**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





(Mark
      One)





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





For
      the
      quarterly period ended March
      31, 2008





o
            TRANSITION
                REPORT PURSUANT TO 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
              incorporation
                or organization)
            (I.R.S.
                Employer
              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, a non-accelerated filer or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filer
            o
            
            Accelerated
                filer
            oNon-accelerated
                filer
            x
            
            Smaller
                reporting company
            o





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










JACKSONVILLE
        BANCORP, INC.


TABLE
      OF
      CONTENTS


PagePART
                  I—FINANCIAL INFORMATIONItem
                  1.
              
              Financial
                  StatementsConsolidated
                  Balance Sheets
              3Consolidated
                  Statements of Income
              4Consolidated
                  Statements of Changes in Shareholders’ Equity
              5Consolidated
                  Statements of Cash Flows
              6Notes
                  to Consolidated Financial Statements
              7Item
                  2.
              
              Management’s
                  Discussion and Analysis ofFinancial
                  Condition and Results of Operations
              13Item
                  3.
              
              Quantitative
                  and Qualitative Disclosures about Market Risk
              22Item
                  4.
              
              Controls
                  and Procedures
              23PART
                    II—OTHER INFORMATIONItem
                  1.
              
              Legal
                  Proceedings
              24Item 1A.
              
              Risk
                  Factors
              24Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              24Item
                  3.
              
              Defaults
                  Upon Senior Securities
              24Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              24Item
                  5.
              
              Other
                  Information
              24Item
                  6.
              
              Exhibits
              24SIGNATURES
              26EXHIBIT
                  INDEX
              27CERTIFICATIONSCertification
                  of Gilbert J. Pomar, III
              28Certification
                  of Valerie A. Kendall
              29Certification
                  under Section 906 of the Sarbanes-Oxley Act of 2002
              30




2




JACKSONVILLE
      BANCORP, INC.


**PART
      I—FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





CONSOLIDATED
      BALANCE SHEETS


(Dollars
      in thousands, except per share amounts)










March
                31,
            
            December
                31,2008
            
            2007(Unaudited)**ASSETS**Cash
                and due from banks
            
            $
            7,599
            
            $
            5,584Federal
                funds sold
            
            
            1,405
            
            
            451Total
                cash and cash equivalents
            
            
            9,004
            
            
            6,035Securities
                available for sale
            
            
            29,377
            
            
            29,727Securities
                held to maturity
            
            
            50
            
            
            50Loans,
                net of allowance for loan losses of 3,270 at 2008 and $3,116 at 2007
            
            
            356,278
            
            
            339,265Premises
                and equipment, net
            
            
            4,250
            
            
            4,342Bank-owned
                life insurance (BOLI)
            
            
            5,052
            
            
            5,010Federal
                Home Loan Bank (FHLB) stock
            
            
            2,330
            
            
            3,638Accrued
                interest receivable
            
            
            2,188
            
            
            2,275Other
                assets
            
            
            1,298
            
            
            1,620Total
                assets
            
            $
            409,827
            
            $
            391,962**LIABILITIES**DepositsNoninterest
                bearing
            
            $
            40,064
            
            $
            35,382Money
                market, NOW and savings deposits
            
            
            112,094
            
            
            116,181Time
                deposits
            
            
            186,016
            
            
            137,330Total
                deposits
            
            
            338,174
            
            
            288,893FHLB
                advances
            
            
            36,100
            
            
            67,830Subordinated
                debt
            
            
            7,000
            
            
            7,000Accrued
                expenses and other liabilities
            
            
            1,249
            
            
            1,610Total
                liabilities
            
            
            382,523
            
            
            365,333**SHAREHOLDERS’
                EQUITY**Common
                stock, $.01 par value, 8,000,000 shares authorized, 1,748,599 and
                1,747,981 shares issued
            
            
            17
            
            
            17Additional
                paid–in capital
            
            
            18,491
            
            
            18,459Retained
                earnings
            
            
            8,708
            
            
            8,186Treasury
                stock, 652 and 1,650 shares
            
            
            (15
            )
            
            (40
            )Accumulated
                other comprehensive income
            
            
            103
            
            
            7Total
                shareholders’ equity
            
            
            27,304
            
            
            26,629Total
                liabilities and shareholders’ equity
            
            $
            409,827
            
            $
            391,962





See
      accompanying notes to unaudited consolidated financial statements.





3




JACKSONVILLE
      BANCORP, INC.


CONSOLIDATED
      STATEMENTS OF INCOME


(Unaudited)


(Dollars
      in thousands, except per share amounts)










Three
                Months EndedMarch
                31,2008
            
            2007Interest
                and dividend incomeLoans,
                including fees
            
            $
            6,389
            
            $
            5,727Securities
            
            
            378
            
            
            300Other
            
            
            26
            
            
            16Total
                interest income
            
            
            6,793
            
            
            6,043Interest
                expenseDeposits
            
            $
            3,002
            
            $
            2,704FHLB
                advances
            
            
            438
            
            
            268Subordinated
                debt
            
            
            127
            
            
            135Other
            
            
            1
            
            
            4Total
                interest expense
            
            
            3,568
            
            
            3,111Net
                interest income
            
            
            3,225
            
            
            2,932Provision
                for loan losses
            
            
            363
            
            
            247Net
                interest income after provision for loan losses
            
            
            2,862
            
            
            2,685Noninterest
                incomeService
                charges on deposit accounts
            
            
            168
            
            
            151Other
                income
            
            
            84
            
            
            141Total
                noninterest income
            
            
            252
            
            
            292Noninterest
                expenseSalaries
                and employee benefits
            
            
            1,162
            
            
            1,037Occupancy
                and equipment
            
            
            447
            
            
            446Other
            
            
            707
            
            
            623Total
                noninterest expense
            
            
            2,316
            
            
            2,106Income
                before income taxes
            
            
            798
            
            
            871Income
                tax expense
            
            
            261
            
            
            328Net
                income
            
            $
            537
            
            $
            543Weighted
                average:Common
                shares
            
            
            1,747,628
            
            
            1,742,914Dilutive
                stock options and warrants
            
            
            57,940
            
            
            79,612Dilutive
                shares
            
            
            1,805,568
            
            
            1,822,526Basic
                earnings per common share
            
            $
            .31
            
            $
            .31Diluted
                earnings per common share
            
            $
            .30
            
            $
            .30




See
      accompanying notes to unaudited consolidated financial statements.




4


JACKSONVILLE
      BANCORP, INC.


CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


(Unaudited)


(Dollars
      in thousands)










Common
                Stock
            
            Additional
            
            
            
            
            
            Accumulated OtherOutstanding
            
            Paid-In
            
            Retained
            
            Treasury Stock
            
            ComprehensiveShares
            
            Amount
            
            Capital
            
            Earnings
            
            Amount
            
            Income (Loss)
            
            TotalBalance
                at January 1, 2007
            
            
            1,741,688
            
            $
            17
            
            $
            18,230
            
            $
            5,241
            
            $
            (57
            )
            $
            (293
            )
            $
            23,138Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            
            
            
            543
            
            
            
            
            
            
            
            
            543Change
                    in unrealized gain (loss) on securities available for sale, net
                    of tax
                    effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            33
            
            
            33Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            576Purchase
                of treasury stock
            
            
            (1,137
            )
            
            
            
            
            
            
            
            
            
            
            (38
            )
            
            
            
            
            (38
            )Issuance
                of treasury stock
            
            
            1,650
            
            
            
            
            
            (2
            )
            
            (2
            )
            
            57
            
            
            
            
            
            53Share-based
                compensation expense
            
            
            
            
            
            
            
            
            43
            
            
            
            
            
            
            
            
            
            
            
            43Balance
                at March 31, 2007
            
            
            1,742,201
            
            $
            17
            
            $
            18,271
            
            $
            5,782
            
            $
            (38
            )
            $
            (260
            )
            $
            23,772Balance
                at January 1, 2008
            
            
            1,746,331
            
            $
            17
            
            $
            18,459
            
            $
            8,186
            
            $
            (40
            )
            $
            7
            
            $
            26,629Comprehensive
                income:Net
                income
            
            
            
            
            
            
            
            
            
            
            
            537
            
            
            
            
            
            
            
            
            537Change
                    in unrealized gain (loss) on securities available for sale, net
                    of tax
                    effects
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            96
            
            
            96Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            633Purchase
                of treasury stock
            
            
            (652
            )
            
            
            
            
            
            
            
            
            
            
            (15
            )
            
            
            
            
            (15
            )Issuance
                of treasury stock
            
            
            1,650
            
            
            
            
            
            7
            
            
            (15
            )
            
            40
            
            
            
            
            
            32Share-based
                compensation expense
            
            
            
            
            
            
            
            
            25
            
            
            
            
            
            
            
            
            
            
            
            25Common
                stock issued
            
            
            618
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            —Balance
                at March 31, 2008
            
            
            1,747,947
            
            $
            17
            
            $
            18,491
            
            $
            8,708
            
            $
            (15
            )
            $
            103
            
            $
            27,304




See
      accompanying notes to unaudited consolidated financial statements.




5




JACKSONVILLE
      BANCORP, INC.


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited)


(Dollars
      in thousands)







Three
                  Months EndedMarch
                  31,2008
              
              2007Cash
                  flows from operating activitiesNet
                  income
              
              $
              537
              
              $
              543Adjustments
                  to reconcile net income to net cash from operating
                  activities:Depreciation
                  and amortization
              
              
              133
              
              
              142Net
                  amortization of deferred loan fees
              
              
              36
              
              
              (50
              )Provision
                  for loan losses
              
              
              363
              
              
              247Premium
                  amortization, net of accretion
              
              
              (8
              )
              
              6Earnings
                  on Bank Owned Life Insurance
              
              
              (42
              )
              
              (43
              )Share-based
                  compensation
              
              
              57
              
              
              96Loss
                  on disposal of assets
              
              
              38
              
              
              —Net
                  change in accrued interest receivable and other assets
              
              
              335
              
              
              372Net
                  change in accrued expenses and other liabilities
              
              
              (361
              )
              
              9Net
                  cash from operating activities
              
              
              1,088
              
              
              1,322Cash
                  flows from investing activitiesPurchases
                  of securities available for sale
              
              
              (3,000
              )
              
              (1,018
              )Proceeds
                  from maturities, calls and paydown of securities available for
                  sale
              
              
              3,511
              
              
              616Loan
                  (originations) payments, net
              
              
              (17,412
              )
              
              (19,709
              )Additions
                  to premises and equipment, net
              
              
              (62
              )
              
              (45
              )Net
                  change in Federal Home Loan Bank stock
              
              
              1,308
              
              
              (318
              )Net
                  cash from investing activities
              
              
              (15,655
              )
              
              (20,474
              )Cash
                  flows from financing activitiesNet
                  change in deposits
              
              
              49,281
              
              
              13,998Net
                  change in overnight FHLB advances
              
              
              (26,730
              )
              
              200Net
                  change in Fed funds purchased
              
              
              —
              
              
              526Proceeds
                  from fixed rate FHLB advances
              
              
              6,000
              
              
              6,000Repayment
                  of fixed rate FHLB advance
              
              
              (11,000
              )
              
              —Purchase
                  of treasury stock
              
              
              (15
              )
              
              (38
              )Net
                  cash from financing activities
              
              
              17,536
              
              
              20,686Net
                  change in cash and cash equivalents
              
              
              2,969
              
              
              1,534Cash
                  and cash equivalents at beginning of period
              
              
              6,035
              
              
              4,478Cash
                  and cash equivalents at end of period
              
              $
              9,004
              
              $
              6,012Supplemental
                  disclosures of cash flow informationCash
                  paid during the period forInterest
              
              $
              3,696
              
              $
              3,038Income
                  taxes
              
              
              180
              
              
              —




See
      accompanying notes to unaudited consolidated financial statements.




6




JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)










**NOTE
      1 – BASIS OF PRESENTATION**


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




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





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





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





**Adoption
      of New Accounting Standards**





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





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





7





JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)









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





**NOTE
      2 – LOAN PORTFOLIO COMPOSITION**


The
      composition of the Bank’s loan portfolio at March 31, 2008 and December 31, 2007
      is indicated below along with the growth from the prior year end.




Total Loans
              March 31, 2008
            
            Total Loans
              December 31, 2007
            
            % Increase (Decrease)
              from December 31, 2007
              to
                March 31, 2008Real
                estate mortgage loans:Commercial
            
            $
            218,800
            
            $
            210,614
            
            
            3.9
            %Residential
            
            
            77,535
            
            
            75,141
            
            
            3.2
            %Construction(1)
            
            
            32,503
            
            
            29,737
            
            
            9.3
            %Farmland
            
            
            2,582
            
            
            2,325
            
            
            11.1
            %Commercial
                loans
            
            
            24,066
            
            
            20,291
            
            
            18.6
            %Consumer
                loans
            
            
            4,457
            
            
            4,631
            
            
            (3.8
            %)Subtotal
            
            
            359,943
            
            
            342,739
            
            
            5.0
            %Less:
                Net deferred loan fees
            
            
            (395
            )
            
            (358
            )
            
            10.3
            %Total
            
            $
            359,548
            
            $
            342,381
            
            
            5.0
            %





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




8




JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)










**NOTE
      3 – ALLOWANCE FOR LOAN LOSSES**


Activity
      in the allowance for loan losses for the three months ended March 31, 2008
      and
      2007 follows:





Three Months Ended March 31,2008
            
            2007Balance,
                January 1
            
            $
            3,116
            
            $
            2,621Provisions
                for loan losses charged to expense
            
            
            363
            
            
            247Loans
                charged off
            
            
            (212
            )
            
            (12
            )Recoveries
                of loans previously charged off
            
            
            3
            
            
            -Balance,
                March 31
            
            $
            3,270
            
            $
            2,856





Impaired
      loans were as follows:




March
                31,
            
            December 31,2008
            
            2007Loans
                with no allocated allowance for loan losses
            
            $
            302
            
            $
            590Loans
                with allocated allowance for loan losses
            
            
            930
            
            
            100Total
            
            $
            1,232
            
            $
            690Amount
                of the allowance for loan losses allocated
            
            $
            352
            
            $
            50




9




JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)










**NOTE
      4 – CAPITAL ADEQUACY**


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




**Actual**
            
            **For
                Capital**
              **Adequacy**
              **Purposes**
            
            **To
                Be Well**
              **Capitalized
                Under**
              **Prompt
                Corrective**
              **Action
                Provisions**Amount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            RatioMarch
                31, 2008Total
                Capital to riskweighted
                assetsConsolidated
            
            $
            37,472
            
            
            10.28
            %
            $
            29,162
            
            
            8.00
            %
            
            N/A
            
            
            N/ABank
            
            
            37,015
            
            
            10.09
            %
            
            29,350
            
            
            8.00
            %
            $
            36,687
            
            
            10.00
            %Tier
                1 (Core) Capital to Riskweighted
                assetsConsolidated
            
            
            34,201
            
            
            9.38
            %
            
            14,581
            
            
            4.00
            %
            
            N/A
            
            
            N/ABank
            
            
            33,744
            
            
            9.20
            %
            
            14,675
            
            
            4.00
            %
            
            22,012
            
            
            6.00
            %Tier
                1 (Core) Capital toaverage
                assetsConsolidated
            
            
            34,201
            
            
            8.47
            %
            
            16,152
            
            
            4.00
            %
            
            N/A
            
            
            N/ABank
            
            
            33,744
            
            
            8.35
            %
            
            16,157
            
            
            4.00
            %
            
            20,196
            
            
            5.00
            %December
                31, 2007Total
                Capital to riskweighted
                assetsConsolidated
            
            $
            36,739
            
            
            10.60
            %
            $
            27,715
            
            
            8.00
            %
            
            N/A
            
            
            N/ABank
            
            
            35,313
            
            
            10.16
            %
            
            27,819
            
            
            8.00
            %
            $
            34,774
            
            
            10.00
            %Tier
                1 (Core) Capital to Riskweighted
                assetsConsolidated
            
            
            33,623
            
            
            9.70
            %
            
            13,858
            
            
            4.00
            %
            
            N/A
            
            
            N/ABank
            
            
            32,197
            
            
            9.26
            %
            
            13,910
            
            
            4.00
            %
            
            20,864
            
            
            6.00
            %Tier
                1 (Core) Capital toaverage
                assetsConsolidated
            
            
            33,623
            
            
            8.68
            %
            
            15,487
            
            
            4.00
            %
            
            N/A
            
            
            N/ABank
            
            
            32,197
            
            
            8.31
            %
            
            15,496
            
            
            4.00
            %
            
            19,370
            
            
            5.00
            %




In
      addition, under such standards, a well-capitalized bank is one that has a total
      risk-based capital ratio equal to or greater than 10%, a Tier 1 risk-based
      capital ratio equal to or greater than 6%, and a Tier 1 leverage capital ratio
      equal to or greater than 5%. Management believes, as of March 31, 2008, that
      the
      Bank is well capitalized for prompt corrective action purposes. The Company
      has
      included in Tier 1 Capital and Total Capital the trust preferred securities
      that
      were issued in June 2004 and December 2006.




10




JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)










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


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





2008
            
            2007Overnight
                advance maturing daily at a daily variable rate of 3.0% and 4.40%
                at March
                31, 2008 and December 31, 2007, respectively
            
            $
            2,100
            
            $
            28,830Advances
                maturing January 11, 2008 at a fixed rate of 5.26%
            
            
            —
            
            
            6,000Advances
                maturing January 26, 2008 at a fixed rate of 4.65%
            
            
            —
            
            
            5,000Advances
                maturing April 11, 2008 at a fixed rate of 4.36%
            
            
            3,000
            
            
            3,000Advances
                maturing April 11, 2008 at a fixed rate of 4.12%
            
            
            6,000
            
            
            —Advances
                maturing July 28, 2008 at a fixed rate of 4.59%
            
            
            5,000
            
            
            5,000Convertible
                advances maturing June 8, 2010 with a quarterly call option beginning
                June
                9, 2008 at a fixed rate of 4.99%
            
            
            5,000
            
            
            5,000Convertible
                advances maturing June 8, 2012 with a quarterly call option beginning
                September 10, 2007 at a fixed rate of 4.68%
            
            
            5,000
            
            
            5,000Convertible
                advances maturing August 13, 2010 with a quarterly call option beginning
                August 13, 2008 at a fixed rate of 4.51%
            
            
            5,000
            
            
            5,000Convertible
                advances maturing October 4, 2010 with a quarterly call option beginning
                October 6, 2008 at a fixed rate of 4.15%
            
            
            5,000
            
            
            5,000$
            36,100
            
            $
            67,830




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


11




JACKSONVILLE
      BANCORP, INC.


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
      in thousands, except per share amounts)










**NOTE
      6 – FAIR VALUE**


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




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





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





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


Assets
        measured at fair value on a recurring basis as summarized below:
 
 **Fair Value Measurements at March 31, 2008 Using**March 31,
                2008
              
              Quoted Prices in
                  Active Markets for Identical Assets
              
              Significant Other
                  Observable
                Inputs
              
              Significant
                  Unobservable
                InputsAssets:Securities
                  available for sale
              
              $
              29,377
              
              
              —
              
              $
              29,377
              
              
              —
 
 Security
        fair values are based on market prices or dealer quotes on securities with
        similar characteristics.
 
 Assets
        measured at fair value on a non-recurring basis are summarized
        below:
 
 **Fair Value Measurements at March 31, 2008 Using**March 31,
                2008
              
              Quoted
                  Prices in Active Markets for Identical Assets
              
              Significant Other
                  Observable
                Inputs
              
              Significant
                  Unobservable
                InputsAssets:Impaired
                  Loans
              
              $
              880
              
              
              —
              
              $
              583
              
              $
              297
  The
        following represent impairment charges recognized during the
        period:
 Impaired
        loans, which are measured for impairment using discounted cash flows or the
        fair
        value of the collateral for collateral dependent loans, had a carrying amount
        of
        $1232, with a valuation allowance of $352, resulting in an additional provision
        for loan losses of $142 for the period. collateral dependant impaired loans,
        valued under level 2, were measured using appraised values along with
        information on recent market transactions; loans valued under level 3 were
        valued based on the present value of expected future cash
        flows.




12


JACKSONVILLE
      BANCORP, INC.


MANAGEMENT’S
      DISCUSSION AND ANALYSIS


OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS










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




**General**





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





**Forward
      Looking Statements**





“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 and increases in cash surrender value of Bank Owned Life
      Insurance (“BOLI”). Included in noninterest expense are costs incurred for
      salaries and employee benefits, occupancy and equipment expenses, data
      processing expenses, marketing and advertising expenses, federal deposit
      insurance premiums and legal and professional fees.





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


13


Our
      operations are influenced by the local economic conditions and by policies
      of
      financial institution regulatory authorities. Fluctuations in interest rates,
      due to factors such as competing financial institutions as well as the Federal
      Reserve’s decisions on changes in interest rates, impact interest-earning assets
      and our cost of funds and, thus, our net interest margin. In addition, the
      local
      economy and real estate market of Northeast Florida and the demand for our
      products and loans impacts our margin. The local economy and viability of local
      businesses can also impact the ability of our customers to make payments on
      loans, thus impacting our loan portfolio. The Company evaluates these factors
      when valuing its allowance for loan losses and believes that the local economy
      is stable. 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.





In
      the
      first quarter of 20008, the Federal Reserve reduced the federal funds rate
      three
      times. At December 31, 2007, the federal funds rate was 4.25%. The Federal
      Reserve reduced the federal funds rate to 3.50% on January 22, 2008, to 3.0%
      on
      January 30, 2008 and to 2.25% on March 18, 2008. In anticipation, the Company
      positioned itself to be in a slightly liability sensitive position, which means
      the pricing on our earning assets will reset to the lower short-term rates
      at a
      slower pace than our interest bearing liabilities. This is anticipated to have
      a
      positive impact on the net interest margin. However, other variables, such
      as
      liquidity needs, competition and the need to pursue alternative funding sources,
      could offset some or all of the benefits of the pricing resets.





On
      January 28, 2008, Bancorp entered into an Agreement and Plan of Merger (the
      “Merger Agreement”) with Heritage Bancshares, Inc. (“Heritage”) pursuant to
      which, subject to the satisfaction or waiver of the conditions contained
      therein, Heritage will merge with and into Bancorp (the “Merger”), with Bancorp
      remaining as the surviving entity. Also pursuant to the Merger Agreement, two
      members of Heritage’s board of directors will be appointed to Bancorp’s board of
      directors.





Under
      the
      terms of the Merger Agreement, Heritage shareholders may elect to receive,
      for
      each share of Heritage common stock held on the record date, either 0.6175
      shares of Bancorp’s common stock or $17.29 in cash, or a combination of
      Bancorp’s common stock and cash. It is anticipated that the proposed
      consideration will consist of approximately 738,000 shares of Bancorp’s common
      stock and $8.85 million in cash, reflecting a mix of consideration of 70% stock
      and 30% cash. The cash portion of the consideration will be funded through
      the
      issuance of Trust Preferred Securities.




The
      merger is conditioned upon approval by the Federal Reserve Board, the Florida
      Office of Financial Regulation, the Heritage shareholders and other customary
      closing conditions. The Merger Agreement contains customary representations,
      warranties and covenants of Bancorp and Heritage. Heritage has banking offices
      located in Clay and St. Johns Counties, Florida. We believe this strategic
      merger will provide new growth opportunities as we continue to focus on the
      Northeast Florida market.




14


**Introduction**
 
 In
        the
        following pages, management presents an analysis of the financial condition
        of
        the Company, as of March 31, 2008 compared to December 31, 2007, and the
        results
        of operations for the three months ended March 31, 2008 compared with the
        same
        period in 2007. This discussion is designed to provide a more comprehensive
        review of the operating results and financial position than could be obtained
        from an examination of the financial statements alone. This analysis should
        be
        read in conjunction with the interim financial statements and related footnotes
        included herein.
 
 **Comparison
        of Financial Condition at March 31, 2008 and December 31,
        2007**
 
 Total
        assets increased $17.9 million, or 4.5%, from $392 million at December 31,
        2007
        to $409.8 million at March 31, 2008. During the three months ended March
        31,
        2008, the Company experienced net loan growth of $17.0 million, or 5.0%.
        The
        increase in net loans was driven by increases in commercial real estate loans
        of
        $8.2 million, or 3.9%, residential real estate loans of $2.4 million, or
        3.2%,
        construction real estate loans of $2.7 million, or 9.3%, and commercial loans
        of
        $3.8 million, or 18.6%. The Company funded the increase in earning assets
        through an increase in deposits of $49.3 million offset by a decrease in
        FHLB
        advances by $31.7 million.
 
 Total
        deposits increased $49.3 million, or 17.1%, from $288.9 million at December
        31,
        2007 to $338.2 million at March 31, 2008. During the three months ended
        March 31, 2008, noninterest-bearing deposits increased $4.7 million to
        $40.1 million. Money market, NOW and savings deposits decreased
        $4.1 million to $112.1 million. Time deposits increased $48.7 million
        to $186.0 million.
 
 Investment
        securities available for sale decreased $350,000 to $29.4 million at March
        31,
        2008. During the three months ended March 31, 2008, we purchased $3.0 million
        of
        securities and received $3.5 million in proceeds from maturities, calls and
        principal repayments. Of the $3.0 million purchased in the current year,
        approximately $1.3 million was invested in mortgage-backed securities and
        $1.7
        million was invested in U.S. government agency securities.
 
 Total
        shareholders' equity increased by $675,000, or 2.5%, from $26.6 million at
        December 31, 2007 to $27.3 million at March 31, 2008. The increase is mainly
        attributable to net income of $537,000. At March 31, 2008, the Company had
        8,000,000 authorized shares of $.01 par value common stock, of which 1,748,599
        shares were issued and 1,747,947 shares were outstanding. In addition, the
        Company had 2,000,000 authorized shares of $.01 par value preferred stock,
        none
        of which were issued or outstanding at March 31, 2008.
  **Comparison
        of Operating Results for the Three Months Ended March 31, 2008 and
        2007**
 
 **Net
        Income**
 
 Net
        income decreased $6,000, or 1.1%, from $543,000 for the three months ended
        March
        31, 2007 to $537,000 for the three months ended March 31, 2008. Diluted earnings
        per share was $.30 for the three months ended March 31, 2008 and 2007. This
        increase in net income was due to an increase in net interest income, offset
        by
        an increase in noninterest expense. Net interest income increased as a result
        of
        an increase in interest-earning assets.
  15
  **Net
        Interest Income**
 
 Net
        interest income, the difference between interest earned on interest-earning
        assets and interest paid on interest-bearing liabilities, increased $293,000,
        or
        10.0% from $2.9 million for the three months ended March 31, 2007 to $3.2
        million for the three months ended March 31, 2008. This increase resulted
        from
        an increase in interest income of $750,000, offset by an increase in interest
        expense of $457,000, 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 $170,000. The primary driver
        in
        the increase in net interest income will continue to be the growth in our
        earning assets.
  When
        comparing the first three months of 2008 to the same period last year, the
        Company experienced substantial growth in its loan portfolio, with the most
        significant impact occurring in commercial loans. The Company also experienced
        growth in deposit products, with the largest increase occurring in time deposit
        accounts.
 
 Many
        of
        the Bank’s loans are indexed to the prime rate. The lower level of the prime
        rate in the first three months of 2008 compared to the comparative period
        in
        2007 is reflected in the lower average yield of the loan portfolio due to
        lower
        rates earned on variable rate loans and new loan production. The average
        yield
        on interest-earning assets for the first three months of 2008 was 7.04%,
        which
        was a decrease of 71 basis points, compared to the 7.75% yield earned during
        the
        first three months of 2007.
 
 The
        average cost of interest-bearing liabilities decreased 36 basis points from
        4.64% in the three months of 2007 to 4.28% in the comparable period in 2008.
        The
        average cost of interest-bearing deposits and all interest-bearing liabilities
        reflect, in part, the change in the funding mix for the first three months
        of
        2008 as compared to the same period in 2007.
 
 The
        net
        interest margin decreased by 42 basis points from 3.76% to 3.34% when comparing
        the first three months of 2008 to the same period last year. This decrease
        is
        mainly the result of the rapid reduction in short-term rates by the Federal
        Reserve which immediately affected our variable priced loans offset by a
        lagging
        in deposit repricing due to maturities of time deposits and the competitive
        nature of the funding markets. 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 current market rates. In the current
        interest rate environment, the margin may contract further; however, as stated
        above, management has implemented various strategies to reduce the rising
        cost
        of funding.
  16
  ***Average
        Balance Sheet; Interest Rates and Interest
        Differential.*** **** The
        following table sets forth the average daily balances for each major category
        of
        assets, liabilities and shareholders’ equity as well as the amounts and average
        rates earned or paid on each major category of interest-earning assets and
        interest-bearing liabilities.
 
 Three
                  Months Ended March 31,2008
              
              2007Average
              
              
              
              Average
              
              Average
              
              
              
              AverageBalance
              
              Interest
              
              Rate
              
              Balance
              
              Interest
              
              Rate(Dollars
                  in thousands)Interest-earning
                  assets:Loans
                  (1)
              
              $
              353,026
              
              $
              6,389
              
              
              7.28
              %
              $
              287,103
              
              $
              5,727
              
              
              8.09
              %Securities
                  (2)
              
              
              31,938
              
              
              378
              
              
              4.76
              
              
              28,145
              
              
              300
              
              
              4.32Other
                  interest-earning assets (3)
              
              
              3,011
              
              
              26
              
              
              3.47
              
              
              804
              
              
              16
              
              
              8.07Total
                  interest-earning assets
              
              
              387,975
              
              
              6,793
              
              
              7.04
              
              
              316,052
              
              
              6,043
              
              
              7.75Noninterest-earning
                  assets (4)
              
              
              15,627
              
              
              
              
              
              
              
              
              13,962Total
                  assets
              
              $
              403,602
              
              
              
              
              
              
              
              $
              330,014Interest-bearing
                  liabilities:Savings
                  and NOW deposits
              
              $
              21,482
              
              $
              105
              
              
              1.97
              
              $
              17,177
              
              $
              82
              
              
              1.96Money
                  market deposits
              
              
              93,691
              
              
              712
              
              
              3.06
              
              
              133,911
              
              
              1,433
              
              
              4.34Time
                  deposits
              
              
              173,514
              
              
              2,185
              
              
              5.06
              
              
              93,234
              
              
              1,188
              
              
              5.17FHLB
                  advances
              
              
              39,303
              
              
              438
              
              
              4.48
              
              
              20,343
              
              
              268
              
              
              5.34Subordinated
                  debt
              
              
              7,000
              
              
              127
              
              
              7.30
              
              
              7,000
              
              
              135
              
              
              7.82Other
                  interest-bearing liabilities (5)
              
              
              113
              
              
              1
              
              
              3.56
              
              
              318
              
              
              5
              
              
              6.38Total
                  interest-bearing liabilities
              
              
              335,103
              
              
              3,568
              
              
              4.28
              
              
              271,983
              
              
              3,111
              
              
              4.64Noninterest-bearing
                  liabilities
              
              
              41,529
              
              
              
              
              
              
              
              
              34,666Shareholders'
                  equity
              
              
              26,970
              
              
              
              
              
              
              
              
              23,365Total
                      liabilities and shareholders' equity
              
              $
              403,602
              
              
              
              
              
              
              
              $
              330,014Net
                  interest income
              
              
              
              
              $
              3,225
              
              
              
              
              
              
              
              $
              2,932Interest
                  rate spread (6)
              
              
              
              
              
              
              
              
              2.76
              %
              
              
              
              
              
              
              
              3.11
              %Net
                  interest margin (7)
              
              
              
              
              
              
              
              
              3.34
              %
              
              
              
              
              
              
              
              3.76
              %
 
 (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.
  17
  ***Rate/Volume
        Analysis.*** **** The
        following table sets forth the effect of changes in volumes, changes in rates,
        and changes in rate/volume on tax-equivalent interest income, interest expense
        and net interest income.
 
 Three
                  Months Ended March 31,2008
                  Versus 2007 (1)Increase
                  (decrease) due to changes in:Volume
              
              Rate
              
              Net
                Change(Dollars
                  in thousands)Interest
                  income:Loans
              
              $
              1,228
              
              $
              (566
              )
              $
              662Securities
              
              
              43
              
              
              35
              
              
              78Other
                  interest-earning assets
              
              
              23
              
              
              (13
              )
              
              10Total
                  interest income
              
              
              1,294
              
              
              (544
              )
              
              750Interest
                  expense:Savings
                  and NOW deposits
              
              
              26
              
              
              (3
              )
              
              23Money
                  market deposits
              
              
              (367
              )
              
              (354
              )
              
              (721
              )Time
                  deposits
              
              
              1,011
              
              
              (14
              )
              
              997FHLB
                  advances
              
              
              217
              
              
              (47
              )
              
              170Subordinated
                  debt
              
              
              —
              
              
              (8
              )
              
              (8
              )Other
                  interest-bearing liabilities
              
              
              (2
              )
              
              (2
              )
              
              (4
              )Total
                  interest expense
              
              
              885
              
              
              (428
              )
              
              457Increase
                  in net interest income
              
              $
              409
              
              $
              (116
              )
              $
              293
 
 (1)
              The
                  change in interest due to both rate and volume has been allocated
                  to the
                  volume and rate components in proportion to the relationship of
                  the dollar
                  amounts of the absolute change in
                  each.
 
 **Critical
        Accounting Policies**
 
 A
        critical accounting policy is one that is both very important to the portrayal
        of the Company’s financial condition and requires management’s most difficult,
        subjective or complex judgments. The circumstances that make these judgments
        difficult, subjective or complex have to do with the need to make estimates
        about the effect of matters that are inherently uncertain. Based on this
        definition, the Company’s primary critical accounting policy is the
        establishment and maintenance of an allowance for loan losses.
 
 The
        allowance for loan loss is established through a provision for loan loss
        charged
        to expense. Loans are charged against the allowance for loan loss when
        management believes that the collectibility of the principal is unlikely.
        The
        allowance is an amount that management believes will be adequate to absorb
        inherent probable and estimable incurred losses on existing loans that may
        become uncollectible based on evaluations of the collectibility of the loans.
        The evaluations take into consideration such objective factors as changes
        in the
        nature and volume of the loan portfolio and historical loss experience. The
        evaluation also considers certain subjective factors such as overall portfolio
        quality, review of specific problem loans and current economic conditions
        that
        may affect the borrowers’ ability to pay. The level of allowance for loan loss
        is also impacted by increases and decreases in loans outstanding because
        either
        more or less allowance is required as the amount of the Company’s credit
        exposure changes. To the extent actual loan losses differ materially from
        management’s estimate of these subjective factors, loan growth/run-off
        accelerates, or the mix of loan types changes, the level of provision for
        loan
        loss, and related allowance can, and will, fluctuate.
 
 18
  Additional
        information with regard to the Company’s methodology and reporting of the
        allowance for loan losses is included in the Company’s Annual Report on Form
        10-K for the year ended December 31, 2007, as filed with the SEC on March
        27,
        2008.
 
 **Asset
        Quality**
 
 The
        Company has identified certain assets as nonperforming. These assets include
        nonaccruing loans, loans that are contractually past due 90 days or more
        as to
        principal or interest payments and still accruing, and foreclosed real estate.
        Loans are placed on nonaccrual status when management has concerns regarding
        its
        ability to collect the outstanding loan principal and interest amounts and
        typically when such loans are more than 90 days past due. These loans present
        more than the normal risk that the Company will be unable to eventually collect
        or realize their full carrying value. Loans are impaired when it is considered
        probable that management will not collect the outstanding loan principal
        and
        interest amounts or realize the full carrying value of the loan. During the
        first quarter, the Company experienced an increase in impaired loans from
        $690,000 to $1.2 million driven by an increase in nonperforming loans of
        $301,000 and one additional loan in the amount of $241,000 that was identified
        as a result of the expanded efforts of management as discussed under the
        allowance and provision for loan losses section below. The Company’s
        nonperforming assets at March 31, 2008 and December 31, 2007 are as
        follows:
  March 31,
              
              December 31,2008
              
              2007(Dollars
                  in thousands)Nonaccruing
                  loans
              
              $
              991
              
              $
              690Loans
                  past due over 90 days still on accrual
              
              
              —
              
              
              —Total
                  nonperforming loans
              
              
              991
              
              
              690Foreclosed
                  assets, net
              
              
              —
              
              
              —Total
                  nonperforming assets
              
              $
              991
              
              $
              690Allowance
                  for loan losses
              
              $
              3,270
              
              $
              3,116Nonperforming
                  loans and foreclosed assets as a percent of total assets
              
              
              .24
              %
              
              .18
              %Nonperforming
                  loans as a percent of gross loans
              
              
              .28
              %
              
              .20
              %Allowance
                  for loan losses as a percent of nonperforming loans
              
              
              329.97
              %
              
              451.59
              %
 
 **Allowance
        and Provision for Loan Losses**
 
 The
        allowance for loan losses grew by $154,000 during the first three months
        of
        2008, amounting to $3.3 million at March 31, 2008, as compared to $3.1
        million at December 31, 2007. The allowance represented approximately .91%
        of
        total loans at both dates. During the first three months of 2008, the Company
        had charge-offs of $212,300, recoveries of $3,000 and recorded a $363,000
        provision for loan losses compared to charge-offs of $12,000, no recoveries
        and
        a provision for loan losses of $247,000 for the first three months of 2007.
        The
        larger provision for loan losses in 2008 was driven primarily from continued
        loan growth and the Bank’s expanded efforts to identify potential losses
        inherent in the portfolio. The Bank’s increased identification efforts of
        potential losses in the portfolio are based on a variety of specific factors,
        including the Company’s and peer banks’ experiences as well as industry and
        economic trends. As a result of the expanded efforts, management does not
        believe that the same level of charge-offs experienced during the first quarter
        will be experienced in future periods. Impaired loans increased to $1.2 million
        as of March 31, 2008; of this amount, $352,000 was specifically allocated
        to the
        allowance for loan losses which is deemed sufficient to absorb any future
        potential losses.
 
 19
  The
        allowance for loan losses is a valuation allowance for credit losses in the
        loan
        portfolio. Management has adopted a methodology to properly analyze and
        determine an adequate loan loss allowance. The analysis is based on sound,
        reliable and well documented information and is designed to support an allowance
        that is adequate to absorb all estimated incurred losses in the Company’s loan
        portfolio. Due to their similarities, the Company has grouped the loan portfolio
        into three components. The components are residential real estate, consumer
        loans and commercial loans. The Company has created a loan classification
        system
        to properly calculate the allowance for loan losses. Commercial and commercial
        real estate loans are individually evaluated for impairment. If a loan is
        impaired, a portion of the allowance is allocated so that the loan is reported,
        net, at the present value of estimated future cash flows using the loan’s
        existing rate or at the fair value of collateral if repayment is expected
        solely
        from the sale of the collateral. Large groups of smaller balance homogeneous
        loans, such as consumer and residential real estate loans, are collectively
        evaluated for impairment and, accordingly, they are not separately identified
        for impairment disclosures.
 
 In
        estimating the overall exposure to loss on impaired loans, the Company has
        considered a number of factors, including the borrower’s character, overall
        financial condition, resources and payment record, the prospects for support
        from any financially responsible guarantors, and the realizable value of
        any
        collateral. The Company also considers other internal and external factors
        when
        determining the allowance for loan losses. These factors include, but are
        not
        limited to, changes in national and local economic conditions, commercial
        lending staff limitations, impact from lengthy commercial loan workout and
        charge-off period, loan portfolio concentrations and trends in the loan
        portfolio.
 
 Bank
        regulators recently issued “Joint Guidance on Concentrations in Commercial Real
        Estate Lending.” This document outlines regulators’ concerns regarding the high
        level of growth in commercial real estate loans on banks’ balance sheets. Many
        banks, especially those in Florida, have seen a substantial increase in exposure
        to commercial real estate loans. The Company has and will continue to pursue
        fundamentally sound commercial real estate lending opportunities that fit
        within
        its lending parameters. The ongoing growth and concentration in this category
        is
        considered when analyzing the adequacy of the loan loss allowance based on
        sound, reliable and well documented information.
 
 Based
        on
        the results of the analysis performed by management at March 31, 2008, the
        allowance for loan loss is considered to be adequate to absorb estimated
        loan
        losses in the portfolio as of that date. As more fully discussed in the
“Critical Accounting Policies” section of this discussion and analysis of
        financial condition and results of operations, the process for estimating
        credit
        losses and determining the allowance for loan losses as of any balance sheet
        date is subjective in nature and requires material estimates. Actual results
        could differ significantly from these estimates.
 
 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 March 31, 2008. In
        recent years, economic conditions in Jacksonville and the surrounding
        communities have been strong and real estate values have appreciated in a
        healthy manner. Presently, economic conditions remain healthy in this market
        and
        commercial real estate values remain stable. Residential real estate values
        have
        experienced volatility and have declined in some areas. Conditions and values
        could deteriorate in the future, and such deterioration could be substantial.
        If
        this were to occur, some of the Company’s borrowers may be unable to make the
        required contractual payments on their loans, and the Company may be unable
        to
        realize the full carrying value of such loans through foreclosure. 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.
 
 20
  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 $252,000 for the three months ended March 31, 2008, compared to
        $292,000 for the 2007 period. The decrease in total noninterest income was
        primarily the result of a reduction in mortgage fee income in the first quarter
        of 2008.
 
 Noninterest
        expense increased to $2.3 million for the three months ended March 31, 2008,
        from $2.1 million for the three months ended March 31, 2007. Data
        processing fees, FDIC assessments and a one-time charge of $38,000 for the
        disposal of fixed assets no longer in use accounted for the majority of
        noninterest expense increasing $145,000 over the same period in
        2007.
 
 Income
        taxes for the three months ended March 31, 2008 were $261,000 (an effective
        rate
        of 32.71%) compared to income taxes of $328,000 for the three months ended
        March
        31, 2007 (an effective tax rate of 37.66%). The reduction in the effective
        tax
        rate compared to one year earlier is the result of the Company’s efforts to
        transition the mix of its securities portfolio into additional tax-free
        municipal bonds. Additionally, there was a slight overstatement of income
        tax
        expense in the first quarter of 2007 which was corrected during the second
        quarter of last year.
 
 **Capital**
 
 The
        Company’s capital management policy is designed to build and maintain capital
        levels that meet regulatory standards. Under current regulatory capital
        standards, banks are classified as well-capitalized, adequately-capitalized
        or
        undercapitalized. Under such standards, a well-capitalized bank is one that
        has
        a total risk-based capital ratio equal to or greater than 10%, a Tier 1
        risk-based capital ratio equal to or greater than 6%, and a Tier 1 leverage
        capital ratio equal to or greater than 5%. The Bank’s total risk-based capital,
        Tier 1 risk-based capital and Tier 1 leverage capital ratios were 10.09%,
        9.20%
        and 8.35%, respectively, at March 31, 2008. The Company also maintains capital
        levels that meet the same regulatory standards.
 
 **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 three months of 2008, the
        Company’s cash and cash equivalent position increased by $3.0 million. The
        increase in cash mainly resulted from an increase in deposit accounts of
        approximately $49.3 million from $288.9 million at December 31, 2007 to
        $338.2 million at March 31, 2008. This increase was offset by net loan
        originations of $17.4 million as well as a decrease in FHLB advances of
        $31.7 million from $67.8 million at December 31, 2007 to $36.1 million at
        March
        31, 2008.
 
 21
  ***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
        March 31, 2008, the Company had $30.8 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 deposits from businesses and consumers in its local market as well as
        national market and brokered certificates of deposit. The Company can also
        borrow overnight federal funds and fixed-rate term products under credit
        facilities established with the FHLB and other commercial banks. These lines,
        in
        the aggregate amount of approximately $149.2 million, do not represent legal
        commitments to extend credit on the part of the other banks.
 
 ***Contractual
        Obligations, Commitments and Contingent Liabilities*** **.** The
        Company has various financial obligations, including contractual obligations
        and
        commitments that may require future cash payments. Management believes that
        there have been no material changes in the Company’s overall level of these
        financial obligations since December 31, 2007 and that any changes in the
        Company’s obligations which have occurred are routine for the industry. Further
        discussion of the nature of each type of obligation is included in the section
        entitled “Management’s Discussion and Analysis of Financial Condition and
        Results of Operations” in the Company’s Annual Report on Form 10-K for the year
        ended December 31, 2007, as filed with the SEC on March 27, 2008, and is
        incorporated herein by reference.
 
 ***Off-Balance
        Sheet Arrangements*** *.* There
        have been no material changes in the risks related to off-balance sheet
        arrangements since the Company’s disclosure in its Annual Report on Form 10-K
        for the year ended December 31, 2007.
 
 **Item
        3. Quantitative and Qualitative Disclosures about Market
        Risk**
 
 Market
        risk is the risk that a financial institution will be adversely impacted
        by
        unfavorable changes in market prices. These unfavorable changes could result
        in
        a reduction in net interest income, which is the difference between interest
        earned on interest-earning assets and interest paid on interest-bearing
        liabilities.
 
 Interest
        rate risk is the sensitivity of income to variations in interest rates over
        both
        short-term and long-term horizons. The primary goal of interest rate risk
        management is to control this risk within limits approved by the Board and
        narrower guidelines approved by the Asset Liability Committee. These limits
        and
        guidelines reflect the Bank’s tolerance for interest rate risk. The Bank
        attempts to control interest rate risk by identifying and quantifying exposures.
        The Bank quantifies its interest rate risk exposures using sophisticated
        simulation and valuation models as well as simpler gap analyses performed
        by a
        third-party vendor specializing in this activity. There have been no significant
        changes in the Bank’s primary market risk exposure or how those risks are
        managed since our disclosures in our Annual Report on Form 10-K for the year
        ended December 31, 2007.
 
 The
        Bank’s internal policy on interest rate risk specifies that if interest rates
        were to shift immediately up or down 200 basis points, estimated net interest
        income for the next 12 months should change by less than 15%. The most current
        simulation projects the Bank’s net interest income to be within the parameters
        of its internal policy and has not changed significantly from our disclosures
        in
        our Annual Report on Form 10-K for the year ended December 31, 2007. Such
        simulation involves numerous assumptions and estimates, which are inherently
        subjective and are subject to substantial business and economic uncertainties.
        Accordingly, the actual effects of an interest rate shift under actual future
        conditions may be expected to vary significantly from those derived from
        the
        simulation to the extent that the assumptions used in the simulation differ
        from
        actual conditions.
  22
  **ITEM
        4. CONTROLS AND PROCEDURES**
  ***(a)***  ***Evaluation of Disclosure Controls and Procedures***
  The
        Company maintains controls and procedures designed to ensure that information
        required to be disclosed in the reports that the Company files or submits
        under
        the Securities Exchange Act of 1934 is recorded, processed, summarized and
        reported within the time periods specified in the rules and forms of the
        Securities and Exchange Commission. Based upon management’s evaluation of those
        controls and procedures performed within the 90 days preceding the filing
        of
        this Report, the Chief Executive Officer and Chief Financial Officer of the
        Company concluded that, subject to the limitations noted below, the Company’s
        disclosure controls and procedures (as defined in Rules 13a-15(e) under the
        Securities Exchange Act of 1934) are effective to ensure that the information
        required to be disclosed by the Company in the reports that it files or submits
        under the Securities Exchange Act of 1934 is recorded, processed, summarized
        and
        reported within the time periods specified in the SEC’s rules and
        forms.
  ***(b)***  ***Changes
        in Internal Controls***
  The
        Company has made no significant changes in its internal controls over financial
        reporting during the quarter ended March 31, 2008 that have materially
        affected or are reasonably likely to materially affect our internal control
        over
        financial reporting.
  ***(c)***  ***Limitations
        on the Effectiveness of Controls***
  Our
        management, including our Chief Executive Officer and Chief Financial Officer,
        does not expect that our disclosure controls and internal controls will prevent
        all error and all fraud. A control system, no matter how well conceived and
        operated, can provide only reasonable, not absolute, assurance that the
        objectives of the control system are met. Further, the design of a control
        system must reflect the fact that there are resource constraints, and the
        benefits of controls must be considered relative to their costs. Because
        of the
        inherent limitations in all control systems, no evaluation of controls can
        provide absolute assurance that all control issues and instances of fraud,
        if
        any, within the Company have been detected. These inherent limitations include
        the realities that judgments in decision-making can be faulty and that
        breakdowns can occur because of simple error or mistake. Additionally, controls
        can be circumvented by the individual acts of some persons, by collusion
        of two
        or more people, or by management’s override of the control.
  The
        design of any system of controls also is based in part upon certain assumptions
        about the likelihood of future events, and there can be no assurance that
        any
        design will succeed in achieving its stated goals under all potential future
        conditions; over time, controls may become inadequate because of changes
        in
        conditions, or the degree of compliance with the policies or procedures may
        deteriorate. Because of the inherent limitations in a cost-effective control
        system, misstatements due to error or fraud may occur and not be
        detected.
  23
 **PART
            II - OTHER INFORMATION**
 **Item
                1.**
              **Legal
                  Proceedings**
  From
        time
        to time, as a normal incident of the nature and kind of business in which
        we are
        engaged, various claims or charges are asserted against us and/or our directors,
        officers or affiliates. In the ordinary course of business, the Company and
        its
        subsidiary are also subject to regulatory examinations, information gathering
        requests, inquiries and investigations. Other than ordinary routine litigation
        incidental to our business, management believes after consultation with legal
        counsel that there are no pending legal proceedings against the Company or
        the
        Bank that will, individually or in the aggregate, have a material adverse
        effect
        on the consolidated results of operations or financial condition of the
        Company.
 
 **Item
                  1A.**
              **Risk
                  Factors**
 There
                  have been no material changes from the risk factors disclosed in
                  the
                  Company’s Annual Report on Form 10-K for the year ended December 31, 2007,
                  as filed with the SEC on March 27,
                  2008.
 
 **Item
                  2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds**
 None
 
 **Item
                  3.**
              **Defaults
                  Upon Senior Securities**
 None
 
 **Item
                  4.**
              **Submission
                  of Matters to a Vote of Security
                  Holders**
 None
 
 **Item
                  5.**
              **Other
                  Information**
 None
 
 **Item
                6.**
              **Exhibits**
 
 Exhibit
        No. 2.1  Agreement
        and Plan of Merger by and between the Company and Heritage Bancshares, Inc.
        dated as of January 28, 2008 (1)
 
 Exhibit
        No. 3.1:  Articles
        of Incorporation of the Company (2)
 
 Exhibit
        No. 3.2:  Amended
        and Restated Bylaws of the Company, as amended to date (3)
 
 Exhibit
        No. 10.1:  Stockholders
        Agreement by and between the Company and each of the directors of Heritage
        Bancshares, Inc. and Heritage Bank of North Florida dated as of January 28,
        2008 (4)
 
 Exhibit
        No. 10.2:  Non-Competition
        Agreement Related to the Sale of Goodwill by and between the Company and
        each of
        the directors of Heritage Bancshares, Inc. and Heritage Bank of North Florida
        dated as of January 28, 2008 (5)
 
 Exhibit
        No. 31.1:  Certification
        of principal executive officer required by Rule 13a-14(a)/15d-14(a) of the
        Exchange Act
  24
 
 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. 2.1 to Form 8-K, filed January
                  29,
                  2008, File No. 000-30248.
 (2)
              Incorporated
                  herein by reference to Appendix A to Form SB-2, filed September
                  30, 1998,
                  Registration No. 333-64815.
 (3)
              Incorporated
                  herein by reference to Exhibit No. 3.2 to Form 10-K for year ended
                  December 31, 2007, filed March 27, 2008, File No.
                  000-30248.
 (4)
              Incorporated
                  herein by reference to Exhibit No. 10.1 to Form 8-K filed January
                  29,
                  2008, File No. 000-30248.
 (5)
              Incorporated
                  herein by reference to Exhibit No. 10.2 to Form 8-K filed January
                  29,
                  2008, File No. 000-30248.
  25
  JACKSONVILLE
        BANCORP, INC.
 
 SIGNATURES
  
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized.
 
 Date:
                  May 2, 2008
              /s/
                  Gilbert J. Pomar, IIIGilbert
                  J. Pomar, IIIPresident
                  and Chief Executive OfficerDate:
                  May 2, 2008
              /s/
                  Valerie A. KendallValerie
                  A. KendallExecutive
                  Vice Presidentand
                  Chief Financial Officer
  26
  JACKSONVILLE
        BANCORP, INC.
  EXHIBIT
        INDEX
  Exhibit
        No. 2.1:  Agreement
        and Plan of Merger by and between the Company and Heritage Bancshares, Inc.
        dated as of January 28, 2008 (1)
 
 Exhibit
        No. 3.1:  Articles
        of Incorporation of the Company (2)
 
 Exhibit
        No. 3.2:  Amended
        and Restated Bylaws of the Company, as amended to date (3)
 
 Exhibit
        No. 10.1:  Stockholders
        Agreement by and between the Company and each of the directors of Heritage
        Bancshares, Inc. and Heritage Bank of North Florida dated as of January 28,
        2008 (4)
 
 Exhibit
        No. 10.2:  Non-Competition
        Agreement Related to the Sale of Goodwill by and between the Company and
        each of
        the directors of Heritage Bancshares, Inc. and Heritage Bank of North Florida
        dated as of January 28, 2008 (5)
 
 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. 2.1 to Form 8-K, filed January
                  29,
                  2008, File No. 000-30248.
 (2)
              Incorporated
                  herein by reference to Appendix A to Form SB-2, filed September
                  30, 1998,
                  Registration No. 333-64815.
 (3)
              Incorporated
                  herein by reference to Exhibit No. 3.2 to Form 10-K for the year
                  ended
                  December 31, 2007, filed March 27, 2008, File No.
                  000-30248.
 (4)
              Incorporated
                  herein by reference to Exhibit 10.1 to Form 8-K, filed January
                  29, 2008,
                  File No. 000-30248.
 (5)
              Incorporated
                  herein by reference to Exhibit 10.2 to Form 8-K, filed January
                  29, 2008,
                  File No. 000-30248.
 
 27