Jacksonville Bancorp (JAXB) 10-Q 2012 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2012

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

For the transition period from                     to                    .

Commission file number 000-30248

JACKSONVILLE BANCORP, INC.

(Exact name of registrant as specified in its charter)

Florida	59-3472981
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
100 North Laura Street, Suite 1000, Jacksonville, Florida 32202
(Address of principal executive offices)

(904) 421-3040

(Registrant’s telephone number)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

As of April 30, 2012, the latest practicable date, 5,889,822 of the Registrant’s common shares, $.01 par value, were issued and outstanding.

JACKSONVILLE BANCORP, INC.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Changes in Shareholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	54
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 6.	Exhibits	56
SIGNATURES		57
EXHIBIT INDEX		58
CERTIFICATIONS
Certification of Price W. Schwenck under Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Valerie A. Kendall under Section 302 of the Sarbanes-Oxley Act of 2002
Certification under Section 906 of the Sarbanes-Oxley Act of 2002

2.

JACKSONVILLE BANCORP, INC.

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share amounts)

	March 31, 2012			December 31, 2011
ASSETS
Cash and due from financial institutions	$	12,093		$	9,955
Federal funds sold		11,043			—
Cash and cash equivalents		23,136			9,955
Securities available-for-sale		78,768			63,140
Loans, net of allowance for loan losses of $13,082 in 2012 and $13,024 in 2011		446,039			449,583
Premises and equipment, net		6,950			6,978
Bank-owned life insurance		9,622			9,541
Federal Home Loan Bank stock, at cost		2,770			2,707
Real estate owned, net		7,667			7,968
Accrued interest receivable		2,514			2,598
Prepaid regulatory assessments		619			782
Goodwill		3,137			3,137
Other intangible assets, net		1,642			1,774
Other assets		2,969			3,262
Total assets	$	585,833		$	561,425
LIABILITIES
Deposits
Noninterest bearing	$	80,802		$	82,852
Money market, NOW and savings deposits		211,064			199,070
Time deposits		221,647			191,985
Total deposits		513,513			473,907
Loans from related parties		3,000			3,000
FHLB advances and other borrowings		20,209			36,811
Subordinated debentures		16,042			16,026
Accrued expenses and other liabilities		2,267			2,337
Total liabilities		555,031			532,081
SHAREHOLDERS’ EQUITY
Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued		—			—
Common stock, $.01 par value, 40,000,000 shares authorized, 5,889,822 and 5,888,809 shares issued and outstanding, respectively		59			59
Additional paid–in capital		55,401			55,383
Retained earnings (deficit)		(25,928	)		(27,216	)
Accumulated other comprehensive income		1,270			1,118
Total shareholders’ equity		30,802			29,344
Total liabilities and shareholders’ equity	$	585,833		$	561,425

See accompanying notes to unaudited consolidated financial statements.

3.

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended March 31,
	2012		2011
Interest and dividend income
Loans, including fees	$	6,180	$	7,259
Taxable securities		284		211
Tax-exempt securities		190		242
Federal funds sold and other		17		28
Total interest income		6,671		7,740
Interest expense
Deposits	$	988	$	1,518
Federal Reserve and other borrowings		66		29
FHLB advances		89		97
Subordinated debt		213		220
Total interest expense		1,356		1,864
Net interest income		5,315		5,876
Provision for loan losses		72		1,929
Net interest income after provision for loan losses		5,243		3,947
Noninterest income
Service charges on deposit accounts		202		235
Other income		235		161
Total noninterest income		437		396
Noninterest expense
Salaries and employee benefits		2,049		1,708
Occupancy and equipment		578		660
Regulatory assessment		225		322
Data processing		292		398
Advertising and business development		117		98
Professional fees		198		198
Telephone expense		92		76
Other real estate owned expense		377		252
Other		464		538
Total noninterest expense		4,392		4,250
Income before income taxes		1,288		93
Income tax benefit		—		(346	)
Net income	$	1,288	$	439
Weighted average:
Common shares		5,889,822		5,888,809
Dilutive stock options and warrants		867		1,497
Dilutive shares		5,890,689		5,890,306
Basic earnings per common share	$	.22	$	.07
Diluted earnings per common share	$	.22	$	.07

(Dollar amounts in thousands)

Other comprehensive income components and related tax effects were as follows:

	Three Months Ended
	March 31, 2012		March 31, 2011
Net income	$	1,288	$	439
Other comprehensive income:
Unrealized holding gains on available-for-sale securities		56		647
Net unrealized derivative (losses) on cash flow hedge		96		90
Other comprehensive income		152		737
Tax effect		—		(277	)
Other comprehensive income		152		460
Comprehensive income	$	1,440	$	899

See accompanying notes to unaudited consolidated financial statements.

4.

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands)

	Common Stock				Additional		Retained					Accumulated Other
	Outstanding				Paid-In		Earnings			Treasury Stock		Comprehensive
	Shares		Amount		Capital		(Deficit)			Amount		Income (Loss)			Total
Balance at January 1, 2011		5,888,809	$	59	$	55,307	$	(3,157	)	$	—	$	(350	)	$	51,859
Comprehensive income:
Net income								439								439
Change in unrealized gain on securities available-for-sale, net of tax effects													403			403
Net unrealized gain on cash flow hedge, net of tax effects													57			57
Total comprehensive income																899
Share-based compensation expense						26										26
Balance at March 31, 2011		5,888,809	$	59	$	55,333	$	(2,718	)	$	—	$	110		$	52,784
Balance at January 1, 2012		5,889,822	$	59	$	55,383	$	(27,216	)	$	—	$	1,118		$	29,344
Comprehensive income:
Net income								1,288								1,288
Change in unrealized gain on securities available-for-sale, net of tax effects													56			56
Net unrealized loss on cash flow hedge, net of tax effects													96			96
Total comprehensive income																1,440
Share-based compensation expense						18										18
Balance at March 31, 2012		5,889,822	$	59	$	55,401	$	(25,928	)	$	—	$	1,270		$	30,802

See accompanying notes to unaudited consolidated financial statements.

5.

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	Three Months Ended March 31,
	2012			2011
Cash flows from operating activities
Net income	$	1,288		$	439
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		143			158
Net amortization of deferred loan fees		8			(55	)
Provision for loan losses		72			1,929
Premium amortization for securities, net of accretion		177			164
Net accretion of purchase accounting adjustments		(472	)		(628	)
Net gain on sale of real estate owned		(13	)		(1	)
Loss on write-down of real estate owned		250			100
Earnings on bank-owned life insurance		(81	)		(55	)
Loss on disposal of premises and equipment		—			8
Share-based compensation		18			26
Deferred income tax benefit		—			(698	)
Net change in accrued interest receivable and other assets		538			490
Net change in accrued expenses and other liabilities		26			(234	)
Net cash from operating activities		1,954			1,643
Cash flows from investing activities
Purchases of securities available-for-sale		(18,921	)		(4,991	)
Proceeds from maturities, calls and paydown of securities available-for-sale		3,172			2,641
Proceeds from bulk loan sale		0			13,910
Loan (originations) payments, net		3,100			8,028
Proceeds from sale of real estate owned		890			2,243
Additions to premises and equipment, net		(115	)		(94	)
Purchase of Federal Home Loan Bank stock, net of redemptions		(63	)		—
Net cash from (used for) investing activities		(11,937	)		21,737
Cash flows from financing activities
Net change in deposits		39,764			(32,276	)
Net change in overnight FHLB advances		(18,600	)		—
Proceeds from related party transactions		—			1,200
Proceeds from FHLB fixed-rate advances		10,000			—
Repayment of FHLB fixed-rate advances		(8,000	)		—
Net cash from financing activities		23,164			(31,076	)
Net change in cash and cash equivalents		13,181			(7,696	)
Cash and cash equivalents at beginning of period		9,955			20,297
Cash and cash equivalents at end of period	$	23,136		$	12,601

See accompanying notes to unaudited consolidated financial statements.

6.

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)

	Three Months Ended March 31,
	2012		2011
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest	$	1,530	$	2,156
Income taxes		—		—
Supplemental schedule of noncash investing activities acquisition of real estate owned	$	737	$	152
Supplemental schedule of noncash financing activities loan participation on agreements classified as secured borrowings	$	—	$	3,438

See accompanying notes to unaudited consolidated financial statements.

7.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 1 – BASIS OF PRESENTATION

Nature of Operations and Principles of Consolidation: Jacksonville Bancorp, Inc. (“Bancorp”) is a financial holding company headquartered in Jacksonville, Florida. The consolidated financial statements include the accounts of Jacksonville Bancorp, Inc. and its wholly-owned, primary operating subsidiary, The Jacksonville Bank, and one of The Jacksonville Bank’s wholly-owned subsidiaries, Fountain Financial, Inc. The consolidated entity is referred to as the “Company,” and The Jacksonville Bank and Fountain Financial, Inc. are collectively referred to as the “Bank.” The Company’s financial condition and operating results principally reflect those of the Bank. All intercompany transactions and balances are eliminated in consolidation.

The Company currently provides financial services through its eight full-service branches in Duval County, Florida, as well as its virtual branch. Its primary business segment is community banking and consists of attracting deposits from the general public and using such deposits and other sources of funds to originate commercial business loans, commercial real estate loans, residential mortgage loans and a variety of consumer loans. Substantially all loans are secured by specific items of collateral, including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 30, 2012.

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

The consolidated financial information included herein as of and for the periods ended March 31, 2012 and 2011 is unaudited. Accordingly, it does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The December 31, 2011 consolidated balance sheets was derived from the Company’s December 31, 2011 audited consolidated financial statements and has been adjusted for additional information related to the fair value of Assets and Liabilities acquired.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and allowance for loan losses. Interest income is accrued on the unpaid principal balance of the loans. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

See accompanying notes to unaudited consolidated financial statements.

8.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 1 – BASIS OF PRESENTATION (Cont.)

Interest income on a loan in any of our portfolio segments is discontinued at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All unsecured loans in our consumer and other portfolio segment are charged off once they reach 90 days delinquent. This is the only portfolio segment that the Company charges off loans solely based on the number of days of delinquency. For real estate mortgage, commercial loan and the secured consumer and other portfolio segments, the charge-off policy is that a loan is fully or partially charged off when, based on management’s assessment, it has been determined that it is highly probable that the Company would not collect all principal and interest payments according to the contractual terms of the loan agreement. This assessment is determined based on a detailed review of all substandard and doubtful loans each month. This review considers such criteria as the value of the underlying collateral, financial condition and reputation of the borrower and guarantors and the amount of the borrower’s equity in the loan. The Company’s charge-off policy has remained materially unchanged for all periods presented.

At times, the Company will charge off a portion of a nonperforming or impaired loan versus recording a specific reserve. The decision to charge off a portion of the loan is based on specific facts and circumstances unique to each loan. General criteria considered are: the probability that the Company will foreclose on the property, the value of the underlying collateral compared to the principal amount outstanding on the loan and the personal guarantees associated with the loan. For the period ended March 31, 2012, partial charge-offs were $3 on $115 of nonperforming loans and impaired loans. For the year ended December 31, 2011, partial charge-offs were $6,645 on $25,269 of nonperforming loans and impaired loans.

Partial charge-offs impact the Company’s credit loss metrics and trends, in particular a reduction in the coverage ratio, by decreasing substandard loan balances, decreasing capital and increasing the historical loss factor used in the calculation of the allowance for loan losses. However, the impact of the historical loss factor on the allowance for loan losses would be slightly offset by the fact that the charge-off reduces the overall loan balance.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Overdrawn customer checking accounts are reclassified as consumer loans and are evaluated on an individual basis for collectability. The balances, which totaled $95 and $524 at March 31, 2012 and December 31, 2011, respectively, are included in the estimate of allowance for loan losses and are charged off when collectability is considered doubtful.

Certain Purchased Loans: As part of our merger with Atlantic BancGroup, Inc. (“ABI”), the Company purchased individual loans and groups of loans, some of which have shown evidence of credit deterioration since origination. These purchased loans are recorded at fair value, such that there is no carryover of the seller’s allowance for loan losses. Fair values are preliminary and subject to refinement for up to one year after the closing date of the merger as new information relative to the closing date fair value becomes available. After acquisition, losses are recognized by an increase in the allowance for loan losses if the reason for the loss was due to events and circumstances that did not exist as of the acquisition date. If the reason for the loss was due to events and circumstances that existed as of the acquisition date due to new information obtained during the measurement period (i.e., 12 months from date of acquisition), that, if known, would have resulted in the recognition of additional deterioration, the additional deterioration is recorded as additional carrying discount with a corresponding increase to goodwill.

See accompanying notes to unaudited consolidated financial statements.

9.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 1 – BASIS OF PRESENTATION (Cont.)

Such purchased loans are accounted for individually or aggregated into pools of loans based on common risk characteristics, such as credit score, loan type, and date of origination. The Company estimates the amount and timing of expected cash flows for each purchased loan or pool, and the expected cash flows in excess of amount paid are recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference).

Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Loans Held for Sale: Loans intended for sale to independent investors are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as special mention, substandard or doubtful.

The Company’s policy for assessing loans for impairment is the same for all classes of loans and is included in our allowance for loan losses policy. The Company classifies a loan as impaired when it is probable that the Company will be unable to collect all amounts due, including both principal and interest, according to the contractual terms of the loan agreement. An impairment analysis is performed utilizing the following general factors: substandard or doubtful loan, loan amount greater than $100,000 and the loan is 90 days past due or more. In addition, the Company also considers the following: financial condition of the borrower, the Company’s best estimate of the direction and magnitude of any future changes in the borrower’s financial condition, fair value of collateral if the loan is collateral dependent, loan’s observable market price, expected future cash flow and, if a purchased loan, the amount of the remaining unaccreted carrying discount. For loans acquired in the acquisition of ABI, if events occur within the measurement period (i.e., 12 months from date of acquisition) that cause a deterioration of the loan that is more than the deterioration estimated at acquisition, we evaluate whether the events and circumstances that existed as of the acquisition date are due to new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional deterioration. If so, the additional deterioration is recorded as additional carrying discount with a corresponding increase in goodwill. If not, the additional deterioration is recorded as additional provision expense with a corresponding increase in the allowance for loan losses. After the measurement period, any additional impairment above the current carrying discount is recorded as additional provision expense with a corresponding increase in the allowance for loan losses.

See accompanying notes to unaudited consolidated financial statements.

10.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 1 – BASIS OF PRESENTATION (Cont.)

If a loan is impaired, a portion of the allowance for loan losses may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the sale of the collateral. If an impaired loan is on nonaccrual, then recognition of interest income would follow our nonaccrual policy, which is to not accrue interest and account for any interest received on the cash-basis or cost recovery method until qualifying for return to accrual. If an impaired loan is not on nonaccrual, then recognition of interest income would accrue on the unpaid principal balance based on the contractual terms of the loan. All impaired loans are reviewed on a quarterly basis for changes in the measurement of impairment. For impaired loans measured using the present value of expected cash flows method, any change to the previously recognized impairment loss is recognized as a change in the allowance for loan loss account and recorded in the consolidated statement of operations as a component of the provision for loan losses.

Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. Key factors that the Company considers at the time a loan is restructured to determine whether the loan should accrue interest include if the loan is less than 90 days past due and if the loan is in compliance with the modified terms of the loan. The Company determines that the loan has been restructured to be reasonably assured of repayment and of performance according to the modified terms by performing an analysis that documents exactly how the loan is expected to perform under the modified terms. Once loans become troubled debt restructurings, they remain troubled debt restructurings until they become collateral-impaired, mature or are paid off in the normal course of business.

The general component covers all other loans not identified as impaired and is based on historical losses with consideration given to current factors. The historical loss component of the allowance is determined by losses recognized by each portfolio segment over the preceding five years with the most recent years carrying more weight. This is supplemented by the risks for each portfolio segment. In calculating the historical component of our allowance, we aggregate our loans into one of three portfolio segments: Real Estate Mortgage loans, Commercial loans, and Consumer and Other loans. Risk factors impacting loans in each of the portfolio segments include broad deterioration of property values, reduced consumer and business spending as a result of continued high unemployment and reduced credit availability and lack of confidence in a sustainable recovery. Actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: the concentration of watch and substandard loans as a percentage of total loans, levels of loan concentration within a portfolio segment or division of a portfolio segment and broad economic conditions.

See accompanying notes to unaudited consolidated financial statements.

11.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 1 – BASIS OF PRESENTATION (Cont.)

(Dollar amounts in thousands except per share data)

Adoption of New Accounting Standards: In September 2011, the Financial Accounting Standard Board (“FASB”) amended guidance on the annual goodwill impairment test performed by the Company. Under the amended guidance, the Company will have the option to first assess qualitative factors to determine whether it is necessary to perform a two-step impairment test. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than the carrying value, the quantitative impairment test is required. If the Company believes the fair value of a reporting unit is greater than the carrying value, no further testing is required. A company can choose to perform the qualitative assessment on some or none of its reporting entities. The Amended guidance includes examples of events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount. These include macro-economic conditions such as deterioration in the entity’s operating environment, entity-specific events such as declining financial performance, and other events such as an expectation that a reporting unit will be sold. The amended guidance is effective for annual and interim goodwill impairment test performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early adopt even if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and international accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This update clarifies the application of existing fair value measurement requirements, changes certain principles in existing guidance and requires additional fair value disclosures. The update permits measuring financial assets and liabilities on a net credit risk basis, if certain criteria are met, increases disclosures surrounding company determined market prices of (level 3) financial instruments, and also requires the fair value hierarchy disclosure of financial assets and liabilities that are not recognized at fair value in the financial statements, but are included in disclosures at fair value. The amendments in this guidance are effective during interim and annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In September 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in a two separate consecutive statement approach and changes the presentation of reclassification items out of other comprehensive income to net income. In December 2011, the FASB deferred certain provisions related to the reclassifications of items out of accumulated other comprehensive income and the presentation of the reclassification items. The adoption of the amendment changed to presentation of the components of comprehensive income for the Company as part of the consolidated statement of shareholders’ equity effective January 1, 2012, with the components of comprehensive income presented in a separate statement.

See accompanying notes to unaudited consolidated financial statements.

12.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 2 - INVESTMENT SECURITIES

(Dollar amounts in thousands except per share data)

The following table summarizes the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolio at March 31, 2012 and December 31, 2011 and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income (loss):

		00000000		00000000		00000000			00000000
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
March 31, 2012
Available-for-sale
U.S. government-sponsored entities and agencies	$	5,369	$	13	$	—		$	5,382
State and political subdivisions		16,580		1,462		(1	)		18,041
Corporate bonds		1,036		4		—			1,040
Mortgage-backed securities—residential		34,030		1,523		(17	)		35,536
Collateralized mortgage obligations—residential		18,753		211		(195	)		18,769
Total available-for-sale securities	$	75,768	$	3,213	$	(213	)	$	78,768
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2011
Available-for-sale
U.S. government-sponsored entities and agencies	$	3,093	$	6	$	(6	)	$	3,093
State and political subdivisions		16,574		1,317		(10	)		17,881
Corporate bonds		—		—		—			—
Mortgage-backed securities—residential		31,601		1,451		—			33,052
Collateralized mortgage obligations—residential		8,929		185		—			9,114
Total available-for-sale securities	$	60,197	$	2,959	$	(16	)	$	63,140

The proceeds from sales of available-for-sale securities and the associated gains and losses are listed below:

	March 31, 2012		December 31, 2011
Gross gains	$	—	$	86
Gross losses		—		(29	)
Net gain	$	—	$	57
Proceeds	$	—	$	4,599

See accompanying notes to unaudited consolidated financial statements.

13.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 2 - INVESTMENT SECURITIES (Cont.)

(Dollar amounts in thousands except per share data)

The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities and collateralized mortgage obligations, are shown separately.

	March 31, 2012
	Amortized Cost		Fair Value
Maturity
Available-for-sale
Within one year	$	—	$	—
One to five years		1,241		1,259
Five to ten years		3,893		4,065
Beyond ten years		17,851		19,139
Mortgage-backed securities		34,030		35,536
Collateralized mortgage obligations		18,753		18,769
Total	$	75,768	$	78,768

The following table summarizes the investment securities with unrealized losses at March 31, 2012 and December 31, 2011 by aggregated major security type and length of time in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2012
Available-for-sale
State and political subdivisions		219		(1	)		—		—		219		(1	)
Corporate Bonds		—		—			—		—		—		—
Mortgage-backed securities—residential		4,151		(17	)		—		—		4,151		(17	)
Collateralized mortgage obligations—residential		10,180		(195	)		—		—		10,180		(195	)
Total available-for-sale securities	$	14,550	$	(213	)	$	—	$	—	$	14,550	$	(213	)

See accompanying notes to unaudited consolidated financial statements.

14.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 2 - INVESTMENT SECURITIES (Cont.)

(Dollar amounts in thousands except per share data)

	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2011
Available-for-sale
U.S. government-sponsored entities and agencies	$	994	$	(6	)	$	—	$	—	$	994	$	(6	)
State and political subdivisions		210		(10	)		—		—		210		(10	)
Total available-for-sale securities	$	1,204	$	(16	)	$	—	$	—	$	1,204	$	(16	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis and more frequently when economic or market conditions warrant such an evaluation.

In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were rated below AA, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows. It is not the Bank’s policy to purchase securities rated below AA.

When OTTI occurs for either debt securities or purchased beneficial interests that, on the purchase date, were rated below AA, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

See accompanying notes to unaudited consolidated financial statements.

15.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 2 - INVESTMENT SECURITIES (Cont.)

(Dollar amounts in thousands except per share data)

As of March 31, 2012 and December 31, 2011, the Company’s security portfolio consisted of $78,768 and $63,140, respectively, of available-for-sale securities, of which $14,550 and $1,204 were in an unrealized loss position for the related periods. The unrealized losses are related to the Company’s U.S. agency securities, state and political securities, mortgage baked securities, and collateralized mortgage obligation securities as discussed below:

U.S. Agency Securities

All of the U.S. agency securities held by the Company were issued by U.S government-sponsored entities and agencies. At March 31, 2012 and December 31, 2011 there were none and 1, respectively, with unrealized losses. At March 31, 2012 and December 31, 2011 these securities had depreciated 0% and 0.57%, respectively from the Company’s amortized cost basis. The decline in fair value is attributable to changes in interest rates, not credit quality.

State and Political Securities

All of the state and political securities (“Municipal Bonds”) held by the Company were issued by a city or other local government. The municipal bonds are general obligations of the issuer and are secured by specified revenues. At March 31, 2012 and December 31, 2011 there were 1 and 1, respectively, with unrealized losses. At March 31, 2012 and December 31, 2011 these securities had depreciated 0.48% and 4.64%, respectively from the Company’s amortized cost basis. The decline in fair value at March 31, 2012 was primarily attributable to changes in interest rates rather than the ability or willingness of the municipality to repay.

Mortgage Baked Securities

All of the mortgage backed securities held by the Company were issued by US government sponsored entities and agencies. At March 31, 2012 and December 31, 2011 there were 4 and none, respectively, with unrealized losses. At March 31, 2012 and December 31, 2011 these securities had depreciated 0.40% and 0%, respectively from the Company’s amortized cost basis. The decline in fair value is attributable to changes in interest rates, not credit quality.

Collateralized Mortgage Obligations

All of the collateralized mortgage obligation securities held by the Company were issued by US government sponsored entities and agencies. At March 31, 2012 and December 31, 2011 there were 4 and none, respectively, with unrealized losses. At March 31, 2012 and December 31, 2011 these securities had depreciated 1.88% and 0%, respectively from the Company’s amortized cost basis. The decline in fair value is attributable to changes in interest rates, not credit quality

For the three-month period ended March 31, 2012, there were no credit losses recognized in earnings related to investment securities.

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES

(Dollar amounts in thousands except per share data)

Loans at March 31, 2012 and December 31, 2011, excluding loans classified as held-for-sale, were as follows:

	2012			2011
Commercial	$	33,417		$	35,714
Real estate:
Residential		113,481			115,814
Commercial		262,441			261,468
Construction and land		46,685			45,891
Consumer		3,340			3,955
Subtotal		459,364			462,842
Less: Net deferred loan fees		(243	)		(235	)
Allowance for loan losses		(13,082	)		(13,024	)
Loans, net	$	446,039		$	449,583

See accompanying notes to unaudited consolidated financial statements.

16.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

Loans acquired as a result of the merger with “ABI” were recorded at fair value on the date of acquisition. The amounts reported in the table above are net of the fair value adjustments. The table below reflects the contractual amount less the discount to principal balances remaining from these fair value adjustments by class of loan as of March 31, 2012 and December 31, 2011. This discount will be accreted into interest income as deemed appropriate over the remaining term of the related loans:

	Gross Contractual Amount Receivable		Discount		Carrying Balance
March 31, 2012
Commercial	$	3,869	$	252	$	3,617
Real estate:
Residential		39,691		3,806		35,885
Commercial		59,206		5,190		54,016
Construction and land		19,510		3,461		16,049
Consumer		1,018		32		986
Total	$	123,294	$	12,741	$	110,553

	Gross Contractual Amount Receivable		Discount		Carrying Balance
December 31, 2011
Commercial	$	4,718	$	261	$	4,457
Real estate:
Residential		41,820		4,229		37,591
Commercial		61,439		5,344		56,095
Construction and land		19,572		3,498		16,074
Consumer		1,515		137		1,378
Total	$	129,064	$	13,469	$	115,595

See accompanying notes to unaudited consolidated financial statements.

17.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

Activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
Allowance at beginning of period	$	13,024		$	13,069
Charge-offs:
Commercial loans		—			81
Real estate loans		124			3,684
Consumer and other loans		7			9
Total Charge-offs		131			3,774
Recoveries:
Commercial loans		1			1
Real estate loans		103			105
Consumer and other loans		13			1
Total Recoveries		117			107
Net charge-offs		14			3,667
Provision for loan losses charged to operating expenses:
Commercial loans		68			35
Real estate loans		43			1,897
Consumer and other loans		(39	)		(3	)
Total provision		72			1,929
Allowance at end of period	$	13,082			11,331

The Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified by the Company are as follows:

See accompanying notes to unaudited consolidated financial statements.

18.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

Real Estate Mortgage Loans

Real estate mortgage loans are typically segmented into three classes: commercial real estate, residential real estate and construction and land real estate. Commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by Bancorp’s board of directors (the “Board”). Such standards include, among other factors, loan-to-value limits, cash flow coverage and general creditworthiness of the obligors. Residential real estate loans are underwritten in accordance with policies set forth and approved by the Board, including repayment capacity and source, value of the underlying property, credit history and stability. Construction loans to borrowers are to finance the construction of owner-occupied and lease properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Bank carefully monitors these loans with on-site inspections and requires the receipt of lien waivers prior to advancing funds. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Bank considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sale information. The Bank also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Bank carefully analyzes the intended use of the property and the viability thereof.

Repayment of real estate loans is primarily dependent upon the personal income or business income generated by the secured property of the borrowers, which can be impacted by the economic conditions in their market area. Risk is mitigated by the fact that the properties securing the Company’s real estate loan portfolio are diverse in type and spread over a large number of borrowers.

Commercial Loans

Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, we take as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.

See accompanying notes to unaudited consolidated financial statements.

19.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

Consumer and Other Loans

Consumer and other loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. We also offer home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to ten years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

See accompanying notes to unaudited consolidated financial statements.

20.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

Average of impaired loans and related interest income and cash-basis interest income recognized during impairment for the three months ended March 31, 2012 and 2011 were as follows:

	Three Months Ended March 31, 2012
	Average Impaired Loans		Interest Income		Cash-Basis
Commercial	$	634	$	—	$	—
Real estate:
Residential		13,184		—		—
Commercial		20,739		31		36
Construction and land		16,551		—		—
Consumer		15		—		—
Total	$	51,123	$	31	$	36

	Three Months Ended March 31, 2011
	Average Impaired Loans		Interest Income		Cash-Basis
Commercial	$	—	$	—	$	—
Real estate:
Residential		13,932		16		16
Commercial		14,657		58		58
Construction and land		12,881		65		82
Consumer		—		—		—
Total	$	41,470	$	139	$	156

See accompanying notes to unaudited consolidated financial statements.

21.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2012 and December 31, 2011:

	March 31, 2012
	Commercial		Real Estate		Consumer and Other		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	10	$	3,148	$	—	$	3,158
Collectively evaluated for impairment		446		9,119		86		9,651
Loans acquired with deteriorated credit quality		0		37		—		37
Loans acquired without deteriorated credit quality		200		36		—		236
Total ending allowance balance	$	656	$	12,340	$	86	$	13,082
Loans:
Loans individually evaluated for impairment	$	948	$	37,752	$	0	$	38,700
Loans collectively evaluated for impairment		28,853		278,905		2,353		310,111
Loans acquired with deteriorated credit quality		478		38,836		15		39,329
Loans acquired without deteriorated credit quality		3,138		67,114		972		71,224
Total ending loans balance	$	33,417	$	422,607	$	3,340	$	459,364

	December 31, 2011
	Commercial		Real Estate		Consumer and Other		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	1,747	$	—	$	1,747
Collectively evaluated for impairment		587		10,566		119		11,272
Loans acquired with deteriorated credit quality		—		4		—		4
Loans acquired without deteriorated credit quality		—		1		—		1
Total ending allowance balance	$	587	$	12,318	$	119	$	13,024
Loans:
Loans individually evaluated for impairment	$	456	$	36,914	$	—	$	37,370
Loans collectively evaluated for impairment		30,801		276,498		2,577		309,876
Loans acquired with deteriorated credit quality		483		39,668		19		40,170
Loans acquired without deteriorated credit quality		3,974		70,093		1,359		75,426
Total ending loans balance	$	35,714	$	423,173	$	3,955	$	462,842

See accompanying notes to unaudited consolidated financial statements.

22.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

The following tables present loans individually evaluated for impairment, by class of loans as of March 31, 2012 and December 31, 2011:

	March 31, 2012
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Real estate—residential	$	9,102	$	9,064	$	—
Real estate—commercial		5,411		4,955		—
Real estate—construction and land		4,069		2,390		—
Commercial				937
Consumer and other		—		—		—
With an allowance recorded:
Real estate—residential		3,119		2,479		481
Real estate—commercial		14,613		12,072		2,224
Real estate—construction and land		8,608		6,793		443
Commercial		11		10		10
Consumer and other		—		—		—
Total	$	44,933	$	38,700	$	3,158

	December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Real estate—residential	$	11,517	$	10,574	$	—
Real estate—commercial		9,527		7,443		—
Real estate—construction and land		12,365		8,885		—
Commercial		470		457
With an allowance recorded:
Real estate—residential		247		236		21
Real estate—commercial		10,314		9,479		1,665
Real estate—construction and land		304		296		61
Consumer and other		—		—		—
Total	$	44,744	$	37,370	$	1,747

See accompanying notes to unaudited consolidated financial statements.

23.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of:

	March 31, 2012
	Nonaccrual		Loans Past Due over 90 Days Still on Accrual
Commercial	$	1,261	$	—
Real estate mortgage loans:
Commercial		18,051		—
Residential		13,190		—
Construction and land		16,549		—
Consumer		15		—
Total	$	49,066	$	—

	December 31, 2011
	Nonaccrual		Loans Past Due over 90 Days Still on Accrual
Commercial	$	1,168	$	—
Real estate mortgage loans:
Commercial		17,081		—
Residential		13,684		—
Construction and land		14,953		—
Consumer	$	18	$	—
Total	$	46,904	$	—

See accompanying notes to unaudited consolidated financial statements.

24.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amouants in thousands except per share data)

The following tables present the aging of the recorded investment in past due loans by class of loans, as of:

	March 31, 2012
	30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due and Greater		Total Past Due		Loans Not Past Due		Total
Commercial	$	340	$	15	$	288	$	643	$	32,774	$	33,417
Real estate:
Residential		553		428		7,134		8,115		105,366		113,481
Commercial		9,237		973		29,255		39,465		222,976		262,441
Construction and land		—		169		5,638		5,807		40,878		46,685
Consumer		42		259		2		303		3,037		3,340
Total	$	10,172	$	1,844	$	42,317	$	54,333	$	405,031	$	459,364

	December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due and Greater		Total Past Due		Loans Not Past Due		Total
Commercial	$	40	$	90	$	200	$	330	$	35,384	$	35,714
Real estate:
Residential		1,061		393		13,203		14,657		101,157		115,814
Commercial		2,041		6,050		9,724		17,815		243,653		261,468
Construction and land		296		1,974		14,510		16,780		29,111		45,891
Consumer		277		17		5		299		3,656		3,955
Total	$	3,715	$	8,524	$	37,642	$	49,881	$	412,961	$	462,842

Included in the past due loan tables above are loans acquired in the merger with ABI. As of March 31, 2012 and December 31, 2011, the amounts are as follows:

	March 31, 2012		December 31, 2011
30-59 Days Past Due	$	3,965	$	2,759
60-89 Days Past Due		939		4,213
Greater than 90 Days Past Due		12,440		10,346
Total	$	17,344	$	17,318

See accompanying notes to unaudited consolidated financial statements.

25.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

Troubled Debt Restructurings

As of March 31, 2012 and December 31, 2011 respectively, $15,961 and $15,384 of net loans were considered troubled debt restructurings. The Company has allocated $2,313 and $1,726 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2012 and December 31, 2011 respectively. Of the $2,313 and $1,786 specific reserve as of March 31, 2012 and December 31, 2011 respectively, $1,695 and $1,538 was allocated to customers whose loans are collateral dependent with collateral shortfalls. The Company has not committed to lend additional amounts as of March 31, 2012 and December 31, 2011 to customers with outstanding loans that are classified as troubled debt restructurings.

During the three months ended March 31, 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan, an allowance for customers to make interest only payments for a limited period of time, or there was a court ordered fixed payment amount. All borrowers whose loans were modified in troubled debt restructurings were experiencing financial difficulties.

The following tables represent loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2012:

			Three Months Ended March 31, 2012
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Real estate: Commercial		1	$	1,895	$	1,895
Real estate: Construction and land		—		—		—
Total			$	1,895	$	1,895

See accompanying notes to unaudited consolidated financial statements.

26.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the three months ended March 31, 2012. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

The terms of certain other loans that did not meet the definition of a troubled debt restructuring were modified during the three months ended March 31, 2012. These loans have a total recorded investment of $13,519 for the three months ended March 31, 2012. The modification of these loans involved either a modification of the terms of the loan to borrowers who were not experiencing financial difficulties, such as allowing them to make interest only payments for a limited period of time (generally 18 months or less), adjusting the interest rate to a market interest rate for the remaining term of the loan or allowing a delay in payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Certain loans which were modified during the three months ended March 31, 2012 and did not meet the definition of a troubled debt restructuring as the modification was a delay in payment that was considered to be insignificant.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if they are appropriately classified and whether there is any impairment. All loans are graded upon initial issuance. Further, commercial loans are typically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as if a loan becomes past due, the Company will determine the appropriate loan grade.

See accompanying notes to unaudited consolidated financial statements.

27.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of a deterioration in the creditworthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged off. The Company uses the following definitions for risk ratings:

Special Mention.Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard.Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. As of March 31, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

March 31, 2012

	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	29,311	$	2,902	$	1,204	$	—	$	33,417
Real estate:
Residential		85,931		8,057		19,493		—		113,481
Commercial		207,341		18,006		37,094		—		262,441
Construction and land		19,279		5,576		21,830		—		46,685
Consumer		3,040		266		34		—		3,340
Total	$	344,902	$	34,807	$	79,655	$	—	$	459,364

See accompanying notes to unaudited consolidated financial statements.

28.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

December 31, 2011

	Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	31,836	$	2,978	$	900	$	—	$	35,714
Real estate:
Residential		88,947		7,324		19,543		—		115,814
Commercial		209,325		22,427		29,716		—		261,468
Construction and land		18,316		9,136		18,439		—		45,891
Consumer		3,687		250		18		—		3,955
Total	$	352,111	$	42,115	$	68,616	$	—	$	462,842

Included in the risk category of loans by class of loans tables above are loans acquired in the merger with ABI. As of March 31, 2012 and December 31, 2011, the amounts are as follows:

	March 31, 2012		December 31, 2011
Special Mention	$	9,550	$	9,674
Substandard		27,322		26,797
Doubtful		—		—
Total	$	36,872	$	36,471

Purchased loans:

The Company has purchased loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amounts of these loans are as follows as of March 31, 2012 and December 31, 2011:

	March 31, 2012		December 31, 2011
Commercial	$	555	$	676
Real estate mortgage loans:
Residential		12,852		14,892
Commercial		18,527		18,519
Construction and land		15,147		15,207
Consumer		17		121
Unpaid principal balance	$	47,098	$	48,915
Carrying amount	$	39,329	$	40,170

See accompanying notes to unaudited consolidated financial statements.

29.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Cont.)

(Dollar amounts in thousands except per share data)

Accretable yield, or income expected to be collected, is as follows:

Balance at December 31, 2010	$	33,910
New loans purchased, including loans classified as held-for-sale		—
Accretion of income		(3,957	)
Reduction for loans sold and other		(13,610	)
Reclassifications from nonaccretable difference		—
Disposals		—
Balance at December 31, 2011	$	16,343
New loans purchased, including loans classified as held-for-sale		—
Accretion of income		(731	)
Reclassifications from nonaccretable difference		—
Disposals		—
Balance at March 31, 2012	$	15,612

For those purchased loans disclosed above, the Company increased the allowance for loan losses by $269 and $4 as of March 31, 2012 and December 31, 2011, respectively. Additionally, no allowance for loan losses was reversed during the three-months ended March 31, 2011 or 2012.

Income is not recognized on certain purchased loans if the Company cannot reasonably estimate cash flows expected to be collected. The carrying amounts of such loans were $13,098 at March 31, 2012 and are included in our nonaccrual loan balance as of March 31, 2012.

See accompanying notes to unaudited consolidated financial statements.

30.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 4 - SHORT-TERM BORROWING AND FEDERAL HOME LOAN BANK ADVANCES

(Dollar amounts in thousands except share data)

At March 31, 2012 and December 31, 2011, advances from the Federal Home Loan Bank (FHLB) were as follows:

	2012		2011
Advances maturing May 21, 2012 at a daily variable interest rate of 0.36% at March 31, 2012	$	—	$	18,600
Advances maturing January 9, 2015 at a fixed rate of 0.88%		4,000		—
Advances maturing January 9, 2017 at a fixed rate of 1.40%		4,000		—
Advances maturing July 15, 2014 at a fixed rate of 2.42%		2,500		2,500
Advances maturing March 2, 2015 at a fixed rate of 0.76%		2,000		—
Advances maturing January 9, 2012 at a fixed rate of 2.30%		—		8,002
Advances maturing July 15, 2016 at a fixed rate of 2.81%		2,500		2,500
Advances maturing May 29, 2012 at a fixed rate of 2.11%		5,000		5,000
	$	20,000	$	36,602

Each advance is payable at its maturity date, with a prepayment penalty for early termination. The advances are collateralized by a blanket lien arrangement of the Company’s first mortgage loans, second mortgage loans and commercial real estate loans. Based upon this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to a total of $40,885 at March 31, 2012.

The Company has a “Borrower in Custody” line of credit with the Federal Reserve by pledging collateral. The amount of this line at March 31, 2012 was $28,594, all of which was available on that date.

Also included in FHLB advances and other borrowings on the Company’s consolidated balance sheets at March 31, 2012 was $209 that relates to certain loan participation agreements that are classified as secured borrowings as they do not qualify for sale accounting treatment. A corresponding amount is recorded as an asset within Loans on the Company’s consolidated balance sheets.

NOTE 5 - DERIVATIVE FINANCIAL INSTRUMENT

(Dollar amounts in thousands except share data)

On July 7, 2009, the Company entered into an interest rate swap transaction with SunTrust Bank to mitigate interest rate risk exposure. Under the terms of the agreement, which relates to the subordinated debt issued to Jacksonville Bancorp, Inc. Statutory Trust III in the amount of $7,550, the Company has agreed to pay a fixed rate of 7.53% for a period of ten years in exchange for the original floating rate contract (90-day LIBOR plus 375 basis points). This derivative instrument is recognized on the balance sheet in other liabilities at its fair value of $1,054 on March 31, 2012.

Credit risk may result from the inability of the counterparties to meet the terms of their contracts. The Company’s exposure is limited to the replacement value of the contracts rather than the notional amount.

See accompanying notes to unaudited consolidated financial statements.

31.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 6 - CAPITAL ADEQUACY

(Dollar amounts in thousands except share data)

Federal banking regulators have established certain capital adequacy standards required to be maintained by banks and bank holding companies. The minimum requirements established in the regulations are set forth in the table below, along with the actual ratios for the Company at March 31, 2012 and December 31, 2011. Management and the Board have committed to maintain Total Risk-Based Capital at 10% and Tier 1 Capital to Average Assets at 8% at the Bank.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2012
Total capital to risk weighted assets
Consolidated	$	46,732		9.99	%	$	37,431		8.00	%		N/A		N/A
Bank		47,987		10.28			37,343		8.00		$	46,679		10.00	%
Tier 1 (Core) capital to risk weighted assets
Consolidated		33,550		7.17			18,715		4.00			N/A		N/A
Bank		42,063		9.01			18,672		4.00			28,007		6.00
Tier 1 (Core) capital to average assets
Consolidated		33,550		5.95			22,561		4.00			N/A		N/A
Bank		42,063		7.48			22,494		4.00			28,117		5.00
	Actual					For Capital Adequacy Purposes					To Be Adequately Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2011
Total capital to risk weighted assets
Consolidated	$	45,312		9.63	%	$	37,645		8.00	%		N/A		N/A
Bank		46,119		9.85			37,466		8.00		$	46,832		8.00	%
Tier 1 (Core) capital to risk weighted assets
Consolidated		31,679		6.73			18,822		4.00			N/A		N/A
Bank		40,176		8.58			18,733		4.00			28,099		4.00
Tier 1 (Core) capital to average assets
Consolidated		31,679		5.38			23,551		4.00			N/A		N/A
Bank		40,176		6.88			23,367		4.00			29,209		4.00

See accompanying notes to unaudited consolidated financial statements.

32.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 7 - FAIR VALUE

(Dollar amounts in thousands except share data)

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

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

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

Level III: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

The fair values of securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level I inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level II inputs).

The fair value of impaired loans with specific allocations of the allowance for loan losses and other real estate owned is based on recent real estate appraisals less estimated costs of sale. For residential real estate impaired loans and other real estate owned (“OREO”), appraised values are based on the comparative sales approach. For commercial and commercial real estate impaired loans and other real estate owned, appraisers may use either a single valuation approach or a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable input in the income approach is the estimated income capitalization rate for a given piece of collateral. At March 31, 2012, the range of capitalization rates utilized to determine the fair value of the underlying collateral ranged from 8% to 10%. Adjustments to appraisals may be made by the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of a given asset over time. As such, the fair value of impaired loans and OREO are considered a Level III in the fair value hierarchy.

The Company recovers the carrying value of other real estate owned through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond our control and may impact the estimated fair value of a property.

Appraisals for impaired loans and OREO are performed by certified general appraisers whose qualifications and licenses have been reviewed and verified by the Company. Once reviewed, a member of the appraisal department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparisons to independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustments, if any, should be made to the appraisal value to arrive at fair value. Based on our most recent analysis, no discounts to current appraisals have been warranted.

See accompanying notes to unaudited consolidated financial statements.

33.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 7 - FAIR VALUE (Cont.)

(Dollar amounts in thousands except share data)

The following assets and liabilities are measured on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option:

			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level I)		Significant  Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)
Assets:
(Dollars in thousands)
March 31, 2012
Available-for-sale
U.S. government-sponsored entities and agencies	$	5,382		—	$	5,382		—
State and political subdivisions		18,041		—		18,041		—
Corporate Bonds		1,040				1,040
Mortgage-backed securities—Residential		35,536		—		35,536		—
Collateralized mortgage obligations—residential		18,769		—		18,769		—
Liabilities:
Derivative liability		1,054		—		1,054		—
(Dollars in thousands)
December 31, 2011
Available-for-sale
U.S. government-sponsored entities and agencies	$	3,093		—	$	3,093		—
State and political subdivisions		17,881		—		17,881		—
Mortgage-backed securities—residential		33,052		—		33,052		—
Collateralized mortgage obligations—residential		9,114		—		9,114		—
Liabilities:
Derivative liability		1,151		—		1,151		—

There were no significant transfers between Level I and Level II during 2012.

See accompanying notes to unaudited consolidated financial statements.

34.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 7 - FAIR VALUE (Cont.)

(Dollar amounts in thousands except share data)

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

			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)
March 31, 2012
Impaired loans:
Real estate mortgage loans:
Residential	$	1,998		—		—	$	1,998
Commercial		4,001		—		—		4,001
Construction and land		2,677		—		—		2,677
Other real estate owned:
Real estate mortgage loans:
Residential		900		—		—		900
Commercial		3,552		—		—		3,552
Construction and land		3,215		—		—		3,215
December 31, 2011
Impaired loans:
Real estate mortgage loans:
Residential	$	215		—		—	$	215
Commercial		3,489		—		—		3,489
Construction and land		236		—		—		236
Other real estate owned:
Real estate mortgage loans:
Residential	$	1,095		—		—	$	1,095
Commercial		3,340		—		—		3,340
Construction and land		3,533		—		—		3,533

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $11,223 with a valuation allowance of $2,547 at March 31, 2012 compared to a carrying amount of $5,500 with a valuation allowance of $1,560 at December 31, 2011.

OREO, which is measured using the collateral values less costs to sell or outstanding commitments from third-party investors, had a net carrying amount of $7,667 made up of an outstanding balance of $9,658 net of a valuation allowance of $1,991, resulting in net write-downs of $29 for the period ending March 31, 2012. At December 31, 2011, OREO had a net carrying amount of $7,968, made up of an outstanding balance of $9,957, net of a valuation allowance of $1,989 resulting in a net write-down of $1,347 for the year ended December 31, 2011.

Transfers of assets and liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There have been no transfers between fair value levels for 2012 and 2011.

35.

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share amounts)

NOTE 7 - FAIR VALUE (Cont.)

(Dollar amounts in thousands except share data)

The carrying amount and estimated fair values of financial instruments at March 31, 2012 and December 31, 2011 were as follows:

	March 31, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	23,136	$	23,136	$	9,955	$	9,955
Securities available-for-sale		78,768		78,768		63,140		63,140
Loans, net		446,039		453,697		449,583		461,210
Federal Home Loan Bank stock		2,770		n/a		2,707		n/a
Non-marketable equity security		178		n/a		178		n/a
Accrued interest receivable		2,514		2,514		2,598		2,598
	March 31, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities
Deposits	$	513,513	$	513,560	$	473,907	$	474,161
Other borrowings		23,209		23,469		39,811		40,121
Subordinated debentures		16,042		8,244		16,026		8,723
Accrued interest payable		291		291		305		305
Interest rate swap		1,054		1,054		1,151		1,151

Cash and cash equivalents

The carrying amounts of cash and cash equivalents approximate the fair value and are classified as either Level 1 or Level II in the fair value hierarchy. At March 31, 2012 the breakdown of cash and cash equivalents between level I and level II was $21,891 and $1,245, respectively.

Loans, net

The fair value of variable rate loans that reprice frequently and with no significant change in credit risk is based on the carrying value and results in a classification of Level III within the fair value hierarchy. Fair value for other loans are estimated using discounted cash flows analysis using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level III classification in the fair value hierarchy. The methods used to estimate the fair value of loans do not necessarily represent an exit price.

Nonmarketable equity securities

Nonmarketable equity securities include Federal Home Loan Bank Stock and other non-marketable equity securities. It is not practicable to determine the fair value of nonmarketable equity securities due to restrictions placed on their transferability.

Deposits

The fair value of demand deposits (e.g. interest and non-interest bearing, savings and certain types of money market accounts) are, by definition, equal to the amount payable in demand at the reporting date (i.e. carrying value) resulting in a Level II classification in the fair value hierarchy. The carrying amounts of variable rate, fixed-term money market accounts and certificate of deposits approximates their fair value at the reporting date in Level II classification in the fair value hierarchy. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level II classification.

Federal Home Loan Advances

The fair value of Federal Home Loan Bank Advances is estimated using a discounted cash flow analysis based on the current borrowing rates for similar types of borrowings and are classified as a Level II in the fair value hierarchy.

Accrued interest receivable/payable

The carrying amounts of accrued interest receivable approximate fair value resulting in a Level III classification. The carrying amounts of accrued interest payable approximate fair value resulting in a Level II classification.

Off-balance-sheet instruments

The fair value of off-balance-sheet instruments is based on the current fees that would be charged to enter into or terminate such arrangements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

Derivatives:

The fair value of derivatives is based on valuation models using observable market data as of the market date resulting in a Level II classification.

Subordinated debt:

The fair value of subordinated debt, where a market quote is not available, is based on discounted cash flows, using rate appropriate to the instrument and the term of the issue and are classified as level II in the fair value hierarchy.

See accompanying notes to unaudited consolidated financial statements.

36.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

General

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

Forward-Looking Statements

All statements, other than statements of historical facts, included in this Quarterly Report on Form 10-Q regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, results of operations, financial position, prospects and plans and objectives of management for future operations may be “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, as amended. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements can be identified by the use of terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.). Items contemplating or making assumptions about actual or potential future operating results also constitute forward-looking statements. The Company cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including changes in local economic conditions, changes in regulatory requirements, fluctuations in interest rates, demand for products, and competition, and, therefore, actual results could differ materially from those contemplated by the forward-looking statements. In addition, the Company assumes no duty to update forward-looking statements to reflect events or circumstances after the date of such statements.

Business Strategy

Our primary business segment is community banking and consists of attracting deposits from the general public and using such deposits and other sources of funds to originate commercial business loans, commercial real estate loans, residential mortgage loans and a variety of consumer loans. We also invest in securities backed by the United States government, and agencies thereof, as well as municipal tax-exempt bonds. Our profitability depends primarily on our net interest income, which is the difference between the income we receive from our loan and securities investment portfolios and costs incurred on our deposits, the Federal Home Loan Bank (“FHLB”) advances, Federal Reserve borrowings and other sources of funding. Net interest income is also affected by the relative amounts of interest-earning assets and interest-bearing liabilities. Net interest income is generated as the relative amounts of interest-earning assets grow in relation to the relative amounts of interest-bearing liabilities. In addition, the level of noninterest income earned and noninterest expenses incurred also affects profitability. Included in noninterest income are service charges earned on deposit accounts and increases in cash surrender value of Bank-Owned Life Insurance (“BOLI”). Included in noninterest expense are costs incurred for salaries and employee benefits, occupancy and equipment expenses, data processing expenses, marketing and advertising expenses, federal deposit insurance premiums, legal and professional fees, and other real estate owned (“OREO”) expenses.

37.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Our goal is to sustain profitable, controlled growth by focusing on increasing our loan and deposit market share in the Northeast Florida market by developing new financial products, services and delivery channels; closely managing yields on interest-earning assets and rates on interest-bearing liabilities; focusing on noninterest income opportunities; controlling the growth of noninterest expenses; and maintaining strong asset quality. Our current strategy is to grow organically and through acquisition if price, culture and market fit within our strategies. We have initiated programs to expand our scope of services and achieve these goals. This was demonstrated through our acquisition of Atlantic BancGroup, Inc. (“ABI”) and its wholly owned subsidiary, Oceanside Bank, in November 2010. The Bank has adopted a philosophy of seeking out and retaining the best available personnel for positions of responsibility which we believe will provide us with a competitive edge in the local banking industry.

Our operations are influenced by the local economic conditions and by policies of financial institution regulatory authorities. Fluctuations in interest rates, due to factors such as competing financial institutions as well as the Federal Reserve’s decisions on changes in interest rates, impact interest-earning assets and our cost of funds and, thus, our net interest margin. In addition, the local economy and real estate market of Northeast Florida, and the demand for our products and loans, impact our margin. The local economy and viability of local businesses can also impact the ability of our customers to make payments on loans, thus impacting our loan portfolio. The Company evaluates these factors when valuing its allowance for loan losses. The Company also believes its underwriting procedures are relatively conservative and, as a result, the Company is not being any more affected than the overall market in the current economic downturn.

On November 16, 2010, Bancorp acquired ABI pursuant to an agreement and plan of merger that provided for the merger of ABI with and into Bancorp. The merger agreement also included the consolidation of ABI’s wholly owned subsidiary, Oceanside Bank, into the Bank. Under the terms of the merger agreement, ABI shareholders received 0.2 shares of Bancorp common stock and $0.67 in cash for each share of ABI common stock. A total of 249,483 shares were issued to ABI shareholders. The ABI merger increased our branch locations from five full-service branches to eight full-service branches as well as expanded our geographic footprint in the Jacksonville Beach market. In addition, we acquired approximately $158.0 million in net loans, $62.8 million in cash and cash equivalents and securities, $231.3 million in deposits and $9.5 million in borrowings in the ABI merger. We initially recorded $12.5 million in goodwill and $2.5 million in core deposit intangibles as a result of the ABI merger. At December 31, 2011, the Company updated its annual impairment test and concluded there was an impairment of $11.1 million.

38.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Introduction

On the following pages, management presents an analysis of the financial condition of the Company as of March 31, 2012 compared to December 31, 2011, and the results of operations for the three months ended March 31, 2012 compared with the same period in 2011. This discussion is designed to provide a more comprehensive review of the operating results and financial position than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the interim financial statements and related footnotes included herein.

Comparison of Financial Condition at March 31, 2012 and December 31, 2011

Total assets increased $24.4 million, or 4.3%, from $561.4 million at December 31, 2011 to $585.8 million at March 31, 2012. As the primary driver of the increase in assets, the Company experienced a significant increase in securities available for sale, of $15.6 million, or 24.8%, and cash of $13.2 million or 132.4% during the three months ended March 31, 2012. The increase is offset primarily by a reduction in net loans of $3.5 million in the first quarter of 2012.

Total cash and cash equivalents increased by $13.2 million, or 132.4%, from $9.9 million at December 31, 2011 to $23.1 million at March 31, 2012. Investment securities available-for-sale increased $15.6 million to $78.8 million at March 31, 2012. During the three months ended March 31, 2012, we purchased $12.8 million GNMA and FNMA securities, $3 million in SBA bonds, and $1 million in corporate bonds. In addition, we received $3.2 million in proceeds from principal repayments, maturities and calls.

Total deposits increased $39.6 million, or 8.4%, from $473.9 million at December 31, 2011 to $513.5 million at March 31, 2012. During the three months ended March 31, 2012, noninterest-bearing deposits decreased $2.0 million, or 2.5%, from $82.9 million at December 31, 2011 to $80.8 million at March 31, 2012; money market, NOW and savings deposits increased $12.0 million, or 6.0%, from $199.1 million at December 31, 2011 to $211.1 million at March 31, 2012; and time deposits increased $29.7 million, or 15.5%, from $192.0 million at December 31, 2011 to $221.6 million at March 31, 2012. The increase in time deposits, money market, NOW and savings deposits was driven primarily by the $30 million increase in National CDs. It is the Company’s current strategy to maintain our brokered CD’s at their current level.

Federal Home Loan Bank advances and other borrowings decreased by $16.6 million at March 31, 2012 from December 31, 2011. Loans from related parties remained constant at $3.0 million at December 31, 2011 and for the three months ended March 31, 2012.

Total shareholders’ equity increased by $1.5 million from $29.3 million at December 31, 2011 to $30.8 million at March 31, 2012. The increase is mainly attributable to net income of $1.3 million and a net increase of $152 thousand for net unrealized gains on securities and cash flow hedge. The Company had 40,000,000 authorized shares of $.01 par value common stock, of which 5,889,822 shares were issued and outstanding.

39.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Comparison of Operating Results for the Three Months Ended March 31, 2012 and 2011

Net Income

The Company had net income for the first three months of 2012 of $1.3 million, compared to a $439 thousand net income in the first three months of 2011. On a diluted per share basis, net income was $0.22 for the three months ended March 31, 2012, compared to a net income of $0.07 per diluted share for the same period in 2011. The increase in net income for the first three months of 2012 was driven primarily by the reduction in our provision expense.

Net Interest Income

Net interest income, the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities, was $5.3 million for the three months ended March 31, 2012, compared to $5.9 million for the same period in 2011. The average yield on interest-earning assets for the first three months of 2012 was 4.98%, a decrease from the 5.35% yield earned during the first three months of 2011.

Interest income decreased $1.1 million when compared to the first three months of the prior year. This decrease was driven by a decrease in average earning assets, in particular loan balances which declined by $57.3 million when compared to the prior year. This was offset by an decrease in the loan yield to 5.41% for the three-month period ended March 31, 2012 from the 5.70% recognized during the three months ended March 31, 2011. The decrease in the loan yield was driven primarily by the decrease in the accretion recognized on acquired loans when compared to the same period in the previous year.

The average cost of interest-bearing liabilities decreased 30 basis points from 1.50% in the first three months of 2011 to 1.20% in the comparable period in 2012. The average cost of interest-bearing deposits and all interest-bearing liabilities reflect the ongoing reduction in interest rates paid on deposits as a result of the repricing of deposits in the current market environment. Additionally, noninterest-bearing deposits increased $8.6 million over the previous year, which further reduced our overall funding costs.

The net interest margin decreased by 9 basis points from 4.06% to 3.97% when comparing the first three months of 2012 to the same period last year. The Company closely monitors its liquidity needs in conjunction with the cost of its funding sources and has taken action to reduce costs through reductions in the rates paid on its core deposits.

40.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Average Balance Sheet; Interest Rates and Interest Differential.The following table sets forth the average daily balances for each major category of assets, liabilities and shareholders’ equity as well as the amounts and average rates earned or paid on each major category of interest-earning assets and interest-bearing liabilities.

	Three Months Ended March 31,
	2012							2011
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
(Dollars in thousands)
Interest-earning assets:
Loans(1)	$	459,166	$	6,180		5.41	%	$	516,477	$	7,259		5.70	%
Securities(2)		70,427		474		2.71			65,048		453		2.82
Other interest-earning assets(3)		8,741		17		0.78			5,342		28		2.13
Total interest-earning assets		538,334		6,671		4.98			586,867		7,740		5.35
Noninterest-earning assets(4)		30,184							45,951
Total assets	$	568,518						$	632,818
Interest-bearing liabilities:
Savings deposits	$	11,043	$	12		.44	%	$	12,546	$	28		.91	%
NOW deposits		22,221		7		.13			18,271		7		.16
Money market deposits		170,329		346		.82			175,479		435		1.01
Time deposits		208,161		623		1.20			256,715		1,048		1.66
FHLB advances		23,499		89		1.52			24,897		97		1.58
Federal Reserve and other borrowings(8)		3,011		66		8.82			1,189		29		9.89
Subordinated debt		16,033		213		5.34			15,968		220		5.59
Other interest-bearing liabilities(5)		316		—		—			95		—		—
Total interest-bearing liabilities		454,613		1,356		1.20			505,160		1,864		1.50
Noninterest-bearing liabilities		84,400							75,363
Shareholders’ equity		29,505							52,295
Total liabilities and shareholders’ equity	$	568,518						$	632,818
Net interest income			$	5,315						$	5,876
Interest rate spread(6)						3.78	%						3.85	%
Net interest margin(7)						3.97	%						4.06	%

⁽¹⁾  Average loans include nonperforming loans and loans classified as held-for-sale. Interest on loans includes deferred loan fees.

⁽²⁾  Interest income and rates do not include the effects of a tax equivalent adjustment using a federal tax rate of 34% in adjusting tax-exempt interest on tax-exempt investment securities to a fully taxable basis.

⁽³⁾  Includes federal funds sold.

⁽⁴⁾  For presentation purposes, the BOLI acquired by the Bank has been included in noninterest-earning assets.

⁽⁵⁾  Includes federal funds purchased.

⁽⁶⁾  Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

⁽⁷⁾  Net interest margin is net interest income divided by average interest-earning assets.

⁽⁸⁾  Federal Reserve and other borrowings include loans from related parties that pay an annual rate of interest equal to 8% on a quarterly basis of the amount outstanding.

41.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Rate/Volume Analysis.The following table sets forth the effect of changes in volumes, changes in rates, and changes in rate/volume on tax-equivalent interest income, interest expense and net interest income.

	Three Months Ended March 31, 2012 Versus 2011(1)
	Increase (decrease) due to changes in:
	Volume			Rate			Net Change
(Dollars in thousands)
Interest income:
Loans	$	(781	)	$	(298	)	$	(1,079	)
Securities		37			(17	)		20
Other interest-earning assets		12			(22	)		(10	)
Total interest income		(732	)		(337	)		(1,069	)
Interest expense:
Savings deposits		(3	)		(13	)		(16	)
NOW deposits		1			(1	)		—
Money market deposits		(12	)		(77	)		(89	)
Time deposits		(176	)		(249	)		(425	)
FHLB advances		(5	)		(3	)		(8	)
Federal Reserve and other borrowings		40			(2	)		38
Subordinated debt		1			(8	)		(7	)
Other interest-bearing liabilities		—			—			—
Total interest expense		(154	)		(353	)		(507	)
Increase in net interest income	$	(578	)	$	16		$	(562	)

⁽¹⁾  The change in interest due to both rate and volume has been allocated to the volume and rate components in proportion to the relationship of the dollar amounts of the absolute change in each.

Critical Accounting Policies

A critical accounting policy is one that is both very important to the portrayal of the Company’s financial condition and requires management’s most difficult, subjective or complex judgments. The circumstances that make these judgments difficult, subjective or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. Based on this definition, the Company’s primary critical accounting policies are as follows:

Allowance for Loan Loss

The allowance for loan loss is established through a provision for loan loss charged to expense. Loans are charged against the allowance for loan loss when management believes that the collectability of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb probable incurred credit losses on existing loans that may become uncollectible based on evaluations of the collectability of the loans. The evaluations take into consideration such objective factors as changes in the nature and volume of the loan portfolio and historical loss experience. The evaluation also considers certain subjective factors such as overall portfolio quality, review of specific problem loans and current economic conditions that may affect the borrowers’ ability to pay. The level of allowance for loan loss is also impacted by increases and decreases in loans outstanding, because either more or less allowance is required as the amount of the Company’s credit exposure changes. To the extent actual loan losses differ materially from management’s estimate of these subjective factors, loan growth/run-off accelerates, or the mix of loan types changes, the level of provision for loan loss, and related allowance can, and will, fluctuate.

42.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Other Real Estate Owned (“OREO”)

OREO includes real estate acquired through foreclosure or deed taken in lieu of foreclosure. These amounts are recorded at estimated fair value, less costs to sell the property, with any difference between the fair value of the property and the carrying value of the loan being charged to the allowance for loan losses. Subsequent changes in fair value are reported as adjustments to the carrying amount, not to exceed the initial carrying value of the assets at the time of transfer. Those subsequent changes, as well as any gains or losses recognized on the sale of these properties, are included in noninterest expense.

Deferred Income Taxes

Our net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported income and taxable income. From an accounting standpoint, deferred tax assets are reviewed to determine if a valuation allowance is required based on both positive and negative evidence currently available. Positive evidence includes the historical levels of our taxable income, estimates of our future taxable income, including tax planning strategies as applicable, the reversals of deferred tax liabilities and taxes available in carry-back years. Negative evidence primarily includes a cumulative three-year loss for financial reporting purposes. Additionally, current and future economic and business conditions are considered. Based on these criteria, the Company determined that it was necessary to establish a valuation allowance against our deferred tax asset at December 31, 2011. The Company performed an analysis at March 31, 2012 and determined the need for a valuation allowance still existed. To the extent that we generate taxable income in a given quarter, the valuation allowance may be reduced to fully or partially offset the corresponding income tax expense. Any remaining deferred tax asset valuation allowance may be reversed through income tax expense once the Company can demonstrate a sustainable return to profitability and conclude that it is more likely than not the deferred tax asset will be utilized prior to expiration.

Additional information with regard to the Company’s methodology and reporting of its critical accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 30, 2012.

43.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Asset Quality

The Company has identified certain assets as risk elements. These assets include nonperforming loans, loans that are contractually past due 90 days or more as to principal or interest payments and still accruing, troubled debt restructurings, and foreclosed real estate. Loans are placed on nonaccrual status when management has concerns regarding the Company’s ability to collect the outstanding loan principal and interest amounts and typically when such loans are more than 90 days past due. These loans present more than the normal risk that the Company will be unable to eventually collect or realize their full carrying value. The Company’s risk elements at March 31, 2012 and December 31, 2011, excluding loans classified as held-for-sale, were as follows:

	March 31, 2012			December 31, 2011
	(Dollars in thousands)
Nonperforming loans:
Commercial real estate	$	18,051		$	17,081
Residential real estate		13,190			13,684
Construction and land real estate		16,549			14,953
Commercial		1,261			1,168
Consumer loans and other		15			18
Loans past due over 90 days still on accrual		—			—
Total nonperforming loans(1)		49,066			46,904
Foreclosed assets, net		7,667			7,968
Total nonperforming assets		56,733			54,872
Performing Loans classified as troubled debt restructuring		2,731			2,727
Nonperforming loans classified as troubled debt restructuring		13,230			12,657
Total loans classified as troubled debt restructuring	$	15,961		$	15,384
Nonperforming loans as a percent of gross loans(2)		10.69	%		10.13	%
Nonperforming loans and foreclosed assets as a percent of total assets(2)		9.68	%		9.77	%

⁽¹⁾  There were no loans classified as held-for-sale as of December 31, 2011 or March 31, 2012.

⁽²⁾  Nonperforming loans and total loans exclude amounts classified as loans held-for-sale.

The Company has loan balances of $16.0 million for customers whose loans are classified as troubled debt restructuring and such loans are included in the impaired loan balance of $51.8 million at March 31, 2012. Of the $16.0 million, $5.2 million is classified as troubled debt restructurings with collateral shortfalls. There are no additional funds committed to customers whose loans are classified as troubled debt restructuring. Most of these loans were modified to suspend principal payments for a period of time less than or equal to 13 months, the interest rate was modified, or there was a court ordered fixed payment amount. Of the $3.4 million allowance for loan losses reserved for impaired loans, the Company has allocated $1.7 million to customers whose loan terms have been modified as troubled debt restructurings with collateral shortfalls and $618,000 to the remaining troubled debt restructurings. As of March 31, 2012, $13.3 of troubled debt restructurings were on nonaccrual with the remaining $2.7 million still accruing interest.

The terms of certain other loans were modified during the period ended March 31, 2012 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of March 31, 2012 of $13.5 million. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties, such as allowing them to make interest only payments for a limited period of time (generally 18 months or less), adjusting the interest rate to a market interest rate for the remaining term of the loan or allowing a delay in payment that was considered to be insignificant.

44.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Nonperforming loans increased during the three-month period ended March 31, 2012 from $46.9 million at December 31, 2011 to $49.1 million at March 31, 2012. Nonperforming assets increased by $1.9 million from December 31, 2011 to March 31, 2012. The increase in nonperforming assets at March 31, 2012 is primarily driven by an increase in nonaccrual commercial real estate and construction and land real estate loans. General economic conditions and the real estate market continue to be challenging in the Bank’s geographic market.

Loans past due still accruing interest at March 31, 2012, are categorized as follows:

(Dollars in thousands)
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due Still Accruing
Commercial	$	340	$	—	$	—	$	340
Real estate:
Residential		528		597		—		1,125
Commercial		8,384		—		—		8,384
Construction and land		606		170		—		776
Consumer		42		250		—		292
Total	$	9,900	$	1,017	$	—	$	10,917

The increase in total loans past due 30-89 days still accruing interest from $7.7 million at December 31, 2011 to $10.9 million at March 31, 2012 is driven by the continued softening of the economy.

The Bank has experienced an increase in adversely classified loans from $68.6 million at December 31, 2011 to $79.7 million at March 31, 2012. Of the $79.7 million at March 31, 2012, $27.3 million were adversely classified loans from the merger with ABI. The $27.3 million adversely classified ABI loans are net of a fair value adjustment of $5.4 million, or 19.7% of the gross contractual amount receivable as of March 31, 2012. In addition, of the $79.7 million at March 31, 2012, $51.8 million was listed as impaired. All adversely classified loans are monitored closely and the majority of these loans are collateralized by real estate.

Loans are impaired when it is considered probable that the Company will not collect the outstanding loan principal and interest amounts according to the loan’s contractual terms. At March 31, 2012, impaired loans increased by $3.1 million to $51.8 million, compared to $48.7 million at December 31, 2011. Of the $51.8 million impaired loans at March 31, 2012, $49.1 million are nonperforming loans. Included in the $51.8 million impaired loan balance at March 31, 2012 are acquired loans with credit deteriorations.

The Company critically evaluates all requests for additional funding on classified loans to determine whether the borrower has the capacity and willingness to repay. Any requests of this nature require concurrence by the Loan Committee of the Bank’s board of directors.

45.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

The Company purchased loans in its acquisition of ABI, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. Loans acquired with deteriorated credit quality are included in our various disclosures of credit quality to include: loans on nonaccrual; loans past due; special mention loans; substandard loans; and doubtful loans. The table below discloses the total loans for the Company, total loans acquired in the acquisition of ABI, the loans acquired with deteriorated credit quality and the percent of loans acquired with deteriorated credit quality to total loans for the Company for each credit metric:

Period ending March 31, 2012
(Dollars in thousands)
	Total		Loans Acquired from ABI		Loans Acquired with Deteriorated Credit Quality from ABI		% of Total
Nonaccrual	$	49,066	$	13,098	$	12,404		25.3	%
Past Due		54,335		17,345		13,079		24.1	%
Special Mention		34,807		9,550		8,551		24.6	%
Substandard		79,665		27,322		23,994		30.1	%
Doubtful		0		0		0		0.0	%
Total	$	114,472	$	36,872	$	32,545		28.4	%
Period ending December 31, 2011
	Total		Loans Acquired from ABI		Loans Acquired with Deteriorated Credit Quality from ABI		% of Total
Nonaccrual	$	46,904	$	11,472	$	11,242		24.0	%
Past Due		49,881		17,318		14,324		28.7	%
Special Mention		42,115		9,674		8,740		20.8	%
Substandard		68,616		26,797		23,770		34.6	%
Doubtful		0		0		0		0.0	%
Total	$	110,731	$	36,471	$	32,510		29.4	%

The credit metrics from the table above that were most heavily impacted by the Company’s acquisition of loans with deteriorated credit quality for the period ended March 31, 2012 were our substandard and past due loans. This is due to the continuing deterioration of collateral values as well as the current difficult economic environment that is impacting our customers’ ability to meet their loan obligations. When comparing the percentage of special mention, substandard and doubtful loans as of December 31, 2011 to March 31, 2012, the percentages have remained relatively unchanged from 29.4% at December 31, 2011 to 28.4% at March 31, 2012.

46.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Our credit quality as compared to our internally defined peer group, specifically the percentage of nonaccrual loans to total loans, has shown an overall steady decline from December 31, 2011 to March 31, 2012. This is due to the current difficult economic environment in the geographic region in which the Company operates that is impacting our customers’ ability to meet their loan obligations. Of the total $38.7 million of non-accrual loans at March 31, 2012, $6.2 million had been charged off in prior periods.

The same criteria used for all Company loans greater than 90 days and accruing applies to loans acquired with deteriorated credit quality. Loans acquired with deteriorated credit quality will be placed on nonaccrual status if the amount and timing of future cash flows cannot be reasonably estimated or if repayment of the loan is expected to be from collateral that has become deficient. As of March 31, 2012, there were no loans acquired with deteriorated credit quality that were greater than 90 days past due and accruing interest. There were, however, loans acquired with deteriorated credit quality on nonaccrual in the amount of $12.4 million as the amount and timing of future cash flows could not be reasonably estimated or the repayment of the loan was expected from the collateral that has become deficient.

Allowance and Provision for Loan Losses

The allowance for loan losses increased by $100 thousand during the first three months of 2012, amounting to $13.1 million at March 31, 2012, as compared to $13.0 million at December 31, 2011. The allowance represented approximately 2.85% of total loans at March 31, 2012 and 2.82% at December 31, 2011.

	March 31, 2012			March 31, 2011
(Dollars in thousands)
Allowance at beginning of period	$	13,024		$	13,069
Charge-offs:
Commercial loans		—			81
Real estate loans		124			3,684
Consumer and other loans		7			9
Total charge-offs		131			3,774
Recoveries:
Commercial loans		1			1
Real estate loans		103			105
Consumer and other loans		13			1
Total Recoveries		117			107
Net charge-offs		14			3,667
Provision for loan losses charged to operating expenses:
Commercial loans		68			35
Real estate loans		43			1,897
Consumer and other loans		(39	)		(3	)
Total provision		72			1,929
Allowance at end of period	$	13,082		$	11,331

The larger allowance for loan losses in 2012 was driven primarily by the increase in the amount of allowance needed on loans collectively evaluated for impairment. The decreased level of charge-offs for the three months ended March 31, 2012 is due to the timing of recording charge-offs related to the Company’s strategy to strengthen its balance sheet by lowering the amount of substandard assets through such avenues as foreclosures and short sales.

47.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

The Bank’s identification efforts of potential losses in the portfolio are based on a variety of specific factors, including the Company’s own historical experience as well as industry and economic trends. In calculating the Company’s allowance for loan losses, the Company’s historical loss experience is supplemented with various current and economic trends. These current factors can include any of the following: changes in volume and severity of past due, special mention, substandard and nonaccrual loans; levels of any trends in charge-offs and recoveries; changes in nature, volume and terms of loans; changes in lending policies and procedures; changes in lending management and quality of loan review; changes in economic and business conditions; and changes in underlying collateral values and effects of concentrations. There was a change to the economic loss factor related to the levels and trends in charge-offs and recoveries as a result of the high level of charge-offs during 2011. There were no other changes in the current economic factors from December 31, 2011 to March 31, 2012 as these factors had been adjusted previously in anticipation of the continued softening of the economy. As of March 31, 2012, of the $9.7 million of the allowance for loan losses from loans collectively evaluated for impairment, the real estate loans portfolio segment had total weighted average qualitative factors of 1.20%, or $3.3 million; the commercial loans portfolio segment had total weighted average qualitative factors of 1.05%, or $303,000; and the consumer and other loans portfolio segment had total qualitative factors of 1.0%, or $24,000. Impaired loans were $51.8 million as of March 31, 2012. As of the same date, $3.4 million was specifically allocated to the allowance for loan losses which is deemed appropriate to absorb probable losses. Included in the $51.8 million impaired loan balance at March 31, 2012 are acquired loans with credit deterioration.

As part of the Company’s allowance for loan loss policy, loans acquired from ABI with evidence of deteriorated credit quality are included in our evaluation of the allowance for loan losses each period. Events that occurred within the measurement period (i.e., 12 months from the date of the ABI acquisition) that cause a deterioration of the loan that is more than the deterioration estimated at acquisition, we evaluated whether the events and circumstances that existed as of the acquisition date are due to new information obtained about facts and circumstances that existed as of that acquisition date that, if known, would have resulted in recognition of additional deterioration. If so, the additional deterioration was recorded as additional carrying discount with a corresponding increase to goodwill. If not, the additional deterioration was recorded as additional provision expense with a corresponding increase to the allowance for loan losses. After the measurement period, any additional impairment above the current carrying discount has been recorded as additional provision expense with a corresponding increase to the allowance for loan losses. As of March 31, 2012, there was $13.1 million in loans acquired with deteriorated credit quality that were considered impaired.

For loans acquired with deteriorated credit quality that were deemed troubled debt restructurings prior to the Company’s acquisition of them, these loans are not considered troubled debt restructurings as they are accounted for under ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality. Subsequent to the acquisition, the same criteria used for all other loans apply to loans acquired with deteriorated credit quality and their treatment as troubled debt restructurings. For the three month period ended March 31, 2012, there was one acquired loan in the amount of $592 thousand with deteriorated credit quality that was deemed a troubled debt restructuring.

48.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

The allowance for loan losses is a valuation allowance for credit losses in the loan portfolio. Management has adopted a methodology to properly analyze and determine an adequate loan loss allowance. The analysis is based on sound, reliable and well documented information and is designed to support an allowance that is adequate to absorb all estimated credit losses in the Company’s loan and lease portfolio. Due to their similarities, the Company has grouped the loan portfolio into portfolio segments. The segments are real estate mortgage loans, commercial loans and consumer and other loans. The Company has created a loan classification system to properly calculate the allowance for loan losses. Loans are evaluated for impairment. If a loan is deemed to be impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the sale of the collateral.

It is the Bank’s policy to obtain updated third party appraisals on all (“OREO”) and real estate collateral on substandard loans on, at least, an annual basis. Value adjustments are often made to appraised values on properties wherein the existing appraisal is approximately one-year old at period end. Occasionally, at period end, an updated appraisal has been ordered, but not yet received, on a property wherein the existing appraisal is approaching one-year old. In this circumstance, an adjustment is typically made to the existing appraised value to reflect the Bank’s best estimate of the change in the value of the property, based on evidence of changes in real estate market values derived by the review of current appraisals received by the Bank on similar properties. In the current environment, virtually all such adjustments to value are downward due to the overall reduction in real estate values over the last two years in the Bank’s market area.

Real estate values in the Bank’s market area have experienced deterioration over the last several quarters. The expectation for further deterioration for all property types appears to be leveling off. On a quarterly basis, management reviews several factors, including underlying collateral, and writes down impaired loans to the net realizable value.

In estimating the overall exposure to loss on impaired loans, the Company has considered a number of factors, including the borrower’s character, overall financial condition, resources and payment record, the prospects for support from any financially responsible guarantors, and the realizable value of any collateral. The Company also considers other internal and external factors when determining the allowance for loan losses. These factors include, but are not limited to, changes in national and local economic conditions, commercial lending staff limitations, impact from lengthy commercial loan workout and charge-off periods, loan portfolio concentrations and trends in the loan portfolio.

Bank regulators have issued “Joint Guidance on Concentrations in Commercial Real Estate Lending.” This document outlines regulators’ concerns regarding the high level of growth in commercial real estate loans on banks’ balance sheets. Many banks, especially those in Florida, have seen a substantial increase in exposure to commercial real estate loans. The concentration in this category is considered when analyzing the adequacy of the loan loss allowance based on sound, reliable and well documented information.

Based on the results of the analysis performed by management at March 31, 2012, the allowance for loan loss is considered to be adequate to absorb probable incurred credit losses in the portfolio as of that date. As more fully discussed in the “Critical Accounting Policies” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the process for estimating credit losses and determining the allowance for loan losses as of any balance sheet date is subjective in nature and requires material estimates. Actual results could differ significantly from these estimates.

49.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

The amount of future charge-offs and provisions for loan losses could be affected by, among other things, economic conditions in Jacksonville, Florida, and the surrounding communities. Such conditions could affect the financial strength of the Company’s borrowers and the value of real estate collateral securing the Company’s mortgage loans.

Future provisions and charge-offs could also be affected by environmental impairment of properties securing the Company’s mortgage loans. Under the Company’s current policy, an environmental audit is required on the majority of all commercial-type properties that are considered for a mortgage loan. At the present time, the Company is not aware of any existing loans in the portfolio where there is environmental pollution existing on the mortgaged properties that would materially affect the value of the portfolio.

Noninterest Income, Noninterest Expense and Income Taxes

Noninterest income was $437 thousand for the three months ended March 31, 2012, compared to $396 thousand for the same period in 2011. The increase over the same quarter in the prior year was driven primarily by a $70 thousand fee received related to a loan pre-payment received during the first quarter.

Noninterest expense remained relatively flat with the prior year at $4.4 million for the three months ended March 31, 2012, compared to $4.3 million in the same period in 2011. Increases to compensation and OREO expenses were offset by reductions in data processing, occupancy, and regulatory assessments.

There was no income tax expense recorded during the period ended March 31, 2012. The Company recorded a full valuation allowance against its deferred taxes at December 31, 2011. This was substantially due to the fact that is was “more likely than not” that the benefit would not be realized in future periods due to Section 382 of the Internal Revenue Code. During the three-month period ended March 31, 2012, a portion of the valuation allowance attributable to the deferred tax assets has been reduced due to the decrease in the deferred tax asset.

Capital

The Company’s capital management policy is designed to build and maintain capital levels that meet regulatory standards. Under current regulatory capital standards, banks are classified as well-capitalized, adequately-capitalized or undercapitalized. Under such standards, a well-capitalized bank is one that has a total risk-based capital ratio equal to or greater than 10%, a Tier 1 risk-based capital ratio equal to or greater than 6%, and a Tier 1 leverage capital ratio equal to or greater than 5%. The Bank’s total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios were 10.28%, 9.01% and 7.48%, respectively, at March 31, 2012. Bancorp also maintains capital levels that meet the same regulatory standards. If the capital ratios of Bancorp and the Bank were to fall below levels required under regulatory standards, it is their policy to increase capital in an amount sufficient to meet regulatory requirements within 30 days.

50.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

The Company has included in Tier 1 Capital and Total Capital a portion of the trust preferred securities that were issued in June 2004, December 2006 and June 2008 and acquired from ABI in November 2010.

Cash Flows and Liquidity

Cash Flows. The Company’s primary sources of cash are deposit growth, maturities and amortization of investment securities, FHLB advances, Federal Reserve Bank borrowings and federal funds purchased. The Company uses cash from these and other sources to fund loan growth. Any remaining cash is used primarily to reduce borrowings and to purchase investment securities. During the first three months of 2012, the Company’s cash and cash equivalent position increased by $13.2 million. The primary driver of the net cash increase is due to $39.8 million in deposit inflows offset by purchases of investment securities and reductions in short-term borrowings in the amount of $18.9 million and net reductions in FHLB advances of 16 million.

Liquidity.The Company has both internal and external sources of near-term liquidity that can be used to fund loan growth and accommodate deposit outflows. The primary internal sources of liquidity are principal and interest payments on loans; proceeds from maturities and monthly payments on the balance of the investment securities portfolio; and its overnight position with federal funds sold. At March 31, 2012, the Company had $78.8 million in available-for-sale securities, $14.2 million of which was pledged to the Federal Reserve Bank for the Borrower-in-Custody Program.

The Company’s primary external sources of liquidity are customer deposits and borrowings from other commercial banks. The Company’s deposit base consists of both deposits from businesses and consumers in its local market as well as national market and brokered certificates of deposit. The Company can also borrow overnight federal funds and fixed-rate term products under credit facilities established with the FHLB, Federal Reserve Discount Window and other commercial banks. These lines, in the aggregate amount of approximately $126.9 million, do not represent legal commitments to extend credit.

On November 16, 2010, Bancorp closed on a $35.0 million financing through the sale of 3,888,889 shares of its common stock at $9.00 per share to accredited investors led by CapGen Capital Group IV LP (“CapGen”). The amount of cash raised was directly tied to the amount of additional capital Bancorp needed in order to obtain regulatory approval to consummate the merger with ABI. Net proceeds from the sale after offering expenses were $34.7 million and were used to fund the merger and integration of ABI and Oceanside Bank into the Company.

51.

JACKSONVILLE BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont.)

Contractual Obligations, Commitments and Contingent Liabilities.The Company has various financial obligations, including contractual obligations and commitments that may require future cash payments. Management believes that there have been no material changes in the Company’s overall level of these financial obligations since December 31, 2011 and that any changes in the Company’s obligations which have occurred are routine for the industry. Further discussion of the nature of each type of obligation is included in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 30, 2012.

Off-Balance-Sheet Arrangements.There have been no material changes in the risks related to off-balance-sheet arrangements since the Company’s disclosure in its Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 30, 2012.

52.

JACKSONVILLE BANCORP, INC.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk that a financial institution will be adversely impacted by unfavorable changes in market prices. These unfavorable changes could result in a reduction in net interest income, which is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities.

Interest rate risk is the sensitivity of income to variations in interest rates over both short-term and long-term horizons. The primary goal of interest rate risk management is to control this risk within limits approved by the board of directors and narrower guidelines approved by the Asset Liability Committee. These limits and guidelines reflect the Bank’s tolerance for interest rate risk. The Bank attempts to control interest rate risk by identifying and quantifying exposures. The Bank quantifies its interest rate risk exposures using sophisticated simulation and valuation models as well as simpler gap analyses performed by a third-party vendor specializing in this activity. There have been no material changes in the Bank’s primary market risk exposure or how those risks are managed since our disclosures in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 30, 2012.

Management believes, under normal economic conditions, the best indicator of interest rate risk is the +/- 200 basis point “shock” (parallel shift) scenario. However, due to the current rate environment, the Bank’s internal policy on interest rate risk specifies that if interest rates were to shift immediately up or down 100 basis points, estimated net interest income for the next 12 months should change by less than 15%. The most current simulation projects the Bank’s net interest income to be within the parameters of its internal policy and has not changed materially from our disclosures in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 30, 2012. Such simulation involves numerous assumptions and estimates, which are inherently subjective and are subject to substantial business and economic uncertainties. Accordingly, the actual effects of an interest rate shift under actual future conditions may be expected to vary significantly from those derived from the simulation to the extent that the assumptions used in the simulation differ from actual conditions.

53.

JACKSONVILLE BANCORP, INC.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Bancorp maintains controls and procedures designed to ensure that information required to be disclosed in the reports that Bancorp files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon management’s evaluation of those controls and procedures as of the end of the fiscal quarter covered by this quarterly report on Form 10-Q, the President and Chief Executive Officer and the Chief Financial Officer of Bancorp concluded that, subject to the limitations noted below, Bancorp’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that the information required to be disclosed by Bancorp in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Controls

In the ordinary course of business, Bancorp may routinely modify, upgrade and enhance its internal controls and procedures for financial reporting. In an effort to improve internal control over financial reporting, Bancorp continues to emphasize the importance of identifying areas for improvement and to create and implement new policies and procedures where deficiencies exist. There have not been any changes in Bancorp’s internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, Bancorp’s internal control over financial reporting.

(c) Limitations on the Effectiveness of Controls

Bancorp’s management, including its President and Chief Executive Officer and its Chief Financial Officer, does not expect that its disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

54.

JACKSONVILLE BANCORP, INC.

PART II - OTHER INFORMATION

Item 1.Legal Proceedings

From time to time, as a normal incident of the nature and kind of business in which the Company is engaged, various claims or charges are asserted against Bancorp, its subsidiaries and/or their directors, officers or affiliates. In the ordinary course of business, Bancorp and its subsidiaries are also subject to regulatory examinations, information gathering requests, inquiries and investigations. Other than ordinary routine litigation incidental to the Company’s business, management believes after consultation with legal counsel that there are no pending legal proceedings against Bancorp, any of its subsidiaries and any of their directors, officers or affiliates that will, individually or in the aggregate, have a material adverse effect on the consolidated results of operations or financial condition of Bancorp.

Item 1A.Risk Factors

There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 30, 2012.

55.

JACKSONVILLE BANCORP, INC.

Item 6.Exhibits

Exhibit No. 2.1: Agreement and Plan of Merger by and between Jacksonville Bancorp, Inc. and Atlantic BancGroup, Inc. dated as of May 10, 2010⁽¹⁾

Exhibit No. 2.2: First Amendment to Agreement and Plan of Merger by and between Jacksonville Bancorp, Inc. and Atlantic BancGroup, Inc. dated as of September 20, 2010⁽²⁾

Exhibit No. 3.1: Amended and Restated Articles of Incorporation of Jacksonville Bancorp, Inc. ⁽³⁾

Exhibit No. 3.2: Amended and Restated Bylaws of Jacksonville Bancorp, Inc.⁽⁴⁾

Exhibit No. 31.1: Certification of principal executive officer required by Rule 13a-14(a)/15d-14(a) of the Exchange Act *

Exhibit No. 31.2: Certification of principal financial officer required by Rule 13a-14(a)/15d-14(a) of the Exchange Act *

Exhibit No. 32: Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 *

Exhibit No. 101.INS: XBRL Instance Document *⁽⁵⁾

Exhibit No. 101.SCH: XBRL Schema Document *⁽⁵⁾

Exhibit No. 101.CAL: XBRL Calculation Linkbase Document *⁽⁵⁾

Exhibit No. 101.DEF: XBRL Definition Linkbase Document *⁽⁵⁾

Exhibit No. 101.LAB: XBRL Label Linkbase Document *⁽⁵⁾

Exhibit No. 101.PRE: XBRL Presentation Linkbase Document *⁽⁵⁾

  * Included herewith

⁽¹⁾ Incorporated herein by reference to Exhibit 2.1 to Form 8-K filed May 14, 2010, File No. 000-30248.

⁽²⁾  Incorporated herein by reference to Exhibit 2.1 to Form 8-K filed September 20, 2010, File No. 000-30248.

⁽³⁾  Incorporated herein by reference to Exhibit No. 3.1 to Form 8-K filed November 17, 2010, File No. 000-30248.

⁽⁴⁾  Incorporated herein by reference to Exhibit No. 3.2 to Form 8-K filed November 17, 2010, File No. 000-30248.

⁽⁵⁾  These interactive data files will not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or otherwise subject to liability under those sections.

56.

JACKSONVILLE BANCORP, INC.

SIGNATURES

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

	JACKSONVILLE BANCORP, INC.
Date: May 9, 2012	/s/ Price W. Schwenck
	Price W. Schwenck
	President and Chief Executive Officer

Date: May 9, 2012	/s/ Valerie A. Kendall
	Valerie A. Kendall
	Executive Vice President and Chief Financial Officer

57.

JACKSONVILLE BANCORP, INC.

EXHIBIT INDEX

Exhibit No. 2.1: Agreement and Plan of Merger by and between Jacksonville Bancorp, Inc. and Atlantic BancGroup, Inc. dated as of May 10, 2010⁽¹⁾

Exhibit No. 2.2: First Amendment to Agreement and Plan of Merger by and between Jacksonville Bancorp, Inc. and Atlantic BancGroup, Inc. dated as of September 20, 2010⁽²⁾

Exhibit No. 3.1: Amended and Restated Articles of Incorporation of Jacksonville Bancorp, Inc. ⁽³⁾

Exhibit No. 3.2: Amended and Restated Bylaws of Jacksonville Bancorp, Inc.⁽⁴⁾

Exhibit No. 31.1: Certification of principal executive officer required by Rule 13a-14(a)/15d-14(a) of the Exchange Act *

Exhibit No. 31.2: Certification of principal financial officer required by Rule 13a-14(a)/15d-14(a) of the Exchange Act *

Exhibit No. 32: Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 *

Exhibit No. 101.INS: XBRL Instance Document *⁽⁵⁾

Exhibit No. 101.SCH: XBRL Schema Document *⁽⁵⁾

Exhibit No. 101.CAL: XBRL Calculation Linkbase Document *⁽⁵⁾

Exhibit No. 101.DEF: XBRL Definition Linkbase Document *⁽⁵⁾

Exhibit No. 101.LAB: XBRL Label Linkbase Document *⁽⁵⁾

Exhibit No. 101.PRE: XBRL Presentation Linkbase Document *⁽⁵⁾

* Included herewith

⁽¹⁾  Incorporated herein by reference to Exhibit 2.1 to Form 8-K filed May 14, 2010, File No. 000-30248.

⁽²⁾  Incorporated herein by reference to Exhibit 2.1 to Form 8-K filed September 20, 2010, File No. 000-30248.

⁽³⁾  Incorporated herein by reference to Exhibit No. 3.1 to Form 8-K filed November 17, 2010, File No. 000-30248.

⁽⁴⁾  Incorporated herein by reference to Exhibit No. 3.2 to Form 8-K filed November 17, 2010, File No. 000-30248.

⁽⁵⁾  These interactive data files will not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or otherwise subject to liability under those sections.

58.