Edgar Filing: JACKSONVILLE BANCORP INC

t63408_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

	(Mark One)

	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2008

	OR

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period of _________ 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 incorporation)		(I.R.S. Employer Identification Number)

1211 West Morton Avenue
Jacksonville, Illinois		62650
(Address of principal executive office)		(Zip Code)

Registrant’s telephone number, including area code: (217) 245-4111

Indicate by check whether issuer (1) has filed all reports required to be filed by Sections 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. x Yes o No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

o Large Accelerated Filer o Accelerated Filer

o Non-Accelerated Filer x Smaller Reporting Company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of July 31, 2008, there were 1,987,904 shares (*) of the Registrant’s common stock issued and outstanding.

(*) As of July 31, 2008, 1,038,738 shares were owned by Jacksonville Bancorp, M.H.C., the Company’s mutual holding company parent.

JACKSONVILLE BANCORP, INC.

FORM 10-Q

JUNE 30, 2008

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Income	2

	Condensed Consolidated Statement of Stockholders’ Equity	3

	Condensed Consolidated Statements of Cash Flows	4-5

	Notes to the Condensed Consolidated Financial Statements	6-12

Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operations	13-25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26-27

Item 4.T	Controls and Procedures	28


PART II	OTHER INFORMATION	29

Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Stock Purchases
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits

	Signatures	30

EXHIBITS

	Section 302 Certifications
	Section 906 Certification

PART I – FINANCIAL INFORMATION

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
ASSETS	2008			2007
	(Unaudited)

Cash and cash equivalents	$	12,658,785		$	12,175,464
Investment securities - available-for-sale		53,870,989			64,894,960
Mortgage-backed securities - available-for-sale		34,125,690			15,415,191
Federal Home Loan Bank stock		1,108,606			1,108,606
Other investment securities		260,992			291,004
Loans receivable - net of allowance for loan losses of $1,777,325 and $1,766,229 as of
June 30, 2008 and December 31, 2007		173,682,905			175,866,517
Loans held for sale, net		1,419,741			1,861,415
Premises and equipment - net		6,147,570			6,268,893
Cash surrender value of life insurance		3,433,452			3,186,228
Accrued interest receivable		2,217,185			2,105,094
Goodwill		2,726,567			2,726,567
Capitalized mortgage servicing rights		980,315			965,679
Real estate owned		373,217			363,918
Income taxes receivable		19,328			13,919
Other assets		1,864,274			1,245,244

Total Assets	$	294,889,616		$	288,488,699

LIABILITIES AND STOCKHOLDERS’ EQUITY


Deposits	$	249,479,437		$	245,720,751
Borrowings		17,630,672			14,936,034
Advance payments by borrowers for taxes and insurance		836,122			421,489
Accrued interest payable		1,078,335			1,248,346
Deferred compensation plan		2,474,165			2,346,422
Other liabilities		1,349,329			1,197,766
Total liabilities		272,848,060			265,870,808

Commitments and contingencies

Stockholders' equity

Preferred stock, $0.01 par value - authorized 10,000,000 shares;
none issued and outstanding		-			-

Common stock, $0.01 par value - authorized 20,000,000 shares;
issued and outstanding, 1,987,904 shares and 1,986,804 shares as of
June 30, 2008 and December 31, 2007, respectively		19,879			19,868

Additional paid-in capital		6,633,353			6,621,359

Retained earnings		16,679,573			16,034,800

Accumulated other comprehensive loss		(1,291,249	)		(58,136	)
Total stockholders’ equity		22,041,556			22,617,891

Total Liabilities and Stockholders' Equity	$	294,889,616		$	288,488,699

See accompanying notes to the condensed consolidated financial statements.

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2008		2007			2008		2007
	(Unaudited)					(Unaudited)
INTEREST INCOME:
Loans	$	2,920,561	$	2,844,233		$	6,020,689	$	5,567,848
Investment securities		496,184		828,457			1,035,626		1,648,255
Mortgage-backed securities		424,635		154,446			721,237		268,768
Other		92,083		27,502			211,831		59,675
Total interest income		3,933,463		3,854,638			7,989,383		7,544,546
INTEREST EXPENSE
Deposits		1,871,143		2,104,833			3,945,092		4,145,790
Borrowings		152,755		125,957			298,544		214,292
Total interest expense		2,023,898		2,230,790			4,243,636		4,360,082

NET INTEREST INCOME		1,909,565		1,623,848			3,745,747		3,184,464

PROVISION FOR LOAN LOSSES		30,000		-			60,000		30,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		1,879,565		1,623,848			3,685,747		3,154,464

OTHER INCOME:
Service charges on deposit accounts		226,635		244,598			434,224		474,557
Commission income		283,628		268,409			584,008		461,588
Loan servicing fees		83,137		85,017			165,175		172,206
Mortgage banking operations, net		45,679		(19,302	)		90,786		(42,501	)
Trust income		45,651		24,462			96,747		51,271
Increase in cash surrender value		34,658		1,604			80,913		8,448
Other		32,790		20,665			47,735		37,098
Total other income		752,178		625,453			1,499,588		1,162,667
OTHER EXPENSES:
Salaries and employee benefits		1,368,459		1,255,693			2,723,145		2,521,516
Occupancy and equipment		263,031		268,621			553,582		536,268
Data processing		114,636		107,188			221,752		212,787
Postage and office supplies		69,399		71,661			148,527		157,158
Profesional fees		54,641		39,906			89,997		71,752
Advertising		27,874		30,296			57,911		55,283
FDIC insurance		14,531		7,010			21,397		13,822
Other		200,435		233,380			386,480		426,398
Total other expenses		2,113,006		2,013,755			4,202,791		3,994,984

INCOME BEFORE INCOME TAXES		518,737		235,546			982,544		322,147

INCOME TAXES		94,956		33,223			195,395		15,867

NET INCOME	$	423,781	$	202,323		$	787,149	$	306,280

NET INCOME PER COMMON SHARE, BASIC	$	0.21	$	0.10		$	0.40	$	0.15

NET INCOME PER COMMON SHARE, DILUTED	$	0.21	$	0.10		$	0.40	$	0.15

See accompanying notes to unaudited condensed consolidated financial statements

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

								Accumulated
			Additional					Other			Total
	Common		Paid-in		Retained			Comprehensive			Stockholders'			Comprehensive
(Unaudited)	Stock		Capital		Earnings			Loss			Equity			Loss

BALANCE, DECEMBER 31, 2007	$	19,868	$	6,621,359	$	16,034,800		$	(58,136	)	$	22,617,891

Net Income		-		-		787,149			-			787,149		$	787,149

Other comprehensive loss - change in
net unrealized losses on securities available
for sale, net of tax benefit of $635,176		-		-		-			(1,232,989	)		(1,232,989	)		(1,232,989	)
Reclassification adjustment for gains
included in net income, net of tax of $64		-		-		-			(124	)		(124	)		(124	)
Comprehensive Loss														$	(445,964	)

Exercise of stock options		11		10,989		-			-			11,000
Compensation expense for stock options				1,005								1,005
Dividends on common stock ($0.15 per share)		-		-		(142,376	)		-			(142,376	)

BALANCE, JUNE 30, 2008	$	19,879	$	6,633,353	$	16,679,573		$	(1,291,249	)	$	22,041,556

See accompanying notes to unaudited condensed consolidated financial statements.

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	June 30,
	2008			2007
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	787,149		$	306,280
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion:
Premises and equipment		218,732			214,414
Amortization(accretion) of investment premiums and discounts, net		27,003			(1,273	)
Amortization of intangible assets		39,862			39,862
Compensation expense related to stock options		1,005			1,005
Provision for loan losses		60,000			30,000
Mortgage banking operations, net		(90,786	)		42,501
Gains on sale of real estate owned		(11,128	)		(12,734	)
Changes in income taxes payable		(5,409	)		38,891
Changes in other assets and liabilities		(287,204	)		47,986
Net cash provided by operations before loan sales		739,224			706,932
Origination of loans for sale to secondary market		(18,767,181	)		(1,833,670	)
Proceeds from sales of loans to secondary market		19,285,005			2,227,703
Net cash provided by operating activities		1,257,048			1,100,965

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment and mortgage-backed securities		(56,381,390	)		(10,047,576	)
Maturity or call of investment securities available-for-sale		43,270,492			2,265,400
Proceeds from sale of investment and mortgage-backed securities		1,239,407			337,144
Principal payments on mortgage-backed and investment securities		2,319,807			885,034
Proceeds from sale of other real estate owned		66,287			61,555
(Increase) decrease in loans, net		2,072,498			(5,981,394	)
Proceeds from disposal of premises and equipment		32,795			-
Gains on disposal of premises and equipment		(6,517	)		-
Additions to premises and equipment		(123,687	)		(98,535	)

Net cash used in investing activities		(7,510,308	)		(12,578,372	)

				(Continued)

JACKSONVILLE BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	June 30,
	2008			2007
	(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	$	3,758,686		$	4,164,262
Net increase in borrowings		2,694,638			2,674,689
Increase in advance payments by borrowers for taxes and insurance		414,633			404,417
Exercise of stock options, including tax benefit		11,000			26,000
Purchase and retirement of common stock		-			(14,994	)
Dividends paid - common stock		(142,376	)		(142,211	)

Net cash provided by financing activities		6,736,581			7,112,163

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		483,321			(4,365,244	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		12,175,464			9,330,566

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	12,658,785		$	4,965,322

ADDITIONAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits	$	4,112,753		$	4,147,469
Interest on other borrowings		300,894			194,636
Income taxes paid		214,400			49,000

NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired in settlement of loans	$	144,739		$	381,695
Loans to facilitate sales of real estate owned		93,625			125,500


See accompanying notes to unaudited condensed consolidated financial statements

JACKSONVILLE BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL STATEMENTS

The accompanying interim condensed consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Jacksonville Savings Bank (the “Bank”) and its wholly-owned subsidiary, Financial Resources Group (the “Subsidiary”). All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the preceding unaudited financial statements contain all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of June 30, 2008 and December 31, 2007 and the results of operations for the three and six month periods ended June 30, 2008 and 2007. The results of operations for the three and six month periods ended June 30, 2008 are not necessarily indicative of the results which may be expected for the entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2007 filed as an exhibit to the Company’s 10-K filed in March 2008. The accounting and reporting policies of the Company and its subsidiary conform to accounting principles generally accepted in the United States of America and to the prevailing practices within the banking industry.

Certain amounts included in the 2007 consolidated statements have been reclassified to conform to the 2008 presentation, with no effect on net income or stockholders’ equity.

2. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FAS 157 has been applied prospectively as of the beginning of the period.

FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities – The fair value of available-for-sale securities are determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Company has no Level 1 securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Level 2 securities include certain U.S. agency bonds, collateralized mortgage and debt obligations, and certain municipal securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain residual municipal securities and other less liquid securities.

The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the FAS 157 fair value hierarchy in which the fair value measurements fall as of June 30, 2008:

		Fair Value Measurements Using
		Quoted Prices
		in Active	Significant
		Markets for	Other	Significant
		Identical	Observable	Unobservable
		Assets	Inputs	Inputs
	Fair Value	(Level 1)	(Level 2)	(Level 3)
Available-for-sale
securities	$ 87,996,679	$ -	$ 87,996,679	$ -

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements using significant unobservable (Level 3) inputs:

	Available-
	for-sale
	Securities
Balance, March 31, 2008	$	1,294,349
Total realized and unrealized gains and losses:
Included in net income		-
Included in other comprehensive income (loss)		-
Purchases, issuances, and settlements		-
Transfers in and/or out of Level 3		(1,294,349	)
Balance, June 30, 2008	$	-
Total gains or losses for the period included in net income
attributed to the change in unrealized gains or losses
related to assets and liabilities still held at the reporting date	$	-

Balance, December 31, 2007	$	506,765
Total realized and unrealized gains and losses:
Included in net income		-
Included in other comprehensive income (loss)		-
Purchases, issuances, and settlements		787,584
Transfers in and/or out of Level 3		(1,294,349	)
Balance, June 30, 2008	$	-
Total gains or losses for the period included in net income
attributed to the change in unrealized gains or losses
related to assets and liabilities still held at the reporting date	$	-

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company has not elected the fair value option for any financial assets or liabilities as of June 30, 2008.

3. NEW ACCOUNTING PRONOUNCEMENTS

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133. FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. FAS 161 is effective for fiscal years beginning after November 15, 2008. The Company does not expect the implementation of FAS 161 to have a material impact on its consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (FAS 160), Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51. FAS 160 requires that a noncontrolling interest in a subsidiary be reported separately within equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in deconsolidation. FAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the implementation of FAS 160 to have a material impact on its consolidated statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R (FAS 141R), Business Combinations. FAS 141R establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141R is effective for acquisition dates in fiscal years beginning after December 15, 2008. The Company does not expect the implementation of FAS 141R to have a material impact on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158 (FAS 158), Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106, and 132R, which requires recognition of a net liability or asset to report the funded status of defined benefit pension and other postretirement plans on the balance sheet and recognition (as a component of other comprehensive income) of changes in the funded status in the year in which the changes occur. Additionally, FAS 158 requires measurement of a plan’s assets and obligations as of the balance sheet date and additional disclosures in the notes to the financial statements. The recognition and disclosure provisions of FAS 158 are effective for fiscal years ending after December 15, 2006, while the requirements to measure a plan’s assets and obligations as of the balance sheet date is effective for fiscal years ending after December 15, 2008. There was no material impact in regard to adoption of the recognition and disclosure provisions of FAS 158. The Company is currently evaluating the impact the adoption of the remaining provisions of FAS 158 will have on its financial reporting and disclosures.

4. EARNINGS PER SHARE

Earnings Per Share – Basic earnings per share is determined by dividing net income for the period by the weighted average number of common shares outstanding. Diluted earnings per share considers the potential effects of the exercise of the outstanding stock options under the Company’s Stock Option Plans.

The following reflects earnings per share calculations for the basic and diluted methods:

	3 Months Ended				6 Months Ended
	June 30,				June 30,
	2008		2007		2008		2007

Net income available to common shareholders	$	423,781	$	202,323	$	787,149	$	306,280

Basic potential common shares:
Weighted average shares outstanding		1,987,904		1,986,804		1,987,517		1,986,303

Diluted potential common shares:
Stock option equivalents		2,358		5,928		2,263		6,287
Diluted average shares outstanding		1,990,262		1,992,732		1,989,780		1,992,590

Basic earnings per share	$	0.21	$	0.10	$	0.40	$	0.15

Diluted earnings per share	$	0.21	$	0.10	$	0.40	$	0.15

Stock options for 5,600 shares of common stock were not considered in computing diluted earnings per share for the three and six month periods ending June 30, 2008 and 2007, respectively, because they were anti-dilutive.

5. LOAN PORTFOLIO COMPOSITION

At June 30, 2008 and December 31, 2007, the composition of the Company’s loan portfolio was as follows:

	June 30, 2008				December 31, 2007
	Amount		Percent		Amount		Percent
	(Dollars in Thousands)
Real estate loans:
One-to-four family residential	$	45,958		26.5	$	50,459		28.7
Commercial and agricultural		49,721		28.6		44,100		25.1
Multi-family residential		4,887		2.8		4,741		2.7
Total real estate loans		100,566		57.9		99,300		56.5
Commercial agricultural business loans		34,673		20.0		36,539		20.8
Consumer loans:
Home equity/home improvement		29,152		16.8		30,087		17.1
Automobile		5,461		3.1		5,334		3.0
Other		5,670		3.2		6,402		3.6
Total consumer loans		40,283		23.1		41,823		23.7
Total loans receivable		175,522		101.0		177,662		101.0

Less:
Unearned discount and deferred loan fees, net		62		-		29		-
Allowance for loan losses		1,777		1.0		1,766		1.0
Total loans receivable, net	$	173,683		100.0	$	175,867		100.0

6. INVESTMENT LOSSES

Declines in the fair value of available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The declines in fair value are due to changes in market rates. At June 30, 2008, the Company does not hold any investment securities that it considers to be other-than-temporarily impaired. The following table shows the gross unrealized losses and fair value, aggregated by investment type and length of time that individual securities have been in a continuous loss position, at June 30, 2008.

	Less Than Twelve Months					Over Twelve Months					Total
	Gross					Gross					Gross
	Unrealized		Fair			Unrealized		Fair			Unrealized		Fair
	Losses		Value			Losses		Value			Losses		Value
	(In thousands)
State and political
organizations	$	22,920	$	(816	)	$	-	$	-		$	22,920	$	(816	)
U.S. government
and agencies		21,280		(324	)		-		-			21,280		(324	)
Subtotal		44,200		(1,140	)		-		-			44,200		(1,140	)

Mortgage-backed
securities		31,104		(781	)		2,136		(96	)		33,240		(877	)

Total	$	75,304	$	(1,921	)	$	2,136	$	(96	)	$	77,440	$	(2,017	)

7. FEDERAL HOME LOAN BANK STOCK

The Company owns approximately $1.1 million of Federal Home Loan Bank stock. During the third quarter of 2007, the Federal Home Loan Bank of Chicago received a Cease and Desist Order from their regulator, the Federal Housing Finance Board. The order prohibits capital stock repurchases and redemptions until a time to be determined by the Federal Housing Finance Board. With regards to dividends, the Federal Home Loan Bank will continue to assess their dividend capacity each quarter and make appropriate requests for approval. Management performed an analysis and deemed the investment in FHLB stock was not impaired as of June 30, 2008. During the second quarter of 2008, the Federal Home Loan Bank reported that they will no longer enter into new master commitments or renew existing master commitments to purchase mortgage loans from participating financial institutions under the Mortgage Partnership Finance (MPF) program. They will continue to fund new loans under existing master commitments through October 31, 2008. While the Company is currently participating in the MPF program, the Company has other funding alternatives, including selling loans to Freddie Mac.

8. INCOME TAXES

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the six months ended June 30, 2008 and 2007 is shown below.

			June 30, 2008			June 30, 2007
Computed at the statutory rate (34%)			$	334,065		$	109,530
Increase (decrease) resulting from
	Tax exempt interest			(123,949	)		(57,177	)
	State income taxes, net			25,879			(36,963	)
	Increase in cash surrender value			(25,956	)		(2,872	)
	Other, net			(14,644	)		3,349

		Actual tax expense	$	195,395		$	15,867

9. COMMITMENTS AND CONTINGENCIES

From time to time, the Company is a defendant in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the resolution of these actions will not have any material adverse effect on the Company's consolidated financial statements.

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers in the way of commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. Substantially, all of the Company's loans are to borrowers located in Cass, Morgan, Macoupin, Montgomery, and surrounding counties in Illinois.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and accompanying notes thereto.

Forward-Looking Statements

This Form 10-Q contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for mortgage and other loans, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing of products and services.

Critical Accounting Policies

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in preparing its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. Management believes the following discussion on the allowance for loan losses addresses our most critical accounting policy, which is most important to the portrayal of our financial condition and results and require management’s most difficult, subjective and complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Allowance for Loan Losses - The allowance for loan losses is a material estimate that is particularly susceptible to significant changes in the near term and is established through a provision for loan losses. The allowance is based upon past loan experience and other factors which, in management’s judgement, deserve current recognition in estimating loan losses. The evaluation includes a review of all loans on which full collectibility may not be reasonably assured. Other factors considered by management include the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions and historical losses on each portfolio category. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties, which collateralize loans. Management uses the available information to make such determinations. If circumstances differ substantially from the assumptions used in making determinations, future adjustments to the allowance for loan losses may be necessary and results of operations could be affected. While we believe we have established our existing allowance for loan losses in conformity with accounting principles generally accepted in the United States of America, there can be no assurance that regulators, in reviewing the Bank’s loan portfolio, will not request an increase in the allowance for loan losses. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that increases to the allowance will not be necessary if loan quality deteriorates.

New Accounting Standards Adopted During First Quarter 2008

Financial Condition

June 30, 2008 Compared to December 31, 2007

Total assets increased $6.4 million to $294.9 million at June 30, 2008 from $288.5 million at December 31, 2007. Net loans decreased $2.2 million to $173.7 million at June 30, 2008. Available-for-sale investment securities decreased $11.0 million primarily due to $43.3 million in calls of U.S. agency bonds, partially offset by purchases of $20.8 million of U.S. agency bonds and $13.8 million of tax-free municipal bonds. Mortgage-backed securities increased $18.7 million during the six-month time frame, mostly due to purchases of $21.8 million, partially offset by principal payments. Deposits increased $3.8 million during the first six months of 2008, reflecting increases in transaction accounts. Other borrowings increased $2.7 million due to an increase in securities sold under agreements to repurchase.

Stockholders’ equity decreased $576,000 to $22.0 million at June 30, 2008. The decrease resulted from a $1.2 million increase in unrealized losses, net of tax, on available-for-sale securities. The change in unrealized gains or losses on securities classified as available-for-sale is affected by market conditions, which can fluctuate daily. Stockholders’ equity benefited from net income of $787,000 and the receipt of $12,000 from the exercise of stock options during the first six months of 2008, partially offset by dividend payments of $142,000 to stockholders. The receipt of $12,000 reflects $11,000 received from the exercise of stock options and a $1,000 compensation expense related to options.

Results of Operations

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

General: The Company reported net income for the three months ended June 30, 2008, of $424,000, or $0.21 per share of common stock, basic and diluted, compared to net income of $202,000, or $0.10 per share of common stock, basic and diluted, for the three months ended June 30, 2007. The increase of $222,000 in net income is due to increases of $286,000 in net interest income and $127,000 in other income, partially offset by increases of $99,000 in other expenses, $62,000 in income taxes, and $30,000 in the provision for loan losses. The Company’s operations benefited from the steepening of the yield curve, as the Federal Reserve has aggressively lowered short-term interest rates. In addition, earnings have benefited from the stable level of nonperforming assets.

Interest Income: Total interest income for the three months ended June 30, 2008 increased $79,000 from the same period of 2007. The increase in interest income reflects increases in interest income of $76,000 on loans, $270,000 on mortgage-backed securities, and $65,000 on other investments, partially offset by a decrease of $332,000 in interest on investment securities.

The increase in interest income on loans is primarily due to a $14.9 million increase in the average balance of the loan portfolio to $174.5 million during the second quarter of 2008 compared to the second quarter of 2007. The growth in the average balance of loans is primarily due to an increase in commercial business and commercial real estate loans. In order to increase income, the Company retained a portion of fixed-rate real estate loans in the portfolio during 2007, rather than selling them to the secondary market. The increase in interest income was partially offset by a decrease in the average yield of the loan portfolio to 6.69% from 7.13% for the three months ended June 30, 2008 and 2007, respectively.

The $332,000 decrease in interest income on investment securities reflects a decrease of $31.2 million in the average balance of the portfolio to $51.8 million during the second quarter of 2008, as compared to the second quarter of 2007. The decrease in the average balance reflects an increase in calls, a portion of which have been reinvested into tax-free municipal bonds, as well as mortgage-backed securities. The average balance of municipal securities increased $17.3 million during the second quarter. The average yield of investment securities decreased to 3.83% from 3.99% during the second quarter of 2008 and 2007, respectively. This average yield does not reflect the benefit of the higher tax-equivalent yield of the municipal bonds, which is reflected as a reduction in income tax expense.

Interest income on mortgage-backed securities increased $270,000 during the second quarter of 2008 compared to the second quarter of 2007. The increased interest income on mortgage-backed securities reflects an increase of $22.9 million in the average balance of mortgage-backed securities to $35.5 million during the second quarter of 2008. The increase in mortgage-backed securities reflects the reinvestment of funds from calls of investment securities. Interest income was partially offset by a decrease in the average yield to 4.78% from 4.87% during the three months ended June 30, 2008 and 2007, respectively.

Interest income on other interest earning assets, which consist of interest-earning deposit accounts and federal funds sold, increased during the second quarter of 2008 primarily due to a higher average balance. The average balance of these accounts increased $14.9 million to $16.6 million for the three months ended June 30, 2008 compared to the three months ended June 30, 2007. The increase in the average balance is primarily due to funds provided by investment calls and deposit growth. The average yield on these accounts decreased to 2.22% from 6.70% during the second quarter of 2008 and 2007, respectively, reflecting the decreases in short-term interest rates during the fourth quarter of 2007 through 2008.

Interest Expense: Total interest expense for the three months ended June 30, 2008 decreased $207,000 compared to the three months ended June 30, 2007. The increase in interest expense was due to a decrease of $234,000 in the cost of deposits, partially offset by a $27,000 increase in the cost of borrowed funds.

The $234,000 decrease in the cost of deposits was primarily due to a decrease in the average rate. The average rate decreased to 3.20% during the three months ended June 30, 2008 from 3.81% during the three months ended June 30, 2007. The 61 basis point decrease reflects the decrease in short-term market rates of interest. The decreased cost was partially offset by an increase of $12.8 million in the average balance of deposits to $233.9 million during the comparative three month period.

Interest paid on borrowed funds increased $27,000 primarily due to a $6.5 million increase in the average balance of borrowed funds to $17.0 million during the second quarter of 2008 compared to same period of 2007. The increase in borrowed funds is mostly due to a $3.8 million increase in the average balance of advances from the Federal Home Loan Bank. The remainder of borrowed funds consists of securities sold under agreements to repurchase. The higher interest expense was partially offset by a decrease in the average cost to 3.59% from 4.80% during the second quarter of 2008 and 2007, respectively.

Provision for Loan Losses: The provision for loan losses is determined by management as the amount needed to replenish the allowance for loan losses, after net charge-offs have been deducted, to a level considered adequate to absorb inherent losses in the loan portfolio, in accordance with accounting principles generally accepted in the United States of America.

The allowance for loan losses increased to $1,777,000 at June 30, 2008 from $1,766,000 at December 31, 2007. The increase is the result of the provision for loan losses exceeding net charge-offs during 2008. Net charge-offs decreased to $23,000 during the second quarter of 2008 compared to net charge-offs of $32,000 during the second quarter of 2007. Provisions for loan losses have been made to bring the allowance for loan losses to a level deemed adequate following management’s evaluation of the repayment capacity and collateral protection afforded by each problem credit identified by management. This review also considered the local economy and the level of bankruptcies and foreclosures in the Company’s market area. The following table sets forth information regarding nonperforming assets at the dates indicated.

	June 30, 2008			December 31, 2007
	(Dollars in thousands)
Non-accruing loans:
One-to-four family residential	$	297		$	310
Commercial and agricultural real estate		37			218
Multi-family residential		156			-
Commercial and agricultural business		63			82
Home equity/Home improvement		202			89
Automobile		5			12
Other consumer		1			12
Total	$	761		$	723

Accruing loans delinquent more than 90 days:
One-to-four family residential	$	-		$	203
Commercial and agricultural real estate		-			156
Other consumer		4			9
Total	$	4		$	368

Foreclosed assets:
One-to-four family residential	$	124		$	115
Commercial and agricultural real estate		249			249
Automobiles		9			23
Total	$	382		$	387

Total nonperforming assets	$	1,147		$	1,478

Total as a percentage of total assets		0.39	%		0.51	%

The decrease in commercial and agricultural real estate non-accruing loans reflects the payoff of two non-accruing loans totaling $177,000 during 2008. The increase in multi-family residential real estate reflects the delinquency of one loan, which is both well secured and in the process of collection. The following table shows the aggregate principal amount of potential problem credits on the Company’s watch list at June 30, 2008 and December 31, 2007. All non-accruing loans are automatically placed on the watch list.

	June 30, 2008		December 31, 2007
	(In thousands)
Special Mention credits	$	3,131	$	2,649
Substandard credits		2,612		3,338
Total watch list credits	$	5,743	$	5,987

Other Income: Total other income for the three months ended June 30, 2008 increased $127,000 from the comparable period in 2008. The increase in other income is primarily attributable to increases of $65,000 in net income from mortgage banking operations, $33,000 in earnings on cash surrender value of life insurance, $21,000 in trust income, and $15,000 in commission income, partially offset by an $18,000 decrease in service charges on deposits. The increase in mortgage banking income is due to a higher volume of loan sales to the secondary market. The higher earnings on cash surrender value reflect a $2.8 million increase in bank-owned life insurance during December 2007. The increases in commission and trust income are due to continued growth in brokerage and trust accounts.

Other Expenses: Total other expenses for the three months ended June 30, 2008 increased $99,000 from the same period in 2007. The increase in other expenses reflects increases of $113,000 in salaries and benefits expense and $15,000 in professional fees, partially offset by a decrease of $33,000 in other expenses, including losses on deposit accounts and service charges. The increase in salaries and benefits expense reflects annual wage and cost increases and higher commissions.

Income Taxes: The provision for income taxes increased $62,000 during the three months ended June 30, 2008, compared to the three months ended June 30, 2007. The provision reflects an increase in taxable income due to higher income, net of an increase in the benefit of tax-exempt investment income.

Comparison of Operating Results for the Six Months Ended June 30, 2008 and 2007

General: The Company reported net income for the six months ended June 30, 2008, of $787,000, or $0.40 per share, basic and diluted, compared to net income of $306,000, or $0.15 per share, basic and diluted, for the six months ended June 30, 2007. Net income increased $481,000 during the six months ended June 30, 2008 compared to the same period of 2007, primarily due to increases of $561,000 in net interest income and $337,000 in other income, partially offset by increases of $208,000 in other expense, $179,000 in income taxes, and $30,000 in the provision for loan losses.

Interest Income: Total interest income increased $445,000 during the six months ended June 30, 2008, compared to the same period in 2007. The increase in interest income was due to increases of $453,000 on loans, $453,000 on mortgage-backed securities, and $152,000 on other investments, partially offset by a decrease of $613,000 in interest on investment securities.

The increase of $453,000 in interest income on loans was due to an increase in the average balance, partially offset by a decrease in the average yield of the loan portfolio. The average balance of loans increased $17.6 million to $176.2 million during the first six months of 2008 compared to the same period of 2007. The increase in the average balance of loans is primarily due to an increase in commercial and commercial real estate lending, including participations purchased from other institutions, and an increase in fixed-rate residential real estate loans. In order to increase income and manage interest rate risk, the Company decided to retain a limited portion of fixed-rate residential real estate loans in the portfolio during 2007, rather than selling them to the secondary market. Interest income on loans was also affected by a decrease in the average yield of the loan portfolio to 6.83% from 7.02% for the six months ended June 30, 2008 and 2007, respectively.

The $613,000 decrease in interest income on investment securities reflects a decrease of $29.0 million in the average balance of the portfolio to $53.5 million during the first half of 2008, as compared to the first half of 2007. The decrease in the average balance reflects an increase in calls, a portion of which have been reinvested into tax-free municipal bonds, as well as mortgage-backed securities. The average balance of municipal securities increased $14.8 million during the 2008 period. The average yield of investment securities decreased to 3.87% from 4.00% during the first six months of 2008 and 2007, respectively. This average yield does not reflect the benefit of the higher tax-equivalent yield of the municipal bonds, which is reflected as a reduction in income tax expense.

The $453,000 increase in interest income on mortgage-backed securities was mostly due to an increase in the average balance of these securities. The average balance of mortgage-backed securities increased $18.4 million to $29.7 million during the six months ended June 30, 2008 compared to the same period in 2007. Interest income also benefited from an increase of 12 basis points in the average yield of mortgage-backed securities to 4.85% during this same time frame.

Interest income on other investments, consisting of interest bearing deposit accounts and federal funds sold, increased $152,000 during the first six months of 2008 compared to the first six months of 2007. The increase in interest income was due to an increase in the average balance, partially offset by a decrease in the average yield of these accounts. The average balance increased $14.3 million to $16.6 million during this same time frame, primarily due to investment calls and deposit growth. The average yield on these accounts decreased to 2.55% from 5.09% during the six months ended June 30, 2008 and 2007, respectively.

Interest Expense: Total interest expense decreased $116,000 for the six months ended June 30, 2008 compared to the same period in 2007. The decrease in interest expense was due to a decrease of $200,000 in the cost of deposits partially offset by an increase of $84,000 in the cost of borrowed funds.

The $200,000 decrease in the cost of deposits was primarily due to a decrease in the average rate. The average rate decreased to 3.37% during the six months ended June 30, 2008 from 3.76% during the six months ended June 30, 2007. The 39 basis point decrease reflects the decrease in short-term market rates of interest. The decreased cost was partially offset by an increase of $13.6 million in the average balance of deposits to $234.3 million during this same time frame.

Interest expense on borrowed funds increased $84,000 primarily due to a $6.3 million increase in the average balance to $15.4 million during the first six months of 2008. The increased cost was partially offset by a decrease in the average rate to 3.87% from 4.72% during this same time frame. The borrowed funds consist of advances from the Federal Home Loan Bank and securities sold under agreements to repurchase.

Provision for Loan Losses: The provision for loan losses is determined by management as the amount needed to replenish the allowance for loan losses, after net charge-offs have been deducted, to a level considered adequate to absorb probable losses in the loan portfolio, in accordance with accounting principles generally accepted in the United States of America.

	6 Months Ended
	June 30, 2008		June 30, 2007
	(In thousands)
Balance at beginning of period	$	1,766	$	1,864
Charge-offs:
One-to-four family residential		56		30
Commercial and agricultural business		-		8
Home equity/home improvement		1		38
Automobile		5		-
Other Consumer		-		34
Total		62		110
Recoveries:
One-to-four family residential		1		3
Commercial and agricultural real estate		2		-
Home equity/home improvement		2		2
Automobile		4		5
Other Consumer		4		17
Total		13		27
Net loan charge-offs (recoveries)		49		83
Additions charged to operations		60		30
Balance at end of period	$	1,777	$	1,811

The provision for loan losses increased to $60,000 during the six months ended June 30, 2008 from $30,000 during the first six months of 2007. The allowance for loan losses increased $11,000 to $1.8 million at June 30, 2008 from December 31, 2007. The increase is the result of the provision for loan losses exceeding net charge-offs. Net charge-offs decreased to $49,000 during the first six months of 2008. The increase in the provision during 2008 reflects the changing mix of the loan portfolio, partially offset by decreases in nonperforming loans and watch list credits.

Other Income: Total other income for the six months ended June 30, 2008 increased $337,000 from the comparable period in 2007. The increase in other income is primarily attributed to increases of $133,000 in net income from mortgage banking operations, $122,000 in commission income, $72,000 in earnings on cash surrender value of life insurance, and $45,000 in trust income, partially offset by a $40,000 decrease in service charges on deposits. The increases in commission and trust income are due to continued growth in brokerage and trust accounts. The increase in mortgage banking income is due to a higher volume of loan sales of $19.5 million to the secondary market during 2008. The higher earnings on cash surrender value reflect a $2.8 million increase in bank-owned life insurance during December 2007.

Other Expense: Total other expense for the six months ended June 30, 2008 increased $208,000 from the same period of 2007. The increase in other expense is mainly comprised of increases of $202,000 in salaries and benefits, $18,000 in professional fees, and $17,000 in occupancy expenses, partially offset by a decrease of $40,000 in other expenses, including losses on deposit accounts and check printing costs. The increase in salaries and benefits expense reflects annual wage and cost increases and higher commissions.

Income Taxes: The provision for income taxes increased $179,000 during the six months ended June 30, 2008, compared to the six months ended June 30, 2007. The provision reflects an increase in taxable income due to higher income, net of an increase in the benefit of tax-exempt investment income.

Liquidity and Capital Resources: The Company’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on the Company’s operating, financing, and investing activities. At June 30, 2008 and December 31, 2007, cash and cash equivalents totalled $12.7 million and $12.2 million, respectively. The Company’s primary sources of funds include principal and interest repayments on loans (both scheduled and prepayments), maturities and calls of investment securities and principal repayments from mortgage-backed securities (both scheduled and prepayments). During the past twelve months, the most significant sources of funds have been deposit growth, investment calls and principal payments, advances from the FHLB, and loan sales to the secondary market. These funds have been used for new loan originations and investment purchases.

While scheduled loan repayments and proceeds from maturing investment securities and principal repayments on mortgage-backed securities are relatively predictable, deposit flows and early prepayments are more influenced by interest rates, general economic conditions, and competition. The Company attempts to price its deposits to meet asset-liability objectives and stay competitive with local market conditions.

Liquidity management is both a short-term and long-term responsibility of management. The Company adjusts its investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) projected purchases of investment and mortgage-backed securities, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits, and (v) liquidity of its asset-liability management program. Excess liquidity is generally invested in interest-earning overnight deposits and other short-term U.S. Agency obligations. If the Company requires funds beyond its ability to generate them internally, it has the ability to borrow funds from the FHLB. The Company may borrow from the FHLB under a blanket agreement which assigns all investments in FHLB stock as well as qualifying first mortgage loans equal to 150% of the outstanding balance as collateral to secure the amounts borrowed. This borrowing arrangement is limited to a maximum of 30% of the Company’s total assets or twenty times the balance of FHLB stock held by the Company. At June 30, 2008, the Company had outstanding advances of $10.0 million. In addition, the Company had approximately $12.2 million available to it under its FHLB borrowing arrangement.

The Company maintains minimum levels of liquid assets as established by the Board of Directors. The Company’s liquidity ratios at June 30, 2008 and December 31, 2007 were 28.7 % and 26.1%, respectively. These ratios represent the volume of short-term liquid assets as a percentage of net deposits and borrowings due within one year.

The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments. The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above. The following table summarizes these commitments at June 30, 2008 and December 31, 2007.

	June 30, 2008		December 31, 2007
	(Dollars in thousands)
Commitments to fund loans	$	45,445	$	41,587
Standby letters of credit		117		37

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital (as defined) to average assets (as defined). Management believes, at June 30, 2008, that the Bank meets all its capital adequacy requirements.

Under Illinois law, Illinois-chartered savings banks are required to maintain a minimum core capital to total assets ratio of 3%. The Illinois Commissioner of Savings and Residential Finance (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. At June 30, 2008, the Bank’s core capital ratio was 6.95% of total average assets, which exceeded the required amount.

The Bank is also required to maintain regulatory capital requirements imposed by the Federal Deposit Insurance Corporation. The Bank’s actual ratios at June 30, 2008 and the required minimums to be considered adequately capitalized are shown in the table below. In order to be considered well-capitalized, the Bank must maintain: (i) Tier 1 Capital to Average Assets of 5.0%, (ii) Tier 1 Capital to Risk-Weighted Assets of 6.0%, and (iii) Total Capital to Risk-Weighted Assets of 10.0%.

	June 30, 2008			December 31, 2007			Minimum
	Actual			Actual			Required
Tier 1 Capital to Average Assets		6.95	%		7.02	%		4.00	%
Tier 1 Capital to Risk-Weighted Assets		10.14	%		10.38	%		4.00	%
Total Capital to Risk-Weighted Assets		11.02	%		11.32	%		8.00	%

Future capital levels should benefit from the decision of the Company’s parent company, Jacksonville Bancorp, MHC, to waive its right to receive dividends. The mutual holding company has received approval from its primary regulator, the Office of Thrift Supervision, for such waivers through the quarter ended September 30, 2008.

Effect of Inflation and Changing Prices: The consolidated financial statements and related financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars, without considering the change in relative purchasing power of money over time due to inflation. The impact of inflation is reflected in increased cost of the Company’s operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

The following table sets forth the average balances and interest rates (costs) on the Company’s assets and liabilities during the periods presented.

Consolidated Average Balance Sheet and Interest Rates
(Dollars in thousands)
	Three Months Ended June 30,
	2008							2007
	Average							Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost

Interest-earnings assets:
Loans	$	174,515	$	2,921		6.69	%	$	159,589	$	2,845		7.13	%
Investment securities		51,846		496		3.83	%		83,041		828		3.99	%
Mortgage-backed securities		35,545		425		4.78	%		12,691		155		4.87	%
Other		16,577		92		2.22	%		1,641		27		6.70	%
Total interest-earning assets		278,483		3,934		5.65	%		256,962		3,855		6.00	%

Non-interest earnings assets		17,795							18,018
Total assets	$	296,278						$	274,980

Interest-bearing liabilities:
Deposits	$	233,915	$	1,871		3.20	%	$	221,067	$	2,105		3.81	%
Other borrowings		17,026		153		3.59	%		10,507		126		4.80	%
Total interest-bearing liabilities		250,941		2,024		3.23	%		231,574		2,231		3.85	%

Non-interest bearing liabilities		22,682							22,179
Stockholders' equity		22,655							21,227

Total liabilities/stockholders' equity	$	296,278						$	274,980

Net interest income			$	1,910						$	1,624

Interest rate spread (average yield earned
minus average rate paid)						2.42	%						2.15	%

Net interest margin (net interest income
divided by average interest-earning assets)						2.74	%						2.53	%

The following table sets forth the changes in rate and changes in volume of the Company’s interest earning assets and liabilities.

Analysis of Volume and Rate Changes
(In thousands)
Three Months Ended June 30,
	2008 Compared to 2007
	Increase(Decrease) Due to
	Rate			Volume			Net

Interest-earnings assets:
Loans	$	(180	)	$	256		$	76
Investment securities		(32	)		(300	)		(332	)
Mortgage-backed securities		(3	)		273			270
Other		(30	)		95			65
Total net change in income on		-
interest-earning assets		(245	)		324			79

Interest-bearing liabilities:
Deposits		(351	)		117			(234	)
Other borrowings		(37	)		64			27
Total net change in expense on
interest-bearing liabilities		(388	)		181			(207	)

Net change in net interest income	$	143		$	143		$	286

The following table sets forth the average balances and interest rates (costs) on the Company’s assets and liabilities during the periods presented.

Consolidated Average Balance Sheet and Interest Rates
(Dollars in thousands)
	Six Months Ended June 30,
	2008							2007
	Average							Average
	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost

Interest-earnings assets:
Loans	$	176,240	$	6,021		6.83	%	$	158,610	$	5,568		7.02	%
Investment securities		53,498		1,035		3.87	%		82,482		1,648		4.00	%
Mortgage-backed securities		29,731		721		4.85	%		11,370		268		4.73	%
Other		16,598		212		2.55	%		2,345		60		5.09	%
Total interest-earning assets		276,067		7,989		5.79	%		254,807		7,544		5.92	%

Non-interest earnings assets		19,393							17,883
Total assets	$	295,460						$	272,690

Interest-bearing liabilities:
Deposits	$	234,339	$	3,945		3.37	%	$	220,731	$	4,145		3.76	%
Other borrowings		15,435		298		3.87	%		9,087		214		4.72	%
Total interest-bearing liabilities		249,774		4,243		3.40	%		229,818		4,359		3.79	%

Non-interest bearing liabilities		23,043							21,673
Stockholders' equity		22,643							21,199

Total liabilities/stockholders' equity	$	295,460						$	272,690

Net interest income			$	3,746						$	3,185

Interest rate spread (average yield earned
minus average rate paid)						2.39	%						2.13	%

Net interest margin (net interest income
divided by average interest-earning assets)						2.71	%						2.50	%

The following table sets forth the changes in rate and changes in volume of the Company’s interest earning assets and liabilities.

Analysis of Volume and Rate Changes
(In thousands)
Six Months Ended June 30,
	2008 Compared to 2007
	Increase(Decrease) Due to
	Rate			Volume			Net

Interest-earnings assets:
Loans	$	(153	)	$	606		$	453
Investment securities		(50	)		(563	)		(613	)
Mortgage-backed securities		7			446			453
Other		(43	)		195			152
Total net change in income on
interest-earning assets		(239	)		684			445

Interest-bearing liabilities:
Deposits		(446	)		246			(200	)
Other borrowings		(44	)		128			84
Total net change in expense on
interest-bearing liabilities		(490	)		374			(116	)

Net change in net interest income	$	251		$	310		$	561

JACKSONVILLE BANCORP, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s policy in recent years has been to reduce its interest rate risk by better matching the maturities of its interest rate sensitive assets and liabilities, selling its long-term fixed-rate residential mortgage loans with terms of 15 years or more to the secondary market, originating adjustable rate loans, balloon loans with terms ranging from three to five years and originating consumer and commercial business loans, which typically are for a shorter duration and at higher rates of interest than one-to-four family loans. The Company also maintains a portfolio of mortgage-backed securities, which provides monthly cash flow. The remaining investment portfolio has been laddered to better match the interest-bearing liabilities. With respect to liabilities, the Company has attempted to increase its savings and transaction deposit accounts, which management believes are more resistant to changes in interest rates than certificate accounts. The Board of Directors appoints the Asset-Liability Management Committee (ALCO), which is responsible for reviewing the Company’s asset and liability policies. The ALCO meets quarterly to review interest rate risk and trends, as well as liquidity and capital ratio requirements.

The Company uses a comprehensive asset/liability software package provided by a third-party vendor to perform interest rate sensitivity analysis for all product categories. The primary focus of the Company’s analysis is on the effect of interest rate increases and decreases on net interest income. Management believes that this analysis reflects the potential effects on current earnings of interest rate changes. Call criteria and prepayment assumptions are taken into consideration for investment securities and loans. All of the Company’s interest sensitive assets and liabilities are analyzed by product type and repriced based upon current offering rates. The software performs interest rate sensitivity analysis by performing rate shocks of plus or minus 300 basis points in 100 basis point increments.

The following table shows projected results at June 30, 2008 and December 31, 2007 of the impact on net interest income from an immediate change in interest rates, as well as the benchmarks established by the ALCO. The results are shown as a dollar and percentage change in net interest income over the next twelve months.

	Change in Net Interest Income
	(Dollars in thousands)
	June 30, 2008					December 31, 2007					ALCO
Rate Shock:	$ Change		% Change			$ Change		% Change			Benchmark
+ 200 basis points		195		2.29	%		108		1.62	%	> (20.00)%
+ 100 basis points		305		3.58	%		224		3.36	%	> (12.50)%
- 100 basis points		446		5.24	%		326		4.90	%	> (12.50)%
- 200 basis points		385		4.52	%		352		5.29	%	> (20.00)%

The foregoing computations are based upon numerous assumptions, including relative levels of market interest rates, prepayments, and deposit mix. The computed estimates should not be relied upon as a projection of actual results. Despite the limitations on precision inherent in these computations, management believes that the information provided is reasonably indicative of the effect of changes in interest rate levels on the net earning capacity of the Company’s current mix of interest earning assets and interest bearing liabilities. Management continues to use the results of these computations, along with the results of its computer model projections, in order to maximize current earnings while positioning the Company to minimize the effect of a prolonged shift in interest rates that would adversely affect future results of operations.

At the present time, the most significant market risk affecting the Company is interest rate risk. Other market risks such as foreign currency exchange risk and commodity price risk do not occur in the normal business of the Company. The Company also is not currently using trading activities or derivative instruments to control interest rate risk.

JACKSONVILLE BANCORP, INC.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation within 90 days prior to filing date of this report, that the Company’s disclosure controls and procedures (as defined by the Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 Commission’s rules and forms.

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.

PART II – OTHER INFORMATION

Item 1.		Legal Proceedings

		None.

Item 1.A.		Rick Factors

		There have been no material changes in the Company’s risk factors from those disclosed in its annual report on Form 10-K.

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

		None.

Item 3.		Defaults Upon Senior Securities

		None.

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

		At the Company’s annual meeting of stockholders held on April 29, 2008, the following matters were submitted to a vote:

1.	The election of the following persons as directors for a three-year term:
	Name	Votes For	Votes Withheld
	Dean H. Hess	1,727,336	75,388
	John C. Williams	1,727,524	75,200
	Harmon B. Deal, III	1,727,599	75,125

2.	The ratification of the appointment of BKD, LLP as auditors for the Company for the year ended December 31, 2008.
	Votes For	Against	Abstain
	1,800,609	400	1,715

Item 5.		Other Information

		None.

Item 6.		Exhibits

		31.1 - Certification of the Chief Executive Officer Pursuant to Rule 13a-15(e)/15d-15(e)
		31.2 - Certification of the Chief Financial Officer Pursuant to Rule 13a-15(e)/15d-15(e)
		32.1 - Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
		of the Sarbanes-Oxley Act of 2003

SIGNATURES

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

	JACKSONVILLE BANCORP, INC.
	Registrant

Date: 08/07/2008	/s/ Richard A. Foss
	Richard A. Foss
	President and Chief Executive Officer

	/s/ Diana S. Tone
	Diana S. Tone
	Chief Financial Officer