**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**




(Mark
      One)





x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15 (d)OF
                THE SECURITIES EXCHANGE ACT OF 1934





For
      the
      quarterly period ended June
      30, 2007





o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d)OF
                THE EXCHANGE ACT





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
            
            (IRS
                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 o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of The
      Exchange Act).





Large
      Accelerated Filer o Accelerated
      Filer o Non-accelerated
      Filer x





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





Yes o No x


As
      of
      August 10, 2007, the latest practicable date, 1,743,338 of the Registrant’s
      common shares, $.01 par value, were issued and outstanding.










JACKSONVILLE
      BANCORP, INC.


TABLE
      OF
      CONTENTS


PagePART
                    I—FINANCIAL INFORMATIONItem
                    1.
                Financial
                    StatementsConsolidated
                    Balance Sheets
                3Consolidated
                    Statements of Income
                4Consolidated
                    Statements of Changes in Shareholders’ Equity
                5Consolidated
                    Statements of Cash Flows
                6Notes
                    to Consolidated Financial Statements
                7Item
                    2.
                Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operation
                10Item
                    3.
                Quantitative
                    and Qualitative Disclosures about Market Risk
                19Item
                    4.
                Controls
                    and Procedures
                20Item
                    4T.
                Controls
                    and Procedures
                20PART
                    II—OTHER INFORMATIONItem
                    1.
                Legal
                    Proceedings
                21Item
                    1A.
                Risk
                    Factors
                21Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                21Item
                    3.
                Defaults
                    Upon Senior Securities
                21Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                22Item
                    5.
                Other
                    Information
                22EXHIBIT
                    INDEX
                22SIGNATURES
                23CERTIFICATIONSCertification
                    of Gilbert J. Pomar, III
                24Certification
                    of Valerie A. Kendall
                25Certification
                    under Section 906 of the Sarbanes-Oxley Act of 2002
                26


2


JACKSONVILLE
        BANCORP, INC.
 CONSOLIDATED
      BALANCE SHEETS


(Dollars
      in thousands, except per share amounts)









June
                30,
            
            December
                31,2007
            
            2006(Unaudited)**ASSETS**Cash
                and due from banks
            
            $
            4,260
            
            $
            4,373Federal
                funds sold
            
            
            2,569
            
            
            105Total
                cash and cash equivalents
            
            
            6,829
            
            
            4,478Securities
                available for sale
            
            
            26,586
            
            
            26,059Securities
                held to maturity
            
            
            50
            
            
            50Loans,
                net of allowance for loan losses of $3,048****at
                2007 and $2,621 at 2006
            
            
            319,525
            
            
            281,006Premises
                and equipment, net
            
            
            4,458
            
            
            4,616Bank-owned
                life insurance (BOLI)
            
            
            4,924
            
            
            4,837Federal
                Home Loan Bank (FHLB) stock
            
            
            2,226
            
            
            1,071Accrued
                interest receivable
            
            
            2,115
            
            
            2,107Other
                assets
            
            
            1,419
            
            
            1,351Total
                assets
            
            $
            368,132
            
            $
            325,575**LIABILITIES**DepositsNoninterest
                bearing
            
            $
            35,567
            
            $
            32,967Money
                market, NOW and savings deposits
            
            
            138,181
            
            
            150,451Time
                deposits
            
            
            127,469
            
            
            99,208Total
                deposits
            
            
            301,217
            
            
            282,626FHLB
                advances
            
            
            34,650
            
            
            11,650Subordinated
                debt
            
            
            7,000
            
            
            7,000Accrued
                expenses and other liabilities
            
            
            990
            
            
            1,161Total
                liabilities
            
            
            343,857
            
            
            302,437**SHAREHOLDERS’
                EQUITY**Common
                stock, $.01 par value, 8,000,000 shares authorized, 1,743,338****and
                1,743,338 shares issued
            
            
            17
            
            
            17Additional
                paid-in capital
            
            
            18,320
            
            
            18,230Retained
                earnings
            
            
            6,476
            
            
            5,241Treasury
                stock, 1,670 and 1,650 shares
            
            
            (51
            )
            
            (57
            )Accumulated
                other comprehensive loss
            
            
            (487
            )
            
            (293
            )Total
                shareholders’ equity
            
            
            24,275
            
            
            23,138Total
                liabilities and shareholders’ equity
            
            $
            368,132
            
            $
            325,575




See
      accompanying notes to financial statements.


3




JACKSONVILLE
      BANCORP, INC.


CONSOLIDATED
      STATEMENTS OF INCOME


(Unaudited)


(Dollars
      in thousands, except per share amounts)










Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2007
            
            2006
            
            2007
            
            2006Interest
                and dividend incomeLoans,
                including fees
            
            $
            6,259
            
            $
            5,011
            
            $
            11,986
            
            $
            9,503Securities
            
            
            340
            
            
            309
            
            
            640
            
            
            574Other
            
            
            13
            
            
            35
            
            
            29
            
            
            133Total
                interest income
            
            
            6,612
            
            
            5,355
            
            
            12,655
            
            
            10,210Interest
                expenseDeposits
            
            $
            3,120
            
            $
            2,265
            
            $
            5,824
            
            $
            4,478FHLB
                advances
            
            
            360
            
            
            217
            
            
            628
            
            
            292Subordinated
                debt
            
            
            139
            
            
            79
            
            
            274
            
            
            153Other
            
            
            4
            
            
            4
            
            
            8
            
            
            6Total
                interest expense
            
            
            3,623
            
            
            2,565
            
            
            6,734
            
            
            4,929Net
                interest income
            
            
            2,989
            
            
            2,790
            
            
            5,921
            
            
            5,281Provision
                for loan losses
            
            
            201
            
            
            117
            
            
            448
            
            
            268Net
                interest income after provision for loan losses
            
            
            2,788
            
            
            2,673
            
            
            5,473
            
            
            5,013Noninterest
                incomeService
                charges on deposit accounts
            
            
            150
            
            
            140
            
            
            301
            
            
            256Other
                income
            
            
            135
            
            
            133
            
            
            276
            
            
            231Total
                noninterest income
            
            
            285
            
            
            273
            
            
            577
            
            
            487Noninterest
                expenseSalaries
                and employee benefits
            
            
            1,038
            
            
            909
            
            
            2,075
            
            
            1,793Occupancy
                and equipment
            
            
            460
            
            
            385
            
            
            906
            
            
            737Other
            
            
            452
            
            
            580
            
            
            1,075
            
            
            1,095Total
                noninterest expense
            
            
            1,950
            
            
            1,874
            
            
            4,056
            
            
            3,625Income
                before income taxes
            
            
            1,123
            
            
            1,072
            
            
            1,994
            
            
            1,875Income
                tax expense
            
            
            429
            
            
            383
            
            
            757
            
            
            678Net
                income
            
            $
            694
            
            $
            689
            
            $
            1,237
            
            $
            1,197Weighted
                average:Common
                shares
            
            
            1,742,673
            
            
            1,721,889
            
            
            1,742,793
            
            
            1,720,171Dilutive
                stock options and warrants
            
            
            77,146
            
            
            82,693
            
            
            78,362
            
            
            84,169Dilutive
                shares
            
            
            1,819,819
            
            
            1,804,582
            
            
            1,821,155
            
            
            1,804,340Basic
                earnings per common share
            
            $
            .40
            
            $
            .40
            
            $
            .71
            
            $
            .70Diluted
                earnings per common share
            
            $
            .38
            
            $
            .38
            
            $
            .68
            
            $
            .66




See
      accompanying notes to financial statements.


4




JACKSONVILLE
        BANCORP, INC.


CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


(Unaudited)


(Dollars
      in thousands)










Common Stock
            
            Additional
            
            
            
            
            
            Accumulated OtherOutstanding
            
            Paid-In
            
            Retained
            
            Treasury Stock
            
            ComprehensiveShares
            
            Amount
            
            Capital
            
            Earnings
            
            Amount
            
            Income (Loss)
            
            TotalBalance
                at January 1, 2006
            
            
            1,714,716
            
            $
            17
            
            $
            17,526
            
            $
            2,718
            
            $
            (54
            )
            $
            (361
            )
            $
            19,846Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            
            
            
            1,197
            
            
            
            
            
            
            
            
            1,197Change
                in unrealized gain (loss) on securities available for sale, net of
                tax
                effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (325
            )
            
            (325
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            872Purchase
                of treasury stock
            
            
            (3,600
            )
            
            
            
            
            
            
            
            
            
            
            (112
            )
            
            
            
            
            (112
            )Issuance
                of treasury stock
            
            
            3,450
            
            
            
            
            
            3
            
            
            
            
            
            112
            
            
            
            
            
            115Compensation
                expense
            
            
            
            
            
            
            
            
            65
            
            
            
            
            
            
            
            
            
            
            
            65Exercise
                of common stock options, including tax benefits
            
            
            7,286
            
            
            1
            
            
            130
            
            
            
            
            
            
            
            
            
            
            
            131Balance
                at June 30, 2006
            
            
            1,721,852
            
            $
            18
            
            $
            17,724
            
            $
            3,915
            
            $
            (54
            )
            $
            (686
            )
            $
            20,917Balance
                at January 1, 2007
            
            
            1,741,688
            
            $
            17
            
            $
            18,230
            
            $
            5,241
            
            $
            (57
            )
            $
            (293
            )
            $
            23,138Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            
            
            
            1,237
            
            
            
            
            
            
            
            
            1,237Change
                in unrealized gain (loss) on securities available for sale, net of
                tax
                effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (194
            )
            
            (194
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,043Purchase
                of treasury stock
            
            
            (3,320
            )
            
            
            
            
            
            
            
            
            
            
            (108
            )
            
            
            
            
            (108
            )Issuance
                of treasury stock
            
            
            3,300
            
            
            
            
            
            
            
            
            (2
            )
            
            114
            
            
            
            
            
            112Compensation
                expense
            
            
            
            
            
            —
            
            
            90
            
            
            
            
            
            
            
            
            
            
            
            90Balance
                at June 30, 2007
            
            
            1,741,668
            
            $
            17
            
            $
            18,320
            
            $
            6,476
            
            $
            (51
            )
            $
            (487
            )
            $
            24,275




See
      accompanying notes to financial statements.




5


JACKSONVILLE
      BANCORP, INC.


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited)


(Dollars
      in thousands)










Six
                Months EndedJune
                30,2007
            
            2006Cash
                flows from operating activitiesNet
                income
            
            $
            1,237
            
            $
            1,197Adjustments
                to reconcile net income to net cash from operating
                activities:Depreciation
                and amortization
            
            
            278
            
            
            245Net
                amortization of deferred loan fees
            
            
            74
            
            
            (76
            )Provision
                for loan losses
            
            
            448
            
            
            268Premium
                amortization, net of accretion
            
            
            11
            
            
            23Earnings
                on Bank Owned Life Insurance
            
            
            (87
            )
            
            (106
            )Share-based
                compensation
            
            
            202
            
            
            180Loss
                on disposal of assets
            
            
            —
            
            
            9Net
                change in accrued interest receivable and other assets
            
            
            21
            
            
            (436
            )Net
                change in accrued expenses and other liabilities
            
            
            (7
            )
            
            (779
            )Net
                cash from operating activities
            
            
            2,177
            
            
            525Cash
                flows from investing activitiesPurchases
                of securities available for sale
            
            
            (2,620
            )
            
            (3,949
            )Proceeds
                from maturities of securities available for sale
            
            
            1,770
            
            
            1,805Loan
                (originations) payments, net
            
            
            (39,041
            )
            
            (24,191
            )Additions
                to premises and equipment, net
            
            
            (81
            )
            
            (1,054
            )Net
                change in Federal Home Loan Bank stock
            
            
            (1,155
            )
            
            (776
            )Net
                cash from investing activities
            
            
            (41,127
            )
            
            (28,165
            )Cash
                flows from financing activitiesNet
                change in deposits
            
            
            18,591
            
            
            21,599Net
                change in overnight FHLB advances
            
            
            7,000
            
            
            15,050Net
                change in Fed funds purchased
            
            
            (182
            )
            
            —Proceeds
                from fixed rate FHLB advances
            
            
            16,000
            
            
            —Proceeds
                from exercise of stock options
            
            
            —
            
            
            73Excess
                tax benefits from stock-based payment arrangements
            
            
            —
            
            
            58Purchase
                of treasury stock
            
            
            (108
            )
            
            (112
            )Net
                cash from financing activities
            
            
            41,301
            
            
            36,668Net
                change in cash and cash equivalents
            
            
            2,351
            
            
            9,028Cash
                and cash equivalents at beginning of period
            
            
            4,478
            
            
            4,767Cash
                and cash equivalents at end of period
            
            $
            6,829
            
            $
            13,795Supplemental
                disclosures of cash flow informationCash
                paid during the period forInterest
            
            $
            6,545
            
            $
            4,858Income
                taxes
            
            
            645
            
            
            1,340




See
      accompanying notes to 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, 2006.





The
      accounting and reporting policies of the Company reflect banking industry
      practice and conform to generally accepted accounting principles in the United
      States of America. 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 June 30, 2007 and 2006 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, 2006 consolidated
      balance sheet was derived from the Company's December 31, 2006 audited
      consolidated financial statements.





**Adoption
      of New Accounting Standards**





The
      Company adopted the provisions of FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”) *,* on
      January 1, 2007. The adoption of FIN 48 had no effect on the Company’s financial
      statements. The Company has no unrecognized tax benefits and does not anticipate
      any increase in unrecognized benefits during 2007 relative to any tax positions
      taken prior to January 1, 2007. Should the accrual of any interest or penalties
      relative to unrecognized tax benefits be necessary, it is the Company’s policy
      to record such accruals in its income taxes accounts; no such accruals exist
      as
      of January 1, 2007. The Company and its subsidiaries file a consolidated U.S.
      federal income tax return and a combined unitary return in the state of Florida.
      These returns are subject to examination by taxing authorities for all years
      after 2002.





In  September
      2006, the FASB Emerging Issues Task Force finalized Issue No.  06-5,
      Accounting for Purchases of Life Insurance - Determining the Amount T hat
      Could
      Be Realized in Accordance with FASB Technical Bulletin No. 85-4  (Accounting
      for Purchases of Life Insurance).  This
      issue requires that a  policyholder
      consider contractual terms of a life insurance policy in  determining
      the amount that could be realized under the insurance contract.  It
      also
      requires that if the contract provides for a greater surrender  value
      if
      all individual policies in a group are surrendered at the same  time,
      that the surrender value be determined based on the assumption that  policies
      will be surrendered on an individual basis. Lastly, the issue  discusses  whether
      the cash surrender value should be discounted when the  policyholder
      is contractually limited in its ability to surrender a policy.  This
      issue is effective for fiscal years beginning after December 15,
      2006.  The
      adoption of this  issue
      on
      January 1, 2007 did not have a n impact
      on
      the financial statements of the Company.




7




JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)









**NOTE
      2 – LOAN
      PORTFOLIO COMPOSITION**


The
      composition of the Bank’s loan portfolio at June 30, 2007 and December 31, 2006
      is indicated below along with the growth from the prior year end.




% Increase (Decrease)Total
                Loans
            
            Total Loans
            
            from December 31, 2006June
                30, 2007
            
            December 31, 2006
            
            to
                June 30, 2007Real
                estates mortgage loans:Commercial
            
            $
            196,789
            
            $
            170,762
            
            
            15.2%Residential
            
            
            69,534
            
            
            62,270
            
            
            11.7%Construction(1)
            
            
            30,553
            
            
            25,479
            
            
            19.9%Farmland
            
            
            1,620
            
            
            1,800
            
            
            (10.0%)Commercial
                loans
            
            
            19,814
            
            
            18,903
            
            
            4.8%Consumer
                loans
            
            
            4,617
            
            
            4,693
            
            
            (1.6%)Subtotal
            
            
            322,927
            
            
            283,907
            
            
            13.7%Less:
                Net deferred loan fees
            
            
            (354
            )
            
            (280
            )
            
            26.4%Total
            
            $
            322,573
            
            $
            283,627
            
            
            13.7%





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




**NOTE
      3 – ALLOWANCE
      FOR LOAN LOSSES**


Activity
      in the allowance for loan losses for the six months ended June 30, 2007 and
      2006
      follows:





Six
                Months Ended June 30,2007
            
            2006Balance,
                January 1
            
            $
            2,621
            
            $
            2,207Provisions
                for loan losses charged to expense
            
            
            448
            
            
            268Loans
                charged off
            
            
            (24
            )
            
            (99
            )Recoveries
                of loans previously charged off
            
            
            3
            
            
            2Balance,
                June 30
            
            $
            3,048
            
            $
            2,378




**NOTE
      4 – CAPITAL
      ADEQUACY**


Federal
      banking regulators have established certain capital adequacy standards required
      to be maintained by banks and bank holding companies. The minimum requirements
      established in the regulations are set forth in the table below, along with
      the
      actual ratios at June 30, 2007 and December 31, 2006:





AdequatelyCapitalized
            
            June
                30, 2007
            
            December
                31, 2006Requirement
            
            Actual
            
            ActualTier
                1 Capital (to Average Assets)Consolidated
            
            
            >4%
            
            
            8.94
            %
            
            9.47
            %Bank
            
            
            >4%
            
            
            8.40
            %
            
            8.38
            %


Tier
                1 Capital (to Risk Weighted Assets)Consolidated
            
            
            >4%
            
            
            9.73
            %
            
            10.57
            %Bank
            
            
            >4%
            
            
            9.14
            %
            
            9.28
            %Total
                Capital (to Risk Weighted Assets)Consolidated
            
            
            >8%
            
            
            10.66
            %
            
            11.48
            %Bank
            
            
            >8%
            
            
            10.07
            %
            
            10.18
            %


8
  JACKSONVILLE
        BANCORP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Dollars
        in thousands, except per share amounts)
  
  In
      addition, under such standards, a well-capitalized bank is one that has a total
      risk-based capital ratio equal to or greater than 10%, a Tier 1 risk-based
      capital ratio equal to or greater than 6%, and a Tier 1 leverage capital ratio
      equal to or greater than 5%. Management believes, as of June 30, 2007, that
      the
      Company and the Bank met all capital requirements to which they are subject.
      The
      Company has included in Tier 1 Capital and Total Capital the trust preferred
      securities that were issued in June 2004 and December 2006.




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


At
      June
      30, 2007 and December 31, 2006, advances from the Federal Home Loan Bank (FHLB)
      were as follows:





2007
            
            2006Overnight
                advance maturing daily at a daily variable rate of 5.63% and 5.50%
                at June
                30, 2007 and December 31, 2006, respectively
            
            $
            15,650
            
            $
            8,650Advances
                maturing April 11, 2008 at a fixed rate of 4.36%
            
            
            3,000
            
            
            3,000Advances
                maturing January 11, 2008 at a fixed rate of 5.26%
            
            
            6,000
            
            
            —Convertible
                advances maturing June 8, 2010 with a quarterly call option beginning
                June
                9, 2008 at a fixed rate of 4.99%
            
            
            5,000
            
            
            —Convertible
                advances maturing June 8, 2012 with a quarterly call option beginning
                September 10, 2007 at a fixed rate of 4.68%
            
            
            5,000
            
            
            —$
            34,650
            
            $
            11,650




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.





9




JACKSONVILLE
          BANCORP, INC.
 MANAGEMENT’S
            DISCUSSION AND ANALYSIS
 OF
            FINANCIAL CONDITION AND RESULTS OF OPERATION
  **Item
        2. Management’s Discussion and Analysis of Financial Condition and Results of
        Operation**
 
 **General**
 
 Jacksonville
        Bancorp, Inc. (“Bancorp”) was incorporated on October 24, 1997 and was organized
        to conduct the operations of The Jacksonville Bank (the “Bank”), collectively
        (the “Company”). 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.
 
 **Forward
        Looking Statements**
 
 “Management's
        Discussion and Analysis of Financial Condition and Results of Operations” and
“Quantitative and Qualitative Disclosures About Market Risk” contain various
        forward-looking statements with respect to financial performance and business
        matters. Such statements are generally contained in sentences including the
        words or phrases “will likely result,” “are expected to,” “is anticipated,” or
“estimate,” “project” or “believe.” 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 our costs incurred on our
        deposits, the Federal Home Loan Bank (“FHLB”) advances, and other sources of
        funding. Net interest income is also affected by the relative amounts of
        interest-earning assets and interest-bearing liabilities. Net interest income
        is
        generated as the relative amounts of interest-earning assets grow in relation
        to
        the relative amounts of interest-bearing liabilities. In addition, the level
        of
        noninterest income earned and noninterest expenses incurred also affects
        profitability. Included in noninterest income are service charges earned
        on
        deposit accounts, increases in cash surrender value of Bank Owned Life Insurance
        (“BOLI”) and mortgage origination fees. Included in noninterest expense are
        costs incurred for salaries and employee benefits, occupancy and equipment
        expenses, marketing and advertising expenses, federal deposit insurance premiums
        and legal and professional fees.
 
 Our
        goal
        is to sustain profitable, controlled growth by focusing on increasing our
        loan
        and deposit market share in the Northeast Florida market by developing new
        financial products, services and delivery channels; closely managing yields
        on
        interest-earning assets and rates on interest-bearing liabilities; focusing
        on
        noninterest income opportunities; controlling the growth of noninterest
        expenses; and maintaining strong asset quality. We have initiated programs
        to
        expand our scope of services and achieve these goals. The Bank has adopted
        a
        philosophy of seeking out and retaining the best available personnel for
        positions of responsibility which we believe will provide us with a competitive
        edge in the local banking industry. The Bank opened its fourth and fifth
        locations in 2006 in key areas of Jacksonville, which provide additional
        visibility and access to businesses and individuals and will likely result
        in
        additional loan and deposit growth.
  10
  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-earnings
        assets and our cost of funds and, thus, our net interest margin. In addition,
        the local economy and real estate market of Northeast Florida and the demand
        for
        our products and loans impacts our margin. The local economy and viability
        of
        local businesses can also impact the ability of our customers to make payments
        on loans, thus impacting our loan portfolio. The Company evaluates these
        factors
        when valuing its allowance for loan losses and believes that the local economy
        is stable. Additionally, the Company believes that the local real estate
        market
        is relatively stable, albeit soft in the residential real estate area. The
        Company also believes its underwriting procedures are relatively conservative
        and, as a result, the Company should not be any more affected than the overall
        market in the event of economic downturn.
  As
        stated
        above, fluctuations in interest rates impact our yield on interest-earning
        assets and our cost of funds, and thus our net interest margin. After 17
        interest rate increases beginning in June 2004 and ending in June 2006, the
        Federal Reserve has left the federal funds rate unchanged at 5.25%. The recent
        flattening of rates has resulted in a stabilization in our yield on earning
        assets. Conversely, a change in our deposit mix to more costly time deposits,
        coupled with rates charged on FHLB advances and other borrowings, has resulted
        in an increase in our cost of funds.
 
 **Introduction**
 
 In
        the
        following pages, management presents an analysis of the financial condition
        of
        the Company, as of June 30, 2007 compared to December 31, 2006, and the results
        of operations for the three months ended June 30, 2007 compared with the
        same
        period in 2006. 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 June 30, 2007 and December 31,
        2006**
 
 Total
        assets increased $42.6 million, or 13.1%, from $325.6 million at December
        31,
        2006 to $368.1 million at June 30, 2007. During the six months ended June
        30,
        2007, the Company experienced net loan growth of $38.5 million, or 13.7%.
        The
        increase in net loans was driven by increases in commercial real estate loans
        of
        $26.0 million, or 15.2%, and residential real estate loans of $7.3 million,
        or
        11.7%. The Company funded the increase in earning assets through an increase
        in
        deposits of $18.6 million and an increase in Federal Home Loan Bank advances
        of
        $23 million.
  Total
        deposits increased $18.6 million, or 6.6%, from $282.6 million at December
        31,
        2006 to $301.2 million at June 30, 2007. During the six months ended June
        30,
        2007, noninterest-bearing deposits increased $2.6 million to $35.6 million.
        Money market, NOW and savings deposits decreased $12.3 million to
        $138.2 million. Time deposits increased $28.3 million to $127.4
        million.
 
 11
 
 Investment
        securities available for sale increased $527,000 to $26.6 million at June
        30,
        2007. During the six months ended June 30, 2007, we purchased $2.6 million
        of
        securities and received $1.8 million in proceeds from maturities and principal
        repayments. Of the $2.6 million purchased in the current year, approximately
        $1.0 million was invested in tax-exempt municipal securities and $1.6 million
        was invested in mortgage-backed securities. $1.0 million of the mortgage-backed
        security purchase in the current year qualified for CRA (Community Reinvestment
        Act) credit.
 
 Total
        shareholders' equity increased by $1.1 million, or 4.9%, from $23.1 million
        at
        December 31, 2006 to $24.2 million at June 30, 2007. The increase is mainly
        attributable to net income of $1.2 million. At June 30, 2007, the Company
        had 8,000,000 authorized shares of $.01 par value common stock, of which
        1,743,338 shares were issued and 1,741,668 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 June 30, 2007.
  **Comparison
        of Operating Results for the Six Months Ended June 30, 2007 and
        2006**
 
 **Net
        Income**
 
 Net
        income increased $40,000, or 3.3%, from $1,197,000 for the six months ended
        June
        30, 2006 to $1,237,000 for the six months ended June 30, 2007. Diluted earnings
        per share increased $.02 from $.66 for the six months ended June 30, 2006
        to
        $.68 for the six months ended June 30, 2007. This increase in net income
        and
        diluted earnings per share was due to an increase in net interest income
        and
        noninterest income, offset by an increase in noninterest expense and income
        tax
        expense. Net interest income increased as a result of an increase in
        interest-earning assets. The increase in noninterest income was primarily
        due to
        an increase in deposit service charges and mortgage fees. Mortgage fees
        increased as a result of the implementation of a mortgage initiative during
        2006. Salaries and employee benefits, which accounted for the largest portion
        of
        the increase in noninterest expenses, increased primarily due to the costs
        associated with the opening of two additional branches during 2006. The increase
        in income tax expense was directly related to the increase in net income.
 
 **Net
        Interest Income**
 
 Net
        interest income, the difference between interest earned on interest-earning
        assets and interest paid on interest-bearing liabilities, increased $640,000,
        or
        12% from $5.3 million for the six months ended June 30, 2006 to $5.9 million
        for
        the six months ended June 30, 2007. This increase resulted from an increase
        in
        interest income of $2.4 million, offset by an increase in interest expense
        of
        $1.8 million, driven primarily by an increase in time deposits, our highest
        cost
        deposit category. Additional funding from short-term borrowings and FHLB
        advances also increased interest expense by $336,000. The primary driver
        in the
        increase in net interest income will continue to be the growth in our earning
        assets.
 
 When
        comparing the first six months of 2007 to the same period last year, the
        Company
        experienced substantial growth in its loan portfolio, with the most significant
        impact occurring in commercial real estate. The Company also experienced
        growth
        in deposit products, with the largest increase occurring in time deposit
        accounts.
 
 Many
        of
        the Bank’s loans are indexed to the prime rate. The higher level of the prime
        rate in the first half of 2007 compared to the comparative period in 2006
        is
        reflected in the higher average yield of the loan portfolio due to higher
        rates
        earned on variable rate loans and new loan production. The average yield
        on
        interest-earning assets for the first half of 2007 was 7.76%, which was an
        increase of 41 basis points, compared to the 7.35% yield earned during the
        first
        half of 2006.
  12
  The
        average cost of interest-bearing liabilities increased 58 basis points from
        4.21% in the first half of 2006 to 4.79% in the comparable period in 2007.
        The
        average cost of interest-bearing deposits and all interest-bearing liabilities
        reflect, in part, the increase in short-term interest rates and the change
        in
        the funding mix for the first half of 2007 as compared to the same period
        in
        2006.
 
 The
        net
        interest margin decreased by 17 basis points from 3.80% to 3.63% when comparing
        the first six months of 2007 to the same period last year. This decrease
        is
        mainly the result of the stabilization on yields earned on interest-earning
        assets while the funding costs continued to increase. 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. Furthermore, proceeds from maturity, amortization
        and prepayment of loans and securities continue to be invested at stable
        rates
        for the most part and are no longer increasing since short-term interest
        rates
        have not changed since June 2006. In the current interest rate environment,
        the
        margin may contract further; however, as stated above, management is currently
        implementing various strategies to impact the rising cost of
        funding.
 
 ***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.
  Six
                    Months Ended June 30,2007
                
                2006Average
                
                
                
                Average
                
                Average
                
                
                
                AverageBalance
                
                Interest
                
                Rate
                
                Balance
                
                Interest
                
                Rate(Dollars
                    in thousands)Interest-earning
                    assets:Loans(1)
                
                $
                299,608
                
                $
                11,986
                
                
                8.07%
                
                $
                247,804
                
                $
                9,503
                
                
                7.73%Securities(2)
                
                
                28,348
                
                
                647
                
                
                4.60
                
                
                26,926
                
                
                574
                
                
                4.30Other
                    interest-earning assets(3)
                
                
                772
                
                
                22
                
                
                5.75
                
                
                5,541
                
                
                133
                
                
                4.84Total
                    interest-earning assets
                
                
                328,728
                
                
                12,655
                
                
                7.76
                
                
                280,271
                
                
                10,210
                
                
                7.35Noninterest-earning
                    assets(4)
                
                
                14,058
                
                
                
                
                
                
                
                
                13,311Total
                    assets
                
                $
                342,786
                
                
                
                
                
                
                
                $
                293,582Interest-bearing
                    liabilities:Savings
                    and NOW deposits
                
                $
                17,414
                
                $
                164
                
                
                1.90
                
                $
                18,376
                
                $
                166
                
                
                1.82Money
                    market deposits
                
                
                126,679
                
                
                2,846
                
                
                4.53
                
                
                136,120
                
                
                2,931
                
                
                4.34Time
                    deposits
                
                
                108,232
                
                
                2,814
                
                
                5.24
                
                
                65,757
                
                
                1,381
                
                
                4.24FHLB
                    advances
                
                
                23,811
                
                
                628
                
                
                5.32
                
                
                11,865
                
                
                292
                
                
                4.96Subordinated
                    debt
                
                
                7,000
                
                
                274
                
                
                7.89
                
                
                4,000
                
                
                153
                
                
                7.71Other
                    interest-bearing liabilities(5)
                
                
                246
                
                
                8
                
                
                6.56
                
                
                214
                
                
                6
                
                
                5.65Total
                    interest-bearing liabilities
                
                
                283,382
                
                
                6,734
                
                
                4.79
                
                
                236,332
                
                
                4,929
                
                
                4.21Noninterest-bearing
                    liabilities
                
                
                35,728
                
                
                
                
                
                
                
                
                36,901Shareholders'
                    equity
                
                
                23,676
                
                
                
                
                
                
                
                
                20,349Total
                    liabilities and shareholders' equity
                
                $
                342,786
                
                
                
                
                
                
                
                $
                293,582Net
                    interest income
                
                
                
                
                $
                5,921
                
                
                
                
                
                
                
                $
                5,281Interest
                    rate spread(6)
                
                
                
                
                
                
                
                
                2.97%
                
                
                
                
                
                
                
                
                3.14%Net
                    interest margin(7)
                
                
                
                
                
                
                
                
                3.63%
                
                
                
                
                
                
                
                
                3.80%
  13
  
 (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.
  Six
                    Months Ended June 30,2007
                    Versus 2006(1)Increase
                    (decrease) due to changes in:NetVolume
                
                Rate
                
                Change(Dollars
                    in thousands)Interest
                    income:Loans
                
                $
                2,058
                
                $
                425
                
                $
                2,483Securities
                
                
                31
                
                
                42
                
                
                73Other
                    interest-earning assets
                
                
                (132
                )
                
                21
                
                
                (111
                )Total
                    interest income
                
                
                1,957
                
                
                488
                
                
                2,445Interest
                    expense:Savings
                    and NOW deposits
                
                
                (9
                )
                
                7
                
                
                (2
                )Money
                    market deposits
                
                
                (209
                )
                
                124
                
                
                (85
                )Time
                    deposits
                
                
                1,047
                
                
                386
                
                
                1,433FHLB
                    advances
                
                
                314
                
                
                22
                
                
                336Subordinated
                    debt
                
                
                117
                
                
                4
                
                
                121Other
                    interest-bearing liabilities
                
                
                1
                
                
                1
                
                
                2Total
                    interest expense
                
                
                1,261
                
                
                544
                
                
                1,805Increase
                    in net interest income
                
                $
                696
                
                $
                (56
                )
                $
                640
 (1)
              The
                  change in interest due to both rate and volume has been allocated
                  to the
                  volume and rate components in proportion to the relationship of
                  the dollar
                  amounts of the absolute change in
                  each.
  **Critical
        Accounting Policies**
 
 A
        critical accounting policy is one that is both very important to the portrayal
        of the Company’s financial condition and requires management’s most difficult,
        subjective or complex judgments. The circumstances that make these judgments
        difficult, subjective or complex have to do with the need to make estimates
        about the effect of matters that are inherently uncertain. Based on this
        definition, the Company’s primary critical accounting policy is the
        establishment and maintenance of an allowance for loan losses.
  14
  The
        allowance for loan loss is established through a provision for loan loss
        charged
        to expense. Loans are charged against the allowance for loan loss when
        management believes that the collectibility of the principal is unlikely.
        The
        allowance is an amount that management believes will be adequate to absorb
        inherent 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, 2006.
 
 **Asset
        Quality**
 
 The
        Company has identified certain assets as nonperforming. These assets include
        nonaccruing loans, loans that are contractually past due 90 days or more
        as to
        principal or interest payments and still accruing, and foreclosed real estate.
        Loans are placed on nonaccrual status when management has concerns regarding
        its
        ability to collect the outstanding loan principal and interest amounts and
        typically when such loans are more than 90 days past due. These loans present
        more than the normal risk that the Company will be unable to eventually collect
        or realize their full carrying value. Loans are impaired when it is considered
        probable that management will not collect the outstanding loan principal
        and
        interest amounts or realize the full carrying value of the loan. The Company’s
        nonperforming assets at June 30, 2007 and December 31, 2006 are as
        follows:
  June
                    30,
                
                December
                    31,2007
                
                2006(Dollars
                    in thousands)Nonaccruing
                    loans
                
                $
                511
                
                $
                420Loans
                    past due over 90 days still on accrual
                
                
                —
                
                
                809Total
                    nonperforming loans
                
                
                511
                
                
                1,229Foreclosed
                    assets, net
                
                
                —
                
                
                —Total
                    nonperforming assets
                
                $
                511
                
                $
                1,229Allowance
                    for loan losses
                
                $
                3,048
                
                $
                2,621Nonperforming
                    loans and foreclosed assets as a percent of total assets
                
                
                .14
                %
                
                .38
                %Nonperforming
                    loans as a percent of gross loans
                
                
                .16
                %
                
                .43
                %Allowance
                    for loan losses as a percent of nonperforming loans
                
                
                596.48
                %
                
                213.26
                %
  **Allowance
        and Provision for Loan Losses**
 
 The
        allowance for loan losses grew by $427,000 during the first six months of
        2007,
        amounting to $3.0 million at June 30, 2007, as compared to $2.6 million at
        December 31, 2006. The allowance represented approximately .94% and .92%
        of
        total loans at both dates, respectively. During the first six months of 2007,
        the Company had charge-offs of $23,900, recoveries of $3,600 and recorded
        a
        $448,000 provision for loan losses compared to charge-offs of $99,000,
        recoveries of $2,000 and a provision for loan losses of $268,000 for the
        first
        six months of 2006. The larger provision for loan losses in 2007 resulted
        primarily from continued loan growth and management’s assessment of local and
        national economic conditions.
  15
  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
        and lease portfolio. Due to their similarities, the Company has grouped the
        loan
        portfolio into three components. The components are residential real estate,
        consumer loans and commercial loans. The Company has created a loan
        classification system to properly calculate the allowance for loan losses.
        Commercial and commercial real estate loans are individually evaluated for
        impairment. If a loan is impaired, a portion of the allowance is allocated
        so
        that the loan is reported, net, at the present value of estimated future
        cash
        flows using the loan’s existing rate or at the fair value of collateral if
        repayment is expected solely from the sale of the collateral. Large groups
        of
        smaller balance homogeneous loans, such as consumer and residential real
        estate
        loans, are collectively evaluated for impairment and, accordingly, they are
        not
        separately identified for impairment disclosures.
 
 In
        estimating the overall exposure to loss on impaired loans, the Company has
        considered a number of factors, including the borrower’s character, overall
        financial condition, resources and payment record, the prospects for support
        from any financially responsible guarantors, and the realizable value of
        any
        collateral. The Company also considers other internal and external factors
        when
        determining the allowance for loan losses. These factors include, but are
        not
        limited to, changes in national and local economic conditions, commercial
        lending staff limitations, impact from lengthy commercial loan workout and
        charge-off period, loan portfolio concentrations and trends in the loan
        portfolio.
 
 Bank
        regulators recently issued a “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 June 30, 2007, the
        allowance for loan loss is considered to be adequate to absorb estimated
        loan
        losses in the portfolio as of that date. As more fully discussed in the
“Critical Accounting Policies” section of this discussion and analysis of
        financial condition and results of operations, the process for estimating
        credit
        losses and determining the allowance for loan losses as of any balance sheet
        date is subjective in nature and requires material estimates. Actual results
        could differ significantly from these estimates.
 
 The
        amount of future charge-offs and provisions for loan losses could be affected
        by, among other things, economic conditions in Jacksonville, Florida, and
        the
        surrounding communities. Such conditions could affect the financial strength
        of
        the Company’s borrowers and do affect the value of real estate collateral
        securing the Company’s mortgage loans. Loans secured by real estate represent
        approximately 92% of the Company’s total loans outstanding at June 30, 2007. In
        recent years, economic conditions in Jacksonville and the surrounding
        communities have been strong and real estate values have appreciated in a
        healthy manner. Presently, economic conditions remain healthy in this market
        and
        real estate values appear to have stabilized. Conditions and values could
        deteriorate in the future, and such deterioration could be substantial. If
        this
        were to occur, some of the Company’s borrowers may be unable to make the
        required contractual payments on their loans, and the Company may be unable
        to
        realize the full carrying value of such loans through foreclosure. However,
        management believes that the Company’s underwriting policies are relatively
        conservative and, as a result, the Company should not be any more affected
        than
        the overall market.
 
 16
  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 $577,000 for the six months ended June 30, 2007, compared to $487,000
        for the 2006 period. The increase in total noninterest income was primarily
        due
        to the increase in mortgage origination fees and service charges on deposit
        accounts.
 
 Noninterest
        expense increased to $4.1 million for the six months ended June 30, 2007,
        from
        $3.6 million for the six months ended June 30, 2006. Salaries and employee
        benefits and occupancy and equipment accounted for the majority of noninterest
        expense increasing $451,000 over the same period of 2006. This increase is
        a
        result of the absorption of additional staffing, rent and equipment expense
        related to the Company’s two newest locations. The Company opened its fourth
        location in February 2006 and its fifth location in June 2006.
 
 Income
        taxes for the six months ended June 30, 2007 were $757,000 (an effective
        rate of
        37.96%) compared to income taxes of $678,000 for the six months ended June
        30,
        2006 (an effective tax rate of 36.16%). Income tax expense increased due
        to the
        increase in net income.
 
 **Comparison
        of Operating Results for the Three Months Ended June 30, 2007 and
        2006**
 
 Net
        income for the second quarter of 2007 was $694,000, or $.38 per diluted share,
        as compared to $689,000, or $.38 per diluted share, earned for the same quarter
        last year. The largest components of the increase in net income are an increase
        in net interest income of $199,000, offset by an $84,000 increase in the
        allowance for loan loss due to an increase in the loan portfolio, and a $76,000
        increase in noninterest expense due to the
        increase in salaries, occupancy and equipment expense, and other operating
        expenses discussed above with respect to the six-month periods.
 
 Net
        interest income increased by $199,000, or 7.3%, from $2.8 million for the
        second
        quarter of 2006 to $3.0 million for the current quarter. The
        increase is primarily comprised of a positive volume variance of $392,000
        and a
        negative rate variance of $193,000. The reasons for the positive volume variance
        and negative rate variance are the same as those discussed above with respect
        to
        the six-month periods.
 
 **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 Company’s total risk-based
        capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios were
        10.66%, 9.73% and 8.94%, respectively, at June 30, 2007.
  17
  **Cash
        Flows and Liquidity**
 
 *Cash
        Flows.*  The
        Company’s primary sources of cash are deposit growth, maturities and
        amortization of investment securities, FHLB advances and federal funds
        purchased. The Company uses cash from these and other sources to fund loan
        growth. Any remaining cash is used primarily to reduce borrowings and to
        purchase investment securities. During the first six months of 2007, the
        Company’s cash and cash equivalent position increased by $2.4 million. The
        increase in cash mainly resulted from an increase in deposit accounts of
        approximately $18.6 million from $282.6 million at December 31, 2006 to
        $301.2 million at June 30, 2007 as well as an increase in FHLB advances of
        $23.0 million from $11.7 million at December 31, 2006 to $34.7 million at
        June
        30, 2007. These increases were offset by net loan originations of
        $38.5 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; and its overnight position with federal funds sold.
        At
        June 30, 2007, the Company had $29.2 million in federal funds sold and
        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 core deposits from businesses and consumers in its local and national
        market. The Company can also borrow overnight federal funds and fixed-rate
        term
        products under credit facilities established with the Federal Home Loan Bank
        and
        other commercial banks. These lines, in the aggregate amount of approximately
        $83.9 million, do not represent legal commitments to extend credit on the
        part
        of the other banks.
 
 **Recent
        Accounting Pronouncements**
  In
        September 2006, FASB issued Statement No. 157, *Fair
        Value Measurements* .
        This
        new standard provides guidance for using fair value to measure assets and
        liabilities. Under Statement 157, fair value refers to the price that would
        be
        received to sell an asset or paid to transfer a liability in an orderly
        transaction between market participants in the market in which the reporting
        entity transacts. In this standard, the FASB clarifies the principle that
        fair
        value should be based on the assumptions market participants would use when
        pricing the asset or liability. In support of this principle, Statement 157
        establishes a fair value hierarchy that prioritizes the information used
        to
        develop those assumptions. The fair value hierarchy gives the highest priority
        to quoted prices in active markets and the lowest priority to unobservable
        data.
        Under the standard, fair value measurements would be separately disclosed
        by
        level within the fair value hierarchy. The provisions of Statement 157 are
        effective for financial statements issued for fiscal years beginning after
        November 15, 2007, and interim periods within those fiscal years, with earlier
        application encouraged. The Company has not yet determined the effect of
        adopting this Statement.
 
 On
        February 15, 2007, FASB issued Statement No. 159, *The
        Fair Value Option for Financial Assets and Financial
        Liabilities* .
        This
        new standard permits entities to measure many financial instruments at fair
        value. The provisions of Statement 159 provide entities with the opportunity
        to
        mitigate volatility in reported earnings caused by measuring related assets
        and
        liabilities differently without having to apply complex hedge accounting
        provisions. Statement 159 is effective as of the beginning of an entity’s first
        fiscal year that begins after November 15, 2007. Early adoption is permitted
        as
        of the beginning of a fiscal year that begins on or before November 15, 2007;
        however, the early adoption must occur within 120 days of the start of the
        fiscal year and before any quarterly financial statements are issued. An
        entity
        electing to adopt Statement 159 early must also elect to apply the provisions
        of
        Statement 157 (discussed above). The Company has not elected to early adopt
        this
        Statement and has not yet determined the effect of adopting this
        Statement.
  18
  In  September
        2006, the FASB Emerging Issues Task Force finalized Issue No.  06-4,
        Accounting for D eferred
        Compensation and Postretirement Benefit  Aspects
        of Endorsement Split-Dollar Life Insurance Arrangements. This  issue
        requires that a liability be recorded during the service period when  a
        split-dollar life insurance agreement continues  after
        participants’  employment  or
        retirement. The required accrued liability will be based on  either
        the post-employment benefit cost for the continuing life insurance  or
        based
        on the future death benefit depending on the contractual terms of  the
        underlying  agreement.
        This issue is effective for fiscal years  beginning
        after December 15, 2007. Management does not expect the adoption of EITF
        06-4 to
        have a material impact on the financial statements.
 
 ***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, 2006 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 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, 2006 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, 2006.
 
 **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 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.
 
 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, 2006. 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.
  19
  **Item
        4.**  **Controls and Procedures**
 Not
        applicable.
 
 **Item
        4T. 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,
                  is
                  recorded, processed, summarized and reported within the time periods
                  specified in the rules and forms of the Securities and Exchange
                  Commission. Based upon their evaluation of those controls and procedures
                  performed as of the end of the period covered by this report, the
                  chief
                  executive officer and principal financial officer of the Company
                  concluded
                  that the Company’s disclosure controls and procedures were
                  adequate.
 
 b.
              
              *Changes
                  in internal controls.*The Company made no significant changes in its internal control
                  over
                  financial reporting during its most recent quarter that has materially
                  affected the Company’s internal control over financial
                  reporting.
  20
  PART
        II -
        OTHER INFORMATION
 
 Item
        1. Legal
        Proceedings
 There
            are
            no material pending legal proceedings to which we are a party or to which
            any of
            our properties are subject; nor are there material proceedings known
            to be
            contemplated by any governmental authority; nor are there any material
            proceedings known to us, pending or contemplated, in which any of our
            directors,
            officers, affiliates or any principal security holders, or any associate
            of any
            of the foregoing, is a party or has an interest adverse to us, except
            as set
            forth below.
 On
            April
            11, 2006, The Jacksonville Bank was served with a Summons and a copy
            of the
            Complaint filed by Wells Fargo Financial Leasing, Inc. in the Circuit
            Court of
            the Fourth Judicial Circuit in and for Duval County, Florida. The basis
            of the
            Complaint stems from an erroneous wire transfer that was made by Wells
            Fargo on
            February 16, 2005 to one of our customers, offsetting an overdraft in our
            customer’s account in the amount of $33,143.95. The Bank retained the amount and
            Wells Fargo is pursuing the refund plus interest and costs. The Bank
            does not
            expect to incur any material loss with regard to this
            matter.
 
 On
        September 13, 2006, The Jacksonville Bank was served with a Summons and a
        copy
        of a Complaint filed by Harrell & Harrell, P.A. in the Circuit Court of the
        Fourth Judicial Circuit in and for Duval County, Florida. The Complaint states
        that the Bank “cashed or otherwise converted instruments of Harrell &
Harrell, P.A. for the benefit of parties who were not entitled to enforce
        the
        instruments or receive payment.” The “parties” referred to are Daniel J. Glary
        and Jonathan B. Israel, local attorneys who are indebted to The Jacksonville
        Bank. The action calls for damages that exceed the sum of $15,000, exclusive
        of
        costs, interest and attorneys’ fees. Mediations did not result in any agreement.
        The lawsuit was dismissed on February 6, 2007. Harrell & Harrell
        re-filed the lawsuit and the Bank’s counsel has filed motions to have the suit
        dismissed again. The Bank received an offer of settlement from Glary &
Israel, P.A., Jonathan Israel and Harrell & Harrell, P.A. in June 2007. The
        Bank made a counter offer and is awaiting reply from the parties. Daniel
        Glary
        will not be party to the settlement; the Bank will pursue legal action against
        him individually.
 
 On
        January 17, 2007, a Counterclaim to the aforementioned suit was filed by
        Daniel
        J. Glary against Jonathan B. Israel, Angela C. McDonald, Scott M. Hall and
        The
        Jacksonville Bank asserting that Scott Hall and the Bank facilitated the
        wrongful taking of funds that belonged to others by Israel and McDonald.
        The
        suit against the Bank and Hall was dismissed. Glary was given ten days to
        amend
        his claim, but failed to do so. Glary then filed a new suit against The
        Jacksonville Bank and several of its officers. A motion to dismiss has been
        filed and is pending before the court. Damages in excess of $15,000, attorneys’
fees and costs of this action, and pre-judgment interest are being
        sought.
 
 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, 2006.
 
 Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
 None
 
 Item
                  3.
              Defaults
                  Upon Senior Securities
 None
   21
  Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
 On
                  April 24, 2007, the company held an annual meeting of the shareholders
                  of
                  its common stock to vote on the election of four persons to the
                  Company’s
                  Board of Directors.
 
 All
                  of the directors up for election at the annual meeting were elected
                  to
                  serve a term of office of three years, expiring at the annual meeting
                  in
                  the year 2010. The following table sets forth the votes for, votes
                  against
                  and votes withheld with respect to the election of the
                  directors:
 
 Director
                    Nominee
                
                Votes
                    For
                
                Votes
                    Against
                
                Votes WithheldJohn
                    W. Rose
                
                
                1,565,451
                
                
                -0-
                
                
                4,600John
                    R. Schultz
                
                
                1,566,251
                
                
                -0-
                
                
                3,800Price
                    W. Schwenck
                
                
                1,566,251
                
                
                -0-
                
                
                3,800Gary
                    L. Winfield, M.D.
                
                
                1,565,451
                
                
                -0-
                
                
                4,600
 
  The
                  following directors’ term of office continued after the 2007 annual
                  meeting: D. Michael Carter, CPA, Melvin Gottlieb, James M. Healey,
                  John C.
                  Kowkabany, Bennett A. Tavar, R.C. Mills, Gilbert J. Pomar, III,
                  Donald E.
                  Roller and Charles F. Spencer.
 
 Item
                  5.
              Other
                  Information
 None
 
 EXHIBIT
        INDEX
 Exhibit
        No. 3.1: Articles
        of Incorporation of the Company (1)
 Exhibit
        No. 3.2: Amended
        and Restated Bylaws of the Company (2)
 Exhibit
        No. 3.3: Amendment
        No. 1 to Amended and Restated Bylaws of the Company (3)
 Exhibit
        No. 3.4: Amendment
        No. 2 to Amended and Restated Bylaws of the Company (4)
 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 Exhibit No. 3.1 to Form SB-2, Registration
                  Statement and amendments thereto, effective as of September 30,
                  1998,
                  Registration No. 333-64815.
 (2)
              Incorporated
                  herein by reference to Exhibit No. 3.2 to Form 10-QSB for the quarter
                  ended June 30, 2002, filed August 14,
                  2002.
 (3)
              Incorporated
                  herein by reference to Exhibit No. 3.3 to Form 10-QSB for the quarter
                  ended June 30, 2005, filed August 10,
                  2005.
 (4)
              Incorporated
                  herein by reference to Exhibit 99.1 to Form 8-K, filed May 29,
                  2007.
  22
  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.
  Date: August
                13, 2007
              
              /s/ Gilbert
                J. Pomar, IIIGilbert
                J. Pomar, IIIPresident
                and
                Chief Executive Officer
 
 Date: August
                13, 2007
              
              /s/ Valerie
                A. KendallValerie
                A. KendallExecutive
                Vice President and Chief Financial
                Officer
  23