 2007Total
                Capital to riskweighted
                assetsConsolidated
            
            
            $36,739
            
            
            10.60
            %
            
            $27,715
            
            
            8.00
            %
            
            N/A
            
            
            N/ABank
            
            
            35,313
            
            
            10.16
            %
            
            27,819
            
            
            8.00
            %
            
            $34,774
            
            
            10.00
            %Tier
                1 (Core) Capital to Riskweighted
                assetsConsolidated
            
            
            33,623
            
            
            9.70
            %
            
            13,858
            
            
            4.00
            %
            
            N/A
            
            
            N/ABank
            
            
            32,197
            
            
            9.26
            %
            
            13,910
            
            
            4.00
            %
            
            20,864
            
            
            6.00
            %Tier
                1 (Core) Capital toaverage
                assetsConsolidated
            
            
            33,623
            
            
            8.68
            %
            
            15,487
            
            
            4.00
            %
            
            N/A
            
            
            N/ABank
            
            
            32,197
            
            
            8.31
            %
            
            15,496
            
            
            4.00
            %
            
            19,370
            
            
            5.00
            %





In
      addition, under such standards, a well-capitalized bank is one that has a total
      risk-based capital ratio equal to or greater than 10%, a Tier 1 risk-based
      capital ratio equal to or greater than 6%, and a Tier 1 leverage capital ratio
      equal to or greater than 5%. Management believes, as of September 30, 2008,
      that
      the Bank is well capitalized for prompt corrective action purposes. The Company
      has included in Tier 1 Capital and Total Capital the trust preferred securities
      that were issued in June 2004, December 2006 and June 2008.


10


JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)







**NOTE
      5**–**FEDERAL HOME LOAN BANK ADVANCES**


At
      September 30, 2008 and December 31, 2007, advances from the Federal Home Loan
      Bank (FHLB) were as follows:





2008
            
            2007Overnight
                advance maturing daily at a daily variable rate of 3.25% and 4.40%
                at
                September 30, 2008 and December 31, 2007, respectively
            
            $
            20,300
            
            $
            28,830Advances
                maturing January 11, 2008 at a fixed rate of 5.26%
            
            
            —
            
            
            6,000Advances
                maturing January 26, 2008 at a fixed rate of 4.65%
            
            
            —
            
            
            5,000Advances
                maturing April 11, 2008 at a fixed rate of 4.36%
            
            
            —
            
            
            3,000Advances
                maturing July 28, 2008 at a fixed rate of 4.59%
            
            
            —
            
            
            5,000Convertible
                advances maturing June 8, 2010 with a quarterly call option beginning
                June
                9, 2008 at a fixed rate of 4.99%
            
            
            5,000
            
            
            5,000Convertible
                advances maturing June 8, 2012 with a quarterly call option beginning
                September 10, 2007 at a fixed rate of 4.68%
            
            
            5,000
            
            
            5,000Convertible
                advances maturing August 13, 2010 with a quarterly call option beginning
                August 13, 2008 at a fixed rate of 4.51%
            
            
            5,000
            
            
            5,000Convertible
                advances maturing October 4, 2010 with a quarterly call option beginning
                October 6, 2008 at a fixed rate of 4.15%
            
            
            5,000
            
            
            5,000$
            40,300
            
            $
            67,830





Each
      advance is payable at its maturity date, with a prepayment penalty for the
      fixed
      rate advances. The advances are collateralized by a blanket lien arrangement
      of
      the Company’s first mortgage loans, second mortgage loans and commercial real
      estate loans.


11


JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)







**NOTE
      6**–**FAIR VALUE**


Statement
      157 establishes a fair value hierarchy which requires an entity to maximize
      the
      use of observable inputs and minimize the use of unobservable inputs when
      measuring fair value. The standard describes three levels of inputs that may
      be
      used to measure fair value:





Level
      1:
      Quoted prices (unadjusted) or identical assets or liabilities in active markets
      that the entity has the ability to access as of the measurement
      date.





Level
      2:
      Significant other observable inputs other than Level 1 prices such as quoted
      prices for similar assets or liabilities; quoted prices in markets that are
      not
      active; or other inputs that are observable or can be corroborated by observable
      market data.





Level
      3:
      Significant unobservable inputs that reflect a reporting entity’s own
      assumptions about the assumptions that market participants would use in pricing
      an asset or liability.





Assets
      measured at fair value on a recurring basis are summarized below:





**Fair Value Measurements at September 30, 2008 Using**********September 30,
              2008
            
            Quoted Prices in
              Active Markets for
              Identical Assets
            
            Significant Other
              Observable
              Inputs
            
            Significant
              Unobservable
              InputsAssets:Securities available for sale
            
            $
            28,924
            
            
            —
            
            $
            28,924
            
            
            —





Security
      fair values are based on market prices or dealer quotes on securities with
      similar characteristics.





Assets
      measured at fair value on a non-recurring basis are summarized
      below:





******Fair Value Measurements at September 30, 2008 Using**September 30,
              2008
            
            Quoted Prices in
              Active Markets for
              Identical Assets
            
            Significant Other
              Observable
              Inputs
            
            Significant
              Unobservable
              InputsAssets:Impaired
                Loans
            
            $
            4,021
            
            
            —
            
            $
            4,021
            
            
            —





The
      following represent impairment charges recognized during the
      period:





Impaired
      loans, which are measured for impairment using discounted cash flows or the
      fair
      value of the collateral for collateral dependent loans, had a carrying amount
      of
      $4,741, with a valuation allowance of $650, resulting in an additional provision
      for loan loss of $610 for the period. Additional impaired loans, not measured
      using levels of inputs to measure fair value, had a carrying amount of $3,946.
      Collateral dependent impaired loans, valued under Level 2, were measured using
      current appraised values along with information on recent market
      transactions.


12





JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)





**NOTE
      7**–**PARTICIPATION IN THE TREASURY CAPITAL PURCHASE
      PROGRAM**


On
      October 3, 2008, Congress passed the Emergency Economic Stabilization Act of
      2008 (EESA), which provides the U. S. Secretary of the Treasury with broad
      authority to implement certain actions to help restore stability and liquidity
      to U.S. markets. One of the provisions resulting from the Act is the Treasury
      Capital Purchase Program (CPP), which provides direct equity investment of
      perpetual preferred stock by the Treasury in qualified financial institutions.
      The program is voluntary and requires an institution to comply with a number
      of
      restrictions and provisions, including limits on executive compensation, stock
      redemptions and declaration of dividends. Applications must be submitted by
      November 14, 2008 and are subject to approval by the Treasury. The CPP provides
      for a minimum investment of 1% of Risk-Weighted Assets, with a maximum
      investment equal to the lesser of 3 percent of Total Risk-Weighted Assets or
      $25
      billion. The perpetual preferred stock investment will have a dividend rate
      of
      5% per year until the fifth anniversary of the Treasury investment, and a
      dividend of 9% thereafter. The CPP also requires the Treasury to receive
      warrants for common stock equal to 15% of the capital invested by the Treasury.
      The Company is evaluating whether to apply for participation in the CPP.
      Participation in the program is not automatic and is subject to approval by
      the
      Treasury.


13





JACKSONVILLE
      BANCORP, INC.


MANAGEMENT’S
      DISCUSSION AND ANALYSIS


OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS





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





**General**





Jacksonville
      Bancorp, Inc. (“Bancorp”) was incorporated on October 24, 1997 and was organized
      to conduct the operations of The Jacksonville Bank (the “Bank”). The Bank is a
      Florida state-chartered commercial bank that opened for business on May 28,
      1999, and its deposits are insured by the Federal Deposit Insurance Corporation.
      The Bank provides a variety of community banking services to businesses and
      individuals in the greater Jacksonville area of Northeast Florida. During 2000,
      the Bank formed Fountain Financial, Inc., a wholly owned subsidiary. The primary
      business activities of Fountain Financial, Inc. consist of referral of our
      customers to third parties for the sale of insurance products. Bancorp, the
      Bank
      and Fountain Financial, Inc. are collectively referred to herein as the
“Company.”





**Forward
      Looking Statements**





All
      statements, other than statements of historical facts, included in this
      Quarterly Report on Form 10-Q regarding our estimates, expectations, beliefs,
      intentions, projections or strategies for the future, results of operations,
      financial position, prospects and plans and objectives of management for future
      operations may be “forward-looking statements” as defined in the Private
      Securities Litigation Reform Act of 1995, as amended. We have based these
      forward-looking statements on our current expectations and projections about
      future events and financial trends that we believe may affect our financial
      condition, results of operations, business strategy, short-term and long-term
      business operations and objectives and financial needs. These forward-looking
      statements can be identified by the use of terms and phrases such as “believe,”
“plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like,
      and/or future-tense or conditional constructions (“will,” “may,” “could,”
“should,” etc.). Items contemplating or making assumptions about actual or
      potential future operating results also constitute forward-looking statements.
      The Company cautions that these forward-looking statements are subject to
      numerous assumptions, risks and uncertainties, including changes in local
      economic conditions, changes in regulatory requirements, fluctuations in
      interest rates, demand for products, and competition, and, therefore, actual
      results could differ materially from those contemplated by the forward-looking
      statements. In addition, the Company assumes no duty to update forward-looking
      statements to reflect events or circumstances after the date of such
      statements.





**Business
      Strategy**





Our
      primary business segment is community banking and consists of attracting
      deposits from the general public and using such deposits and other sources
      of
      funds to originate commercial business loans, commercial real estate loans,
      residential mortgage loans and a variety of consumer loans. We also invest
      in
      securities backed by the United States Government, and agencies thereof, as
      well
      as municipal tax-exempt bonds. Our profitability depends primarily on our net
      interest income, which is the difference between the income we receive from
      our
      loan and securities investment portfolios and costs incurred on our deposits,
      the Federal Home Loan Bank (“FHLB”) advances, and other sources of funding. Net
      interest income is also affected by the relative amounts of interest-earning
      assets and interest-bearing liabilities. Net interest income is generated as
      the
      relative amounts of interest-earning assets grow in relation to the relative
      amounts of interest-bearing liabilities. In addition, the level of noninterest
      income earned and noninterest expenses incurred also affects profitability.
      Included in noninterest income are service charges earned on deposit accounts
      and increases in cash surrender value of Bank Owned Life Insurance (“BOLI”).
      Included in noninterest expense are costs incurred for salaries and employee
      benefits, occupancy and equipment expenses, data processing expenses, marketing
      and advertising expenses, federal deposit insurance premiums and legal and
      professional fees.


14





Our
      goal
      is to sustain profitable, controlled growth by focusing on increasing our loan
      and deposit market share in the Northeast Florida market by developing new
      financial products, services and delivery channels; closely managing yields
      on
      interest-earning assets and rates on interest-bearing liabilities; focusing
      on
      noninterest income opportunities; controlling the growth of noninterest
      expenses; and maintaining strong asset quality. We have initiated programs
      to
      expand our scope of services and achieve these goals. The Bank has adopted
      a
      philosophy of seeking out and retaining the best available personnel for
      positions of responsibility which we believe will provide us with a competitive
      edge in the local banking industry. The Bank opened its fourth and fifth
      locations in 2006 in key areas of Jacksonville, which provide additional
      visibility and access to businesses and individuals, that have resulted in
      additional loan and deposit opportunities.





Our
      operations are influenced by the local economic conditions and by policies
      of
      financial institution regulatory authorities. Fluctuations in interest rates,
      due to factors such as competing financial institutions as well as the Federal
      Reserve’s decisions on changes in interest rates, impact interest-earning assets
      and our cost of funds and, thus, our net interest margin. In addition, the
      local
      economy and real estate market of Northeast Florida and the demand for our
      products and loans impacts our margin. The local economy and viability of local
      businesses can also impact the ability of our customers to make payments on
      loans, thus impacting our loan portfolio. The Company evaluates these factors
      when valuing its allowance for loan losses and believes that the local economy
      is stable. However, the Company believes that the local real estate market
      has
      softened somewhat in the residential real estate area. The Company also believes
      its underwriting procedures are relatively conservative and, as a result, the
      Company is not being any more affected than the overall market in the current
      economic downturn.





In
      2008,
      the Federal Reserve reduced the federal funds rate five times. At
      December 31, 2007, the federal funds rate was 4.25%. The Federal Reserve
      reduced the federal funds rate to 3.50% on January 22, 2008, to 3.0% on January
      30, 2008, to 2.25% on March 18, 2008, to 2.0% on April 30, 2008 and to 1.5%
      on
      October 8, 2008. In anticipation, the Company positioned itself to be in a
      slightly liability sensitive position, which means the pricing on our earning
      assets will reset to the lower short-term rates at a slower pace than our
      interest bearing liabilities. This position would typically have a positive
      impact on the net interest margin. However, other variables, such as liquidity
      needs, competition and the need to pursue alternative funding sources, have
      offset the benefits of the pricing resets.





On
      January 28, 2008, Bancorp entered into an Agreement and Plan of Merger (the
      “Merger Agreement”) with Heritage Bancshares, Inc. (“Heritage”) pursuant to
      which, subject to the satisfaction or waiver of the conditions contained
      therein, Heritage would merge with and into Bancorp (the “Merger”), with Bancorp
      remaining as the surviving entity.





On
      June
      24, 2008, Bancorp announced that, through mutual agreement, the Merger Agreement
      with Heritage had been terminated. Both companies attributed the amicable
      termination of the deal to the current economic climate in the banking industry
      which changed the benefits of the merger for their respective
      stockholders.





**Introduction**





In
      the
      following pages, management presents an analysis of the financial condition
      of
      the Company as of September 30, 2008 compared to December 31, 2007, and the
      results of operations for the nine months ended September 30, 2008 compared
      with
      the same period in 2007. This discussion is designed to provide a more
      comprehensive review of the operating results and financial position than could
      be obtained from an examination of the financial statements alone. This analysis
      should be read in conjunction with the interim financial statements and related
      footnotes included herein.


15





**Comparison
      of Financial Condition at September 30, 2008 and December 31,
      2007**





Total
      assets increased $41.2 million, or 10.5%, from $392 million at December 31,
      2007
      to $433.2 million at September 30, 2008. During the nine months ended September
      30, 2008, the Company experienced net loan growth of $37.1 million, or 10.9%.
      The increase in net loans was driven by increases in commercial real estate
      loans of $14.9 million, or 7.1%, residential real estate loans of $9.6 million,
      or 12.8%, construction real estate loans of $5.5 million, or 18.3%, and
      commercial loans of $8.4 million, or 41.2%. The Company funded the increase
      in
      earning assets through an increase in deposits of $61.9 million and an increase
      of subordinated debt of $7.6 million offset by a decrease in FHLB advances
      by
      $27.5 million.





Total
      deposits increased $61.9 million, or 21.4%, from $288.9 million at December
      31,
      2007 to $350.8 million at September 30, 2008. During the nine months ended
      September 30, 2008, noninterest-bearing deposits increased $9.3 million to
      $44.7 million. Also during the nine months ended September 30, 2008, money
      market, NOW and savings deposits decreased $30.1 million to
      $86.0 million, and time deposits increased $82.8 million to $220.1
      million.





Investment
      securities available for sale decreased $803,000 to $28.9 million at September
      30, 2008. During the nine months ended September 30, 2008, we purchased $5.1
      million of securities and received $5.5 million in proceeds from
      maturities, calls and principal repayments. Of the $5.1 million purchased in
      the
      current year, approximately $2.4 million was invested in mortgage-backed
      securities and $2.7 million was invested in U.S. government agency
      securities.





During
      the nine months ended September 30, 2008, Bank-owned life insurance increased
      $3.7 million primarily due to the purchase of an additional $3.5 million
      BOLI contract entered into by the Bank during the second quarter.





Subordinated
      debt increased by $7.6 million as a result of a private placement offering
      of
      trust preferred securities. The securities were issued at a rate 3.75% over
      90-day LIBOR rates. The Company has treated the trust preferred securities
      as
      Tier 1 capital up to the maximum amount allowed and the remainder as Tier 2
      capital for federal regulatory purposes.





Total
      shareholders' equity decreased by $178,000, or .7%, from $26.6 million at
      December 31, 2007 to $26.5 million at September 30, 2008. The decrease is
      mainly attributable to a net loss of $36,000 and a decrease in the value of
      the
      securities available for sale. At September 30, 2008, the Company had 8,000,000
      authorized shares of $.01 par value common stock, of which 1,748,799 shares
      were
      issued and 1,748,631 shares were outstanding. In addition, the Company had
      2,000,000 authorized shares of $.01 par value preferred stock, none of which
      were issued or outstanding at September 30, 2008.





**Comparison
      of Operating Results for the Nine Months Ended September 30, 2008 and
      2007**





**Net
      Income**





There
      was
      a net loss for the first nine months of 2008 of $36,000, compared to a $2.0
      million net income in the first nine months of 2007. On a diluted per share
      basis, the net loss was $.02 for the nine months ended September 30, 2008
      compared to net income of $1.11 for the nine months ended September 30, 2007.
      The net loss was driven primarily by additional provisions for loan losses,
      lower net interest margin, and expenses related to the termination of the merger
      agreement with Heritage.


16





**Net
      Interest Income**





Net
      interest income, the difference between interest earned on interest-earning
      assets and interest paid on interest-bearing liabilities, was flat at $9.1
      million for the nine months ended September 30, 2008 and 2007. Interest income
      declined $330,000 when compared to the first nine months of the prior year
      as a
      result of the ongoing reduction in short-term rates by the Federal Reserve
      as
      well as $7.8 million in nonperforming assets; this was offset by average earning
      asset growth of $60.3 million. Interest expense declined by $406,000 as a result
      of the reduction in short-term rates offset by a transition from core deposits
      into more expensive time deposits.





When
      comparing the first nine months of 2008 to the same period last year, the
      Company experienced growth in its loan portfolio of 11.2%, compared to 18.7%
      for
      the same period in the previous year, with the most significant impact occurring
      in commercial loans. The Company also experienced growth in deposit products,
      with the largest increase occurring in time deposit accounts.





Many
      of
      the Bank’s loans are indexed to the prime rate. The lower level of the prime
      rate in the first nine months of 2008 compared to the comparative period in
      2007
      is reflected in the lower average yield of the loan portfolio due to lower
      rates
      earned on variable rate loans and new loan production. The average yield on
      interest-earning assets for the first nine months of 2008 was 6.49%, which
      was a
      decrease of 129 basis points, compared to the 7.78% yield earned during the
      first nine months of 2007.





The
      average cost of interest-bearing liabilities decreased 91 basis points from
      4.85% in the first nine months of 2007 to 3.94% in the comparable period in
      2008. The average cost of interest-bearing deposits and all interest-bearing
      liabilities reflect, in part, the change in the funding mix for the first nine
      months of 2008 as compared to the same period in 2007.





The
      net
      interest margin decreased by 52 basis points from 3.59% to 3.07% when comparing
      the first nine months of 2008 to the same period last year. This decrease is
      mainly the result of the rapid reduction in short-term rates by the Federal
      Reserve which immediately affected our variable priced loans offset by a lag
      in
      deposit repricing due to maturities of time deposits and the competitive nature
      of the funding markets. Additionally, $7.8 million in loans were placed on
      non-accrual status during the second quarter. Furthermore, proceeds from
      maturity, amortization and prepayment of loans and securities continue to be
      invested at current market rates. The Company closely monitors its cost of
      funds
      and has taken action to reduce such costs through deposit gathering initiatives
      focused on generating lower cost demand, money market and savings accounts.
      In
      the current interest rate environment, the margin may contract further; however,
      as stated above, management has implemented various strategies to reduce the
      rising cost of funding.


17





***Average
      Balance Sheet; Interest Rates and Interest
      Differential.*** **** The
      following table sets forth the average daily balances for each major category
      of
      assets, liabilities and shareholders’ equity as well as the amounts and average
      rates earned or paid on each major category of interest-earning assets and
      interest-bearing liabilities.





NineMonths Ended September 30,2008
            
            2007Average
            
            
            
            Average
            
            Average
            
            
            
            AverageBalance
            
            Interest
            
            Rate
            
            Balance
            
            Interest
            
            Rate(Dollars in thousands)Interest-earning assets:Loans(1)
            
            
            $367,001
            
            
            $18,331
            
            
            6.67
            %
            
            $310,169
            
            
            $18,733
            
            
            8.07
            %Securities(2)
            
            
            31,798
            
            
            1,100
            
            
            4.62
            
            
            29,177
            
            
            1,009
            
            
            4.62Other
                interest-earning assets(3)
            
            
            1,775
            
            
            28
            
            
            2.11
            
            
            885
            
            
            47
            
            
            7.10Total
                interest-earning assets
            
            
            400,574
            
            
            19,459
            
            
            6.49
            
            
            340,231
            
            
            19,789
            
            
            7.78Noninterest-earning
                assets(4)
            
            
            16,442
            
            
            
            
            
            
            
            
            13,716Total
                assets
            
            
            $417,016
            
            
            
            
            
            
            
            
            $353,947Interest-bearing
                liabilities:Savings
                deposits
            
            
            $14,687
            
            
            $333
            
            
            3.03
            
            
            $10,058
            
            
            $236
            
            
            3.14NOW
                deposits
            
            
            6,826
            
            
            10
            
            
            .20
            
            
            7,048
            
            
            9
            
            
            .17Money
                market deposits
            
            
            85,641
            
            
            1,639
            
            
            2.56
            
            
            123,059
            
            
            4,208
            
            
            4.57Time
                deposits
            
            
            188,092
            
            
            6,578
            
            
            4.67
            
            
            118,167
            
            
            4,656
            
            
            5.27FHLB
                advances
            
            
            42,531
            
            
            1,237
            
            
            3.89
            
            
            28,499
            
            
            1,132
            
            
            5.31Subordinated
                debt
            
            
            9,838
            
            
            456
            
            
            6.19
            
            
            7,000
            
            
            414
            
            
            7.91Other
                interest-bearing liabilities(5)
            
            
            272
            
            
            6
            
            
            2.95
            
            
            242
            
            
            10
            
            
            5.52Total
                interest-bearing liabilities
            
            
            347,887
            
            
            10,259
            
            
            3.94
            
            
            294,073
            
            
            10,665
            
            
            4.85Noninterest-bearing
                liabilities
            
            
            42,133
            
            
            
            
            
            
            
            
            35,867Shareholders'
                equity
            
            
            26,996
            
            
            
            
            
            
            
            
            24,007Total
                liabilities and shareholders' equity
            
            
            $417,016
            
            
            
            
            
            
            
            
            $353,947Net
                interest income
            
            
            
            
            
            $9,200
            
            
            
            
            
            
            
            
            $9,124Interest
                rate spread(6)
            
            
            
            
            
            
            
            
            2.55
            %
            
            
            
            
            
            
            
            2.93
            %Net
                interest margin(7)
            
            
            
            
            
            
            
            
            3.07
            %
            
            
            
            
            
            
            
            3.59
            %




(1)
            Includes
                nonaccrual loans.


(2)
            Due
                to immateriality, the interest income and yields related to certain
                tax
                exempt assets have not been adjusted to reflect a fully taxable equivalent
                yield.


(3)
            Includes
                federal funds sold.


(4)
            For
                presentation purposes, the BOLI acquired by the Bank has been included
                in
                noninterest-earning assets.


(5)
            Includes
                federal funds purchased.


(6)
            Interest
                rate spread represents the difference between the average yield on
                interest-earning assets and the average cost of interest-bearing
                liabilities.


(7)
            Net
                interest margin is net interest income divided by average interest-earning
                assets.


18


***Rate/Volume
      Analysis.*** **** The
      following table sets forth the effect of changes in volumes, changes in rates,
      and changes in rate/volume on tax-equivalent interest income, interest expense
      and net interest income.





Nine Months Ended September 30,2008 Versus 2007(1)Increase (decrease) due to changes in:NetVolume
            
            Rate
            
            Change(Dollars in thousands)Interest income:Loans
            
            $
            3,127
            
            $
            (3,529
            )
            $
            (402
            )Securities
            
            
            91
            
            
            —
            
            
            91Other
                interest-earning assets
            
            
            28
            
            
            (47
            )
            
            (19
            )Total
                interest income
            
            
            3,246
            
            
            (3,576
            )
            
            (330
            )Interest
                expense:Savings
                deposits
            
            
            105
            
            
            (8
            )
            
            97NOW
                deposits
            
            
            —
            
            
            1
            
            
            1Money
                market deposits
            
            
            (1,049
            )
            
            (1,520
            )
            
            (2,569
            )Time
                deposits
            
            
            2,495
            
            
            (573
            )
            
            1,922FHLB
                advances
            
            
            461
            
            
            (356
            )
            
            105Subordinated
                debt
            
            
            144
            
            
            (102
            )
            
            42Other
                interest-bearing liabilities
            
            
            1
            
            
            (5
            )
            
            (4
            )Total
                interest expense
            
            
            2,157
            
            
            (2,563
            )
            
            (406
            )Increase
                in net interest income
            
            $
            1,089
            
            $
            (1,013
            )
            $
            76







(1)  The
      change in interest due to both rate and volume has been allocated to the volume
      and rate components in proportion to the relationship of the dollar amounts
      of
      the absolute change in each.





**Critical
      Accounting Policies**





A
      critical accounting policy is one that is both very important to the portrayal
      of the Company’s financial condition and requires management’s most difficult,
      subjective or complex judgments. The circumstances that make these judgments
      difficult, subjective or complex have to do with the need to make estimates
      about the effect of matters that are inherently uncertain. Based on this
      definition, the Company’s primary critical accounting policy is the
      establishment and maintenance of an allowance for loan losses.





The
      allowance for loan loss is established through a provision for loan loss charged
      to expense. Loans are charged against the allowance for loan loss when
      management believes that the collectibility of the principal is unlikely. The
      allowance is an amount that management believes will be adequate to absorb
      inherent probable and estimable incurred losses on existing loans that may
      become uncollectible based on evaluations of the collectibility of the loans.
      The evaluations take into consideration such objective factors as changes in
      the
      nature and volume of the loan portfolio and historical loss experience. The
      evaluation also considers certain subjective factors such as overall portfolio
      quality, review of specific problem loans and current economic conditions that
      may affect the borrowers’ ability to pay. The level of allowance for loan loss
      is also impacted by increases and decreases in loans outstanding because either
      more or less allowance is required as the amount of the Company’s credit
      exposure changes. To the extent actual loan losses differ materially from
      management’s estimate of these subjective factors, loan growth/run-off
      accelerates, or the mix of loan types changes, the level of provision for loan
      loss, and related allowance can, and will, fluctuate.


19





Additional
      information with regard to the Company’s methodology and reporting of the
      allowance for loan losses is included in the Company’s Annual Report on Form
      10-K for the year ended December 31, 2007, as filed with the SEC on March 27,
      2008.





**Asset
      Quality**





The
      Company has identified certain assets as nonperforming. These assets include
      nonaccruing loans, loans that are contractually past due 90 days or more as
      to
      principal or interest payments and still accruing, and foreclosed real estate.
      Loans are placed on nonaccrual status when management has concerns regarding
      its
      ability to collect the outstanding loan principal and interest amounts and
      typically when such loans are more than 90 days past due. These loans present
      more than the normal risk that the Company will be unable to eventually collect
      or realize their full carrying value. Loans are impaired when it is considered
      probable that management will not collect the outstanding loan principal and
      interest amounts according to the loan’s contractual terms or realize the full
      carrying value of the loan. During the first nine months in 2008, the Company
      experienced an increase in impaired loans from $690,000 to $8.7 million driven
      by an increase in nonperforming loans of $7.7 million and $947,000 for two
      additional loans that were identified as a result of the expanded efforts of
      management as discussed under the Allowance and Provision for Loan Losses
      section below. The Company’s nonperforming assets at September 30, 2008 and
      December 31, 2007 are as follows:





September 30,
            
            December 31,2008
            
            2007(Dollars in thousands)Nonaccruing loans
            
            $
            7,740
            
            $
            690Loans
                past due over 90 days still on accrual
            
            
            —
            
            
            —Total
                nonperforming loans
            
            
            7,740
            
            
            690Foreclosed
                assets, net
            
            
            89
            
            
            —Total
                nonperforming assets
            
            $
            7,829
            
            $
            690Allowance
                for loan losses
            
            $
            4,337
            
            $
            3,116Nonperforming
                loans and foreclosed assets as a percent of total assets
            
            
            1.81
            %
            
            .18
            %Nonperforming
                loans as a percent of gross loans
            
            
            2.03
            %
            
            .20
            %Allowance
                for loan losses as a percent of nonperforming loans
            
            
            56.03
            %
            
            451.59
            %





The
      Company critically evaluates all requests for additional funding on classified
      loans to determine whether the borrower has the capacity and willingness to
      repay. Any requests of this nature require concurrence by the Loan Committee
      of
      the Board of Directors.


20





**Allowance
      and Provision for Loan Losses**





The
      allowance for loan losses grew by $1.2 million during the first nine months
      of
      2008, amounting to $4.3 million at September 30, 2008, as compared to $3.1
      million at December 31, 2007. The allowance represented approximately 1.14%
      of
      total loans at September 30, 2008 and .91% at December 31, 2007. During the
      first nine months of 2008, the Company had charge-offs of $1.7 million,
      recoveries of $113,000 and recorded a $2.8 million provision for loan
      losses compared to charge-offs of $51,000, recoveries of $10,000 and a provision
      for loan losses of $480,000 for the first nine months of 2007. The larger
      provision for loan losses in 2008 was driven primarily from continued loan
      growth and the Bank’s expanded efforts to identify potential losses inherent in
      the portfolio. The Bank’s increased identification efforts of potential losses
      in the portfolio are based on a variety of specific factors, including the
      Company’s and peer banks’ experiences as well as industry and economic trends.
      The Bank had net charge-offs of $1.6 million during the first nine months
      of 2008. During the third quarter, the Bank had net charge-offs of $541,000,
      of
      which $466,000 was identified and reserved during the second quarter. As a
      result of the expanded efforts, management does not believe that the same level
      of charge-offs experienced during the nine-month period of 2008 will be
      experienced in future periods. Impaired loans increased to $8.7 million as
      of
      September 30, 2008; of this amount, $650,000 was specifically allocated to
      the
      allowance for loan losses which is deemed sufficient to absorb any future
      potential losses.





The
      allowance for loan losses is a valuation allowance for credit losses in the
      loan
      portfolio. Management has adopted a methodology to properly analyze and
      determine an adequate loan loss allowance. The analysis is based on sound,
      reliable and well documented information and is designed to support an allowance
      that is adequate to absorb all estimated incurred losses in the Company’s loan
      portfolio. Due to their similarities, the Company has grouped the loan portfolio
      into three components. The components are residential real estate, consumer
      loans and commercial loans. The Company has created a loan classification system
      to properly calculate the allowance for loan losses. Commercial and commercial
      real estate loans are individually evaluated for impairment. If a loan is
      impaired, a portion of the allowance is allocated so that the loan is reported,
      net, at the present value of estimated future cash flows using the loan’s
      existing rate or at the fair value of collateral if repayment is expected solely
      from the sale of the collateral. Large groups of smaller balance homogeneous
      loans, such as consumer and residential real estate loans, are collectively
      evaluated for impairment and, accordingly, they are not separately identified
      for impairment disclosures.





In
      estimating the overall exposure to loss on impaired loans, the Company has
      considered a number of factors, including the borrower’s character, overall
      financial condition, resources and payment record, the prospects for support
      from any financially responsible guarantors, and the realizable value of any
      collateral. The Company also considers other internal and external factors
      when
      determining the allowance for loan losses. These factors include, but are not
      limited to, changes in national and local economic conditions, commercial
      lending staff limitations, impact from lengthy commercial loan workout and
      charge-off periods, loan portfolio concentrations and trends in the loan
      portfolio.





Bank
      regulators have issued “Joint Guidance on Concentrations in Commercial Real
      Estate Lending.” This document outlines regulators’ concerns regarding the high
      level of growth in commercial real estate loans on banks’ balance sheets. Many
      banks, especially those in Florida, have seen a substantial increase in exposure
      to commercial real estate loans. The Company has and will continue to pursue
      fundamentally sound commercial real estate lending opportunities that fit within
      its lending parameters. The ongoing growth and concentration in this category
      is
      considered when analyzing the adequacy of the loan loss allowance based on
      sound, reliable and well documented information.





Based
      on
      the results of the analysis performed by management at September 30, 2008,
      the
      allowance for loan loss is considered to be adequate to absorb estimated loan
      losses in the portfolio as of that date. As more fully discussed in the
“Critical Accounting Policies” section of this discussion and analysis of
      financial condition and results of operations, the process for estimating credit
      losses and determining the allowance for loan losses as of any balance sheet
      date is subjective in nature and requires material estimates. Actual results
      could differ significantly from these estimates.


21





The
      amount of future charge-offs and provisions for loan losses could be affected
      by, among other things, economic conditions in Jacksonville, Florida, and the
      surrounding communities. Such conditions could affect the financial strength
      of
      the Company’s borrowers and do affect the value of real estate collateral
      securing the Company’s mortgage loans. Loans secured by real estate represent
      approximately 91% of the Company’s total loans outstanding at September 30,
      2008. In recent years, economic conditions in Jacksonville and the surrounding
      communities have been strong and real estate values have appreciated in a
      healthy manner. Presently, economic conditions remain relatively stable in
      this
      market and real estate values have experienced some softening. Residential
      real
      estate values have experienced greater volatility and have declined in most
      areas. Conditions and values could deteriorate in the future, and such
      deterioration could be substantial. If this were to occur, some of the Company’s
      borrowers may be unable to make the required contractual payments on their
      loans, and the Company may be unable to realize the full carrying value of
      such
      loans through foreclosure. The Company is unable to determine at this time
      the
      effect of such an occurrence on the Company’s financial condition and results of
      operations; however, management believes that the Company should not be any
      more
      affected than the overall market.





Future
      provisions and charge-offs could also be affected by environmental impairment
      of
      properties securing the Company’s mortgage loans. Under the Company’s current
      policy, an environmental audit is required on practically all commercial-type
      properties that are considered for a mortgage loan. At the present time, the
      Company is not aware of any existing loans in the portfolio where there is
      environmental pollution existing on the mortgaged properties that would
      materially affect the value of the portfolio.





**Noninterest
      Income, Noninterest Expense and Income Taxes**





Noninterest
      income was $812,000 for the nine months ended September 30, 2008, compared
      to
      $861,000 for the comparable 2007 period. The decrease in total noninterest
      income was primarily the result of a reduction in mortgage origination referral
      income due to the slowing real estate market, partially offset by income earned
      on an additional $3.5 million BOLI contract entered into by the Bank during
      the
      second quarter.





Noninterest
      expense increased to $7.5 million for the nine months ended September 30, 2008,
      from $6.3 million for the nine months ended September 30, 2007.
      Compensation expenses, professional fees, data processing fees, FDIC
      assessments, a one-time charge of $38,000 for the disposal of fixed assets
      no
      longer in use and a one-time charge of $430,000 for expenses related to the
      termination of the merger agreement with Heritage Bancshares, Inc. accounted
      for
      the majority of noninterest expense increasing $1.1 million over the same period
      in 2007.





Income
      taxes for the nine months ended September 30, 2008 was a tax benefit of $212,000
      (an effective tax rate of 85.48%) compared to income taxes of $1.1 million
      for
      the nine months ended September 30, 2007 (an effective tax rate of 36.16%).
      The
      increase in the effective tax rate compared to one year earlier is the result
      of
      the benefits derived from tax-free municipal bonds and tax-free income earned
      on
      the bank-owned life insurance policies resulting in a lower percentage of
      income, or greater percentage of loss, being taxed at the statutory
      rates.





**Comparison
      of Operating Results for the Three Months Ended September 30, 2008 and
      2007**





Net
      income for the third quarter of 2008 was $267,000, or $.15 per diluted share,
      as
      compared to a net income of $781,000, or $.43 per diluted share, earned for
      the
      same quarter last year. The largest component of the decrease in net income
      is
      an increase in provision for loan loss of $633,000. During the third quarter,
      the Company had net loan charge-offs of $541,000, compared to $20,000 during
      the
      same period in the prior year. Of the charge-offs recorded during the third
      quarter, $466,000 had been identified and were reserved during the prior
      quarter.


22





Net
      interest income for the third quarter of 2008 decreased $155,000 from $3.2
      million in the third quarter of 2007, compared to $3.0 million in the third
      quarter of 2008. Interest income for the quarter declined $677,000 when compared
      to the prior year as a result of the ongoing reduction in short-term rates
      by
      the Federal Reserve; this was offset by average earning asset growth of $49.6
      million. Interest expense declined by $522,000 as a result of the reduction
      in
      short-term rates offset by a transition from core deposits into more expensive
      time deposits and wholesale funding required to support the Company’s earning
      asset growth. The net interest margin was 2.94% for the third quarter of 2008,
      compared to 3.54% for the comparable period in 2007.





**Capital**





The
      Company’s capital management policy is designed to build and maintain capital
      levels that meet regulatory standards. Under current regulatory capital
      standards, banks are classified as well-capitalized, adequately-capitalized
      or
      undercapitalized. Under such standards, a well-capitalized bank is one that
      has
      a total risk-based capital ratio equal to or greater than 10%, a Tier 1
      risk-based capital ratio equal to or greater than 6%, and a Tier 1 leverage
      capital ratio equal to or greater than 5%. The Bank’s total risk-based capital,
      Tier 1 risk-based capital and Tier 1 leverage capital ratios were 10.49%, 9.37%
      and 8.41%, respectively, at September 30, 2008. The Company also maintains
      capital levels that meet the same regulatory standards. If the capital ratios
      of
      the Company and Bank were to fall below levels required under regulatory
      standards, it is the Company’s and Bank’s policy to increase capital in an
      amount sufficient to meet regulatory requirements within 30 days.





During
      the second quarter, the Company issued $7.6 million in a private placement
      offering of trust preferred securities. The trust preferred securities are
      treated as Tier 1 capital up to the maximum amount allowed and the remainder
      as
      Tier 2 capital for federal regulatory purposes.





**Cash
      Flows and Liquidity**





***Cash
      Flows*** *.*  The
      Company’s primary sources of cash are deposit growth, maturities and
      amortization of investment securities, FHLB advances and federal funds
      purchased. The Company uses cash from these and other sources to fund loan
      growth. Any remaining cash is used primarily to reduce borrowings and to
      purchase investment securities. During the first nine months of 2008, the
      Company’s cash and cash equivalent position increased by $1.7 million. The
      increase in cash mainly resulted from an increase in deposit accounts of
      approximately $61.9 million from $288.9 million at December 31, 2007 to
      $350.8 million at September 30, 2008, offset by net loan originations of
      $37.1 million as well as a decrease in FHLB advances of $27.5 million from
      $67.8 million at December 31, 2007 to $40.3 million at September 30,
      2008.





***Liquidity.*** The
      Company has both internal and external sources of near-term liquidity that
      can
      be used to fund loan growth and accommodate deposit outflows. The primary
      internal sources of liquidity are principal and interest payments on loans;
      proceeds from maturities and monthly payments on the balance of the investment
      securities portfolio; and its overnight position with federal funds sold. At
      September 30, 2008, the Company had $29.9 million in federal funds sold and
      available-for-sale securities not subject to pledge agreements.


23





The
      Company’s primary external sources of liquidity are customer deposits and
      borrowings from other commercial banks. The Company’s deposit base consists of
      both deposits from businesses and consumers in its local market as well as
      national market and brokered certificates of deposit. The Company can also
      borrow overnight federal funds and fixed-rate term products under credit
      facilities established with the FHLB, Federal Reserve Discount Window and other
      commercial banks. These lines, in the aggregate amount of approximately $141.2
      million, do not represent legal commitments to extend credit on the part of
      the
      other banks.





***Contractual
      Obligations, Commitments and Contingent Liabilities*** **.** The
      Company has various financial obligations, including contractual obligations
      and
      commitments that may require future cash payments. Management believes that
      there have been no material changes in the Company’s overall level of these
      financial obligations since December 31, 2007 and that any changes in the
      Company’s obligations which have occurred are routine for the industry. Further
      discussion of the nature of each type of obligation is included in the section
      entitled “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” in the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2007, as filed with the SEC on March 27, 2008, and is
      incorporated herein by reference.





***Off-Balance
      Sheet Arrangements*** *.* There
      have been no material changes in the risks related to off-balance sheet
      arrangements since the Company’s disclosure in its Annual Report on Form 10-K
      for the year ended December 31, 2007.





**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk**





Market
      risk is the risk that a financial institution will be adversely impacted by
      unfavorable changes in market prices. These unfavorable changes could result
      in
      a reduction in net interest income, which is the difference between interest
      earned on interest-earning assets and interest paid on interest-bearing
      liabilities.





Interest
      rate risk is the sensitivity of income to variations in interest rates over
      both
      short-term and long-term horizons. The primary goal of interest rate risk
      management is to control this risk within limits approved by the Board of
      Directors and narrower guidelines approved by the Asset Liability Committee.
      These limits and guidelines reflect the Bank’s tolerance for interest rate risk.
      The Bank attempts to control interest rate risk by identifying and quantifying
      exposures. The Bank quantifies its interest rate risk exposures using
      sophisticated simulation and valuation models as well as simpler gap analyses
      performed by a third-party vendor specializing in this activity. There have
      been
      no significant changes in the Bank’s primary market risk exposure or how those
      risks are managed since our disclosures in our Annual Report on Form 10-K for
      the year ended December 31, 2007.





The
      Bank’s internal policy on interest rate risk specifies that if interest rates
      were to shift immediately up or down 200 basis points, estimated net interest
      income for the next 12 months should change by less than 15%. The most current
      simulation projects the Bank’s net interest income to be within the parameters
      of its internal policy and has not changed significantly from our disclosures
      in
      our Annual Report on Form 10-K for the year ended December 31, 2007. Such
      simulation involves numerous assumptions and estimates, which are inherently
      subjective and are subject to substantial business and economic uncertainties.
      Accordingly, the actual effects of an interest rate shift under actual future
      conditions may be expected to vary significantly from those derived from the
      simulation to the extent that the assumptions used in the simulation differ
      from
      actual conditions.


24




**Item
      4. Controls and Procedures**




***(a)***  ***Evaluation of Disclosure Controls and Procedures***




The
      Company maintains controls and procedures designed to ensure that information
      required to be disclosed in the reports that the Company files or submits under
      the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is
      recorded, processed, summarized and reported within the time periods specified
      in the rules and forms of the Securities and Exchange Commission. Based upon
      management’s evaluation of those controls and procedures as of the end of the
      fiscal quarter covered by this quarterly report on Form 10-Q, the Chief
      Executive Officer and Chief Financial Officer of the Company concluded that,
      subject to the limitations noted below, the Company’s disclosure controls and
      procedures (as defined in Rules 13a-15(e) under the Exchange Act) are effective
      to ensure that the information required to be disclosed by the Company in the
      reports that it files or submits under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the SEC’s rules and
      forms.




***(b)***  ***Changes
      in Internal Controls***




In
      the
      ordinary course of business, the Company may routinely modify, upgrade and
      enhance its internal controls and procedures for financial reporting. In an
      effort to improve internal control over financial reporting, the Company
      continues to emphasize the importance of identifying areas for improvement
      and
      to create and implement new policies and procedures where deficiencies exist.
      The Company has improved controls relating to credit policies, loan grading
      and
      the allowance for loan loss. However, there have not been any changes in the
      Company’s internal controls over financial reporting as defined in Exchange Act
      Rules 13a-15(f) and 15d-15(f) during the fiscal quarter to which this report
      relates that have materially affected, or are reasonably likely to materially
      affect, the Company’s internal control over financial reporting.




***(c)***  ***Limitations
      on the Effectiveness of Controls***




Our
      management, including our Chief Executive Officer and Chief Financial Officer,
      does not expect that our disclosure controls and internal controls will prevent
      all error and all fraud. A control system, no matter how well conceived and
      operated, can provide only reasonable, not absolute, assurance that the
      objectives of the control system are met. Further, the design of a control
      system must reflect the fact that there are resource constraints, and the
      benefits of controls must be considered relative to their costs. Because of
      the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that all control issues and instances of fraud,
      if
      any, within the Company have been detected. These inherent limitations include
      the realities that judgments in decision-making can be faulty and that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management’s override of the control.




The
      design of any system of controls also is based in part upon certain assumptions
      about the likelihood of future events, and there can be no assurance that any
      design will succeed in achieving its stated goals under all potential future
      conditions; over time, controls may become inadequate because of changes in
      conditions, or the degree of compliance with the policies or procedures may
      deteriorate. Because of the inherent limitations in a cost-effective control
      system, misstatements due to error or fraud may occur and not be
      detected.


25




**PART
      II - OTHER INFORMATION**





**Item 1.**
            **Legal
                Proceedings**


From
      time
      to time, as a normal incident of the nature and kind of business in which we
      are
      engaged, various claims or charges are asserted against us and/or our directors,
      officers or affiliates. In the ordinary course of business, the Company and
      its
      subsidiary are also subject to regulatory examinations, information gathering
      requests, inquiries and investigations. Other than ordinary routine litigation
      incidental to our business, management believes after consultation with legal
      counsel that there are no pending legal proceedings against the Company or
      the
      Bank that will, individually or in the aggregate, have a material adverse effect
      on the consolidated results of operations or financial condition of the
      Company.





**Item
                1A.**
            **Risk
                Factors**


There
                have been no material changes from the risk factors disclosed in
                the
                Company’s Annual Report on Form 10-K for the year ended December 31, 2007,
                as filed with the SEC on March 27,
                2008.





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


None





**Item
                3.**
            **Defaults
                Upon Senior Securities**


None





**Item
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders**


None





**Item
                5.**
            **Other
                Information**


None





**Item
      6.**  **Exhibits**





Exhibit
      No. 3.1:  Articles
      of Incorporation of the Company (1)





Exhibit
      No. 3.2:  Amended
      and Restated Bylaws of the Company, as amended to date (2)





Exhibit
      No. 31.1:  Certification
      of principal executive officer required by Rule 13a-14(a)/15d-14(a) of the
      Exchange Act.





Exhibit
      No. 31.2:  Certification
      of principal financial officer required by Rule 13a-14(a)/15d-14(a) of the
      Exchange Act.




Exhibit
      No. 32:  Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes–Oxley Act of 2002.







(1)
            Incorporated
                herein by reference to Appendix A to Form SB-2, filed September 30,
                1998,
                Registration No. 333-64815.


(2)
            Incorporated
                herein by reference to Exhibit No. 3.2 to Form 10-K for year ended
                December 31, 2007, filed March 27, 2008, File No.
                000-30248.


26


JACKSONVILLE
      BANCORP, INC.





SIGNATURES





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





**JACKSONVILLE
                BANCORP, INC.**Date:
                November 6, 2008
            /s/
                Gilbert J. Pomar, IIIGilbert
                J. Pomar, IIIPresident
                and Chief Executive OfficerDate:
                November 6, 2008
            /s/
                Valerie A. KendallValerie
                A. KendallExecutive
                Vice Presidentand
                Chief Financial Officer




27


JACKSONVILLE
      BANCORP, INC.





EXHIBIT
      INDEX





Exhibit
      No. 3.1:  Articles
      of Incorporation of the Company (1)





Exhibit
      No. 3.2:  Amended
      and Restated Bylaws of the Company, as amended to date (2)





Exhibit
      No. 31.1:  Certification
      of principal executive officer required by Rule 13a-14(a)/15d-14(a) of the
      Exchange Act.





Exhibit
      No. 31.2:  Certification
      of principal financial officer required by Rule 13a-14(a)/15d-14(a) of the
      Exchange Act.




Exhibit
      No. 32:  Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes–Oxley Act of 2002.







(1)
            Incorporated
                herein by reference to Appendix A to Form SB-2, filed September 30,
                1998,
                Registration No. 333-64815.


(2)
            Incorporated
                herein by reference to Exhibit No. 3.2 to Form 10-K for year ended
                December 31, 2007, filed March 27, 2008, File No.
                000-30248.


28