UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
 
 (Mark
One)
 
 x
              ANNUAL
      REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
 For the
fiscal ended December 31, 2007.
 or
 o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 
 For the
transition period from ______________ to ______________.
 
 Commission
file number: 000-49792
 
 
 JACKSONVILLE BANCORP,
INC.
 (Exact
name of registrant as specified in its charter)
 
 Federal
              33-1002258(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      Number)
 
 1211 West Morton
      Avenue, Jacksonville, Illinois
              62650(Address
      of principal executive offices)
              (Zip
      Code)
 
 Registrant's
telephone number, including area code:  (217)
245-41111
 
 Securities
registered pursuant to Section 12(b) of the Act:
 
 Title of each
      class
              Name of each exchange
      on which registeredCommon
      Stock, $0.01 par value
              The
      NASDAQ Stock Market, LLC
 
 Securities
registered pursuant to Section 12(g) of the Act: None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 YES o NO T
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
 YES o NO T
 
 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 T NO o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.T
 
 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 definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
 
 Large
      accelerated filer
              o
              Accelerated
      filer
              oNon-accelerated
      filer
              o
              Smaller
      reporting company
              x
 (Do not
check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).   YES o     NO
T
  
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the last sale price
on June 30, 2007, as reported by the Nasdaq Capital Market, was approximately
$10.6 million.
 
 As of
March 1, 2008, there was issued and outstanding 1,986,804 shares of the
Registrant’s Common Stock.
 
 DOCUMENTS
INCORPORATED BY REFERENCE:
 
 (1)
              Proxy
      Statement for the 2008 Annual Meeting of Stockholders of the Registrant
      (Part III).(2)
              Annual
      Report to Stockholder (Part II and
IV).
 
 
 
  TABLE OF
CONTENTS
 
 ITEM 1.
              Business
              1Item 1A.
              Risk Factors
              25Item
      1B.
              Unresolved
      Staff
    Comments
              27ITEM
      2.
              Properties
              27ITEM
      3.
              Legal Proceedings
              28ITEM 4.
              Submission of Matters to a Vote of Security
      Holders
              28ITEM 5.
              Market for Registrant’s Common
      Equity, Related Stockholder Matters
      and Issuer Purchases of Equity Securities
              28ITEM 6.
              Selected Financial
      Data
              28ITEM 7.
              Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
              28ITEM 7A.
              Quantitative and Qualitative
      Disclosure about Market
              29ITEM 8.
              Financial Statements and
      Supplementary Data
              29ITEM 9.
              Changes in and Disagreements
      with Accountants on Accounting and
      Financial Disclosure
              29ITEM 9A.
              Controls and
      Procedures
              29ITEM 9B.
              Other
      Information
              30ITEM 10.
              Directors, Executive Officers and Corporate
      Governance
              30ITEM 11.
              Executive
      Compensation
              30ITEM 12.
              Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
              30ITEM 13.
              Certain Relationships and
      Related Transactions and DirectorIndependence
              30ITEM 14.
              Principal Accountant Fees and
      Services
              30ITEM 15.
              Exhibits and Financial
      Statement Schedules
              30
 
 
  PART I
  ITEM 1. Business
  General
 
 Jacksonville Bancorp, Inc. is a Federal
corporation.  On May 3, 2002, Jacksonville Savings Bank completed its
reorganization into the two-tier form of mutual holding company
ownership.  At that time each outstanding share of Jacksonville
Savings Bank’s common stock was converted into a share of Jacksonville Bancorp’s
common stock.  Our only significant asset is our investment in
Jacksonville Savings Bank.  We are majority owned by Jacksonville
Bancorp, MHC, a Federal-chartered mutual holding company.
 
 Jacksonville Savings Bank is an
Illinois-chartered savings bank headquartered in Jacksonville,
Illinois.  We conduct our business from our main office and six
branches, two of which are located in Jacksonville and one of which is located
in each of the following Illinois communities: Virden, Chapin, Concord and
Litchfield.  We were originally chartered in 1916 as a state-chartered
savings and loan association and converted to a state-chartered savings bank in
1992.  We have been a member of the Federal Home Loan Bank System
since 1932.  Our deposits are insured by the Federal Deposit Insurance
Corporation.  At December 31, 2007, Jacksonville Bancorp had total
assets of $288.5 million, total deposits of $245.7 million, and stockholders’
equity of $22.6 million.
 
 We are a community-oriented savings
bank engaged primarily in the business of attracting retail deposits from the
general public in our market area and using such funds together with borrowings
and funds from other sources to primarily originate mortgage loans secured by
one- to four-family residential real estate and consumer loans.  We
also originate commercial and agricultural real estate loans, multi-family real
estate loans and commercial and agricultural business
loans.  Additionally, we invest in United States Government agency
securities, bank-qualified, general obligation municipal issues, and
mortgage-backed securities primarily issued or guaranteed by the United States
Government or agencies thereof, and maintains a portion of its assets in liquid
investments, such as overnight funds at the Federal Home Loan Bank.
 
 Our principal sources of funds are
customer deposits, proceeds from sale of loans, funds received from the
repayment and prepayment of loans and mortgage-backed securities, and the sale,
call, or maturity of investment securities.  Principal sources of
income are interest income on residential, commercial and consumer loans,
interest on investments, commissions and fees.  Our principal expenses
are interest paid on deposits, employee compensation and benefits and occupancy
and equipment expense.
 
 We operate an investment center at our
main office.  The investment center is operated through Financial
Resources Group, Inc., the Bank’s wholly-owned subsidiary.  The
investment center is not anticipated to have a material effect on our ability to
attract retail deposits.
 
 Our principal executive office is
located at 1211 W. Morton, Jacksonville, Illinois, and our telephone number at
that address is (217) 245-4111.
 
 Market
Area and Competition
 
 We are a community-oriented savings
institution offering a range of retail banking services to residents of our
market area.  Our market area is Morgan, Macoupin and Montgomery
Counties, Illinois.  Management believes that our offices are located
in communities that can generally be characterized as stable residential
communities of predominantly one- to four-family residences.  Our
market for deposits is concentrated in the communities surrounding our main
office and six branches.  We are the largest independent financial
institution headquartered in our primary market area.
 
 The economy of our market area consists
primarily of agriculture and related businesses, light industry and state and
local government.  The largest employers in our primary market area
are Pactiv Corporation, Passavant Area Hospital, and the State of
Illinois.
  
  We face significant competition in
attracting deposits from commercial banks, other savings institutions and credit
unions.  We face additional competition for deposits from short-term
money market funds, other corporate and government securities funds and other
financial institutions such as brokerage firms and insurance
companies.  We also face significant competition in the origination of
loans from savings institutions, mortgage banking companies, credit unions,
insurance companies and commercial banks.
 
 Lending
Activities
 
 General.  Historically,
our principal lending activity has been the origination of mortgage loans for
the purpose of financing or refinancing one- to four-family residential
properties in our local market areas.  We also emphasize consumer
lending, primarily the origination of home equity loans and loans secured by
automobiles.  At December 31, 2007, our loans receivable totaled
$177.7million, of
which $50.5million,
or 28.7% consisted of one- to four-family residential mortgage
loans.  The remainder of our loans receivable at such date consisted
of commercial and agricultural real estate loans (25.1%), multi-family
residential loans (2.7%), commercial and agricultural business loans (20.8%),
and consumer loans (23.7%).  Of the amount included in consumer loans,
$30.1million, or
17.1% of total loans consisted of home equity and home improvement
loans.  During the year ended December 31, 2007 the loan portfolio
increased to $177.7million from $156.7
million at December 31, 2006. One-to-four family
residential real estate loans increased $9.8 million (24.2%),commercial and
agricultural real estate loans increased$4.5 million (11.4%),
and commercial and agricultural business loans increased $3.7 million (11.3%)
during 2007.
 
 We have made our interest-earning
assets more interest rate sensitive by, among other things, originating variable
interest rate loans, such as adjustable-rate mortgage loans and balloon loans
with terms ranging from three to five years, as well as medium-term consumer
loans and commercial business loans.  Our ability to originate
adjustable-rate mortgage loans is substantially affected by market interest
rates.
 
 We originate fixed-rate residential
mortgage loans secured by one- to four-family residential properties with terms
up to 30 years.  We sell a significant portion of our one- to
four-family fixed-rate residential mortgage loan originations directly to
Freddie Mac.  We also sell one- to four-family fixed-rate residential
mortgage loan originations to the Federal Home Loan Bank Mortgage Partnership
Finance Program.  During 2007, we retained a portion of the fixed-rate
residential loans in our portfolio.   During the years ended
December 31, 2007 and 2006, we sold $10.2million and$16.6million of fixed-rate
residential mortgage loans, respectively.  Loans are generally sold
without recourse and with servicing retained.  At December 31, 2007 we
were servicing approximately $129.9million in loans for which
it received servicing income of approximately $336,000for the year ended
December 31, 2007.
  2
 
 Analysis
of Loan Portfolio
 
 Set forth below are selected data
relating to the composition of our loan portfolio, excluding loans held for
sale, by type of loan as of the dates indicated.
 
 At
      December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Amount
              
              
              Percent
              
              
              Amount
              
              
              Percent
              
              
              Amount
              
              
              Percent
              
              
              Amount
              
              
              Percent
              
              
              Amount
              
              
              Percent(Dollars
      in Thousands)Real
      estate loans:One-
      to four-family residential (1)
              
              $
              50,459
              
              
              
              28.7
              %
              
              $
              40,635
              
              
              
              26.2
              %
              
              $
              40,126
              
              
              
              28.2
              %
              
              $
              41,616
              
              
              
              33.1
              %
              
              $
              40,304
              
              
              
              31.7
              %Commercial
      and agricultural (1)
              
              
              44,100
              
              
              
              25.1
              
              
              
              39,592
              
              
              
              25.6
              
              
              
              33,859
              
              
              
              23.8
              
              
              
              24,587
              
              
              
              19.5
              
              
              
              21,401
              
              
              
              16.8Multi-family
      residential
              
              
              4,741
              
              
              
              2.7
              
              
              
              5,877
              
              
              
              3.8
              
              
              
              6,010
              
              
              
              4.2
              
              
              
              2,207
              
              
              
              1.8
              
              
              
              2,376
              
              
              
              1.9Total
      real estate loans
              
              
              99,300
              
              
              
              56.5
              
              
              
              86,104
              
              
              
              55.6
              
              
              
              79,995
              
              
              
              56.2
              
              
              
              68,410
              
              
              
              54.4
              
              
              
              64,081
              
              
              
              50.4Commercial
      and agricultural business loans
              
              
              36,539
              
              
              
              20.8
              
              
              
              32,837
              
              
              
              21.2
              
              
              
              28,679
              
              
              
              20.2
              
              
              
              26,227
              
              
              
              20.8
              
              
              
              29,763
              
              
              
              23.4Consumer
      loans:Home
      equity/home improvement
              
              
              30,087
              
              
              
              17.1
              
              
              
              27,202
              
              
              
              17.6
              
              
              
              26,382
              
              
              
              18.5
              
              
              
              24,322
              
              
              
              19.3
              
              
              
              23,614
              
              
              
              18.6Automobile
              
              
              5,334
              
              
              
              3.0
              
              
              
              5,275
              
              
              
              3.4
              
              
              
              4,580
              
              
              
              3.2
              
              
              
              4,516
              
              
              
              3.6
              
              
              
              6,477
              
              
              
              5.1Other
              
              
              6,402
              
              
              
              3.6
              
              
              
              5,313
              
              
              
              3.4
              
              
              
              4,657
              
              
              
              3.3
              
              
              
              4,380
              
              
              
              3.5
              
              
              
              5,545
              
              
              
              4.4Total
      consumer loans
              
              
              41,823
              
              
              
              23.7
              
              
              
              37,790
              
              
              
              24.4
              
              
              
              35,619
              
              
              
              25.0
              
              
              
              33,218
              
              
              
              26.4
              
              
              
              35,636
              
              
              
              28.1Total
      loans receivable
              
              
              177,662
              
              
              
              101.0
              
              
              
              156,731
              
              
              
              101.2
              
              
              
              144,293
              
              
              
              101.4
              
              
              
              127,855
              
              
              
              101.6
              
              
              
              129,480
              
              
              
              101.9Less:Unearned
      premium on purchased loans,unearned
      discount and deferred loanfees,
      net
              
              
              29
              
              
              
              0.0
              
              
              
              29
              
              
              
              0.0
              
              
              
              175
              
              
              
              0.1
              
              
              
              174
              
              
              
              0.1
              
              
              
              215
              
              
              
              0.2Allowance
      for loan losses
              
              
              1,766
              
              
              
              1.0
              
              
              
              1,864
              
              
              
              1.2
              
              
              
              1,846
              
              
              
              1.3
              
              
              
              1,888
              
              
              
              1.5
              
              
              
              2,186
              
              
              
              1.7Total
      loans receivable, net
              
              $
              175,867
              
              
              
              100.0
              %
              
              $
              154,838
              
              
              
              100.0
              %
              
              $
              142,272
              
              
              
              100.0
              %
              
              $
              125,793
              
              
              
              100.0
              %
              
              $
              127,079
              
              
              
              100.0
              %
 _________________________________
 (1)
              Includes
      a portion of real estate construction
loans.
  3
  One- to Four-Family Mortgage
Loans.  Our primary lending activity is the origination of one-
to four-family, owner-occupied, residential mortgage loans secured by property
located in our market area.  We generate loans through our marketing
efforts, existing customers and referrals, real estate brokers, builders and
local businesses.  We generally have limited our real estate loan
originations to the financing of properties located within our market
area.  At December 31, 2007, we had $50.5 million, or 28.7% of our net
loan portfolio, invested in mortgage loans secured by one- to four-family
residences.
 
 We originate for resale to Freddie Mac
and the Federal Home Loan Bank fixed-rate residential one- to four-family loans
with terms of 15 years or more.  Our fixed-rate mortgage loans
amortize monthly with principal and interest due each
month.  Residential real estate loans often remain outstanding for
significantly shorter periods than their contractual terms because borrowers may
refinance or prepay loans at their option.  We offer fixed-rate one-
to four-family mortgage loans with terms of up to 30 years.
 
 We currently offer adjustable-rate
mortgage loans for terms ranging up to 30 years.  We generally offer
adjustable-rate mortgage loans that adjust every year from the date of
origination, with interest rate adjustment limitations up to two percentage
points per year and with a cap of up to six percentage points on interest rate
increases over the life of the loan.  In a rising interest rate
environment, such rate limitations may prevent adjustable-rate mortgage loans
from repricing to market interest rates, which would have an adverse effect on
net interest income.  We have used different interest indices for
adjustable-rate mortgage loans in the past, and primarily use the one-year
Constant Maturity Treasury Index.  Adjustable-rate mortgage loans
secured by residential one- to four-family real estate totaled $8.9 million, or
17.7% of our total one- to four-family residential real estate loans receivable
at December 31, 2007.  The origination of fixed-rate mortgage loans
versus adjustable-rate mortgage loans is monitored on an ongoing basis and is
affected significantly by the level of market interest rates, customer
preference, our interest rate gap position and our competitors’ loan
products.  During 2007, we originated $24.0 million of fixed-rate
residential mortgage loans and $6.1 million of adjustable-rate mortgage and
balloon loans.
 
 The primary purpose of offering
adjustable-rate mortgage loans is to make our loan portfolio more interest rate
sensitive.  However, as the interest income earned on adjustable-rate
mortgage loans varies with prevailing interest rates, such loans do not offer
predictable cash flows in the same manner as long-term, fixed-rate
loans.  Adjustable-rate mortgage loans carry increased credit risk
associated with potentially higher monthly payments by borrowers as general
market interest rates increase.  It is possible, that during periods
of rising interest rates, that the risk of delinquencies and defaults on
adjustable-rate mortgage loans may increase due to the upward adjustment of
interest costs to the borrower, resulting in increased loan losses.
 
 Our residential first mortgage loans
customarily include due-on-sale clauses, which give us the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells or otherwise disposes of the underlying real property serving as
security for the loan.  Due-on-sale clauses are a means of imposing
assumption fees and increasing the interest rate on our mortgage portfolio
during periods of rising interest rates.
 
 When underwriting residential real
estate loans, we review and verify each loan applicant’s income and credit
history.  Management believes that stability of income and past credit
history are integral parts in the underwriting process.  Generally,
the applicant’s total monthly mortgage payment, including all escrow amounts, is
limited to 28% of the applicant’s total monthly income.  In addition,
total monthly obligations of the applicant, including mortgage payments, should
not generally exceed 38% of total monthly income.  Written appraisals
are generally required on real estate property offered to secure an applicant’s
loan.  For fixed-rate real estate loans with loan to value (“LTV”)
ratios of between 80% and 95%, we require private mortgage
insurance.  We require fire and casualty insurance on all properties
securing real estate loans.  We may require title insurance, or an
attorney’s title opinion, as circumstances warrant.
  4
  Commercial and Agricultural Real
Estate and Multi-Family Residential Real Estate Loans.  We
originate commercial and agricultural real estate and multi-family residential
real estate loans.  At December 31, 2007, $44.1 million, or 25.1%, of
our total loan portfolio consisted of commercial and agricultural real estate
loans and $4.7 million, or 2.7%, consisted of multi-family real estate
loans.  During 2007, loan originations secured by commercial and
agricultural real estate totaled $11.0 million, as compared to $11.8 million in
2006.  Our commercial and agricultural real estate loans are secured
primarily by improved properties such as retail facilities and office buildings,
farms, churches and other non-residential buildings.  At December 31,
2007, our commercial real estate loan portfolio included $1.4 million in loans
secured by churches, $25.7 million in loans secured by land, and $17.0 million
in loans secured by other commercial properties.  The maximum LTV
ratio for commercial real estate loans we originate is 80%.  The
largest commercial real estate loan had a principal balance of $3.1 million, all
of which was secured by farmland.  At December 31, 2007, the largest
multi-family residential real estate loan had a principal balance of $2.3
million.
 
 Our underwriting standards for
commercial and agricultural real estate and multi-family residential real estate
loans include a determination on the applicant’s credit history and an
assessment of the applicant’s ability to meet existing obligations and payments
on the proposed loan.  The income approach is primarily utilized to
determine whether income generated from the applicant’s business or real estate
offered as collateral is adequate to repay the loan.  We review the
value of the real estate offered as collateral in relation to the proposed loan
amount.  Generally, the loan amount cannot be greater than 80% of the
value of the real estate.  We usually obtain written appraisals from
either licensed or certified appraisers on all multi-family, commercial, and
agricultural real estate loans.  We assess the creditworthiness of the
applicant by reviewing a credit report, financial statements and tax returns of
the applicant, as well as obtaining other public records regarding the
applicant.
 
 Loans secured by commercial,
agricultural, and multi-family real estate generally involve a greater degree of
credit risk than one- to four-family residential mortgage loans and carry larger
loan balances.  This increased credit risk is a result of several
factors, including the effects of general economic conditions on income
producing properties and the successful operation or management of the
properties securing the loans.  Furthermore, the repayment of loans
secured by commercial, agricultural, and multi-family real estate is typically
dependent upon the successful operation of the related business and real estate
property.  If the cash flow from the project is reduced, the
borrower’s ability to repay the loan may be impaired.
 
 Commercial and Agricultural Business
Loans.  We originate commercial and agricultural business loans
to borrowers located in its market area which are secured by collateral other
than real estate or which can be unsecured.  We also purchase
participations of commercial loans from other lenders, which may be outside our
market area.  Such business loans are generally secured by equipment
and inventory and generally are offered with adjustable rates and various terms
of maturity.  We will originate unsecured business loans in those
instances where the applicant’s financial strength and creditworthiness has been
established.  Commercial and agricultural business loans generally
bear higher interest rates than residential loans, but they also may involve a
higher risk of default since their repayment is generally dependent on the
successful operation of the borrower’s business.  We generally obtain
personal guarantees from the borrower or a third party as a condition to
originating its business loans.  Commercial and agricultural business
loans totaled $36.5 million, or 20.8%, of our total loan portfolio at December
31, 2007.  We have increased our originations of business loans in
response to customer demand.  During the year ended December 31, 2007,
we originated $33.6 million in commercial and agricultural business
loans.  At that date, our largest commercial business loan was a $5.0
million line of credit with a principal balance of $2.5 million.  This
loan was performing in accordance with its terms at December 31,
2007.
 
 Our underwriting standards for
commercial and agricultural business loans include a determination of the
applicant’s ability to meet existing obligations and payments on the proposed
loan from normal cash flows generated in the applicant’s business.  We
assess the financial strength of each applicant through the review of financial
statements and tax returns provided by the applicant.  The
creditworthiness of an applicant is derived from a review of credit reports as
well as a search of public records.  We periodically review business
loans following origination. We request financial statements at least annually
and review them for substantial deviations or changes that might affect
repayment of the loan.  Our loan officers also visit the premises of
borrowers to observe the business premises, facilities, and personnel and to
inspect the pledged collateral.  Underwriting standards for business
loans are different for each type of loan depending on the financial strength of
the applicant and the value of collateral offered as security.
  5
  Consumer Loans.  As
of December 31, 2007, consumer loans totaled $41.8 million, or 23.7%, of our
total loan portfolio.  The principal types of consumer loans we offer
are home equity loans and automobile loans.  We generally offer
consumer loans on a fixed-rate basis.  The largest category of
consumer loans in our portfolio consists of home equity loans.  At
December 31, 2007, home equity and home improvement loans totaled $30.1 million,
or 17.1%, of our total loan portfolio.  Our home equity loans are
generally secured by the borrower’s principal residence.  The maximum
amount of a home equity line of credit is generally 95% of the appraised value
of a borrower’s real estate collateral less the amount of any prior mortgages or
related liabilities.  Home equity loans are approved with both fixed
and adjustable interest rates which we determine based upon market
conditions.  Such loans may be fully amortized over the life of the
loan or have a balloon feature.  Generally, the maximum term for home
equity loans is 10 years.
 
 The second largest category of consumer
loans in our portfolio consists of loans secured by automobiles.  At
December 31, 2007, consumer loans secured by automobiles totaled $5.3 million,
or 3.0%, our total loan portfolio.  We offer automobile loans with
maturities of up to 60 months for new automobiles.  Loans secured by
used automobiles will have maximum terms which vary depending upon the age of
the automobile.  We generally originate automobile loans with an LTV
ratio below the greater of 80% of the purchase price or 100% of NADA loan value,
although in the case of a new car loan the LTV ratio may be greater or less
depending on the borrower’s credit history, debt to income ratio, home ownership
and other banking relationships with us.
 
 Consumer loans entail greater risks
than one- to four-family residential mortgage loans, particularly consumer loans
secured by rapidly depreciating assets such as automobiles or loans that are
unsecured.  In such cases, collateral repossessed after a default may
not provide an adequate source of repayment of the outstanding loan balance
because of damage, loss or depreciation.  Further, consumer loan
payments are dependent on the borrower’s continuing financial stability, and
therefore are more likely to be adversely affected by job loss, divorce, illness
or personal bankruptcy.  Such events would increase our risk of loss
on unsecured loans.  Finally, the application of various Federal and
state laws, including Federal and state bankruptcy and insolvency laws, may
limit the amount which can be recovered on such loans in the event of a
default.  At December 31, 2007, consumer loans 90 days or more
delinquent, including those for which the accrual of interest has been
discontinued, totaled $122,000, or 0.29%, of our total consumer
loans.
 
 Our underwriting standards for consumer
loans include a determination of the applicant’s credit history and an
assessment of the applicant’s ability to meet existing obligations and payments
on the proposed loan.  The stability of the applicant’s monthly income
may be determined by verification of gross monthly income from primary
employment, and additionally from any verifiable secondary income.  We
also consider the length of employment with the borrower’s present employer as
well as the amount of time the borrower has lived in the local
area.  Creditworthiness of the applicant is of primary consideration;
however, the underwriting process also includes a comparison of the value of the
collateral in relation to the proposed loan amount.  Of the consumer
loans 90 days or more delinquent, over 50% are secured by one- to four-family
real estate, upon which a material loss is not expected to be
realized.  The two largest loans in this category total $62,000 and
are secured by mortgages on residential real estate.  No assurance can
be given, however, that our delinquency rate or loss experience on consumer
loans will not increase in the future.
 
 6
 
 Loan Maturity
Schedule.  The following table sets forth certain information
at December 31, 2007 regarding the dollar amount of loans maturing in our
portfolio based on their contractual terms to maturity.  Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdraft loans are reported as due in one year or less.
 
 Within
                  1
      Year
              
              
              Over
      1
                  Year
      to
                  5
      Years
              
              
              Beyond
                  5
      Years
              
              
              Total(In
      Thousands)Real
      estate loans:One-
      to four-family real estate
              
              $
              5,316
              
              
              $
              13,893
              
              
              $
              31,250
              
              
              $
              50,459Commercial
      and agricultural real estate
              
              
              6,245
              
              
              
              7,006
              
              
              
              30,849
              
              
              
              44,100Multi-family
      residential
              
              
              475
              
              
              
              678
              
              
              
              3,588
              
              
              
              4,741Commercial
      and agricultural business loans
              
              
              19,071
              
              
              
              13,325
              
              
              
              4,143
              
              
              
              36,539Consumer
      loans:Home
      equity/home improvement
              
              
              9,120
              
              
              
              14,404
              
              
              
              6,563
              
              
              
              30,087Automobile
              
              
              438
              
              
              
              4,831
              
              
              
              65
              
              
              
              5,334Other
              
              
              3,762
              
              
              
              2,163
              
              
              
              477
              
              
              
              6,402Total
              
              $
              44,427
              
              
              $
              56,300
              
              
              $
              76,935
              
              
              $
              177,662
 
 The following table sets forth at
December 31, 2007, the dollar amount of all fixed-rate and adjustable-rate
loans.  At December 31, 2007, fixed-rate loans include $21.0 million
in fixed-rate balloon payment loans with original maturities of five years or
less.  The total dollar amount of fixed-rate loans and adjustable-rate
loans due after December 31, 2008, was $91.3 million and $41.9 million,
respectively.
 
 
 Fixed
              
              
              Adjustable
              
              
              Total(In
      Thousands)Real
      estate loans:One-
      to four-family real estate
              
              $
              41,539
              
              
              $
              8,920
              
              
              $
              50,459Commercial
      and agricultural real estate
              
              
              14,856
              
              
              
              29,244
              
              
              
              44,100Multi-family
      real estate
              
              
              2,237
              
              
              
              2,504
              
              
              
              4,741Commercial
      and agricultural business loans
              
              
              23,773
              
              
              
              12,766
              
              
              
              36,539Consumer
      loans
              
              
              35,199
              
              
              
              6,624
              
              
              
              41,823Total
      loans
              
              $
              117,604
              
              
              $
              60,058
              
              
              $
              177,662
 
 Loan Origination, Solicitation and
Processing.  Loan originations are derived from a number of
sources such as real estate broker referrals, existing customers, borrowers,
builders, attorneys and walk-in customers.  Upon receipt of a loan
application, a credit report is obtained to verify specific information relating
to the applicant’s employment, income, and credit standing.  In the
case of a real estate loan, an appraisal of the real estate intended to secure
the proposed loan is undertaken by an independent appraiser approved by the
Bank.  A loan application file is first reviewed by a loan officer in
our loan department who checks applications for accuracy and completeness, and
verifies the information provided.  The financial resources of the
borrower and the borrower’s credit history, as well as the collateral securing
the loan, are considered an integral part of each risk evaluation prior to
approval.  The Board of Directors has established individual lending
authorities for each loan officer by loan type.  Loans over an
individual officer’s lending limits must be approved by the officers’ loan
committee consisting of the chairman of the board, president, chief lending
officer and all lending officers, which meets three times a week, and has
lending authority up to $500,000 depending on the type of loan.  Loans
with a principal balance over this limit, up to $750,000, must be approved by
the directors’ loan committee, which meets weekly and consists of the chairman
of the board, president, senior vice president, chief lending officer and at
least two outside directors, plus all lending officers as non-voting
members.  The Board of Directors approves all loans with a principal
balance over $750,000.  The Board of Directors ratifies all loans we
originate.  Once the loan is approved, the applicant is informed and a
closing date is scheduled.  We typically fund loan commitments within
30 days.
 
 If the loan is approved, the borrower
must provide proof of fire and casualty insurance on the property serving as
collateral which insurance must be maintained during the full term of the loan;
flood insurance is required in certain instances.  Title insurance or
an attorney’s opinion based on a title search of the property is generally
required on loans secured by real property.
  7
  Origination, Purchase and Sale of
Loans.  Set forth below is a table showing our loan
originations, purchases, sales and repayments for the periods
indicated.  It is our policy to originate for sale into the secondary
market fixed-rate mortgage loans with maturities of 15 years or more and to
originate for retention in our portfolio adjustable-rate mortgage loans and
loans with balloon payments.  Purchases consist of participations in
loans originated by other financial institutions.  We usually obtain
commitments prior to selling fixed-rate mortgage loans.  It is our
policy to sell fixed-rate mortgage loans as market conditions
permit.
 
 For
      the Years Ended December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(In
      Thousands)Total
      loans receivable at beginning of year
              
              $
              156,731
              
              
              $
              144,293
              
              
              $
              127,855
              
              
              $
              129,480
              
              
              $
              145,283Originations:Real
      estate loans:One-
      to four-family residential
              
              
              30,104
              
              
              
              25,708
              
              
              
              31,551
              
              
              
              29,599
              
              
              
              110,440Commercial
      and agricultural
              
              
              10,972
              
              
              
              11,790
              
              
              
              16,902
              
              
              
              10,821
              
              
              
              9,154Multi-family
      residential
              
              
              -
              
              
              
              2,122
              
              
              
              5,731
              
              
              
              290
              
              
              
              216Commercial
      and agricultural business loans
              
              
              33,560
              
              
              
              34,004
              
              
              
              23,434
              
              
              
              21,907
              
              
              
              19,880Consumer
      loans:Home
      equity/home improvement
              
              
              19,309
              
              
              
              17,874
              
              
              
              19,021
              
              
              
              15,009
              
              
              
              12,968Automobile
              
              
              3,777
              
              
              
              4,336
              
              
              
              3,697
              
              
              
              2,808
              
              
              
              2,516Other
              
              
              6,360
              
              
              
              4,916
              
              
              
              4,560
              
              
              
              3,805
              
              
              
              5,009Total
      originations
              
              
              104,082
              
              
              
              100,750
              
              
              
              104,896
              
              
              
              84,239
              
              
              
              160,183Participation
      loans purchased
              
              
              6,231
              
              
              
              3,152
              
              
              
              4,634
              
              
              
              1,700
              
              
              
              2,120Transfer
      of mortgage loans to foreclosed real estate owned
              
              
              819
              
              
              
              329
              
              
              
              933
              
              
              
              999
              
              
              
              1,023Repayments
              
              
              78,407
              
              
              
              74,574
              
              
              
              70,891
              
              
              
              69,634
              
              
              
              69,363Loan
      sales
              
              
              10,156
              
              
              
              16,561
              
              
              
              21,268
              
              
              
              16,931
              
              
              
              107,720Total
      loans receivable at end of year
              
              $
              177,662
              
              
              $
              156,731
              
              
              $
              144,293
              
              
              $
              127,855
              
              
              $
              129,480
 
 Loan Origination and Other
Fees.In addition to interest earned on loans, we may charge
loan origination fees.  Our ability to charge loan origination fees is
influenced by the demand for mortgage loans and competition from other lenders
in our market area.  In December 1986, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 91 on
the accounting for non-refundable fees and costs associated with originating or
acquiring loans.  To the extent that loans are originated or acquired
for our portfolio, Statements of Financial Accounting Standards No. 91 requires
that we defer loan origination fees and costs and amortize such amounts as an
adjustment of yield over the life of the loan by use of the level yield
method.  Statements of Financial Accounting Standards No. 91 reduces
the amount of revenue recognized by many financial institutions at the time such
loans are originated or acquired.  Fees deferred under Statements of
Financial Accounting Standards No. 91 are recognized into income immediately
upon the sale of the related loan.  At December 31, 2007, we had
$26,000 of net deferred loan fees.  Loan origination fees are volatile
sources of income.  Such fees vary with the volume and type of loans
and commitments made and purchased and with competitive conditions in the
mortgage markets, which in turn respond to the demand and availability of
money.
 
 In addition to loan origination fees,
we also receive other fees and service charges that consist primarily of
extension fees and late charges.  We recognized fees and service
charges of $93,000, $108,000 and $101,000 for the years ended December 31, 2007,
2006, and 2005, respectively.
 
 Loan
Concentrations.  With certain exceptions, an Illinois-chartered
savings bank may not make a loan or exceed credit for secured and unsecured
loans for business, commercial, corporate or agricultural purposes to a single
borrower in excess of 25% of the Jacksonville Savings Bank’s total capital, as
defined by regulation.  At December 31, 2007, our loans-to-one
borrower limit was $5.4 million.  At December 31, 2007 we had no loans
in excess of our loans-to-one borrower limitation.
  8
  Delinquencies
and Classified Assets
 
 Our collection procedures provide that
when a mortgage loan is either ten days (in the case of adjustable-rate mortgage
and balloon loans) or 15 days (in the case of fixed-rate loans) past due, a
computer-generated late charge notice is sent to the borrower requesting payment
plus a late charge. If the mortgage loan remains delinquent, a telephone call is
made or a letter is sent to the borrower stressing the importance of reinstating
the loan and obtaining reasons for the delinquency.  When a loan
continues in a delinquent status for 60 days or more, and a repayment schedule
has not been made or kept by the borrower, a notice of intent to foreclose upon
the underlying property is then sent to the borrower, giving 10 days to cure the
delinquency.  If not cured, foreclosure proceedings are
initiated.  Consumer loans receive a ten-day grace period before a
late charge is assessed.  Collection efforts begin after the grace
period expires.  At December 31, 2007, 2006, and 2005 the percentage
of nonperforming loans to net loans receivable were 0.62%, 0.87%, and 0.83%,
respectively.
 
 Delinquent Loans and Nonperforming
Assets.  Loans are reviewed on a regular basis and are placed
on nonaccrual status when, in the opinion of management, the collection of
additional interest is doubtful.  Commercial and home equity loans are
placed on nonaccrual status when either principal or interest is 90 days or more
past due.  Mortgages and other consumer loans are placed on nonaccrual
status when either principal or interest is 120 days or more past
due.  Interest accrued and unpaid at the time a loan is placed on
nonaccrual status is charged against interest income.  Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on management’s assessment of the ultimate
collectibility of the loan.
 
 Management monitors all past due loans
and nonperforming assets.  Such loans are placed under close
supervision with consideration given to the need for additional allowance for
loan loss, and (if appropriate) partial or full charge-off.  At
December 31, 2007, we had $368,000 of loans 90 days or more delinquent that were
still accruing interest.
 
 Real estate acquired through
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until such time as it is sold.  When real estate owned is acquired, it
is recorded at the lower of the unpaid principal balance of the related loan, or
its fair market value, less estimated selling expenses.  Any further
write-down of real estate owned is charged against earnings.  At
December 31, 2007, we owned $364,000 of property classified as real estate
owned.
  9
  Delinquent
Loans.   The following table sets forth information
regarding our delinquent loans and other real estate owned at the dates
indicated.  As of the dates indicated, we had immaterial restructured
loans within the meaning of Statements of Financial Accounting Standards Nos.
15, 114, and 118.At December 31,
2007, loans delinquent 60 to 89 days totaled $199,000, or 0.11% of net
loans.
 
 At
      December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(Dollars
      in Thousands)Non-accruing
      loans:One-
      to four-family residential
              
              $
              310
              
              
              $
              435
              
              
              $
              624
              
              
              $
              711
              
              
              $
              1,022Commercial
      and agricultural real estate
              
              
              218
              
              
              
              759
              
              
              
              —
              
              
              
              181
              
              
              
              224Commercial
      and agricultural business
              
              
              82
              
              
              
              45
              
              
              
              290
              
              
              
              57
              
              
              
              613Home
      equity/home improvement
              
              
              89
              
              
              
              100
              
              
              
              222
              
              
              
              652
              
              
              
              1,101Automobile
              
              
              12
              
              
              
              1
              
              
              
              1
              
              
              
              68
              
              
              
              139Other
      consumer
              
              
              12
              
              
              
              8
              
              
              
              20
              
              
              
              20
              
              
              
              22Total
              
              
              723
              
              
              
              1,348
              
              
              
              1,157
              
              
              
              1,689
              
              
              
              3,121Accruing
      loans delinquent more than 90 days:One-
      to four-family residential
              
              $
              203
              
              
              $
              —
              
              
              $
              2
              
              
              $
              270
              
              
              $
              168Commercial
      and agricultural real estate
              
              
              156
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
      and agricultural business
              
              
              -
              
              
              
              —
              
              
              
              —
              
              
              
              23
              
              
              
              —Automobile
              
              
              -
              
              
              
              —
              
              
              
              17
              
              
              
              4
              
              
              
              15Other
      consumer
              
              
              9
              
              
              
              4
              
              
              
              2
              
              
              
              1
              
              
              
              7Total
              
              
              368
              
              
              
              4
              
              
              
              21
              
              
              
              298
              
              
              
              190Foreclosed
      assets:One-
      to four-family residential
              
              $
              115
              
              
              $
              37
              
              
              $
              276
              
              
              $
              426
              
              
              $
              499Commercial
      and agricultural real estate
              
              
              249
              
              
              
              115
              
              
              
              180
              
              
              
              139
              
              
              
              —Automobile
              
              
              23
              
              
              
              —
              
              
              
              15
              
              
              
              19
              
              
              
              18Total
              
              
              387
              
              
              
              152
              
              
              
              471
              
              
              
              584
              
              
              
              517Total
      non-performing assets
              
              $
              1,478
              
              
              $
              1,504
              
              
              $
              1,649
              
              
              $
              2,571
              
              
              $
              3,828Total
      as a percentage of total assets
              
              
              0.51
              %
              
              
              0.56
              %
              
              
              0.65
              %
              
              
              1.01
              %
              
              
              1.46
              %
 
 Interest income that would have been
recorded under the original terms of loans classified as non-accruing loans
totaled approximately $42,000 for the year ended December 31,
2007.  Interest income from such loans that was included in net income
for the year ended December 31, 2007 totaled $17,000.
 
 Classified
Assets.  Federal and state regulations require that each
insured savings institution classify its assets on a regular
basis.  In addition, in connection with examination of insured
institutions, Federal examiners have authority to identify problem assets and,
if appropriate, classify them.  There are three classifications for
problem assets:  “substandard,” “doubtful” and
“loss.”  Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected.  Doubtful
assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss.  An asset classified loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted.  For assets classified “substandard” and
“doubtful,” the institution is required to establish general loan loss reserves
in accordance with accounting principles generally accepted in the United States
of America.  Assets classified “loss” must be either completely
written off or supported by a 100% specific reserve.  The Bank also
maintains a category designated “special mention” which is established and
maintained for assets not currently requiring classification but having
potential weaknesses or risk characteristics that could result in future
problems.  An institution is required to develop an in-house program
to classify its assets, including investments in subsidiaries, on a regular
basis and set aside appropriate loss reserves on the basis of such
classification.  As part of the periodic exams of Jacksonville Savings
Bank by the Federal Deposit Insurance Corporation and the Illinois Commissioner
of Banks and Real Estate (“Commissioner”), the staff of such agencies reviews
our classifications and determine whether such classifications are
adequate.  Such agencies have, in the past, and may in the future
require us to classify certain assets which management has not otherwise
classified or require a classification more severe than established by
management.  At December 31, 2007, our classified assets totaled $3.3
million, all of which were classified substandard.
 
 At December 31, 2007, our largest
nonperforming loan had a principal balance of $102,000 and was secured by
farmland.  The property is in the process of
foreclosure.  We do not anticipate any loss on the loan.
  10
  The decrease in the level of
nonperforming assets and watch list credits reflects the actions taken by
management over the past several years.  We have an experienced chief
lending officer and collections and loan review departments which monitor the
loan portfolio and actively seek to prevent any deterioration of asset
quality.
 
 Allowance
for Loan Losses
 
 Management’s policy is to provide for
estimated losses on our loan portfolio based on management’s evaluation of the
probable losses that may be incurred.  Management regularly reviews
our loan portfolio, including problem loans, to determine whether any loans
require classification or the establishment of appropriate reserves or
allowances for losses.  Such evaluation, which includes a review of
all loans of which full collectibility of interest and principal may not be
reasonably assured, considers, among other matters, the estimated net realizable
value of the underlying collateral.  Other factors considered by
management include the size and risk exposure of each segment of the loan
portfolio, present indicators such as delinquency rates and the borrower’s
current financial condition, and the potential for losses in future
periods.  Management calculates the general allowance for loan losses
in part based on past experience.  While current year additions to the
general loss allowances are charged against earnings, a portion of general loan
loss allowances are added back to capital to the extent permitted in computing
risk-based capital under Federal and state regulations.
 
 The level of the allowance for loan
losses is based on ongoing, quarterly assessments of the probable estimated
losses in the loan portfolio.  Our methodology for assessing the
appropriateness of the allowance consists of applying several formula methods to
identified problem loans and portfolio segments.  The allowance is
calculated by applying loss factors to outstanding loan balances, based on an
internal risk grade of such loans or pools of loans.  Changes in risk
grades of both performing and nonperforming loans affect the amount of the
allowance.  Loss factors are based primarily on historical loss
experience over the past five years, and may be adjusted for other significant
conditions that, in management’s judgment, affect the collectibility of the loan
portfolio.
 
 Since the adequacy of the allowance for
loan losses is based upon estimates of probable losses, actual losses can vary
significantly from the estimated amounts.  The historical loss factors
attempt to reduce this variance by taking into account recent loss
experience.  Management evaluates several other conditions in
connection with the allowance, including general economic and business
conditions, credit quality trends, collateral values, loan volumes and
concentrations, seasoning of the portfolio, and regulatory examination
results.  Management believes the current balance of the allowance for
loan losses is adequate.  Management will continue to monitor the loan
portfolio and assess the adequacy of the allowance at least
quarterly.
 
 For the years ended December 31, 2007,
2006, and 2005, we provided $155,000, $60,000 and $245,000, respectively, to the
allowance for loan losses.  Our allowance for loan losses totaled $1.8
million, $1.9 million and $1.8 million at December 31, 2007, 2006 and 2005,
respectively.  Although we maintain our allowance for loan losses at a
level which it considers to be adequate to provide for potential losses, there
can be no assurance that such losses will not exceed the estimated amounts or
that we will not be required to make additions to the allowance for loan losses
in the future.  Future additions to our allowance for loan losses and
changes in the related ratio of the allowance for loan losses to nonperforming
loans are dependent upon the economy, changes in real estate values and interest
rates, the view of the regulatory authorities toward adequate loan loss reserve
levels, and inflation.  Management will continue to review the entire
loan portfolio to determine the extent, if any, to which further additional loan
loss provisions may be deemed necessary.
 
 11
 
 Analysis of the Allowance for Loan
Losses.  The following table summarizes changes in the
allowance for loan losses by loan categories for each year indicated and
additions to the allowance for loan losses, which have been charged to
operations.
 
 For
      the Years Ended December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(Dollars
      in thousands)Balance
      at beginning of year
              
              $
              1,864
              
              
              $
              1,846
              
              
              $
              1,888
              
              
              $
              2,186
              
              
              $
              2,073Charge-offs:One-
      to four-family residential
              
              
              165
              
              
              
              55
              
              
              
              161
              
              
              
              179
              
              
              
              365Commercial
      and agricultural real estate
              
              
              38
              
              
              
              30
              
              
              
              53
              
              
              
              244
              
              
              
              432Commercial
      and agricultural business
              
              
              35
              
              
              
              16
              
              
              
              8
              
              
              
              186
              
              
              
              153Home
      equity/home improvement
              
              
              18
              
              
              
              101
              
              
              
              145
              
              
              
              294
              
              
              
              666Automobile
              
              
              -
              
              
              
              2
              
              
              
              30
              
              
              
              137
              
              
              
              256Other
      consumer
              
              
              45
              
              
              
              14
              
              
              
              36
              
              
              
              33
              
              
              
              182Total
              
              
              301
              
              
              
              218
              
              
              
              433
              
              
              
              1,073
              
              
              
              2,054Recoveries:One-
      to four-family residential
              
              
              5
              
              
              
              78
              
              
              
              14
              
              
              
              36
              
              
              
              5Commercial
      and agricultural real estate
              
              
              6
              
              
              
              8
              
              
              
              —
              
              
              
              119
              
              
              
              18Commercial
      and agricultural business
              
              
              -
              
              
              
              —
              
              
              
              —
              
              
              
              12
              
              
              
              —Home
      equity/home improvement
              
              
              3
              
              
              
              34
              
              
              
              98
              
              
              
              14
              
              
              
              5Automobile
              
              
              13
              
              
              
              17
              
              
              
              17
              
              
              
              23
              
              
              
              20Other
      consumer
              
              
              21
              
              
              
              39
              
              
              
              17
              
              
              
              21
              
              
              
              44Total
              
              
              48
              
              
              
              176
              
              
              
              146
              
              
              
              225
              
              
              
              92Net
      loans charge-offs
              
              
              253
              
              
              
              42
              
              
              
              287
              
              
              
              848
              
              
              
              1,962Additions
      charged to operations
              
              
              155
              
              
              
              60
              
              
              
              245
              
              
              
              550
              
              
              
              2,075Balance
      at end of year
              
              $
              1,766
              
              
              $
              1,864
              
              
              $
              1,846
              
              
              $
              1,888
              
              
              $
              2,186Total
      loans outstanding
              
              $
              177,662
              
              
              $
              156,731
              
              
              $
              144,293
              
              
              $
              127,855
              
              
              $
              129,480Average
      net loans outstanding
              
              $
              165,715
              
              
              $
              149,238
              
              
              $
              137,740
              
              
              $
              128,279
              
              
              $
              138,792Allowance
      for loan losses as a percentage of total loans at end of
    year
              
              
              0.99
              %
              
              
              1.19
              %
              
              
              1.28
              %
              
              
              1.48
              %
              
              
              1.69
              %Net
      loans charged off as a percent of average net loans
      outstanding
              
              
              0.15
              %
              
              
              0.03
              %
              
              
              0.21
              %
              
              
              0.66
              %
              
              
              1.41
              %Ratio
      of allowance for loan losses to nonperforming loans
              
              
              161.90
              %
              
              
              137.90
              %
              
              
              156.71
              %
              
              
              95.02
              %
              
              
              66.02
              %Ratio
      of allowance for loan losses to total nonperforming assets at end of
      period
              
              
              119.49
              %
              
              
              123.94
              %
              
              
              111.95
              %
              
              
              73.43
              %
              
              
              57.11
              %
 
 12
 
 Allocation of Allowance for Loan
Losses.  The following table sets forth the allocation of
allowance for loan losses by loan category at the dates indicated. The table
reflects the allowance for loan losses as a percentage of net loans
receivable.  Management believes that the allowance can be allocated
by category only on an approximate basis.  The allocation of the
allowance by category is not necessarily indicative of future losses and does
not restrict the use of the allowance to absorb losses in any
category.
 
 At
      December 31,2007
              
              
              2006
              
              
              2005Amount
              
              
              %of Loans
in
                  Each
                  Category to
                  Net
      Loans
              
              
              Amount
              
              
              %of Loans
in
                  Each
                  Category to
                  Net
      Loans
              
              
              Amount
              
              
              %of Loans
in
                  Each
                  Category to
                  Net
      Loans(Dollars
      in Thousands)One-
      to four-family residential
              
              $
              595
              
              
              
              28.7
              %
              
              $
              512
              
              
              
              26.2
              %
              
              $
              448
              
              
              
              28.2
              %Commercial
      and agricultural real estate
              
              
              346
              
              
              
              25.1
              
              
              
              244
              
              
              
              25.6
              
              
              
              199
              
              
              
              23.8Multi-family
      residential
              
              
              28
              
              
              
              2.7
              
              
              
              37
              
              
              
              3.8
              
              
              
              40
              
              
              
              4.2Commercial
      and agricultural business
              
              
              146
              
              
              
              20.8
              
              
              
              275
              
              
              
              21.2
              
              
              
              129
              
              
              
              20.2Home
      equity/home improvement
              
              
              465
              
              
              
              17.1
              
              
              
              561
              
              
              
              17.6
              
              
              
              785
              
              
              
              18.5Automobile
              
              
              74
              
              
              
              3.0
              
              
              
              96
              
              
              
              3.4
              
              
              
              110
              
              
              
              3.2Other
      consumer
              
              
              112
              
              
              
              3.6
              
              
              
              139
              
              
              
              3.4
              
              
              
              135
              
              
              
              3.3Total
              
              $
              1,766
              
              
              
              101.00
              %
              
              $
              1,864
              
              
              
              101.2
              %
              
              $
              1,846
              
              
              
              101.4
              %
 
 At
      December 31,2004
              
              
              2003Amount
              
              
              %of Loans
in
                  Each
                  Category to
                  Net
      Loans
              
              
              Amount
              
              
              %of Loans
in
                  Each
                  Category to
                  Net
      Loans(Dollars
      in Thousands)One-
      to four-family residential
              
              $
              520
              
              
              
              33.1
              %
              
              $
              555
              
              
              
              31.7
              %Commercial
      and agricultural real estate
              
              
              198
              
              
              
              19.5
              
              
              
              285
              
              
              
              16.8Multi-family
      residential
              
              
              8
              
              
              
              1.8
              
              
              
              3
              
              
              
              1.9Commercial
      and agricultural business
              
              
              71
              
              
              
              20.8
              
              
              
              192
              
              
              
              23.4Home
      equity/home improvement
              
              
              845
              
              
              
              19.3
              
              
              
              817
              
              
              
              18.6Automobile
              
              
              140
              
              
              
              3.6
              
              
              
              194
              
              
              
              5.1Other
      consumer
              
              
              106
              
              
              
              3.5
              
              
              
              140
              
              
              
              4.4Total
              
              $
              1,888
              
              
              
              101.6
              %
              
              $
              2,186
              
              
              
              101.9
              %
 
 
 13
  Investment
Activities
 
 Our investment portfolio includes
available-for-sale investment securities and mortgage backed securities, other
investments, and Federal Home Loan Bank stock.  The portfolio consists
primarily of U. S. government and agency securities, along with mortgage-backed
securities (discussed below), interest-earning deposits in other financial
institutions, Federal funds sold, municipal bonds and Federal Home Loan Bank
stock.  Our portfolio of equity investment securities totaled $48,000
at December 31, 2007 consisting of an interest in a local community development
corporation and Farmer Mac stock.  In addition, our investment
portfolio included $15.2 million of local municipal bonds.  We had no
Federal funds sold at December 31, 2007.  Our portfolio of U.S.
Government and Agency Securities totaled $50.0 million at December 31,
2007.  Our holdings of Federal Home Loan Bank stock totaled $1.1
million at December 31, 2007.  We had $5.1 million in interest-earning
deposits at December 31, 2007 consisting of deposits in the Federal Home Loan
Bank and other correspondent accounts.  Total long-term investments at
December 31, 2007 were $47.1 million.  We expect our short-term and
long-term investment portfolio to continue to change based on liquidity needs
associated with loan origination activities.
 
 Under Federal regulations, we are
required to maintain a minimum amount of liquid assets that may be invested in
specified short-term securities and certain other
investments.  Liquidity levels may be increased or decreased depending
upon the yields on investment alternatives and upon management’s judgment as to
the attractiveness of the yields then available in relation to other
opportunities and its expectation of the level of yield that will be available
in the future, as well as management’s projections as to the short-term demand
for funds to be used in our loan originations and other
activities.  Our liquidity ratio at December 31, 2007 was 26.1%, which
was adequate to meet our normal business activities.
 
 Mortgage-Backed
Securities.  We occasionally invest in mortgage-backed
securities issued or guaranteed by the United States Government or agencies
thereof.  These securities, which consist primarily of mortgage-backed
securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, had an amortized
cost of $15.5 million, $8.5 million, and $8.9 million at December 31, 2007,
2006, and 2005, respectively.  At December 31, 2007, all of the
mortgage-backed securities in the investment portfolio had fixed-rates of
interest.  The market value of our mortgage-backed securities
portfolio was $15.4 million, $8.2 million, and $8.6 million at December 31,
2007, 2006, and 2005, respectively, and the weighted average rate as of December
31, 2007, 2006, and 2005 was 4.85%, 4.27%, and 3.93%, respectively.
 
 Set forth below is a table showing our
purchases, sales and repayments of mortgage-backed securities for the years
indicated.
 
 For
      the Years Ended December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(In
      Thousands)Mortgage-backed
      securities at beginning of year
              
              $
              8,210
              
              
              $
              8,646
              
              
              $
              15,171
              
              
              $
              7,597
              
              
              $
              2,822Purchases
              
              
              9,386
              
              
              
              1,096
              
              
              
              686
              
              
              
              12,605
              
              
              
              8,082Sales
              
              
              456
              
              
              
              —
              
              
              
              4,556
              
              
              
              1,470
              
              
              
              2,305Repayments
              
              
              1,896
              
              
              
              1,485
              
              
              
              2,351
              
              
              
              3,439
              
              
              
              910Premium
      amortization
              
              
              2
              
              
              
              (25
              )
              
              
              (66
              )
              
              
              (113
              )
              
              
              (29
              )Net
      unrealized gain (loss)
              
              
              169
              
              
              
              (22
              )
              
              
              (238
              )
              
              
              (9
              )
              
              
              (63
              )Mortgage-backed
      securities at end of year
              
              $
              15,415
              
              
              $
              8,210
              
              
              $
              8,646
              
              
              $
              15,171
              
              
              $
              7,597
 
 14
 
 Investment Securities and Short-Term
Investment Portfolio.  The following table sets forth the
carrying value of our investment securities portfolio and short-term investments
at the dates indicated.  At December 31, 2007, the market value of our
short-term investment portfolio approximated its cost.
 
 At
      December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(In
      Thousands)Investment
      securities:FHLB
      stock
              
              $
              1,109
              
              
              $
              1,109
              
              
              $
              1,539
              
              
              $
              1,466
              
              
              $
              1,381Municipal
      bonds and equity securities
              
              
              15,224
              
              
              
              5,634
              
              
              
              1,199
              
              
              
              2,015
              
              
              
              1,955U.S.
      Government and agency securities
              
              
              49,962
              
              
              
              73,215
              
              
              
              78,083
              
              
              
              83,192
              
              
              
              97,578Total
      investment securities
              
              $
              66,295
              
              
              $
              79,978
              
              
              $
              80,821
              
              
              $
              86,673
              
              
              $
              100,914Short-term
      investments:Interest-bearing
      deposits in other depository institutions
              
              $
              5,130
              
              
              $
              3,127
              
              
              $
              1,444
              
              
              $
              4,793
              
              
              $
              1,842Federal
      funds sold
              
              
              -
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              500Total
      short-term investments
              
              $
              5,130
              
              
              $
              3,127
              
              
              $
              1,444
              
              
              $
              4,793
              
              
              $
              2,342
  The following table sets forth the
maturities and weighted average yields of our securities portfolio, excluding
FHLB stock and equity securities, at December 31, 2007.
  Carrying
      Value at December 31, 2007Less
      than
                  1
      Year
              
              
              1
      to 5
                  Years
              
              
              5
      to 10
                  Years
              
              
              Over
                  10
      Years
              
              
              Total
                  Investment
                  Securities(Dollars
      in Thousands)Securities
      available-for-sale:U.S.
      Government and agency securities
              
              $
              17,753
              
              
              $
              26,217
              
              
              $
              5,745
              
              
              $
              247
              
              
              $
              49,962Municipal
      bonds
              
              
              319
              
              
              
              2,786
              
              
              
              8,081
              
              
              
              3,990
              
              
              
              15,176Total
              
              $
              18,072
              
              
              $
              29,003
              
              
              $
              13,826
              
              
              $
              4,237
              
              
              $
              65,138Weighted
      average yield
              
              
              3.15
              %
              
              
              3.98
              %
              
              
              4.32
              %
              
              
              4.06
              %
              
              
              3.82
              %
 
 15
 
 Sources
of Funds
 
 General.  Deposits
and borrowings are our major sources of funds for lending and other investment
purposes.  In addition, we derive funds from the repayment and
prepayment of loans and mortgage-backed securities, operations, sales of loans
into the secondary market, and the sale, call, or maturity of investment
securities.  Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and market
conditions.  Other sources of funds include advances from the
FHLB.  For further information see
“—Borrowings.”  Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources or on
a longer term basis for general business purposes.
 
 Deposits.  We
attract consumer and commercial deposits principally from within our market
areas through the offering of a broad selection of deposit instruments including
interest-bearing checking accounts, noninterest-bearing checking accounts,
savings accounts, money market accounts, term certificate accounts and
individual retirement accounts.  We will accept deposits of $100,000
or more and may offer negotiated interest rates on such
deposits.  Deposit account terms vary according to the minimum balance
required, the time periods the funds must remain on deposit and the interest
rate, among other factors.  We regularly evaluate our internal cost of
funds, survey rates offered by competing institutions, review our cash flow
requirements for lending and liquidity and execute rate changes when deemed
appropriate.  We do not obtain funds through brokers, nor do we
solicit funds outside our market area.  We have on occasion offered
above market interest rates in order to attract deposits.
 
 Deposit
Activity
 
 The following table sets forth
our deposit activities for the years indicated.
 
 For
      the Years Ended December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(In
      Thousands)Deposits
              
              $
              1,037,465
              
              
              $
              934,581
              
              
              $
              880,758
              
              
              $
              820,349
              
              
              $
              895,755Withdrawals
              
              
              1,030,118
              
              
              
              924,401
              
              
              
              891,454
              
              
              
              833,264
              
              
              
              890,499Net
      increase (decrease) before interest credited
              
              
              7,347
              
              
              
              10,180
              
              
              
              (10,696
              )
              
              
              (12,915
              )
              
              
              5,256Interest
      credited
              
              
              5,461
              
              
              
              4,364
              
              
              
              3,332
              
              
              
              3,476
              
              
              
              4,315Net
      increase (decrease) in deposits
              
              $
              12,808
              
              
              $
              14,544
              
              
              $
              (7,364
              )
              
              $
              (9,439
              )
              
              $
              9,571
 
 16
 
 Deposit
Portfolio
 
 Our deposits as of December 31, 2007
were represented by the various types of deposit programs described
below:
 
 Weighted
      Average
                  Interest
      Rate
              
              Minimum
      Term
              
              Demand
      Accounts
              
              Minimum
                  Amount
              
              
              Balances
              
              
              Percentage
      of
                  Total
      Deposits(In
      Thousands)0.00%
              
              None
              
              Noninterest-bearing
      checking
              
              $
              50
              
              
              $
              18,060
              
              
              
              7.35
              %1.03
              
              None
              
              Interest-bearing
      checking
              
              
              50
              
              
              
              27,284
              
              
              
              11.101.40
              
              None
              
              Money
      market deposit accounts
              
              
              2,500
              
              
              
              4,451
              
              
              
              1.813.82
              
              None
              
              Money
      market savings account
              
              
              2,500
              
              
              
              24,559
              
              
              
              10.001.05
              
              None
              
              Savings
              
              
              50
              
              
              
              21,034
              
              
              
              8.56Certificates
      of Deposit4.70
              
              Less
      than 1 year
              
              Fixed
      term, fixed rate
              
              $
              500
              
              
              $
              118,275
              
              
              
              48.134.60
              
              1-2
      years
              
              Fixed
      term, fixed rate
              
              
              500
              
              
              
              17,884
              
              
              
              7.284.79
              
              2-3
      years
              
              Fixed
      term, fixed rate
              
              
              500
              
              
              
              9,831
              
              
              
              4.004.91
              
              3-4
      years
              
              Fixed
      term, fixed rate
              
              
              500
              
              
              
              2,974
              
              
              
              1.214.95
              
              Over
      4 years
              
              Fixed
      term, fixed rate
              
              
              500
              
              
              
              1,369
              
              
              
              0.56$
              245,721
              
              
              
              100.00
              %
 
 17
  Deposit
Flow
 
 The following table sets forth the
change in dollar amount of savings deposits in the various types of savings
accounts we offer between the dates indicated.
 
 At
      December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004Balance
              
              
              Percent
              
              
              Change
              
              
              Balance
              
              
              Percent
              
              
              Change
              
              
              Balance
              
              
              Percent
              
              
              Change
              
              
              Balance
              
              
              Percent
              
              
              Change(Dollars
      in Thousands)Club
      accounts
              
              $
              133
              
              
              
              0.05
              %
              
              $
              (13
              )
              
              $
              146
              
              
              
              0.06
              %
              
              $
              9
              
              
              $
              137
              
              
              
              0.06
              %
              
              $
              11
              
              
              $
              126
              
              
              
              0.06
              %
              
              $
              (94
              )Noninterest-bearing
      checking
              
              
              18,060
              
              
              
              7.35
              
              
              
              2,947
              
              
              
              15,113
              
              
              
              6.49
              
              
              
              599
              
              
              
              14,514
              
              
              
              6.65
              
              
              
              290
              
              
              
              14,224
              
              
              
              6.30
              
              
              
              1,373Interest-bearing
      checking
              
              
              27,284
              
              
              
              11.10
              
              
              
              266
              
              
              
              27,018
              
              
              
              11.60
              
              
              
              (238
              )
              
              
              27,256
              
              
              
              12.48
              
              
              
              19
              
              
              
              27,237
              
              
              
              12.10
              
              
              
              (842
              )Savings
              
              
              20,901
              
              
              
              8.51
              
              
              
              (1,528
              )
              
              
              22,429
              
              
              
              9.63
              
              
              
              (6,441
              )
              
              
              28,870
              
              
              
              13.29
              
              
              
              (960
              )
              
              
              29,967
              
              
              
              13.27
              
              
              
              (492
              )Money
      market deposit accounts
              
              
              4,451
              
              
              
              1.81
              
              
              
              (814
              )
              
              
              5,265
              
              
              
              2.26
              
              
              
              (3,515
              )
              
              
              8,780
              
              
              
              4.02
              
              
              
              (470
              )
              
              
              9,250
              
              
              
              4.09
              
              
              
              (444
              )Money
      market savings accounts
              
              
              24,559
              
              
              
              10.00
              
              
              
              7,719
              
              
              
              16,840
              
              
              
              7.23
              
              
              
              16,840
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Certificates
      of deposit that mature:Within
      12 months
              
              
              118,275
              
              
              
              48.13
              
              
              
              10,630
              
              
              
              107,645
              
              
              
              46.22
              
              
              
              7,777
              
              
              
              99,868
              
              
              
              45.67
              
              
              
              (6,499
              )
              
              
              106,230
              
              
              
              47.05
              
              
              
              (6,349
              )Within
      12-36 months
              
              
              27,715
              
              
              
              11.28
              
              
              
              (2,136
              )
              
              
              29,851
              
              
              
              12.82
              
              
              
              2,119
              
              
              
              27,732
              
              
              
              12.70
              
              
              
              (578
              )
              
              
              28,310
              
              
              
              12.53
              
              
              
              (4,781
              )Beyond
      36 months
              
              
              4,343
              
              
              
              1.77
              
              
              
              (4,263
              )
              
              
              8,606
              
              
              
              3.69
              
              
              
              (2,607
              )
              
              
              11,213
              
              
              
              5.13
              
              
              
              823
              
              
              
              10,390
              
              
              
              4.60
              
              
              
              2,190Total
              
              $
              245,721
              
              
              
              100.00
              %
              
              $
              12,808
              
              
              $
              232,913
              
              
              
              100.00
              %
              
              $
              14,543
              
              
              $
              218,370
              
              
              
              100.00
              %
              
              $
              (7,364
              )
              
              $
              225,734
              
              
              
              100.00
              %
              
              $
              (9,439
              )
 
 18
  Large Certificates of
Deposit.  The following table indicates the balances of
certificates of deposit of $100,000 or more by time remaining until maturity as
of December 31, 2007.
  Maturity
      Period
              
              Certificates
      of
                  Deposit(In
      Thousands)Less
      than 3 months
              
              $
              15,9763-6
      months
              
              
              14,6436-12
      months
              
              
              20,192Over
      12 months
              
              
              12,377Total
              
              $
              63,188
 
 Borrowings
 
 Deposits are our primary source of
funds for lending and investment activities.  If the need arises, the
Bank may rely upon advances from the Federal Home Loan Bank to supplement its
supply of available funds and to fund deposit withdrawals.  We
typically secure advances from the Federal Home Loan Bank with one- to
four-family residential mortgage loans, United States Government and agency
securities and mortgage-backed securities.  The Federal Home Loan Bank
functions as a central reserve bank providing credit for us and other member
savings associations and financial institutions.  As a member, we are
required to own capital stock in the Federal Home Loan Bank and are authorized
to apply for advances on the security of such stock and certain of our home
mortgages, provided certain standards related to creditworthiness have been
met.  Advances are made pursuant to several different
programs.  Each credit program has its own interest rate and range of
maturities.  Depending on the program, limitations on the amount of
advances are based either on a fixed percentage of a member institution’s
stockholders’ equity or on the Federal Home Loan Bank’s assessment of the
institution’s creditworthiness.  At December 31, 2007, we had $10.0
million inFederal
Home Loan Bank advances outstanding.
 
 Other borrowings consist of securities
sold under agreements to repurchase which are swept daily from commercial
deposit accounts.  We may be required to provide additional collateral
based on the fair value of the underlying securities.
 
 The following table sets forth certain
information regarding our borrowings for the years indicated.
 
 For
      the Years Ended December 31,2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(In
      Thousands)Weighted
      average rate paid on:(1)FHLB
      advances
              
              
              5.02
              %
              
              
              4.53
              %
              
              
              3.91
              %
              
              
              1.68
              %
              
              
              1.30
              %Other
      borrowings
              
              
              4.26
              %
              
              
              4.55
              %
              
              
              3.14
              %
              
              
              1.40
              %
              
              
              1.16
              %FHLB
      advances:Maximum
      balance
              
              $
              18,000
              
              
              $
              10,000
              
              
              $
              15,500
              
              
              $
              9,000
              
              
              $
              7,500Average
      balance
              
              $
              8,629
              
              
              $
              6,103
              
              
              $
              8,071
              
              
              $
              2,993
              
              
              $
              1,243Other:Maximum
      balance
              
              $
              5,838
              
              
              $
              5,035
              
              
              $
              3,350
              
              
              $
              3,372
              
              
              $
              3,845Average
      balance
              
              $
              4,665
              
              
              $
              3,499
              
              
              $
              2,116
              
              
              $
              2,185
              
              
              $
              2,192
 ____________________________________
 (1)Calculated
      using the daily weighted average interest
rates.
 
 19
  The
following table summarizes significant contractual obligations and other
commitments at December 31, 2007.
 
 At
      December 31, 2007Less
      than 1
                  year
              
              
              1-3
      years
              
              
              3-5
      years
              
              
              More
      than 5
                  years
              
              
              Total(In
      Thousands)Time
      deposits
              
              $
              118,275
              
              
              $
              27,715
              
              
              $
              4,303
              
              
              $
              40
              
              
              $
              150,333FHLB
      advances
              
              
              5,000
              
              
              
              5,000
              
              
              
              -
              
              
              
              -
              
              
              
              10,000Other
      borrowings
              
              
              4,936
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,936Total
      contractual obligations
              
              $
              128,211
              
              
              $
              32,715
              
              
              $
              4,303
              
              
              $
              40
              
              
              $
              165,269
 
 Trust
Services
 
 We operate a full-service trust
department.  As of December 31, 2007, our trust department was
managing $37.0 million in trust assets.  Trust fees collected in 2007
and 2006 totaled $104,000 and $75,000, respectively.
 
 Subsidiary
Activities
 
 Jacksonville Savings Bank has one
wholly owned subsidiary, Financial Resources Group, Inc. (“Financial
Resources”), an Illinois corporation.  Financial Resources is engaged
in the business of originating commercial business loans and, to a lesser
extent, commercial real estate loans, one- to four-family loans, pursuant to
Veterans’ Administration and Federal Housing Administration guidelines, and
multi-family loans.  In addition, Financial Resources operates an
investment center engaged in the business of buying and selling stocks, bonds,
annuities and mutual funds for its customers’ accounts.  At December
31, 2007, we had $2.8 million in equity and retained earnings in Financial
Resources.  For the year ended December 31, 2007, Financial Resources
had net income of $308,000.
 
 Competition
 
 We encounter significant competition
both in attracting deposits and in originating real estate and other
loans.  Our most direct competition for deposits has come historically
from commercial banks, other savings banks, savings associations and credit
unions in our market area, and we expect continued strong competition from such
financial institutions in the foreseeable future.  We compete for
savings by offering depositors a high level of personal service and expertise
together with a wide range of financial services.
 
 The competition for real estate and
other loans comes principally from commercial banks, mortgage banking companies
and other savings banks and savings associations.  This competition
for loans has increased substantially in recent years as a result of the large
number of institutions competing in our market areas as well as the increased
efforts by commercial banks to expand mortgage loan originations.
 
 We compete for loans primarily through
the interest rates and loan fees it charges and the efficiency and quality of
services it provides borrowers and home builders.  Factors that affect
competition include general and local economic conditions, current interest rate
levels and the volatility of the mortgage markets.
 
 Our market areas consist of Morgan,
Macoupin, and Montgomery Counties, Illinois.  Our market areas have a
number of financial institutions, however, we are the largest independent
financial institution headquartered in Jacksonville.
  20
  REGULATION
AND SUPERVISION
 
 General.  Jacksonville
Bancorp, Inc. and Jacksonville Bancorp, MHC are nondiversified savings and loan
holding companies within the meaning of the Home Owners’ Loan Act.  As
such, they are registered with the Office of Thrift Supervision and are subject
to regulation by the Office of Thrift Supervision.  Jacksonville
Savings Bank is an Illinois-chartered savings bank subject to extensive
regulation by the Illinois Commissioner of Banks and Real Estate (the
“Commissioner”) and the Federal Deposit Insurance
Corporation.  Jacksonville Savings Bank’s deposit accounts are insured
up to applicable limits by the Federal Deposit Insurance
Corporation.  Jacksonville Savings Bank must file reports with the
Commissioner and the Federal Deposit Insurance Corporation concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers or
acquisitions with other depository institutions.  There are periodic
examinations of the Bank by the Commissioner and the Federal Deposit Insurance
Corporation to review Jacksonville Savings Bank’s compliance with various
regulatory requirements.  Jacksonville Savings Bank is also subject to
certain reserve requirements established by the Board of Governors of the
Federal Reserve (the “FRB”).  This regulation and supervision
establishes a comprehensive framework of activities in which a savings bank can
engage and is intended primarily for the protection of the Federal Deposit
Insurance Corporation and depositors.  The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes.  Any change in
such regulation, whether by the Commissioner, the Federal Deposit Insurance
Corporation, or Congress could have a material impact on the operations of
Jacksonville Savings Bank.  Certain of the regulatory requirements
applicable to Jacksonville Savings Bank are referred to below or elsewhere
herein.
 
 Capital
Maintenance.  Under Federal Deposit Insurance Corporation
regulations, Jacksonville Savings Bank must maintain minimum levels of
capital.  The regulations establish a minimum leverage capital
requirement of not less than 3% core capital to total assets for banks in the
strongest financial and managerial condition, with the highest supervisory
rating of the federal regulators for banks.  For all other banks, the
minimum leverage capital requirement is between 4% and 5% of total
assets.  Core capital is composed of the sum of common stockholders’
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
(other than qualifying mortgage servicing rights and qualifying supervisory
intangible core deposits), identified losses, investments in certain
subsidiaries, and unrealized gains (losses) on investment
securities.
 
 The Federal Deposit Insurance
Corporation also requires that savings banks meet a risk-based capital
standard.  The risk-based capital standard requires the maintenance of
total capital (which is defined as core capital and supplementary capital) to
risk weighted assets of 8.0%.  In determining the amount of
risk-weighted assets, all assets, including certain off balance sheet assets,
are multiplied by a risk-weight of 0% to 100%, based on the risks the federal
regulators believe are inherent in the type of asset.  The components
of core capital are equivalent to those discussed earlier under the 3% leverage
requirement.  The components of supplementary capital currently
include cumulative perpetual preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and allowance for loan and lease losses.  Allowance
for loan and lease losses includible in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets.  Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of core
capital.  At December 31, 2007, the Bank exceeded its applicable
capital requirements.
 
 Illinois Savings Bank
Regulation.  As an Illinois-chartered savings bank,
Jacksonville Savings Bank is subject to regulation and supervision by the
Commissioner.  The Commissioner’s regulation of Jacksonville Savings
Bank covers, among other things, Jacksonville Savings Bank’s internal
organization (i.e.,
charter, bylaws, capital requirements, transactions with directors and officers,
and composition of the board of directors), as well as supervision of
permissible activities and mergers and acquisitions.  Jacksonville
Savings Bank is required to file periodic reports with, and is subject to
periodic examinations at least once within every 18-month period by the
Commissioner.  The lending and investment authority of Jacksonville
Savings Bank is prescribed by Illinois law and regulations, as well as
applicable Federal laws and regulations, and Jacksonville Savings Bank is
prohibited from engaging in any activities not permitted by such laws and
regulations.
 
 Under Illinois law, savings banks are
required to maintain a minimum core capital to total assets ratio of
3%.  The Commissioner is authorized to require a savings bank to
maintain a higher minimum capital level if the Commissioner determines that the
savings bank’s financial condition or history, management or earnings prospects
are not adequate.  If a savings bank’s core capital ratio falls below
the required level, the Commissioner may direct the savings bank to adhere to a
specific written plan established by the Commissioner to correct the savings
bank’s capital deficiency, as well as a number of other restrictions on the
savings bank’s operations, including a prohibition on the declaration of
dividends by the savings bank’s board of directors.
  21
  Under Illinois law, a savings bank may
make both secured and unsecured loans.  However, loans for business,
corporate, commercial or agricultural purposes, whether secured or unsecured,
may not in the aggregate exceed 15% of a savings bank’s total assets unless
authorized by the Commissioner.  With the prior written consent of the
Commissioner, savings banks may also engage in real estate development
activities, provided that the total investment in any one project may not exceed
15% of total capital, and the total investment in all projects may not exceed
50% of total capital.  The total loans and extensions of credit
outstanding at one time, both direct and indirect, by a savings bank to any
borrower may not exceed 25% of the savings bank’s total capital.  At
December 31, 2007, Jacksonville Savings Bank did not have any loans-to-one
borrower which exceeded these limitations.
 
 Illinois-chartered savings banks
generally have all lending, investment and other powers which are possessed by
federal savings banks based in Illinois.  Recent federal and state
legislative developments have reduced distinctions between commercial banks and
savings institutions in Illinois with respect to lending and investment
authority.  As federal law has expanded the authority of federally
chartered savings institutions to engage in activities previously reserved for
commercial banks, Illinois legislation and regulations (“parity legislation”)
have given Illinois-chartered savings institutions, such as the Bank, the powers
of federally chartered savings institutions.
 
 The board of directors of a savings
bank may declare dividends on its capital stock based upon the savings bank’s
annualized net profits except (1) dividends may not be declared if the bank
fails to meet its capital requirements, (2) dividends are limited to 100% of net
income in that year and (3) if total capital is less than 6% of total assets,
dividends are limited to 50% of net income without prior approval of the
Illinois Commissioner of Banks and Real Estate.
 
 An Illinois-chartered savings bank may
not make a loan to a person owning 10% or more of its stock, an affiliated
person, an agent or an attorney of the savings bank, either individually or as
an agent or partner of another, except under the rules of the Commissioner and
regulations of the Federal Deposit Insurance Corporation.  This
restriction does not apply, however, to loans made (i) on the security of
single-family residential property used by the borrower as his or her residence,
and (ii) to a non-profit, religious, charitable or fraternal organization or a
corporation in which the savings bank has been authorized to invest by the
Commissioner.  Furthermore, a savings bank may not purchase, lease or
acquire a site for an office building or an interest in real estate from an
officer, director, employee or the holder of more than 10% of the savings bank’s
stock or certain affiliated persons as set forth in Illinois law, unless the
prior written approval of the Commissioner is obtained.
 
 Illinois law provides that any
depository institution may merge into a savings bank operating under the
Illinois Savings Bank Act.  The Board of Directors of each merging
institution must approve a plan of merger by resolution adopted by majority vote
of all members of the respective boards.  After such approval, the
plan of merger must be submitted to the Commissioner for
approval.  The Commissioner may make an examination of the affairs of
each merging institution (and their affiliates).  The Commissioner
shall not approve a merger agreement unless he finds that, among other things,
(i) the resulting institution meets all requirements of the Illinois Savings
Bank Act; (ii) the merger agreement is fair to all persons affected; and (iii)
the resulting institution will be operated in a safe and sound
manner.  If approved by the Commissioner, the plan of merger must be
submitted to stockholders of the depository institution for approval, and may be
required to be submitted to members if a mutual savings bank is one of the
constituent entities.  A two-thirds affirmative vote is required for
approval of the plan of merger.
 
 Deposit
Insurance
 
 Deposit accounts in Jacksonville
Savings Bank are insured by the Federal Deposit Insurance Corporation generally
up to a maximum of $100,000 per separately insured depositor and up to a maximum
of $250,000 for self-directed retirement accounts.  Jacksonville
Savings Bank’s deposits, therefore, are subject to Federal Deposit Insurance
Corporation insurance assessments.
  22
  On
February 15, 2006, federal legislation to reform federal deposit insurance was
enacted.  This new legislation required, among other things, that the
Federal Deposit Insurance Corporation adopt regulations increasing the maximum
amount of federal deposit insurance coverage per separately insured depositor
beginning in 2010 (with a cost of living adjustment to become effective in five
years) and modifying the deposit fund’s reserve ratio for a range between 1.15%
and 1.50% of estimated insured deposits.
 
 On November 2, 2006, the Federal
Deposit Insurance Corporation adopted final regulations establishing a
risk-based assessment system that will enable the Federal Deposit Insurance
Corporation to more closely tie each financial institution’s premiums to the
risk it poses to the deposit insurance fund.  Under the new risk-based
assessment system, which becomes effective in the beginning of 2007, the Federal
Deposit Insurance Corporation will evaluate the risk of each financial
institution based on three primary sources of information:  (1) its
supervisory rating, (2) its financial ratios, and (3) its long-term debt issuer
rating, if the institution has one.  The new rates for nearly all of
the financial institution industry will vary between five and seven cents for
every $100 of domestic deposits.  At the same time, the Federal
Deposit Insurance Corporation also adopted final regulations designating the
reserve ratio for the deposit insurance fund during 2007 at 1.25% of estimated
insured deposits.
 
 Effective March 31, 2006, the Federal
Deposit Insurance Corporation merged the Bank Insurance Fund and the Savings
Association Insurance Fund into a single insurance fund called the Deposit
Insurance Fund.  The merger of the two separate insurance funds did
not affect the authority of the Financing Corporation, a mix-ownership
government corporation, to impose and collect, with approval of the Federal
Deposit Insurance Corporation, assessments for anticipated payments, insurance
costs and custodial fees on bonds issued by the Financing Corporation in the
1980s to recapitalize the Federal Savings and Loan Insurance
Corporation.  The bonds issued by the Financing Corporation are due to
mature in 2017 through 2019.  For the quarter ended December 31, 2007,
the Financing Corporation assessment was equal to 114 basis points for each $100
in domestic deposits maintained at an institution.
 
 Community
Reinvestment Act
 
 Federal
Regulation.  Under the Community Reinvestment Act (“CRA”), as
implemented by Federal Deposit Insurance Corporation regulations, a savings
institution has a continuing and affirmative obligation consistent with its safe
and sound operation to help meet the credit needs of its entire community,
including low and moderate income neighborhoods.  The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution’s discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA.  The CRA requires the Federal Deposit
Insurance Corporation, in connection with its examination of a savings
institution, to assess the institution’s record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution.
 
 Sarbanes-Oxley
Act of 2002
 
 The Sarbanes-Oxley Act of 2002
addresses, among other issues, corporate governance, auditing and accounting,
executive compensation, and enhanced and timely disclosure of corporate
information. As directed by the Sarbanes-Oxley Act, our Chief Executive Officer
and Chief Financial Officer will be required to certify that our quarterly and
annual reports do not contain any untrue statement of a material fact. The rules
adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act
have several requirements, including having these officers certify that: they
are responsible for establishing, maintaining and regularly evaluating the
effectiveness of our internal control over financial reporting; they have made
certain disclosures to our auditors and the audit committee of the board of
directors about our internal control over financial reporting; and they have
included information in our quarterly and annual reports about their evaluation
and whether there have been changes in our internal control over financial
reporting or in other factors that could materially affect internal control over
financial reporting.  We will be subject to further reporting and
audit requirements beginning with the year ending December 31, 2009 under the
requirements of the Sarbanes-Oxley Act.  We will prepare policies,
procedures and systems designed to ensure compliance with these
regulations.
  23
 Holding
Company Regulation
 
 Permitted
Activities.  Pursuant to Section 10(o) of the Home Owners’
Loan Act and Office of Thrift Supervision regulations and policy, a mutual
holding company and a federally chartered mid-tier holding company such as
Jacksonville Bancorp, Inc. may engage in the following activities:
(i) investing in the stock of a savings association; (ii) acquiring a
mutual association through the merger of such association into a savings
association subsidiary of such holding company or an interim savings association
subsidiary of such holding company; (iii) merging with or acquiring another
holding company, one of whose subsidiaries is a savings association;
(iv) investing in a corporation, the capital stock of which is available
for purchase by a savings association under federal law or under the law of any
state where the subsidiary savings association or associations share their home
offices; (v) furnishing or performing management services for a savings
association subsidiary of such company; (vi) holding, managing or
liquidating assets owned or acquired from a savings subsidiary of such company;
(vii) holding or managing properties used or occupied by a savings
association subsidiary of such company; (viii) acting as trustee under
deeds of trust; (ix) any other activity (A) that the Federal Reserve
Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956,
unless the Director, by regulation, prohibits or limits any such activity for
savings and loan holding companies; or (B) in which multiple savings and
loan holding companies were authorized (by regulation) to directly engage on
March 5, 1987; (x) any activity permissible for financial holding companies
under Section 4(k) of the Bank Holding Company Act, including securities and
insurance underwriting; and (xi) purchasing, holding, or disposing of stock
acquired in connection with a qualified stock issuance if the purchase of such
stock by such savings and loan holding company is approved by the Director of
the Office of Thrift Supervision.  If a mutual holding company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets and engage in activities listed in (i) through (xi) above, and
has a period of two years to cease any nonconforming activities and divest of
any nonconforming investments.
 
 The Home Owners’ Loan Act prohibits a
savings and loan holding company, including Jacksonville Bancorp, Inc. and
Jacksonville Bancorp, MHC, directly or indirectly, or through one or more
subsidiaries, from acquiring another savings institution or holding company
thereof, without prior written approval of the Office of Thrift
Supervision.  It also prohibits the acquisition or retention of, with
certain exceptions, more than 5% of a nonsubsidiary savings institution, a
nonsubsidiary holding company, or a nonsubsidiary company engaged in activities
other than those permitted by the Home Owners’ Loan Act; or acquiring or
retaining control of an institution that is not federally insured.  In
evaluating applications by holding companies to acquire savings institutions,
the Office of Thrift Supervision must consider the financial and managerial
resources, future prospects of the company and institution involved, the effect
of the acquisition on the risk to the insurance fund, the convenience and needs
of the community and competitive factors.
 
 The Office of Thrift Supervision is
prohibited from approving any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and
(ii) the acquisition of a savings institution in another state if the laws
of the state of the target savings institution specifically permit such
acquisitions.  The states vary in the extent to which they permit
interstate savings and loan holding company acquisitions.
 
 FEDERAL
AND STATE TAXATION
 
 Federal
Taxation.  For federal income tax purposes, Jacksonville
Bancorp files a federal income tax return based upon a tax year ended December
31.  Because Jacksonville Bancorp, MHC owns less than 80% of the
outstanding Common Stock of Jacksonville Bancorp it is not permitted to file a
consolidated federal income tax return with Jacksonville
Bancorp.  Since Jacksonville Bancorp, MHC has no assets other than the
stock of Jacksonville Bancorp and $985,000 in cash, and a $186,000 investment in
the local Bankers’ Bank, it will have no material federal income tax
liability.
  24
  Jacksonville Bancorp, MHC and
Jacksonville Bancorp are subject to the rules of federal income taxation
generally applicable to corporations under the Internal Revenue
Code.  Most corporations are not allowed to make tax deductible
additions to bad debt reserves under the Internal Revenue
Code.  However, banks are allowed to compute a tax deductible bad debt
reserve based on their historical loss experience.  Historically,
banks were also allowed to compute tax bad debt reserves using a percentage of
taxable income.  The tax law was changed in 1987 and 1996 so that now
Jacksonville Bancorp is allowed to maintain a tax deductible bad debt reserve at
the greater of the amount computed using the experience method or the amount of
the bad debt reserve at December 31, 1987 (base year).  Jacksonville
Bancorp has taken advantage of this tax benefit in computing its tax deductible
bad debt reserve and maintains a tax bad debt reserve equal to the tax bad debt
reserve at the base year.
 
 Deferred income taxes arise from the
recognition of certain items of income and expense for tax purposes in years
different from those in which they are recognized in the consolidated financial
statements.
 
 Jacksonville Savings Bank has not been
audited by the Internal Revenue Service for the last five years.  For
additional information regarding taxation, see Note 11 of Notes to Consolidated
Financial Statements.
 
 Illinois
Taxation.  The State of Illinois imposes a tax on the Illinois
taxable income of corporations, including savings banks, at the rate of
7.30%.  Illinois taxable income is generally similar to federal
taxable income except that interest from state and municipal obligations is
taxable and no deduction is allowed for state income taxes.  However,
a deduction is allowed for certain U.S. Government and agency
obligations.  Jacksonville Savings Bank’s state income tax returns for
the tax years ended December 31, 1991, 1990 and 1989, have been audited by the
Illinois tax authorities and did not have to be amended as a result of such
audit.
 
 Personnel
 
 As of December 31, 2007, Jacksonville
Savings Bank and its subsidiary had a total of 101 full-time and 17 part-time
employees.  None of Jacksonville Savings Bank’s employees is
represented by a collective bargaining group.  Management believes
that it has good working relations with its employees.
 
 Availability
of Annual Report on Form 10-K
 
 Our Annual Report on Form 10-K is
available on our website at www.Jacksonvillesavings.com.  Information
on the website is not incorporated into, and is not otherwise considered a part
of, this Annual Report on Form 10-K.
  Item 1A.Risk
Factors
  In addition to risk disclosed elsewhere
in this Annual Report, the following are risks associated with our business and
operations.
 
 Changing
Interest Rates May Cause Net Earnings to Decline.
 
 As market interest rates rise, we will
have competitive pressures to increase the rates that are paid on deposits,
which may result in a decrease in net interest income.  Furthermore,
the value of our loans will be less should we choose to sell such loans in the
secondary market.  Since as a general matter our interest-bearing
liabilities reprice or mature more quickly than our interest-earning assets, an
increase in interest rates generally would result in a decrease in our average
interest rate spread and net interest income.
  25
  If
the Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses, Our
Earnings Could Decrease.
 
 Loan customers may not repay their
loans according to their terms, and the collateral securing the payment of these
loans may be insufficient to pay any remaining loan balance.  We may
experience significant loan losses, which could have a material adverse effect
on our operating results.  Management makes various assumptions and
judgments about the collectibility of the loan portfolio, including the
creditworthiness of borrowers and the value of the real estate and other assets
serving as collateral for the repayment of our loans.
 
 In determining the amount of the
allowance for loan losses, management reviews delinquent loans for potential
impairments in our carrying value.  Additionally, we apply a factor to
the loan portfolio principally based on historical loss experience applied to
the composition of the loan portfolio and integrated with management’s
perception of risk in the economy.  Since we use assumptions regarding
individual loans and the economy, the current allowance for loan losses may not
be sufficient to cover actual loan losses, and increases in the allowance may be
necessary.  Consequently, we may need to significantly increase the
provision for losses on loans, particularly if one or more of our larger loans
or credit relationships becomes delinquent or if we expand non-residential
lending.  In addition, federal and state regulators periodically
review our allowance for loan losses and may require an increase to the
provision for loan losses or recognize loan charge-offs.
 
 If
Economic Conditions Deteriorate, Earnings Could be Adversely Impacted as
Borrowers’ Ability to Repay Loans Declines and the Value of the Collateral
Securing Our Loans Decreases.
 
 Our financial results may be adversely
affected by changes in prevailing economic conditions, including decreases in
real estate values, changes in interest rates which may cause a decrease in
interest rate spreads, adverse employment conditions, the monetary and fiscal
policies of the federal government and other significant external
events.  Since we have a significant amount of loans secured by real
estate, decreases in real estate values could adversely affect the value of
property used as collateral.  Adverse changes in the economy may also
have a negative effect on the ability of our borrowers to make timely repayments
of their loans, which would have an adverse impact on earnings.
 
 Public
Shareholders Do Not Exercise Voting Control Over Us.
 
 A majority of our voting stock is owned
by Jacksonville Bancorp, MHC.  Jacksonville Bancorp, MHC is controlled
by its board of directors, who consist of those persons who are members of the
board of directors of Jacksonville Bancorp, Inc. and Jacksonville Savings
Bank.  Jacksonville Bancorp, MHC elects all members of the board of
directors of Jacksonville Bancorp, Inc., and, as a general matter, controls the
outcome of all matters presented to the stockholders of Jacksonville Bancorp,
Inc. for resolution by vote, except for matters that require a vote greater than
a majority vote.  Consequently, Jacksonville Bancorp, MHC, acting
through its board of directors, is able to control the business and operations
of Jacksonville Bancorp, Inc. and may be able to prevent any challenge to the
ownership or control of Jacksonville Bancorp, Inc. by stockholders other than
Jacksonville Bancorp, MHC.  There is no assurance that Jacksonville
Bancorp, MHC will not take actions that the public stockholders believe are
against their interests.
 
 Strong
Competition Within Our Market Area May Limit Our Growth and
Profitability.
 
 Competition in the banking and
financial services industry is intense.  We compete with commercial
banks, savings institutions, mortgage brokerage firms, credit unions, finance
companies, mutual funds, insurance companies, and brokerage and investment
banking firms operating locally and elsewhere. Many of these competitors have
substantially greater resources and lending limits than we do and may offer
certain services that we do not or cannot provide.  Our profitability
depends upon the continued ability to compete successfully.
 
 26
  Item 1B.Unresolved Staff
Comments
  
 Not applicable.
  ITEM 2.Properties
  We
conduct our business through our main office and two branch offices located in
Jacksonville, and branch offices located in Virden, Litchfield, Chapin, and
Concord, Illinois.  The following table sets forth certain information
concerning the main office and each branch office at December 31,
2007.  At December 31, 2007, our premises and equipment had an
aggregate net book value of approximately $6.3 million.  We believe
that our branch facilities are adequate to meet the present and immediately
foreseeable needs.  All facilities are owned.
 
 NetBook
      ValueYear
              
              at
      December 31,Location
              
              Occupied
              
              2007(In
      Thousands)Main
      Office1211
      West Morton AvenueJacksonville,
      Illinois
              
              1994
              
              $
              4,084Branch
      Office211
      West State StreetJacksonville,
      Illinois
              
              1961
              
              
              641Branch
      Office903
      South MainJacksonville,
      Illinois
              
              1989
              
              
              217Branch
      Office501
      North State StreetLitchfield,
      Illinois
              
              1997
              
              
              571Branch
      Office100
      North DyeVirden,
      Illinois
              
              1986
              
              
              228Branch
    Office510
      SuperiorChapin,
      Illinois
              
              2000
              
              
              494Branch
      Office202
      StateConcord,
      Illinois
              
              2000
              
              
              34
   27
  ITEM 3. Legal
Proceedings
   There are various claims and lawsuits
in which we are periodically involved incident to our business.  In
the opinion of management after consultation with legal counsel, such claims and
lawsuits in the aggregate are immaterial to our financial condition and results
of operations.
  ITEM 4.Submission of Matters to a
Vote of Security Holders
  
 None.
 
 PART II
  ITEM 5.Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
 
  The “Stockholder Information” section
of our annual report to stockholders for the fiscal year ended December 31, 2007
(the “2007 Annual Report to Stockholders”) is filed as an exhibit to this Form
10-K and is incorporated herein by reference.  No shares of common
stock were purchased by Jacksonville Bancorp during the fourth quarter of
2007.
 
 Set forth
below is information as of December 31, 2007 regarding equity compensation
plans. The plans that have been approved by the stockholders are the 1996 Stock
Option Plan and 2001 Stock Option Plan.  Other than our Employee Stock
Ownership Plan, we do not have any equity compensation plans that were not
approved by our stockholders.
  Plan
              
              Number
      of securities to be
                issued
      upon exercise of
                outstanding
      options and
                rights
              
              
              Weighted
      average
                exercise
      price
              
              
              Number
      of securities
                remaining
      available for
                issuance
      under planEquity
      compensation plans approved by stockholders
              
              
              35,545
              
              
              $
              10.63
              
              
              
              3,300Equity
      compensation plans not approved by stockholders
              
              
              —
              
              
              
              —
              
              
              
              —Total
              
              
              35,545
              
              
              $
              10.63
              
              
              
              3,300
 
 ITEM 6.Selected Financial
Data
  
 The “Selected Consolidated Financial
Information” section of the 2007 Annual Report to Stockholders is filed as an
exhibit to this Form 10-K and is incorporated herein by reference.
  ITEM 7.Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
 The “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” section of the 2007
Annual Report to Stockholders is filed as an exhibit to this Form 10-K and is
incorporated herein by reference.
  28
  ITEM
7A.          Quantitative and Qualitative
Disclosure about Market
   
 The “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” section of the 2007
Annual Report to Stockholders is filed as an exhibit to this Form 10-K and is
incorporated herein by reference.
  ITEM 8. Financial Statements and
Supplementary Data
  The material identified in Item
15(a)(1) hereof is incorporated herein by reference.
  ITEM 9. Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure
  None.
  ITEM
9A(T).    Controls and
Procedures
  (a)
              Evaluation
      of disclosure controls and
procedures.
  Our Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation within 90 days prior
to filing date of this report, that our disclosure controls and procedures (as
defined by the Securities Exchange Act Rules 13a-14(c) and 15d-14(c)) are
effective 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 Securities and Exchange Commissions’ rules and forms.
 
 (b)
              Management’s
      Report on Internal Control over Financial
  Reporting
 
 The management of Jacksonville Bancorp,
Inc. (the “Company”) is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the financial statements for external
purposes in accordance with generally accepted accounting principles. The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the Company are being made only
in accordance with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. All internal control systems, no matter how
well designed, have inherent limitations, including the possibility of human
error and the circumvention of overriding controls. Accordingly, even an
effective system of internal control over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that degree of compliance with the policies or procedures may
deteriorate.
 
 Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007, based on the framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control—Integrated Framework. Based on that assessment, management
concludes that, as of December 31, 2007, the Company’s internal control over
financial reporting is effective.
  29
  (c)
              Changes
      in internal controls.
 
 There were no significant changes made
in our internal controls during the period covered by this report or, to our
knowledge, in other factors that could significantly affect these controls
subsequent to the date of the foregoing evaluation.
  ITEM
9B.Other
Information
  None.
 
 PART III
  ITEM 10.Directors, Executive
Officersand
Corporate Governance
 
 Information concerning our directors
and certain officers is incorporated by reference hereunder in the Proxy
Statement for the 2008 Annual Meeting.
  ITEM 11.Executive
Compensation
 
 Information with respect to management
compensation required under this item is incorporated by reference hereunder in
the Proxy Statement for the 2008 Annual Meeting.
 ITEM 12.Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
 
 Information required under this item is
incorporated by reference to the Proxy Statement for the 2007 Annual
Meeting.
  ITEM 13.Certain Relationships and
Related Transactionsand Director
Independence
 
 Information required under this item is
incorporated by reference to the Proxy Statement for the 2007 Annual
Meeting.
  ITEM 14.Principal Accountant Fees
and Services
 
 Information required under this item is
incorporated by reference to the Proxy Statement for the 2007 Annual
Meeting.
 
 PART IV
  ITEM 15.Exhibits and Financial
Statement Schedules
 
 (a)(1)
              Financial
      Statements
  30
  The
documents filed as a part of this Form 10-K are:
 
 (A)
              Report
      of Independent Registered Public Accounting Firm;(B)
              Consolidated
      Balance Sheets - December 31, 2007 and 2006;(C)
              Consolidated
      Statements of Income - years ended December 31, 2007, 2006 and
      2005;(D)
              Consolidated
      Statements of Stockholders’ Equity - years ended December 31, 2007, 2006
      and 2005;(E)
              Consolidated
      Statements of Cash Flows - years ended December 31, 2007, 2006 and 2005;
      and(F)
              Notes
      to Consolidated Financial  Statements.(a)(2)
              Financial Statement
      Schedules
 
 All financial statement schedules have
been omitted as the required information is inapplicable or has been included in
the Notes to Consolidated Financial Statements.
 
 (a)(3)
              Exhibits
 
 3
              Federal
      Charter and Bylaws(1)4
              Stock
      Certificate of Jacksonville Bancorp, Inc.(1)10.1
              Employment
      Agreement between Jacksonville Savings Bank and Andrew F. Applebee(1)10.2
              Employment
      Agreement between Jacksonville Savings Bank and Richard A. Foss(1)10.3
              Employment
      Agreement between Jacksonville Savings Bank and John C. Williams(1)10.4
              Jacksonville
      Savings Bank 1996 Stock Option Plan(2)10.5
              Jacksonville
      Savings Bank 2001 Stock Option Plan(2)10.6
              Amendments
      to the Jacksonville Savings Bank Stock Option Plans(1)13
              2007
      Annual Report to Stockholders14
              Code
      of Ethics(3)21
              Subsidiaries23
              Consent
      of BKD LLP to incorporate financial statements into Registration Statement
      on Form S-831.1
              Certification
      required pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              Certification
      required pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.
 ___________________
 (1)
              Incorporated
      by reference to the Current Report on Form 8-A12G filed with the
      Securities and Exchange Commission on May 2, 2002 (File No.
      000-49792).(2)
              Incorporated
      by reference to the registration statement on Form S-8 filed with the
      Securities and Exchange Commission on February 2, 2004 (File No.
      333-112420).(3)
              Incorporated
      by reference to the Annual Report on Form 10-K for the year ended December
      31, 2003 (File No. 000-49792).
  31
 
 Signatures
 
 Pursuant to the requirements of Section
13 of the Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 Jacksonville
      Bancorp, Inc.Date:
      March 24, 2008
              By:
              /s/ Richard A. FossRichard
      A.  Foss, Presidentand
      Chief Executive Officer
 
 Pursuant to the requirements of the
Securities Exchange of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
 
 
 By:
              /s/ Richard A. Foss
              
              By:
              /s/ Andrew F. ApplebeeRichard
      A. Foss, President,
              
              
              Andrew
      F. Applebee, Chairman of the BoardChief
      Executive Officer and DirectorDate:
      March 24, 2008
              
              Date:
      March 24, 2008By:
              /s/ Diana S. Tone
              
              By:
              /s/ Dean H. HessDiana
      S. Tone
              
              
              Dean
      H. Hess, DirectorChief
      Financial OfficerDate:
      March 24, 2008
              
              Date:
      March 24, 2008By:
              /s/ John L. Eyth
              
              By:
              /s/ Emily J. OsburnJohn
      L. Eyth, Director
              
              
              Emily
      J. Osburn, DirectorDate:
      March 24, 2008
              
              Date:
      March 24, 2008By:
              /s/ Harmon B. Deal, III
              
              By:
              /s/ Harvey D. Scott, IIIHarmon
      B. Deal, III, Director
              
              
              Harvey
      D. Scott III, DirectorDate:
      March 24, 2008
              
              Date:
      March 24, 2008By:
              /s/ Michael R. Goldasich
              
              By:
              /s/ John C. WilliamsMichael
      R. Goldasich, Director
              
              
              John
      C. Williams, Director,Senior
      Vice President and Trust OfficerDate:
      March 24, 2008
              
              Date:
      March 24, 2008
  
  EXHIBIT
INDEX
  3
              Federal
      Charter and Bylaws(1)4
              Stock
      Certificate of Jacksonville Bancorp, Inc.(1)10.1
              Employment
      Agreement between Jacksonville Savings Bank and Andrew F. Applebee(1)10.2
              Employment
      Agreement between Jacksonville Savings Bank and Richard A. Foss(1)10.3
              Employment
      Agreement between Jacksonville Savings Bank and John C. Williams(1)10.4
              Jacksonville
      Savings Bank 1996 Stock Option Plan(2)10.5
              Jacksonville
      Savings Bank 2001 Stock Option Plan(2)10.6
              Amendments
      to the Jacksonville Savings Bank Stock Option Plans(1)13
              2007
      Annual Report to Stockholders14
              Code
      of Ethics(3)21
              Subsidiaries23
              Consent
      of BKD LLP to incorporate financial statements into Registration Statement
      on Form S-831.1
              Certification
      required pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              Certification
      required pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.
 ___________________
 (1)
              Incorporated
      by reference to the Current Report on Form 8-A12G filed with the
      Securities and Exchange Commission on May 2, 2002 (File No.
      000-49792).(2)
              Incorporated
      by reference to the registration statement on Form S-8 filed with the
      Securities and Exchange Commission on February 2, 2004 (File No.
      333-112420).(3)
              Incorporated
      by reference to the Annual Report on Form 10-K for the year ended December
      31, 2003 (File No.
000-49792).