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 endedMarch
31,
2009





 ̈
              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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


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 May
12, 2009, the latest practicable date, 1,748,799of 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
                                13Item
      3.
                                Quantitative
      and Qualitative Disclosures about Market Risk
                                22Item
      4.
                                Controls
      and Procedures
                                23PART
      II—OTHER INFORMATIONItem
      1.
                                Legal
      Proceedings
                                24Item
      1A.
                                Risk
      Factors
                                24Item
      2.
                                Unregistered
      Sales of Equity Securities and Use of Proceeds
                                24Item
      3.
                                Defaults
      Upon Senior Securities
                                24Item
      4.
                                Submission
      of Matters to a Vote of Security Holders
                                24Item
      5.
                                Other
      Information
                                24Item
      6.
                                Exhibits
                                25SIGNATURES
                                26EXHIBIT
      INDEX
                                27CERTIFICATIONSCertification
      of Gilbert J. Pomar, III under Section 302 of the Sarbanes-Oxley Act of
      2002Certification
      of Valerie A. Kendall under Section 302 of the Sarbanes-Oxley Act of
      2002Certification
      under Section 906 of the Sarbanes-Oxley Act of 2002


2.


JACKSONVILLE
BANCORP, INC.


PART I—FINANCIAL
INFORMATION





Item
1.  Financial Statements





CONSOLIDATED
BALANCE SHEETS


(Dollars
in thousands, except per share amounts)





March 31,
                
                
                December
      31,2009
                
                
                2008(Unaudited)ASSETSCash
      and due from banks
                
                $
                5,739
                
                
                $
                8,665Federal
      funds sold
                
                
                1,108
                
                
                
                1,483Total
      cash and cash equivalents
                
                
                6,847
                
                
                
                10,148Securities
      available for sale
                
                
                26,575
                
                
                
                29,684Securities
      held to maturity
                
                
                50
                
                
                
                50Loans,
      net of allowance for loan losses of $4,942at 2009 and $4,705
      at 2008
                
                
                378,755
                
                
                
                374,993Premises
      and equipment, net
                
                
                3,840
                
                
                
                3,940Bank-owned
      life insurance (BOLI)
                
                
                8,801
                
                
                
                8,773Federal
      Home Loan Bank (FHLB) stock
                
                
                2,258
                
                
                
                1,705Real
      estate owned, net
                
                
                89
                
                
                
                89Deferred
      income taxes
                
                
                1,603
                
                
                
                1,502Accrued
      interest receivable
                
                
                1,950
                
                
                
                2,027Other
      assets
                
                
                1,219
                
                
                
                1,088Total
      assets
                
                $
                431,987
                
                
                $
                433,999LIABILITIESDepositsNoninterest
      bearing
                
                $
                41,928
                
                
                $
                40,851Money
      market, NOW and savings deposits
                
                
                92,353
                
                
                
                87,751Time
      deposits
                
                
                210,225
                
                
                
                216,942Total
      deposits
                
                
                344,506
                
                
                
                345,544FHLB
      advances
                
                
                20,000
                
                
                
                20,000Federal
      Reserve borrowing
                
                
                25,000
                
                
                
                26,000Subordinated
      debt
                
                
                14,550
                
                
                
                14,550Accrued
      expenses and other liabilities
                
                
                1,076
                
                
                
                1,060Total
      liabilities
                
                
                405,132
                
                
                
                407,154SHAREHOLDERS’
      EQUITYCommon
      stock, $.01 par value, 8,000,000 shares authorized, 1,748,799and 1,748,799
      shares issued
                
                
                17
                
                
                
                17Additional
      paid–in capital
                
                
                18,595
                
                
                
                18,568Retained
      earnings
                
                
                8,104
                
                
                
                8,213Treasury
      stock, -0- and 200 shares
                
                
                —
                
                
                
                (2
                )Accumulated
      other comprehensive income
                
                
                139
                
                
                
                49Total
      shareholders’ equity
                
                
                26,855
                
                
                
                26,845Total
      liabilities and shareholders’ equity
                
                $
                431,987
                
                
                $
                433,999





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 EndedMarch 31,2009
                
                
                2008Interest
      and dividend incomeLoans,
      including fees
                
                $
                5,359
                
                
                $
                6,389Taxable
      securities
                
                
                230
                
                
                
                275Tax-exempt
      securities
                
                
                103
                
                
                
                103Federal
      funds sold and other
                
                
                (11
                )
                
                
                26Total
      interest income
                
                
                5,681
                
                
                
                6,793Interest
      expenseDeposits
                
                $
                2,311
                
                
                $
                3,002FHLB
      advances
                
                
                231
                
                
                
                438Federal
      Reserve borrowing
                
                
                31
                
                
                
                —Subordinated
      debt
                
                
                183
                
                
                
                127Other
                
                
                —
                
                
                
                1Total
      interest expense
                
                
                2,756
                
                
                
                3,568Net
      interest income
                
                
                2,925
                
                
                
                3,225Provision
      for loan losses
                
                
                938
                
                
                
                363Net
      interest income after provision for loan losses
                
                
                1,987
                
                
                
                2,862Noninterest
      incomeService
      charges on deposit accounts
                
                
                160
                
                
                
                168Other
      income
                
                
                (14
                )
                
                
                84Total
      noninterest income
                
                
                146
                
                
                
                252Noninterest
      expenseSalaries
      and employee benefits
                
                
                1,116
                
                
                
                1,162Occupancy
      and equipment
                
                
                447
                
                
                
                447Regulatory
      assessment
                
                
                114
                
                
                
                75Data
      processing
                
                
                208
                
                
                
                194Other
                
                
                401
                
                
                
                438Total
      noninterest expense
                
                
                2,286
                
                
                
                2,316Income
      (loss) before income taxes
                
                
                (153
                )
                
                
                798Income
      tax expense (benefit)
                
                
                (44
                )
                
                
                261Net
      income (loss)
                
                $
                (109
                )
                
                $
                537Weighted
      average:Common
      shares
                
                
                1,748,647
                
                
                
                1,747,628Dilutive
      stock options and warrants
                
                
                —
                
                
                
                57,940Dilutive
      shares
                
                
                1,748,647
                
                
                
                1,805,568Basic
      earnings (loss) per common share
                
                $
                (.06
                )
                
                $
                .31Diluted
      earnings (loss) per common share
                
                $
                (.06
                )
                
                $
                .30





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
                                  
                                  
                                  TotalBalance
      at January 1, 2008
                                  
                                  
                                  1,746,331
                                  
                                  
                                  $
                                  17
                                  
                                  
                                  $
                                  18,459
                                  
                                  
                                  $
                                  8,186
                                  
                                  
                                  $
                                  (40
                                  )
                                  
                                  $
                                  7
                                  
                                  
                                  $
                                  26,629Comprehensive
      income:Net
      income
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  537
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  537Change
      in unrealized gain on securities available for sale, net of tax
      effects
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  96
                                  
                                  
                                  
                                  96Total
      comprehensive income
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  633Purchase
      of treasury stock
                                  
                                  
                                  (652
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (15
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (15
                                  )Issuance
      of treasury stock
                                  
                                  
                                  1,650
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  7
                                  
                                  
                                  
                                  (15
                                  )
                                  
                                  
                                  40
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  32Common
      stock issued
                                  
                                  
                                  618Share-based
      compensation expense
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  25
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  25Balance
      at March 31, 2008
                                  
                                  
                                  1,747,947
                                  
                                  
                                  $
                                  17
                                  
                                  
                                  $
                                  18,491
                                  
                                  
                                  $
                                  8,708
                                  
                                  
                                  $
                                  (15
                                  )
                                  
                                  $
                                  103
                                  
                                  
                                  $
                                  27,304Balance
      at January 1, 2009
                                  
                                  
                                  1,748,599
                                  
                                  
                                  $
                                  17
                                  
                                  
                                  $
                                  18,568
                                  
                                  
                                  $
                                  8,213
                                  
                                  
                                  $
                                  (2
                                  )
                                  
                                  $
                                  49
                                  
                                  
                                  $
                                  26,845Comprehensive
      income (loss):Net
      (loss)
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (109
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (109
                                  )Change
      in unrealized gain on securities available for sale, net of tax
      effects
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  90
                                  
                                  
                                  
                                  90Total
      comprehensive (loss)
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (19
                                  )Purchase
      of treasury stock
                                  
                                  
                                  (1,153
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (14
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (14
                                  )Issuance
      of treasury stock
                                  
                                  
                                  1,353
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (1
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  16
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  15Share-based
      compensation expense
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  28
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  28Balance
      at March 31, 2009
                                  
                                  
                                  1,748,799
                                  
                                  
                                  $
                                  17
                                  
                                  
                                  $
                                  18,595
                                  
                                  
                                  $
                                  8,104
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  139
                                  
                                  
                                  $
                                  26,855





See
accompanying notes to unaudited consolidated financial
statements.


5.


JACKSONVILLE
BANCORP, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


(Dollars
in thousands)





Three
      Months EndedMarch 31,2009
                  
                  
                  2008Cash
      flows from operating activitiesNet
      income (loss)
                  
                  $
                  (109
                  )
                  
                  $
                  537Adjustments
      to reconcile net income (loss) to net cash from operating
      activities:Depreciation
      and amortization
                  
                  
                  123
                  
                  
                  
                  133Net
      amortization of deferred loan fees
                  
                  
                  44
                  
                  
                  
                  36Provision
      for loan losses
                  
                  
                  938
                  
                  
                  
                  363Premium
      amortization, net of accretion
                  
                  
                  (24
                  )
                  
                  
                  (8
                  )Earnings
      on Bank Owned Life Insurance
                  
                  
                  (28
                  )
                  
                  
                  (42
                  )Share-based
      compensation
                  
                  
                  43
                  
                  
                  
                  57Loss
      on disposal of assets
                  
                  
                  4
                  
                  
                  
                  38Loss
      on equity investment
                  
                  
                  132
                  
                  
                  
                  —Deferred
      income tax
                  
                  
                  (155
                  )
                  
                  
                  (8
                  )Net
      change in accrued interest receivable and other assets
                  
                  
                  (194
                  )
                  
                  
                  343Net
      change in accrued expenses and other liabilities
                  
                  
                  16
                  
                  
                  
                  (361
                  )Net
      cash from operating activities
                  
                  
                  790
                  
                  
                  
                  1,088Cash
      flows from investing activitiesPurchases
      of securities available for sale
                  
                  
                  —
                  
                  
                  
                  (3,000
                  )Proceeds
      from maturities, calls and paydown
                  
                  
                  3,277
                  
                  
                  
                  3,511of
      securities available for saleLoan
      (originations) payments, net
                  
                  
                  (
      4,744
                  )
                  
                  
                  (17,412
                  )Additions
      to premises and equipment, net
                  
                  
                  (19
                  )
                  
                  
                  (62
                  )Net
      change in Federal Home Loan Bank stock
                  
                  
                  (553
                  )
                  
                  
                  1,308Net
      cash from investing activities
                  
                  
                  (2,039
                  )
                  
                  
                  (15,655
                  )Cash
      flows from financing activitiesNet
      change in deposits
                  
                  
                  (
      1,038
                  )
                  
                  
                  49,281Net
      change in overnight FHLB advances
                  
                  
                  —
                  
                  
                  
                  (26,730
                  )Proceeds
      from fixed rate FHLB advances
                  
                  
                  —
                  
                  
                  
                  6,000Proceeds
      from Federal Reserve borrowing
                  
                  
                  (
      1,000
                  )
                  
                  
                  —Repayment
      of fixed rate FHLB advance
                  
                  
                  —
                  
                  
                  
                  (11,000
                  )Purchase
      of treasury stock
                  
                  
                  (14
                  )
                  
                  
                  (15
                  )Net
      cash from financing activities
                  
                  
                  (2,052
                  )
                  
                  
                  17,536Net
      change in cash and cash equivalents
                  
                  
                  (3,301
                  )
                  
                  
                  2,969Cash
      and cash equivalents at beginning of period
                  
                  
                  10,148
                  
                  
                  
                  6,035Cash
      and cash equivalents at end of period
                  
                  $
                  6,847
                  
                  
                  $
                  9,004Supplemental
      disclosures of cash flow informationCash
      paid during the period forInterest
                  
                  $
                  2,964
                  
                  
                  $
                  3,696Income
      taxes
                  
                  
                  —
                  
                  
                  
                  180





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, 2008, as filed with
the U.S. Securities and Exchange Commission (the “SEC”) on March 20,
2009.





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 March 31, 2009 and 2008 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, 2008
consolidated balance sheet was derived from the Company's December 31, 2008
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
Measurementsand 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.





Recently
Issued and Not Yet Effective Accounting Standards


In April
2009, the FASB issued Staff Position (FSP) No. 115-2 and No. 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments.  This FSP amends existing
guidance for determining whether impairment is other-than-temporary for debt
securities and requires an entity to assess whether it intends to sell, or it is
more likely than not that it will be required to sell a security in an
unrealized loss position before recovery of its amortized cost
basis.  If either criteria is met, the entire difference between
amortized cost and fair value is recognized in earnings.  For
securities that do not meet the above criteria, the amount of impairment
recognized in earnings is limited to the amount related to credit losses, while
impairment related to other factors is recognized in other comprehensive
income.  This FSP is effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009.  The Company plans to adopt this FSP in
the second quarter, but does not expect the adoption to have a material effect
on the results of operations or financial position.


7.


JACKSONVILLE
BANCORP, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
in thousands, except per share amounts)








In April
2009, FASB issued Staff Position (FSP) No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset and Liability Have Significantly
Decreased and Identifying Transactions that are Not
Orderly.  This FSP emphasizes that even if there has been a
significant decrease in the volume and level of activity, the objective of a
fair value measurement remains the same.  Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants.  This FSP provides factors to
consider when evaluating whether there has been a significant decrease in the
volume and level of activity for an asset or liability in relation to normal
market activity.  This FSP is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied
prospectively.  Early adoption is permitted for periods ending after
March 15, 2009.  The Company plans to adopt this FSP in the second
quarter, but does not expect the adoption to have a material effect on the
result of operations or financial position.





In April
2009, FASB issued Staff Position (FSP) No. 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments.  This FSP amends FASB Statement No.
107, Disclosures about Fair
Value of Financial Instruments, require disclosures about fair value of
financial instruments for interim reporting periods that were previously only
required in annual financial statements.  This FSP is effective for
interim reporting period ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009.  The Company plans
to adopt this FSP in the second quarter.





NOTE
2 – LOAN PORTFOLIO COMPOSITION


The
composition of the Bank’s loan portfolio at March 31, 2009 and December 31, 2008
is indicated below along with the change from December 31, 2008.





% Increase (Decrease)Total Loans
                
                
                Total Loans
                
                
                from December 31, 2008March 31, 2009
                
                
                December 31, 2008
                
                
                to March 31, 2009Real
      estate mortgage loans:Commercial
                
                $
                231,046
                
                
                $
                224,677
                
                
                
                2.8
                %Residential
                
                
                86,635
                
                
                
                81,152
                
                
                
                6.8
                %Construction(1)
                
                
                36,238
                
                
                
                41,759
                
                
                
                (13.2
                )%Commercial
      loans
                
                
                26,472
                
                
                
                28,445
                
                
                
                (6.9
                )%Consumer
      loans
                
                
                3,756
                
                
                
                4,070
                
                
                
                (7.7
                )%Subtotal
                
                
                384,147
                
                
                
                380,103
                
                
                
                1.1
                %Less:  Net
      deferred loan fees
                
                
                (450
                )
                
                
                (405
                )
                
                
                11.1
                %Total
                
                $
                383,697
                
                
                $
                379,698
                
                
                
                1.1
                %





(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 three months ended March 31, 2009 and
2008 follows:





Three Months Ended March 31,2009
                      
                      
                      2008Balance,
      January 1
                      
                      $
                      4,705
                      
                      
                      $
                      3,116Provisions
      for loan losses charged to expense
                      
                      
                      938
                      
                      
                      
                      363Loans
      charged off
                      
                      
                      (702
                      )
                      
                      
                      (212
                      )Recoveries
      of loans previously charged off
                      
                      
                      1
                      
                      
                      
                      3Balance,
      March 31
                      
                      $
                      4,942
                      
                      
                      $
                      3,270





Impaired
loans were as follows:


March 31,
                              
                              
                              December 31,2009
                              
                              
                              2008Loans
      with no allocated allowance for loan losses
                              
                              $
                              14,825
                              
                              
                              $
                              12,931Loans
      with allocated allowance for loan losses
                              
                              
                              877
                              
                              
                              
                              4,352Total
                              
                              $
                              15,702
                              
                              
                              $
                              17,283Amount
      of the allowance for loan losses allocated
                              
                              $
                              258
                              
                              
                              $
                              618


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 for the Company at March 31, 2009 and
December 31, 2008:


Actual
                
                
                For Capital
                  Adequacy
                  Purposes
                
                
                To Be Well
                  Capitalized Under
                  Prompt Corrective
                  Action ProvisionsAmount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio
                
                
                Amount
                
                
                RatioMarch
      31, 2009Total
      capital to risk weighted assetsConsolidated
                
                $
                46,093
                
                
                
                11.94
                %
                
                $
                30,884
                
                
                
                8.00
                %
                
                
                N/A
                
                
                
                N/ABank
                
                
                40,576
                
                
                
                10.54
                %
                
                
                30,799
                
                
                
                8.00
                %
                
                $
                38,498
                
                
                
                10.00
                %Tier
      1 (Core) capital to risk weighted assetsConsolidated
                
                
                35,533
                
                
                
                9.20
                %
                
                
                15,442
                
                
                
                4.00
                %
                
                
                N/A
                
                
                
                N/ABank
                
                
                35,764
                
                
                
                9.29
                %
                
                
                15,399
                
                
                
                4.00
                %
                
                
                23,099
                
                
                
                6.00
                %Tier
      1 (Core) capital to average assetsConsolidated
                
                
                35,533
                
                
                
                8.24
                %
                
                
                17,244
                
                
                
                4.00
                %
                
                
                N/A
                
                
                
                N/ABank
                
                
                35,764
                
                
                
                8.31
                %
                
                
                17,207
                
                
                
                4.00
                %
                
                
                21,508
                
                
                
                5.00
                %December
      31, 2008Total
      capital to risk weighted assetsConsolidated
                
                $
                46,051
                
                
                
                11.93
                %
                
                $
                30,874
                
                
                
                8.00
                %
                
                
                N/A
                
                
                
                N/ABank
                
                
                40,719
                
                
                
                10.58
                %
                
                
                30,795
                
                
                
                8.00
                %
                
                $
                38,494
                
                
                
                10.00
                %Tier
      1 (Core) capital to risk weighted assetsConsolidated
                
                
                35,638
                
                
                
                9.23
                %
                
                
                15,437
                
                
                
                4.00
                %
                
                
                N/A
                
                
                
                N/ABank
                
                
                36,014
                
                
                
                9.36
                %
                
                
                15,397
                
                
                
                4.00
                %
                
                
                23,096
                
                
                
                6.00
                %Tier
      1 (Core) capital to average assetsConsolidated
                
                
                35,638
                
                
                
                8.26
                %
                
                
                17,264
                
                
                
                4.00
                %
                
                
                N/A
                
                
                
                N/ABank
                
                
                36,014
                
                
                
                8.36
                %
                
                
                17,228
                
                
                
                4.00
                %
                
                
                21,535
                
                
                
                5.00
                %


10.


JACKSONVILLE
BANCORP, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
in thousands, except per share amounts)








NOTE
5 – SHORT-TERM BORROWING AND FEDERAL HOME LOAN BANK ADVANCES


At March
31, 2009 and December 31, 2008, advances from the Federal Home Loan Bank (FHLB)
were as follows:





2009
                  
                  
                  2008Convertible
      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$
                  20,000
                  
                  
                  $
                  20,000





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.





In 2008,
the Company established a “Borrower in Custody” line of credit with the Federal
Reserve Bank by pledging excess collateral.  The amount of this line
at March 31, 2009 was $31.6 million, of which it had borrowed $25.0
million.





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) for 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.


11.


JACKSONVILLE
BANCORP, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
in thousands, except per share amounts)








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





Fair Value Measurements UsingQuoted Prices in
                  Active Markets for
                  Identical Assets
                  (Level 1)
                
                
                Significant Other
                  Observable
                  Inputs
                  (Level 2)
                
                
                Significant
                  Unobservable
                  Inputs
                  (Level 3)Assets:Securities
      available for sale
                
                $
                29,684
                
                
                
                —
                
                
                $
                29,684
                
                
                
                —at
      December 31, 2008Securities
      available for sale
                
                $
                26,575
                
                
                
                —
                
                
                $
                26,575
                
                
                
                —at
      March 31, 2009





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 UsingQuoted Prices in
                  Active Markets for
                  Identical Assets
                  (Level 1)
                
                
                Significant Other
                  Observable
                  Inputs
                  (Level 2)
                
                
                Significant
                  Unobservable
                  Inputs
                  (Level 3)Assets:Impaired
      loans
                
                $
                3,734
                
                
                
                —
                
                
                
                —
                
                
                $
                3,734at
      December 31, 2008Impaired
      Loans
                
                $
                619
                
                
                
                —
                
                
                
                —
                
                
                $
                619at
      March 31, 2009





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 $877, with a valuation allowance of $258, resulting in
      an additional provision for loan loss of $258 for the
      period.  Additional impaired loans, not measured using levels of
      inputs to measure fair value, had a carrying amount of
      $14,825.  Collateral dependent impaired loans, valued under
      Level 3, were measured using current appraised values along with
      information on recent market transactions as well as management’s
      assumptions about the criteria that market participants would use in
      pricing the
assets.















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,
Federal Reserve borrowings 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.


13.


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, providing additional visibility and access to
businesses and individuals, and resulting 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 economic conditions
have deteriorated over the last several quarters and that the local real estate
market has softened.  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.





At
December 31, 2008, the federal funds rate was 0.16%.  In 2008,
the Federal Reserve reduced the federal funds rate seven times.  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.





Introduction





In the
following pages, management presents an analysis of the financial condition of
the Company as of March 31, 2009 compared to December 31, 2008, and the results
of operations for the three months ended March 31, 2009 compared with the same
period in 2008.  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.





Comparison
of Financial Condition at March 31, 2009 and December 31, 2008





Total
assets decreased $2.0 million, or 0.5%, from $434.0 million at December 31, 2008
to $432.0 million at March 31, 2009.  During the three months ended
March 31, 2009, the Company experienced net loan growth of $3.8 million, or
1.0%.  The increase in net loans was driven by increases in commercial
real estate loans of $6.4 million, or 2.8%, and residential real estate loans of
$5.5 million, or 6.8%, offset by decreases in construction real estate loans of
$5.5 million, or 13.2%, and commercial loans of $2.0 million, or
6.9%.


14.


Total
deposits decreased $1.0 million, or 0.3%, from $345.5 million at December 31,
2008 to $344.5 million at March 31, 2009.  During the three
months ended March 31, 2009, money market, NOW and savings deposits increased
$4.6 million to $92.4 million and noninterest-bearing deposits increased
$1.1 million to $41.9 million.  During the three months ended
March 31, 2009, time deposits decreased $6.7 million to $210.2
million.





Investment
securities available for sale decreased $3.1 million to $26.6 million at March
31, 2009.  During the three months ended March 31, 2009, we received
$3.3 million in proceeds from maturities, calls and principal
repayments.





Total
shareholders' equity increased by $10,000 from $26.8 million at December 31,
2008 to $26.9 million at March 31, 2009.  The increase is mainly
attributable to an increase in the value of the securities available for sale
offset by a net loss of $109,000.  At March 31, 2009, the Company had
8,000,000 authorized shares of $.01 par value common stock, of which 1,748,799
shares were issued and 1,748,799 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 March 31,
2009.






Comparison
of Operating Results for the Three Months Ended March 31, 2009 and
2008





Net
Income





There was
a net loss for the first three months of 2009 of $109,000, compared to $537,000
of net income in the first three months of 2008.  On a diluted per
share basis, the net loss was $0.06 for the three months ended March 31, 2009,
compared to net income of $0.30 per diluted share in 2008.  The
decrease in net income was driven primarily by additional provisions for loan
losses, lower net interest margin and recording an
other-than-temporary-impairment charge.





Net
Interest Income





Net
interest income, the difference between interest earned on interest-earning
assets and interest paid on interest-bearing liabilities, was $2.9 million for
the three months ended March 31, 2009, compared to $3.2 million for the
same period in 2008.  Interest income declined $1.1 million when
compared to the first three months of the prior year.  This was a
result of the reduction in short-term rates by the Federal Reserve in 2008 as
well as an increase in nonperforming assets to $9.6 million.  This was
offset by average earning asset growth of $25.1 million.





When
comparing the first three months of 2009 to the same period last year, the
Company experienced growth in its loan portfolio of 1.1%, compared to 5.0% for
the same period in the previous year, with the most significant impact occurring
in residential and commercial real estate.





Many of
the Bank’s loans are indexed to the prime rate.  The lower level of
the prime rate in the first three months of 2009 compared to the comparative
period in 2008 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 three months of 2009 was 5.58%, which was a decrease of 146 basis points,
compared to the 7.04% yield earned during the first three months of
2008.





The
average cost of interest-bearing liabilities decreased 117 basis points from
4.28% in the first three months of 2008 to 3.11% in the comparable period in
2009.  The average cost of interest-bearing deposits and all
interest-bearing liabilities reflect, in part, the change in the funding mix for
the first three months of 2009 as compared to the same period in
2008.  Interest expense declined by $812,000 as a result of the
reduction in short-term rates offset by a transition from core deposits into
more expensive time deposits.


15.





The net
interest margin decreased by 47 basis points from 3.34% to 2.87% when comparing
the first three months of 2009 to the same period last year.  This
decrease is mainly the result of a higher level of nonperforming loans and
pressures from highly competitive funding sources, both locally and
nationally.  As of March 31, 2009, the Bank had $9.6 million of loans
on nonaccrual compared to $991,000 at March 31, 2008.  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 more stable rate
environment, the margin should continue to improve as more expensive time
deposits reprice at lower rates in comparison to previous quarters.





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.





Three Months Ended March 31,2009
                                                                            
                                                                            
                                                                            2008Average
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Average
                                                                            
                                                                            
                                                                            Average
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            AverageBalance
                                                                            
                                                                            
                                                                            Interest
                                                                            
                                                                            
                                                                            Rate
                                                                            
                                                                            
                                                                            Balance
                                                                            
                                                                            
                                                                            Interest
                                                                            
                                                                            
                                                                            Rate(Dollars in thousands)Interest-earning
      assets:Loans
      (1)
                                                                            
                                                                            $
                                                                            382,071
                                                                            
                                                                            
                                                                            $
                                                                            5,359
                                                                            
                                                                            
                                                                            
                                                                            5.69
                                                                            %
                                                                            
                                                                            $
                                                                            353,026
                                                                            
                                                                            
                                                                            $
                                                                            6,389
                                                                            
                                                                            
                                                                            
                                                                            7.28
                                                                            %Securities
      (2)
                                                                            
                                                                            
                                                                            30,344
                                                                            
                                                                            
                                                                            
                                                                            333
                                                                            
                                                                            
                                                                            
                                                                            4.45
                                                                            
                                                                            
                                                                            
                                                                            31,990
                                                                            
                                                                            
                                                                            
                                                                            378
                                                                            
                                                                            
                                                                            
                                                                            4.75Other
      interest-earning assets (3)
                                                                            
                                                                            
                                                                            696
                                                                            
                                                                            
                                                                            
                                                                            (11
                                                                            )
                                                                            
                                                                            
                                                                            (6.41
                                                                            )
                                                                            
                                                                            
                                                                            3,011
                                                                            
                                                                            
                                                                            
                                                                            26
                                                                            
                                                                            
                                                                            
                                                                            3.47Total
      interest-earning assets
                                                                            
                                                                            
                                                                            413,111
                                                                            
                                                                            
                                                                            
                                                                            5,681
                                                                            
                                                                            
                                                                            
                                                                            5.58
                                                                            
                                                                            
                                                                            
                                                                            388,027
                                                                            
                                                                            
                                                                            
                                                                            6,793
                                                                            
                                                                            
                                                                            
                                                                            7.04Noninterest-earning
      assets (4)
                                                                            
                                                                            
                                                                            16,824
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            15,575Total
      assets
                                                                            
                                                                            $
                                                                            429,935
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            403,602Interest-bearing
      liabilities:Savings
      deposits
                                                                            
                                                                            $
                                                                            13,052
                                                                            
                                                                            
                                                                            $
                                                                            65
                                                                            
                                                                            
                                                                            
                                                                            2.02
                                                                            
                                                                            
                                                                            $
                                                                            13,285
                                                                            
                                                                            
                                                                            $
                                                                            101
                                                                            
                                                                            
                                                                            
                                                                            3.06NOW
      deposits
                                                                            
                                                                            
                                                                            9,900
                                                                            
                                                                            
                                                                            
                                                                            7
                                                                            
                                                                            
                                                                            
                                                                            .29
                                                                            
                                                                            
                                                                            
                                                                            8,197
                                                                            
                                                                            
                                                                            
                                                                            4
                                                                            
                                                                            
                                                                            
                                                                            .20Money
      market deposits
                                                                            
                                                                            
                                                                            65,727
                                                                            
                                                                            
                                                                            
                                                                            275
                                                                            
                                                                            
                                                                            
                                                                            1.70
                                                                            
                                                                            
                                                                            
                                                                            93,691
                                                                            
                                                                            
                                                                            
                                                                            712
                                                                            
                                                                            
                                                                            
                                                                            3.06Time
      deposits
                                                                            
                                                                            
                                                                            209,212
                                                                            
                                                                            
                                                                            
                                                                            1,964
                                                                            
                                                                            
                                                                            
                                                                            3.81
                                                                            
                                                                            
                                                                            
                                                                            173,514
                                                                            
                                                                            
                                                                            
                                                                            2,185
                                                                            
                                                                            
                                                                            
                                                                            5.06FHLB
      advances
                                                                            
                                                                            
                                                                            21,800
                                                                            
                                                                            
                                                                            
                                                                            231
                                                                            
                                                                            
                                                                            
                                                                            4.30
                                                                            
                                                                            
                                                                            
                                                                            39,303
                                                                            
                                                                            
                                                                            
                                                                            438
                                                                            
                                                                            
                                                                            
                                                                            4.48Federal
      Reserve borrowing
                                                                            
                                                                            
                                                                            25,461
                                                                            
                                                                            
                                                                            
                                                                            31
                                                                            
                                                                            
                                                                            
                                                                            .49
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —Subordinated
      debt
                                                                            
                                                                            
                                                                            14,550
                                                                            
                                                                            
                                                                            
                                                                            183
                                                                            
                                                                            
                                                                            
                                                                            5.10
                                                                            
                                                                            
                                                                            
                                                                            7,000
                                                                            
                                                                            
                                                                            
                                                                            127
                                                                            
                                                                            
                                                                            
                                                                            7.30Other
      interest-bearing liabilities (5)
                                                                            
                                                                            
                                                                            144
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            113
                                                                            
                                                                            
                                                                            
                                                                            1
                                                                            
                                                                            
                                                                            
                                                                            3.56Total
      interest-bearing liabilities
                                                                            
                                                                            
                                                                            359,846
                                                                            
                                                                            
                                                                            
                                                                            2,756
                                                                            
                                                                            
                                                                            
                                                                            3.11
                                                                            
                                                                            
                                                                            
                                                                            335,103
                                                                            
                                                                            
                                                                            
                                                                            3,568
                                                                            
                                                                            
                                                                            
                                                                            4.28Noninterest-bearing
      liabilities
                                                                            
                                                                            
                                                                            42,986
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            41,529Shareholders'
      equity
                                                                            
                                                                            
                                                                            27,103
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            26,970Total
      liabilities and shareholders' equity
                                                                            
                                                                            $
                                                                            429,935
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            403,602Net
      interest income
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            2,925
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            3,225Interest
      rate spread (6)
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            2.47
                                                                            %
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            2.76
                                                                            %Net
      interest margin (7)
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            2.87
                                                                            %
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            3.34
                                                                            %




16.







(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.




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.





Three Months Ended March 31,2009 Versus 2008(1)Increase (decrease) due to changes in:NetVolume
                
                
                Rate
                
                
                Change(Dollars in thousands)Interest
      income:Loans
                
                $
                494
                
                
                $
                (1,524
                )
                
                $
                (1,030
                )Securities
                
                
                (19
                )
                
                
                (26
                )
                
                
                (45
                )Other
      interest-earning assets
                
                
                (8
                )
                
                
                (29
                )
                
                
                (37
                )Total
      interest income
                
                
                467
                
                
                
                (1,579
                )
                
                
                (1,112
                )Interest
      expense:Savings
      deposits
                
                
                (2
                )
                
                
                (34
                )
                
                
                (36
                )NOW
      deposits
                
                
                1
                
                
                
                2
                
                
                
                3Money
      market deposits
                
                
                (174
                )
                
                
                (263
                )
                
                
                (437
                )Time
      deposits
                
                
                398
                
                
                
                (619
                )
                
                
                (221
                )FHLB
      advances
                
                
                (186
                )
                
                
                (21
                )
                
                
                (207
                )Federal
      Reserve borrowing
                
                
                31
                
                
                
                —
                
                
                
                31Subordinated
      debt
                
                
                104
                
                
                
                (48
                )
                
                
                56Other
      interest-bearing liabilities
                
                
                (1
                )
                
                
                —
                
                
                
                (1
                )Total
      interest expense
                
                
                171
                
                
                
                (983
                )
                
                
                (812
                )Decrease
      in net interest income
                
                $
                296
                
                
                $
                (596
                )
                
                $
                (300
                )





(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.




17.


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 is
appropriate 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.





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, 2008, as filed with the Securities and
Exchange Commission on March 20, 2009.





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.  The Company’s nonperforming assets at March 31, 2009 and
December 31, 2008 are as follows:





March 31,
                  
                  
                  December
      31,2009
                  
                  
                  2008(Dollars in thousands)Nonaccruing
      loans
                  
                  $
                  9,551
                  
                  
                  $
                  12,436Loans
      past due over 90 days still on accrual
                  
                  
                  —
                  
                  
                  
                  —Total
      nonperforming loans
                  
                  
                  9,551
                  
                  
                  
                  12,436Foreclosed
      assets, net
                  
                  
                  89
                  
                  
                  
                  89Total
      nonperforming assets
                  
                  $
                  9,640
                  
                  
                  $
                  12,525Allowance
      for loan losses
                  
                  $
                  4,942
                  
                  
                  $
                  4,705Nonperforming
      loans and foreclosed assets as a percent of total assets
                  
                  
                  2.23
                  %
                  
                  
                  2.89
                  %Nonperforming
      loans as a percent of gross loans
                  
                  
                  2.49
                  %
                  
                  
                  3.28
                  %Allowance
      for loan losses as a percent of nonperforming loans
                  
                  
                  51.74
                  %
                  
                  
                  37.83
                  %




18.


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.  At
March 31, 2009, the Company had impaired loans of $15.7 million, compared to
$17.3 million at December 31, 2008.





On
January 22, 2009, the Bank foreclosed on a commercial property located in
downtown Jacksonville.  The loan, which was originally made on
February 15, 2005, had ceased accruing interest on May 8, 2008.  On
February 28, 2009, the property was sold for $3.7 million.  A
charge-off in the amount of $368,000 was recorded at the time of foreclosure, of
which the full amount had previously been reserved through the Allowance for
Loan Losses.





On April
6, 2009, the Bank foreclosed on a residential property that was listed as an
impaired loan as of March 31, 2009.  The loan, which was originally
made on January 8, 2002, had ceased accruing interest on February 29,
2008.  On May 4, 2009, the property was sold for
$200,000.





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.





Allowance
and Provision for Loan Losses





The
allowance for loan losses grew by $237,000 during the first three months of
2009, amounting to $4.9 million at March 31, 2009, as compared to $4.7
million at December 31, 2008.  The allowance represented approximately
1.29% of total loans at March 31, 2009 and 1.24% at December 31,
2008.  During the first three months of 2009, the Company had
charge-offs of $702,000, recoveries of $1,000 and recorded a $938,000 provision
for loan losses compared to charge-offs of $212,000, recoveries of $3,000 and a
provision for loan losses of $363,000 for the first three months of
2008.  The larger provision for loan losses in 2009 was driven
primarily by the level of charge-offs and management’s 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.  During the first quarter,
the Bank had net charge-offs of $701,000, of which $553,000 was identified and
reserved at December 31, 2008.  Impaired loans were $15.7 million as
of March 31, 2009; of this amount, $258,000 was specifically allocated to the
allowance for loan losses which is deemed appropriate to absorb probable
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.


19.


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 March 31, 2009, the
allowance for loan loss is considered to be appropriate to absorb estimated loan
losses in the portfolio as of that date.  As more fully discussed in
the “Critical Accounting Policies” section of this Management’s 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.





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 the value of real estate collateral
securing the Company’s mortgage loans.  Loans secured by real estate
represent approximately 92% of the Company’s total loans outstanding at March
31, 2009.  Economic conditions in Jacksonville have deteriorated over
the last several quarters, resulting in a softening of real estate
values.  Residential real estate values have experienced greater
volatility and have declined in most areas.  Conditions and values
could deteriorate further 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 $146,000 for the three months ended March 31, 2009, compared to
$252,000 for the comparable 2008 period.  This decline was principally
the result of recognizing a $132,000 write-off in the stock of Silverton Bank,
N.A. due to its May 2009 failure offset by a loan referral fee in the amount of
$52,000.


20.





Noninterest
expense remained relatively flat at $2.3 million for three months ended March
31, 2009 and 2008.  Increases in professional fees, data processing
fees and FDIC assessments were offset by a reduction in compensation expense and
directors’ fees for the three months ended March 31, 2009.





The
income tax benefit for the three months ended March 31, 2009 was $44,000,
compared to an income tax expense of $261,000 for the three months ended March
31, 2008.  The tax benefit 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.





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 10.54%, 9.29% and 8.31%, respectively,
at March 31, 2009.  The Company also maintains capital levels that
meet the same regulatory standards.  If the capital ratios of Bancorp
and the Bank were to fall below levels required under regulatory standards, it
is their policy to increase capital in an amount sufficient to meet regulatory
requirements within 30 days.





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.





Cash
Flows and Liquidity





Cash
Flows.The Company’s primary
sources of cash are deposit growth, maturities and amortization of investment
securities, FHLB advances, Federal Reserve Bank borrowings 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
three months of 2009, the Company’s cash and cash equivalent position decreased
by $3.3 million.  The decrease in cash mainly resulted from a decrease
in deposit accounts of approximately $1.0 million from $345.5 million at
December 31, 2008 to $344.5 million at March 31, 2009, and a decrease in
net loan originations of $4.7 million, offsetting proceeds from
available-for-sale securities of $3.3 million.





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; its overnight position with federal funds sold;
and Federal Reserve borrowing.  At March 31, 2009, the Company had
$26.6 million in available-for-sale securities not subject to pledge
agreements.





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 $111.0 million, do not represent legal commitments to
extend credit.


21.





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, 2008 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, 2008, as filed with the SEC on March 20, 2009, 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, 2008.





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, 2008.





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, 2008.  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.


22.


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 SEC.  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.


23.




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, 2008,
      as filed with the SEC on March 20,
2009.





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


On May
13, 2009, the Bank entered into an employment agreement with Valerie A. Kendall,
its Chief Financial Officer (the “Kendall Agreement”), a copy of which is
attached here to as Exhibit 10.1 and is incorporated herein by
reference.  The Kendall Agreement has a rolling one-year term ending
no later than Ms. Kendall’s 65th birthday and contains a six-month
non-competition provision against employment in the financial services industry
or with any person seeking to organize a financial institution in Duval County
or Clay County.  The Kendall Agreement provides for an annual base
salary of $145,000, which will be reviewed by the Bank in good faith on an
annual basis.  Under the Kendall Agreement, Ms. Kendall is also
entitled to receive incentive compensation and bonuses as may be determined from
time to time by the Board of Directors.  The Kendall Agreement also
provides for Ms. Kendall’s participation in bonus plans, stock option plans,
stock ownership plans, profit sharing plans and 401(k) plans made available to
the Bank’s employees and executives.




Under the
Kendall Agreement, if the Bank terminates Ms. Kendall’s employment for a reason
other than for “just cause” (as defined in the Kendall Agreement), or if Ms.
Kendall terminates her employment for “good reason” (as defined), then the Bank
must pay Ms. Kendall an amount equal to her annual base salary, plus any
incentive compensation or bonus which Ms. Kendall would have been entitled to
under the Kendall Agreement.  This amount will be paid in 24 equal
semi-monthly payments.  If Ms. Kendall’s employment is terminated as a
result of a “change in control” (as defined) or a change in control occurs
within 12 months of her involuntary termination or termination for good reason,
then Ms. Kendall is entitled to a severance payment equal to 2.99 times the
highest annual salary and bonus she was paid or entitled to in the two years
preceding termination.  This amount will be paid in full within 10
days of separation from service.   Furthermore, under certain banking
regulatory requirements, or unless Ms. Kendall is terminated for just cause, or
Ms. Kendall terminates her employment for other than good reason, the Bank is
also required to maintain in full force and effect all employee benefit plans in
which Ms. Kendall was participating before termination for the remainder of the
Kendall Agreement, or 12 months, whichever is longer.


24.





Also on
May 13, 2009, the Bank entered into new employment agreements with Gilbert James
Pomar, III, its President and Chief Executive Officer (the “Pomar Agreement”)
and Scott M. Hall, its Senior Loan Officer (the “Hall
Agreement”).  Copies of the Pomar Agreement and Hall Agreement are
attached hereto as Exhibits 10.2and 10.3 and are
incorporated herein by reference.  The new agreements reflect changes
in the tax laws, and replace the previous employment agreements for Messrs.
Pomar and Hall (the “Old Agreements”).  The Pomar Agreement provides
for an annual base salary of $210,000, which will be reviewed by the Bank in
good faith on an annual basis.  The Hall Agreement provides for an
annual base salary of $160,000, which will be reviewed by the Bank in good faith
on an annual basis.  The other material terms of the Pomar Agreement
and the Hall Agreement are the same as each of Messrs. Pomar’s and Hall’s Old
Agreements, which are described in the Company’s filings with the Securities and
Exchange Commission.





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. 10.1:    Employment Agreement between The Jacksonville
Bank and Valerie A. Kendall





Exhibit
No. 10.2:    Employment Agreement between The Jacksonville
Bank and Gilbert James Pomar, III





Exhibit
No. 10.3     Employment Agreement between The
Jacksonville Bank and Scott M. Hall





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, 2008, filed March 20, 2009, File No.
      000-30248.


25.


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:
      May 15, 2009
            /s/ Gilbert J. Pomar,
IIIGilbert
      J. Pomar, IIIPresident
      and Chief Executive Officer





Date:
      May 15, 2009
            /s/ Valerie A. KendallValerie
      A. KendallExecutive
      Vice Presidentand
      Chief Financial Officer




26.


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. 10.1:     Employment Agreement between The
Jacksonville Bank and Valerie A. Kendall





Exhibit
No. 10.2:     Employment Agreement between The
Jacksonville Bank and Gilbert James Pomar, III





Exhibit
No. 10.3      Employment Agreement between The
Jacksonville Bank and Scott M. Hall





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, 2008, filed March 20, 2009, File No.
      000-30248.




27.