<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K


[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                  For the fiscal year ended September 30, 2001


                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

          For the transition period from __________ to _______________

                        Commission file number 000-28070
                                               ---------

                           JACKSONVILLE BANCORP, INC.
          -------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             TEXAS                                           75-2632781
--------------------------------                     ---------------------------
(State or other jurisdiction                         (I.R.S. Employer
of incorporation or organization)                    Identification Number)

Commerce and Neches Streets
Jacksonville, Texas                                              75766
----------------------------------------             ---------------------------
(Address of principal executive offices)                       (Zip code)

       Registrant's telephone number, including area code: (903) 586-9861

   Securities registered pursuant to Section 12(b) of the Act: Not Applicable


           Securities registered pursuant to Section 12(g) of the Act

                     COMMON STOCK (PAR VALUE $.01 PER SHARE)
-------------------------------------------------------------------------------

                                 Title of Class

Indicate by check mark whether the Registrant (1) has filed all reports required
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]



<PAGE>




As of December 7, 2001, the aggregate market value of the 1,203,891 shares of
Common Stock of the Registrant held by non-affiliates on such date, was
approximately $24.4 million. This figure is based on the closing price of $20.30
per share of the Registrant's Common Stock on December 7, 2001. Although
directors and executive officers of the Registrant and certain of its employee
benefit plans were assumed to be "affiliates" of the Registrant for purposes of
this calculation, the classification is not to be interpreted as an admission of
such status.

Number of shares of Common Stock outstanding as of December 7, 2001: 1,816,924.

                       DOCUMENTS INCORPORATED BY REFERENCE

         List hereunder the following documents incorporated by reference and
the Part of the Form 10-K into which the document is incorporated.

(1) Portions of the Annual Report to Stockholders for the year ended September
30, 2001 are incorporated into Part II, Items 5 through 8 of this Form 10-K.

(2) Portions of the definitive proxy statement for the Annual Meeting of
Stockholders are incorporated into Part III, Items 10 through 13 of this Form
10-K.



<PAGE>




PART I

ITEM 1. BUSINESS.

GENERAL

         Jacksonville Bancorp, Inc.'s (the "Company") primary asset is
Jacksonville Savings Bank, SSB ("Jacksonville" or the "Bank"). The business of
Jacksonville consists primarily of attracting deposits from the general public
and using those and other available sources of funds to originate loans secured
by single-family residences located in Cherokee County and surrounding counties
in East Texas. To a lesser extent, Jacksonville also originates construction
loans, land loans, consumer loans, home equity loans, and a limited number of
commercial real estate loans. After approval of equity lending beginning January
1, 1998, Jacksonville established an equity loan department. In addition,
Jacksonville invests in United States government and federal agency securities
and mortgage-backed securities, including collateralized mortgage obligations
("C.M.O."). Jacksonville also has a small portfolio of private-label C.M.O's.

         On July 2, 1997, Jacksonville Savings and Loan Association converted
from a Texas chartered savings and loan association to a Texas chartered savings
bank, changing its name to Jacksonville Savings Bank, SSB. The change did not
affect operations of the Bank but did provide the Bank with additional
flexibility. In addition, the change of charter reduced governmental supervision
costs, because the Office of Thrift Supervision ("OTS")would no longer regulate
the institution along with the Texas Savings and Loan Department and the Federal
Deposit Insurance Corporation. The Bank is now regulated by the Federal Deposit
Insurance Corporation and the Texas Savings and Loan Department. The Company
continues to be regulated by the OTS as a savings and loan holding company.

         On July 16, 1997, after receiving appropriate regulatory approvals,
Jacksonville IHC, a Delaware chartered company ("IHC") acquired all the issued
and outstanding stock of Jacksonville Savings Bank, SSB previously held by the
Company. IHC is, and was at the time of the acquisition, a wholly-owned
subsidiary of the Company. The purpose of the transaction was to minimize
certain Texas state taxation expenses imposed on holding companies with Texas
source income. In addition to holding all the issued and outstanding shares of
Jacksonville, IHC's only other business activity was to loan funds to
Jacksonville's Employee Stock Ownership Plan.

MARKET AREA

         Jacksonville's market area consists of Cherokee County and surrounding
counties in East Texas. The labor force of Cherokee County has evolved from
agriculture to manufacturing and service industries. The components of the
area's economic base have consisted of manufacturing, mining, agriculture,
retail and tourism. Jacksonville is the largest city in Cherokee County and the
principal business activity in the city is manufacturing. There are 86
manufacturing concerns in Jacksonville according to numbers supplied by the
Jacksonville Chamber of Commerce. Industries represented are plastic
manufacturing and plastic injected molding, oil (reflecting the heritage of East
Texas as the center of the Texas oil country), timber, cattle and bedding plant.
Slowdowns in the petroleum industry had a material negative impact on the area's
economy in the early 1980s which was compounded by defense-related cutbacks.
However, the area's economy has improved in recent years due to further entrance
of business in the market area and especially in Tyler and Longview. In
addition, the area's economic base has diversified into such fields as health
services, research and technology.

         Major companies in Jacksonville's market area include Alligence
HealthCare, Inc., Astro Air, Zimmerman & Sons, Trane Corporation,
Kelly-Springfield, Carrier Air Conditioning, Tyler Pipe Industries, Marathon Le
Tourneau, Eastman Kodak, Powell Plant Farm, Texas Department of Corrections,
Western Lithography and Wal-Mart (a distribution center). The market area is
also served by the University of Texas Hospital, Mother Frances Hospital, and
Medical Center Hospital. These hospitals are also a major source of employment
for the

                                        1

<PAGE>




market area. Colleges and universities include the University of Texas at Tyler,
Stephen F. Austin University, Tyler Junior College, Texas College, Lon Morris
College, Jacksonville College, and Trinity Valley Junior College. According to
reports from the Bureau of Labor Statistics, as of September 30, 2001, the
unemployment rate in Cherokee County and surrounding counties in East Texas was
estimated to be 4.8% as compared to 4.4% in 2000 and the estimated unemployment
rates for the United States during these periods were 5.4% and 3.8%
respectively.

LENDING ACTIVITIES

         At September 30, 2001, Jacksonville's net loan portfolio totaled $246.4
million representing approximately 70.2% of Jacksonville's $351.0 million of
total assets at that date. The principal lending activity of Jacksonville is the
origination of single-family residential loans. At September 30, 2001,
approximately 99% of Jacksonville's single-family residential loan portfolio
consisted of conventional loans with the remaining single-family residential
loans either insured by the Federal Housing Administration ("FHA") or partially
guaranteed by the Department of Veterans Affairs ("VA"). At September 30, 2001,
Jacksonville's single-family residential loan portfolio totaled $181.6 million,
representing approximately 68.4% of Jacksonville's total loans, before net
items, at that date. Jacksonville held $16.9 million in commercial real estate
loans at that date, representing 6.4% of total loans, before net items. Of the
commercial real estate loans, $1.6 million, or 9.5%, were secured by real estate
acquired in satisfaction of debts previously contracted or by improvements on
such properties. In addition to these loans secured by real estate acquired in
satisfaction of debts previously contracted, Jacksonville originated $4.5
million in new commercial real estate loans during fiscal 2001. The only other
significant areas of lending activity by Jacksonville are construction loans,
land loans, and consumer loans which, as of September 30, 2001, represented
$40.0 million, or 15.0%, $3.1 million, or 1.2% and $22.9 million, or 8.6% of net
loans. Home equity loans in the amount of $24.6 million are included in the
single family portfolio.

         As a Texas-chartered savings bank, Jacksonville has general authority
to originate and purchase loans secured by real estate located throughout the
United States. Notwithstanding this nationwide lending authority, approximately
99% of all of the mortgage loans in Jacksonville's portfolio are secured by
properties located in Cherokee County and surrounding counties in East Texas,
reflecting Jacksonville's emphasis on local lending.

         At September 30, 2001, Jacksonville's limit on loans-to-one borrower
was $5.2 million, and its five largest loans or groups of loans-to-one borrower,
including related entities, aggregated $2.5 million, $2.2 million, $2.0 million,
$1.9 million, and $1.4 million. The first group of loans totaling $2.5 million
consist of six loans, three of which are for the development of two
single-family residential subdivisions and three are for the construction of
single-family residences. The second group of loans for $2.2 million was for the
development of single-family subdivision and construction of 5 single-family
residences. The third loan for $2.0 million was for the construction of a
church. The fourth largest group of loans totaling $1.9 million includes one
loan for the construction of a commercial building and five loans for the
construction of single family residences. The fifth largest group of loans
totaling $1.4 million consisted of one loan on commercial properties and three
loans secured by single family residences.



                                        2

<PAGE>




         LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of Jacksonville's loan portfolio by type of loan at the dates
indicated.

<Table>
<Caption>

                                                                              September 30,
                                          ----------------------------------------------------------------------------------------
                                                      2001                         2000                          1999
                                          ---------------------------   ---------------------------    ---------------------------

                                             Amount            %           Amount           %             Amount           %
                                          ------------   ------------   ------------   ------------    ------------   ------------
                                                                          (Dollars in Thousands)
<S>                                       <C>            <C>            <C>            <C>             <C>            <C>
MORTGAGE LOANS:
  Single-family residential(1)            $    181,563           68.4%  $    171,041           71.7%   $    164,661           72.9%
  Multi-family residential                         454            0.2            770            0.3             819            0.4
  Commercial                                    16,860            6.4         14,499            6.1          12,000            5.3
  Construction                                  39,917           15.0         25,117           10.5          21,171            9.4
  Land                                           3,093            1.2          2,741            1.1           3,172            1.4
                                          ------------   ------------   ------------   ------------    ------------   ------------
        Total mortgage loans              $    241,887           91.2%  $    214,168           89.7%   $    201,823           89.4%
                                          ------------   ------------   ------------   ------------    ------------   ------------

BUSINESS AND CONSUMER LOANS:
  Commercial business                     $        365            0.2%  $        515             .2%   $          6             --%
  Consumer loans:
       Secured by deposits                       2,765            1.0          2,350            1.0           2,183            1.0
       Secured by vehicles                      11,475            4.3         12,462            5.2          12,414            5.4
       Personal real estate loans                4,935            1.9          5,469            2.3           5,399            2.4
       Other                                     3,753            1.4          3,827            1.6           4,019            1.8
                                          ------------   ------------   ------------   ------------    ------------   ------------
       Total consumer loans                     22,928            8.6         24,108           10.1          24,015           10.6
                                          ------------   ------------   ------------   ------------    ------------   ------------
       Total business and consumer loans        23,293            8.8         24,623           10.3          24,021           10.6
                                          ------------   ------------   ------------   ------------    ------------   ------------
       Total loans                        $    265,180          100.0%  $    238,791          100.0%   $    225,844          100.0%
                                          ------------   ============   ------------   ============    ------------   ============

Less:
  Undisbursed portion of loans in
    process                               $     17,041                  $     10,224                   $      7,835
  Unearned discounts                                21                            31                             34
  Net deferred loan origination fees               429                           455                            496
  Unrealized losses on loans held for
    sale                                            --                            --                             --
  Allowance for loan losses                      1,257                         1,227                          1,212
                                          ------------                  ------------                   ------------
       Net loans                          $    246,432                  $    226,854                   $    216,267
                                          ============                  ============                   ============
</Table>


<Table>
<Caption>

                                                                        September 30,
                                              -----------------------------------------------------------------

                                                          1998                               1997
                                              -----------------------------      ------------------------------

                                                Amount              %               Amount              %
                                              ------------     ------------      ------------      ------------
                                                                    (Dollars in Thousands)
<S>                                           <C>              <C>               <C>               <C>
MORTGAGE LOANS:
  Single-family residential(1)                $    149,961             74.7%     $    141,107              78.0%
  Multi-family residential                           1,091               .5             1,144                .7
  Commercial                                         9,764              4.9             9,492               5.2
  Construction                                      15,486              7.7            10,799               5.9
  Land                                               3,771              1.9             3,446               1.9
                                              ------------     ------------      ------------      ------------
       Total mortgage loans                   $    180,073             89.7%     $    165,998              91.7%
                                              ------------     ------------      ------------      ------------

BUSINESS AND CONSUMER LOANS:
  Commercial business                         $         55               --%     $         76                --%
  Consumer loans:
     Secured by deposits                             2,023              1.0             2,127               1.2
     Secured by vehicles                            10,577              5.3             6,537               3.6
     Personal real estate loans                      5,171              2.6             4,274               2.4
     Other                                           2,884              1.4             1,983               1.1
                                              ------------     ------------      ------------      ------------
     Total consumer loans                           20,655             10.3            14,921               8.3
                                              ------------     ------------      ------------      ------------
       Total business and consumer loans            20,710             10.3            14,997               8.3
                                              ------------     ------------      ------------      ------------
     Total loans                              $    200,783            100.0%     $    180,985             100.0%
                                              ------------     ============      ------------      ============
Less:
  Undisbursed portion of loans in process     $      7,846                       $      5,025
  Unearned discounts                                    46                                 62
  Net deferred loan origination fees                   568                                662
  Unrealized losses on loans held for                   --                                 --
    sale
  Allowance for loan losses                          1,170                              1,192
                                              ------------                       ------------
     Net loans                                $    191,153                       $    174,044
                                              ============                       ============
</Table>



----------
(1) Includes first and second liens on single-family residences.



                                        3

<PAGE>




         CONTRACTUAL PRINCIPAL REPAYMENTS. The following table sets forth
certain information at September 30, 2001, regarding the dollar amount of loans
maturing in Jacksonville's portfolio, based on the contractual terms to
maturity, before giving effect to net items. Demand loans, loans having no
stated schedule of repayments and no stated maturity and overdrafts are reported
as due in one year.


<Table>
<Caption>

                                                                                  Due 3-5        Due 5-10        Due 10-15
                                Due Before       Due Before      Due Before     Years after     Years after     Years after
                                  9/30/02          9/30/03        9/30/04        9/30/01          9/30/01         9/30/01
                                ------------    ------------    ------------    ------------    ------------    ------------
                                                                   (Dollars in Thousands)

<S>                             <C>             <C>             <C>             <C>             <C>             <C>
Single-family residential(1)    $         68    $        444    $        943    $      3,242    $     25,558    $     48,211
Multi-family residential                  --              --              --              50             296              32
Commercial                                 1              42             118             202           3,077           5,437
Construction                          39,917              --              --              --              --              --
Land                                       3               6              19              89             598           1,058
Commercial business                       23              26             108             208              --              --
Consumer                               3,440           2,374           3,778           7,536           2,820           1,996
                                ------------    ------------    ------------    ------------    ------------    ------------
       Total                    $     43,452    $      2,892    $      4,966    $     11,327    $     32,349    $     56,734
                                ============    ============    ============    ============    ============    ============
</Table>


<Table>
<Caption>
                                    Due More
                                    than 15
                                  Years after
                                     9/30/01             Total
                                  -------------      -------------
                                      (Dollars in Thousands)
<S>                               <C>                      <C>
Single-family residential(1)      $     103,097            181,563
Multi-family residential                     76                454
Commercial                                7,983             16,860
Construction                                 --             39,917
Land                                      1,320              3,093
Commercial business                          --                365
Consumer                                    984             22,928
                                  -------------      -------------
       Total                      $     113,460      $     265,180
                                  =============      =============
</Table>

----------

(1)      Includes first and second liens on single-family residences.

         The following table sets forth the dollar amount of all loans, before
net items, due after one year from September 30, 2001 which have fixed interest
rates or which have floating or adjustable interest rates.
<Table>
<Caption>


                                                     Floating or
                                   Fixed Rates     Adjustable-rates          Total
                                  -------------    ----------------      -------------
                                                (Dollars in Thousands)
<S>                               <C>                <C>                <C>
Single-family residential(1)      $     137,403      $      44,092      $     181,495
Multi-family residential                    227                227                454
Commercial real estate                    9,543              7,316             16,859
Construction                                 --                 --                 --
Land                                      1,020              2,070              3,090
Commercial business                         342                 --                342
Consumer                                 19,488                 --             19,488
                                  -------------      -------------      -------------
       Total                      $     168,023      $      53,705      $     221,728
                                  =============      =============      =============
</Table>

----------
(1)      Includes first and second liens on single-family residences.

         Scheduled contractual amortization of loans does not reflect the actual
term of Jacksonville's loan portfolio. The average life of loans is
substantially less than their contractual terms because of prepayments and
due-on-sale

                                        4

<PAGE>




clauses, which give Jacksonville the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid.

         ORIGINATIONS, PURCHASES AND SALES OF LOANS. The lending activities of
Jacksonville are subject to the written, non-discriminatory, loan underwriting
and administration guidelines established by Jacksonville's Board of Directors
and management. Loan originations are obtained from a variety of sources,
including referrals from real estate brokers, developers, builders, existing
customers, newspaper, radio, periodical advertising and walk-in customers. Loan
applications are taken by lending personnel, and the loan department supervises
the obtaining of credit reports, appraisals and other documentation involved
with a loan. Property valuations are generally performed by independent outside
appraisers approved by Jacksonville's Board of Directors. Jacksonville requires
title insurance on most all mortgage loans except for certain small second
mortgages of a minimal amount. Jacksonville obtains a letter certificate from
title companies on some personal real estate loans and most home equity loans.

         Jacksonville's loan approval process is intended to assess the
borrower's ability to repay the loan, the viability of the loan and the adequacy
of the value of the property that will secure the loan. After a loan application
is first reviewed by Jacksonville's loan department, the loan can receive
approval with at least two officers' authorization. All loan approvals by
officers are then reviewed and ratified by the Loan and Executive Committee. Any
loan not approved by at least two officers must be submitted to the Loan and
Executive Committee for review and disposition.

         Certain loans, because of their amount or because they do not meet one
or more specified guidelines, must receive direct approval of the Board of
Directors.

         Jacksonville originates both fixed- and adjustable-rate residential
real estate loans as market conditions dictate. Prior to fiscal 1999
Jacksonville followed a policy of selling approximately 95% of its loans secured
by first mortgage liens on single-family residences ("residential first mortgage
loans") with fixed rates and terms greater than 15 years to third parties while
retaining all of its variable-rate loans. However, during 2000 management
elected to portfolio a greater percentage of its fixed rate mortgage product
because of increased interest rates. During 2001 Jacksonville continued a policy
to sell a portion of the loans originated to the secondary market and portfolio
the balance. When loans are sold to others, except to Federal Home Loan Mortgage
Corporation ("FHLMC"), servicing of the loans is usually released to the buyers.
At September 30, 2001, $85.8 million in loans were being serviced for others,
primarily the FHLMC. See Note 5 to the Consolidated Financial Statements. While
Jacksonville has utilized various indices to adjust its adjustable-rate
mortgages ("ARMs") portfolio, each index would qualify such loans for
securitization under FHLMC guidelines. Adjustable-rate loans are currently
indexed to an index of U.S. Treasury obligations whose maturity matches the
interest adjustment period for the corresponding loan and have their interest
rates readjusted every one to five years. At September 30, 2001, $127.3 million
or 48.0% of Jacksonville's total loans, before net items, were fixed-rate
single-family residential loans, and $54.3 million or 20.4% of such total loans
were adjustable-rate single-family residential mortgage loans. Of these
adjustable mortgages, $17.9 million, or 33.0%, have interest rates adjustable in
one year, and the remainder adjust at periods greater than one year up to five
years.




                                        5

<PAGE>




         The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.


<Table>
<Caption>

                                                               Year Ended September 30,
                                                     ------------------------------------------------
                                                        2001              2000              1999
                                                     ------------      ------------      ------------
                                                                 (Dollars in Thousands)
<S>                                                  <C>               <C>               <C>
LOAN ORIGINATIONS:
  Single-family residential                          $     70,931      $     50,762      $     62,885
  Multi-family residential                                    120                --                --
  Land                                                        590               694               342
  Commercial                                                4,489             3,031             4,799
  Construction                                             45,536            21,245            23,446
  Commercial business                                         252                --                --
  Consumer                                                 11,944            12,968            13,362
                                                     ------------      ------------      ------------
       Total loans originated                             133,862            89,087           104,834
  Purchases                                                    --                --                --
       Total loans originated and purchased               133,862            89,087           104,834
                                                     ------------      ------------      ------------

SALES AND LOAN PRINCIPAL REDUCTIONS:
  Loans sold                                               20,933            20,876            23,866
  Loan principal repayments                                86,377            54,716            55,316
                                                     ------------      ------------      ------------
       Total loans sold and principal reductions          107,310            75,592            79,182

Increase (decrease) due to other items, net(1)               (163)             (548)             (591)
                                                     ------------      ------------      ------------
Net increase (decrease) in loan portfolio            $     26,389      $     12,947      $     25,061
                                                     ============      ============      ============
</Table>

----------

(1)      Consists of loan foreclosures, extensions and changes in net items.

         SINGLE-FAMILY RESIDENTIAL LOANS. The primary lending activity of
Jacksonville is the origination of loans secured by first mortgage liens on
single-family residences. Jacksonville also offers second mortgage loans on such
properties including home improvement and home equity loans. At September 30,
2001, $181.6 million or 68.4% of Jacksonville's total loan portfolio, before net
items, consisted of single-family residential loans.

         The loan-to-value ratio, maturity and other provisions of the
residential first mortgage loans made by Jacksonville generally have reflected
the policy of making less than the maximum loan permissible under applicable
regulations, in accordance with sound lending practices, market conditions and
underwriting standards established by Jacksonville. All residential first
mortgage loans, except those made to facilitate the sale of such dwellings held
as real estate owned, are generally underwritten in conformance with current
guidelines of the FHLMC. Jacksonville's lending policies on residential first
mortgage loans generally limit the maximum loan-to-value ratio to 97% of the
lesser of the appraised value or purchase price of the property and generally
all residential first mortgage loans in excess of an 80% loan-to-value ratio
require private mortgage insurance. During fiscal 2000 Jacksonville began making
a limited number of 100% loans to those customers whose credit scores exceeded
700 with the requirement of 30% private mortgage insurance coverage.

         Jacksonville offers fixed-rate residential first mortgage loans with
terms up to 30 years. Such loans are amortized on a monthly basis with principal
and interest due each month and customarily include "due-on-sale" clauses, which
are provisions giving Jacksonville the right to declare a loan immediately due
and payable in the event the borrower sells or otherwise disposes of the real
property subject to the mortgage and the loan is not repaid. Jacksonville
enforces due-on-sale clauses to the extent permitted under applicable laws.
Approximately 99% of Jacksonville's residential first mortgage loan portfolio
consists of conventional loans, with the remaining loans either insured by the
FHA or partially guaranteed by the VA.

         Jacksonville is aware that there are inherent risks in originating
fixed-rate residential first mortgage loans for its portfolio, especially during
periods of historically low interest rates, but recognizes the need to respond
to market demand for fixed-rate loans and to generate income from any
origination fees, where applicable, for such loans. To

                                        6

<PAGE>




address these concerns, in October 1987 Jacksonville began a policy of selling
substantially all of the fixed-rate residential first mortgage loans that it
originates to a large mortgage banking company with operations throughout the
United States. While Jacksonville continues to maintain its loan sales
relationship with the mortgage banking company, a substantial majority of its
loan sales since July 1993 have been to FHLMC with servicing retained by
Jacksonville. Since July 1993, Jacksonville has sold $150.2 million of loans to
FHLMC and has retained the servicing on all of these loans. Since that same
date, Jacksonville has sold $49.0 million of loans to the mortgage banking
company. During fiscal 2001, Jacksonville sold $11.7 million of loans to FHLMC
and $9.2 million to the mortgage banking company. Loan sales were down primarily
as a result of Jacksonville electing to portfolio more of its loan originations.

         During the year ended September 30, 2001, Jacksonville originated $70.9
million of single-family residential loans of which $68.3 million, or 96.3%,
were fixed rate and $2.6 million, or 3.7%, were adjustable rate. Of the
fixed-rate single-family residential loans originated during the period,
Jacksonville sold $11.7 million, or 17.1%, to FHLMC. The volume of single-family
residential loans originated increased by 39.6% from $50.8 million during fiscal
2000 as compared to $70.9 million during fiscal 2001 and the percentage of sales
of such originations decreased from 41.1% in fiscal 2000 to 29.5% in fiscal
2001. Single family loan originations increased in fiscal 2001 primarily due to
an increase in refinancing caused by lower interest rates. During the year
Jacksonville elected to portfolio a number of its 15 and 30 year mortgage loan
product because of the increased interest rates for most of the year.
Jacksonville will reevaluate this policy if there is a material and prolonged
change in interest rates and may elect to again sell most of its loan
originations with terms of more than 15 years.

         Since November 1980, Jacksonville has been offering adjustable-rate
loans in order to decrease the vulnerability of its operations to changes in
interest rates. Interest rate adjustment periods range from one to five years.
The demand for adjustable-rate loans in Jacksonville's primary market area has
been a function of several factors, including the level of interest rates, the
expectations of changes in the level of interest rates and the difference
between the interest rates offered for fixed-rate loans and adjustable-rate
loans. The relative amount of fixed-rate and adjustable-rate residential loans
that can be originated at any time is largely determined by the demand for each
in a competitive environment. As interest rates have fluctuated since November
1981, the demand for fixed- and adjustable-rate loans has changed as
Jacksonville's customers have preferred adjustable rates in a high interest rate
environment and fixed-rate loans as interest rates lowered. In an effort to
originate and maintain a percentage of adjustable-rate residential first
mortgage loans, Jacksonville has offered various forms of adjustable-rate loans
combined with a policy of selling a portion of its 15 and 30 year fixed-rate
loans from its portfolio. As a result, at September 30, 2001, $54.3 million, or
29.9%, of the single-family residential loans in Jacksonville's loan portfolio,
before net items, consisted of adjustable-rate loans.

         Jacksonville's residential first mortgage adjustable-rate loans are
fully amortizing loans with contractual maturities of up to 30 years. These
loans have interest rates which are scheduled to adjust every one, three or five
years in accordance with designated published indices based upon U.S. Government
securities. Jacksonville currently offers a one, three and five-year adjustable
mortgage with a 2% cap on the rate adjustment per period and a 4% to 6% cap rate
adjustment over the life of the loan, depending on its term. Jacksonville's
adjustable-rate residential first mortgage loans are not convertible by their
terms into fixed-rate loans, are not assumable, do not contain prepayment
penalties and do not produce negative amortization.

         Due to the generally lower rates of interest prevailing in prior
periods, Jacksonville's ability to originate adjustable-rate residential first
mortgage loans has decreased as consumer preference for fixed-rate loans has
increased. As a result, even as interest rates have fluctuated in recent years,
adjustable rate loans represented 3.7%, 17.8%, and 5.6% of Jacksonville's total
originations of single-family residential loans during the years ended September
30, 2001, 2000, and 1999, respectively.

         Adjustable-rate loans decrease the risks to Jacksonville associated
with changes in interest rates but involve other risks, primarily because as
interest rates rise, the payment by the borrower rises to the extent permitted
by the

                                        7

<PAGE>




terms of the loan, thereby increasing the potential for default. At the same
time, the marketability of the underlying property may be adversely affected by
higher interest rates. Jacksonville believes that these risks, which have not
had a material adverse effect on Jacksonville to date, generally are less than
the risks associated with holding fixed-rate loans in an increasing interest
rate environment.

         Jacksonville also makes home improvement loans which amounted to $2.5
million as of September 30, 2001. These loans are secured by either first or
second liens on single-family residences. Second mortgage loans on single-family
residences made by Jacksonville are generally secured by properties on which
Jacksonville holds the first mortgage lien.

         At September 30, 2001 the principal balance on home equity loans
totaled $24.6 million. Loans are secured by the homestead property, and may not
exceed 80% of the appraised value of the property based on either the current
market value as set forth by the County Appraisal District or by a new appraisal
prepared by a qualified person. These loans are usually in a second lien
position, but can be a first lien either through paying off the existing first
lien or by having no existing liens on the property at the time the home equity
loan is made. These loans are typically made for a term of 20 years or less.
These loans are usually at a slightly higher rate of interest than most first
lien loans and have lower closing cost, making them very attractive for both the
consumer and Jacksonville.

         COMMERCIAL MORTGAGE LOANS. At September 30, 2001, $16.9 million, or
6.4%, of Jacksonville's total loan portfolio, before net items, consisted of
loans secured by existing commercial real estate. Of these commercial mortgage
loans, $1.6 million, or 9.5%, represented loans secured by real estate acquired
in satisfaction of debts previously contracted or by improvements on such
properties. Jacksonville currently originates a limited number of commercial
mortgage loans. Commercial mortgage loan originations for the years ended
September 30, 2001, 2000 and 1999 were, respectively, $4.5 million, $3.0
million, and $4.8 million.

         As of September 30, 2001, the commercial mortgage loans in
Jacksonville's portfolio not secured by real estate acquired in satisfaction of
debts previously contracted or improvements thereon totaled $15.3 million. These
loans have terms up to 30 years and have both fixed and adjustable rates. At
September 30, 2001, $6.8 million, or 44.4%, of the commercial mortgage loan
portfolio not secured by real estate acquired in satisfaction of debts
previously contracted consisted of adjustable-rate loans.

         The majority of Jacksonville's commercial real estate loans are secured
by office buildings, churches, retail shops, and manufacturing facilities, and
are secured by property located in Jacksonville's lending area.

         Appraisals are required on all properties securing commercial real
estate loans. They generally are performed by an independent appraiser
designated by Jacksonville and are reviewed by management and members of the
loan and executive committee.

         In originating commercial mortgage loans, Jacksonville considers the
quality of the property, the credit of the borrower, cash flow of the project,
location of the real estate and the quality of management involved with the
property.

         Commercial mortgage lending is generally considered to involve a higher
degree of risk than single-family residential lending. Such lending typically
involves large loan balances concentrated in a single borrower or groups of
related borrowers. In addition, the payment experience on loans secured by
income-producing properties is typically dependent on the successful operation
of the related real estate project and thus may be subject to a greater extent
to adverse conditions in the real estate market or in the economy generally.

         CONSTRUCTION LOANS. At September 30, 2001, construction loans totaled
$40.0 million or 15.0% of the total loan portfolio, before net items.


                                        8

<PAGE>




         Jacksonville makes construction loans to individuals for the
construction of their residences. During recent years, it expanded its
construction lending activities to include lending to developers for the
construction of single-family subdivisions and residences. Because Jacksonville
views construction loans as involving greater risk than permanent single-family
residential loans, it applies stricter underwriting standards to them.
Construction loan originations increased during the year ended September 30,
2001 to $45.5 million from $21.2 million during fiscal 2000.

         Construction lending is generally limited to Jacksonville's primary
lending area, within 100 miles of Jacksonville's home office or within 25 miles
of each branch office. Construction loans are only made to individuals and to
developers who have a sound financial and operational reputation in the market
area. The loans to individuals are structured to be converted to permanent loans
at the end of the construction phase, which typically is six months but may be
extended for 30- or 60-day periods for good reason. Construction loans have
rates and terms which generally exceed the non-construction loans then offered
by Jacksonville except that during the construction phase the borrower normally
only pays interest on the loan. Funds are released periodically pursuant to a
construction-completion schedule and only after an on-site inspection by an
employee or agent of Jacksonville. Jacksonville generally attempts to mitigate
the risks associated with construction lending by, among other things, lending
primarily in its market area and using low loan-to-value ratios in the
underwriting process. The maximum loan to value ratio is 80% except for a small
amount of loans that have private mortgage insurance. Construction financing
also is generally considered to involve a higher degree of risk of loss than
long-term financing on improved, owner-occupied real estate because of the
uncertainties of construction, including the possibility of costs exceeding the
initial estimates.

         LAND LOANS. As of September 30, 2001, land loans totaled $3.1 million
or 1.2% of the total loan portfolio, before net items. As of that date,
Jacksonville had 74 land loans in its loan portfolio, over 90% of which were
utilized for ranching, agricultural or residential purposes. With limited
exceptions, Jacksonville's underwriting guidelines require land loans to have a
loan-to-land value ratio of 80% and a term of 20 years or less. The average
balance of Jacksonville's land loans, as of September 30, 2001, was
approximately $42,000.

         CONSUMER LOANS. At September 30, 2001, consumer loans totaled $22.9
million or 8.6% of the total loan portfolio, before net items, and consisted
primarily of loans secured by deposits, loans secured by vehicles, personal real
estate loans and loans to purchase personal property. Loans secured by deposits
total $2.8 million at September 30, 2001. A loan secured by a deposit at
Jacksonville is structured to have a term that ends on the same date as the
maturity date of the certificate securing it or if secured by a statement
savings account has a one-year term with a hold on withdrawals that would result
in the balance being lower than the loan balance. Typically these loans require
quarterly payments of interest only. Jacksonville also makes loans to
individuals for future home sites and for additional property adjacent to their
existing residence, and for small 1 to 4 family residences. Although under Texas
law such loans may have a term of up to 20 years, the average term of
Jacksonville's personal real estate loans was substantially less than 20 years
as of September 30, 2001. All of these loans are secured by the purchased land,
but because these loans are typically for $40,000 or less they are not
underwritten in the same manner as the Bank's other mortgage loans. Jacksonville
relies on the general creditworthiness of the borrower and uses tax valuations
or limited appraisals to determine the value of the property. In some cases a
title search is obtained from a title insurance company rather than a title
policy. At September 30, 2001, the bank had 313 personal real estate loans with
an average balance of $16,000. Jacksonville's vehicle loan portfolio totaled
$11.5 million at September 30, 2001. Jacksonville makes both new and used
vehicle loans. Most all used vehicle loans are originated at higher interest
rates than those rates on new vehicle loans. The Bank does not purchase vehicle
loans from dealers. The term for vehicle loans is typically six months to five
years with monthly payments of principal and interest.

         MULTI-FAMILY AND COMMERCIAL BUSINESS LOANS. At September 30, 2001,
$454,000 or 0.2%, and $365,000, or 0.2%, of Jacksonville's total loan portfolio,
before net items, consisted of multi-family loans and commercial business loans,
respectively. While Jacksonville has the authority, up to applicable
limitations, to engage in the business of making both multi-family and
commercial business loans, its policy has been to confine

                                        9

<PAGE>




its primary lending activities to other types of lending. Of the seven
multi-family loans in Jacksonville's loan portfolio as of September 30, 2001,
the largest loan had a principal amount of $118,000 which represented 26.0% of
the multi-family loan portfolio. As of September 30, 2001, Jacksonville had 18
commercial business loans, the largest having a balance of $80,000 which is
secured by commercial vehicles.

         LOAN ORIGINATION AND OTHER FEES. In some cases, in addition to interest
earned on loans, Jacksonville receives loan origination fees or "points" for
originating loans. Loan points are a percentage of the principal amount of the
mortgage loan and are charged to the borrower in connection with the origination
of the loan.

         The charging of points, in most cases, was limited during fiscal 2001
because of market conditions and strong competition in the one-to-four family
residential loans in the East Texas market. Most financial institutions charged
no points on these loan products; however, primarily on low principal
residential mortgages and commercial loans, Jacksonville continued to charge a
loan fee.

         Loan fees received are accounted for substantially in accordance with
FASB Statement No. 91, "Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases." Loan
fees and certain direct loan origination costs are deferred, and the net fee is
recognized as an adjustment to interest income over the contractual life of the
loans. Jacksonville has not deferred direct costs related to short-term loans
for which no origination fees are charged. Management considers this departure
to be immaterial considering the short-term nature of these loans. Commitment
fees and costs relating to commitments whose likelihood of exercise is remote
are recognized over the commitment period on a straight-line basis. If the
commitment is subsequently exercised during the commitment period, the remaining
unamortized commitment fee at the time of exercise is recognized over the life
of the loan as an adjustment of yield. At September 30, 2001, Jacksonville had
$429,000 of loan fees which had been deferred and are being recognized as income
over the life of the related loans. See Note 2 to the Consolidated Financial
Statements.


                                       10

<PAGE>




ASSET QUALITY

         DELINQUENT LOANS. The following table sets forth information concerning
delinquent loans at September 30, 2001, in dollar amount and as a percentage of
Jacksonville's total loan portfolio, before net items. The amounts presented
represent the total outstanding principal balances of the related loans, rather
than the actual payment amounts which are past due.


<Table>
<Caption>

                                         Single-family                       Multi-family
                                          Residential                         Residential                      Commercial
                                  -----------------------------      -----------------------------     ---------------------------
                                     Amount         Percentage          Amount         Percentage         Amount       Percentage
                                  ------------     ------------      ------------     ------------     ------------   ------------
                                                                         (Dollars in Thousands)
<S>                               <C>              <C>               <C>              <C>              <C>            <C>
Loans delinquent for:
  30-59 days                      $      2,292             54.1%     $         --               --%    $         37             .9%
  60-89 days                               596             14.1                --               --               --             --
  90 days and over                         401              9.4                --               --               --             --
                                  ------------     ------------      ------------     ------------     ------------   ------------
       Total delinquent loans     $      3,289             77.0%     $         --               --%    $         37             .9%
                                  ============     ============      ============     ============     ============   ============
</Table>



<Table>
<Caption>

                                         Construction                       Land                           Consumer
                                 ----------------------------    ----------------------------     ----------------------------
                                     Amount        Percentage        Amount        Percentage         Amount        Percentage
                                 ------------    ------------    ------------    ------------     ------------    ------------
                                                                  (Dollars in Thousands)
Loans delinquent for:
<S>                              <C>             <C>             <C>             <C>              <C>             <C>
  30-59 days                     $         --              --%   $         77             1.8%    $        322             7.6%
  60-89 days                               --              --             150             3.5              140             3.3
  90 days and over                         --              --              89             2.1              134             3.2
                                 ------------    ------------    ------------    ------------     ------------    ------------
       Total delinquent loans    $         --              --%   $        316             7.4%    $        596            14.1%
                                 ============    ============    ============    ============     ============    ============
</Table>


<Table>
<Caption>
                                            Total
                                 ----------------------------
                                    Amount        Percentage
                                 ------------    ------------
                                    (Dollars in Thousands)
<S>                              <C>                     <C>
Loans delinquent for:
  30-59 days                     $      2,728            64.4%
  60-89 days                              886            20.9
  90 days and over                        624            14.7
                                 ------------    ------------
       Total delinquent loans    $      4,238           100.0%
                                 ============    ============
</Table>


         NON-PERFORMING ASSETS. All loans are reviewed on a regular basis and
are placed on a non-accrual status when, in the opinion of management, the
collection of additional interest is deemed insufficient to warrant further
accrual. Jacksonville does not accrue interest on loans past due 90 days or more
except when the estimated value of the collateral and collection efforts were
deemed sufficient to ensure full recovery. Uncollectible interest on loans that
are contractually past due is charged off or an allowance is established based
on management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments is restored or until management accepts a payment that
results in a cure of the 90-day delinquency. In such cases, the loan is returned
to accrual status.

         FORECLOSED REAL ESTATE. Foreclosed real estate(REO)is real property
acquired by Jacksonville through foreclosure, deed in lieu of foreclosure, or
through an exchange of foreclosed real estate. It is typically a poor or
nonearning asset, and its acquisition in limited amounts is generally regarded
as an unavoidable result of normal business operations. However, the holding of
abnormally large amounts of REO for extensive periods of time can adversely
affect earnings. As a result of adverse economic conditions that existed in
Jacksonville's market area during the 1980s, Jacksonville, like most financial
institutions in its market area, acquired an inordinately large

                                       11

<PAGE>




amount of REO consisting primarily of commercial real estate and, to a lesser
degree, single-family residential property.

         As the economy has improved in its market area in recent years,
Jacksonville has reduced its outstanding REO each year by following a policy of
prudent management and market monitoring. The details of this policy are
embodied in Jacksonville's Real Estate Owned Policy adopted by the Board of
Directors in September 1990. The primary objectives of the REO Policy are to:
(1) establish procedures for the handling and disposition of REO; (2) ensure
that REO has been properly accounted for on the institution's books; (3) set
forth Jacksonville's philosophy for the management of repossessed property; (4)
provide for the periodic revaluation of real estate owned; and (5) provide
guidelines for the accounting of the sale of REO. These objectives are monitored
by the Board of Directors.

         REO is recorded at the lower of unpaid principal balance of the loan
plus acquisition costs or fair value, as determined by an appraisal of the
property obtained at acquisition. Costs relating to development and improvement
of property are capitalized, whereas costs relating to holding the property are
expensed. Valuations are periodically performed by management and an allowance
for losses is established by a charge to operations if the carrying value of a
property exceeds its estimated net realizable value. Jacksonville develops an
asset plan for each parcel of REO that it holds for more than six months. The
plan includes specific marketing strategies, a consideration of necessary
improvements and an estimate of the expected holding period and asking price. As
a result of the general improvement in economic conditions in Jacksonville's
market area and through the implementation of the REO Policy, Jacksonville's REO
amounted to $63,000, $124,000, and $346,000 as of September 30, 2001, 2000, and
1999 respectively.

         Generally, a transfer of REO is recognized by Jacksonville as a sale
for accounting purposes upon consummation of the transaction unless Jacksonville
retains some type of continuing involvement in the property without a transfer
of the risks and rewards of ownership to the buyer or, under some circumstances,
if it has financed the sale of the REO. In the latter case, in order for a sale
to be recognized, a buyer must, among other things, demonstrate his commitment
to the property by making adequate initial and continuing investments. The
percentage of sales price viewed as an adequate initial investment level varies
with the type of loan, but a generally acceptable percentage of the sales price
is between 10% to 25% for commercial real estate and 5% for a single-family
primary residence. REO sales financed by Jacksonville in which a buyer's initial
investment is less than what is considered an adequate initial investment level
under the REO Policy are carried on Jacksonville's books as REO sold by the
deposit method until the buyer has an adequate level of equity. As of September
30, 2001, Jacksonville had no REO sold and accounted for by the deposit method.


                                       12

<PAGE>




         The following table sets forth the amounts and categories of
Jacksonville's non-performing assets at the dates indicated.

<Table>
<Caption>

                                                                                  September 30,
                                                 --------------------------------------------------------------------------------
                                                     2001             2000             1999             1998             1997
                                                 ------------     ------------     ------------     ------------     ------------
                                                                              (Dollars in Thousands)
<S>                                              <C>              <C>              <C>              <C>              <C>
Non-accruing loans:
  Single-family residential(1)                   $        401     $        338     $        435     $        642     $        448
  Multi-family residential                                 --               --               --               --               --
  Commercial                                               --               --               --               --              154
  Construction                                             --               --               --               --               --
  Land                                                     89               --               --               --               --
  Commercial business                                      --               --               --               --               --
  Consumer                                                134              134              109               36               42
                                                 ------------     ------------     ------------     ------------     ------------
       Total non-accruing loans                           624              472              544              678              644
Accruing loans 90 days or more delinquent                  --               --               --               --               --
                                                 ------------     ------------     ------------     ------------     ------------
  Total non-performing loans                              624              472              544              678              644
                                                 ------------     ------------     ------------     ------------     ------------
Real estate owned(2)                                       63              124              346              531              526
                                                 ------------     ------------     ------------     ------------     ------------
  Total non-performing assets                    $        687     $        596     $        890     $      1,209     $      1,170
                                                 ============     ============     ============     ============     ============
Troubled debt restructurings                     $        320     $        328     $        338     $        379     $        383
                                                 ============     ============     ============     ============     ============
Total non-performing loans and troubled debt
  restructurings as a percentage of total net
  loans                                                   .41%             .35%             .41%             .55%             .59%
                                                 ============     ============     ============     ============     ============
Total non-performing assets and troubled debt
  restructurings as a percentage of total
  assets                                                  .29%             .31%             .42%             .60%             .66%
                                                 ============     ============     ============     ============     ============
</Table>

----------

(1) Includes first and second liens on single-family residences.

(2) Includes real estate acquired by foreclosure, by deed in lieu of foreclosure
and deemed in-substance foreclosure net of specified reserves.

         At September 30, 2001, management was not aware of any additional loans
with possible credit problems which caused it to have doubts as to the ability
of the borrowers to comply with present loan repayment terms and which in
management's view may result in the future inclusion of such items in the
non-performing asset categories.

         The interest income that would have been recorded during fiscal 2001,
2000, and 1999 if Jacksonville's non-accruing loans at the end of such periods
had been current in accordance with their terms during such periods were
approximately $63,000, $25,000, and $26,000, respectively. Jacksonville has not
committed to lend additional funds to debtors whose loans have been modified.
See Note 5 to the Consolidated Financial Statements. During the year ended
September 30, 2001, no interest income was actually recorded on any loans after
they were placed on non-accrual status.

         CLASSIFIED ASSETS. Federal regulations require that each insured
depository institution classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted. Another category designated "special mention" also must be
established and maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss. Assets classified as substandard

                                       13

<PAGE>




or doubtful require the institution to establish general allowances for loan
losses. If an asset or portion thereof is classified loss, the insured
institution must either establish specific allowances for loan losses in the
amount of 100% of the portion of the asset classified loss, or charge-off such
amount. General loss allowances established to cover possible losses related to
assets classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses do not qualify as regulatory capital. Federal examiners may disagree with
an insured institution's classifications and amounts reserved.

         Jacksonville's classified assets at September 30, 2001 consisted of
$58,000 of assets classified as special mention, $1,960,000 of assets classified
as substandard, and none classified as doubtful or loss. All of the assets
classified special mention were single-family residential loans. Of assets
classified substandard, $63,000, or 3.2%, were non residential real estate
parcels acquired as real estate owned, $1,450,000 or 74.0%, were single-family
residential loans. $132,000 were land loans and $37,000 were commercial loans.
The remaining balance of $278,000 was in consumer loans and repossessed autos.

         The following table sets forth the Bank's classified assets at the
dates indicated.


<Table>
<Caption>

                                                September 30,
                                  --------------------------------------------
                                     2001            2000             1999
                                  ------------    ------------    ------------
                                             (Dollars in Thousands)
<S>                               <C>             <C>             <C>
Classification:
  Special mention                 $         58    $         11    $         67
  Substandard                            1,960             818           1,504
  Doubtful                                  --              --              --
  Loss                                      --              --              --
                                  ------------    ------------    ------------
       Total classified assets    $      2,018    $        829    $      1,571
                                  ============    ============    ============
</Table>

----------

         Allowance for Loan Losses. It is management's policy to maintain an
allowance for estimated losses on loans based upon an assessment of past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay and current economic conditions.
For fiscal 2001 non-performing loans increased to $624,000 while net charge-offs
for the period totaled $55,000. The Company's level of net loans outstanding
increased $19.6 million. Overall economic conditions remained stable for the
market area and credit quality for the applicants showed no material change.
Upon consideration of such factors, Jacksonville determined that $85,500 in
provisions for loan losses were appropriate primarily because of the increase in
the loan portfolio. Although management believes that it uses the best
information available to make such determinations, future adjustments to
allowances may be necessary, and net earnings could be significantly affected,
if circumstances differ substantially from the assumptions used in making the
initial determinations. Currently, the allowance for loan losses is formally
reevaluated on a quarterly basis.

         At September 30, 2001, Jacksonville's allowance for loan losses
amounted to $ 1.3 million, an increase of $30,000 from September 30, 2000.



                                       14

<PAGE>




         The following table sets forth an analysis of Jacksonville's allowance
for loan losses during the periods indicated.


<Table>
<Caption>

                                                               Year Ended September 30,
                                  ------------------------------------------------------------------------------------
                                      2001              2000             1999               1998              1997
                                  ------------      ------------      ------------      ------------      ------------
                                                                 (Dollars in Thousands)

<S>                               <C>               <C>               <C>               <C>               <C>
Total net loans outstanding       $    246,432      $    226,854      $    216,267      $    191,153      $    174,044
                                  ============      ============      ============      ============      ============
Average loans outstanding         $    234,339      $    222,200      $    205,057      $    180,021      $    163,369
                                  ============      ============      ============      ============      ============
Balance at beginning of period    $      1,227      $      1,212      $      1,170      $      1,192      $      1,100
Charge-offs
  Consumer loans                           (58)              (54)              (18)              (57)              (18)
Recoveries                                   3                --                --                --                --
                                  ------------      ------------      ------------      ------------      ------------
Net charge-offs                            (55)              (54)              (18)              (57)              (18)
Provision for losses on loans               85                69                60                35               110
                                  ------------      ------------      ------------      ------------      ------------
Balance at end of period          $      1,257      $      1,227      $      1,212      $      1,170      $      1,192
                                  ============      ============      ============      ============      ============
Allowance for loan losses as a
percent of total net loans
  outstanding                              .51%              .54%              .56%              .61%              .68%
                                  ============      ============      ============      ============      ============
Ratio of net charge-offs to
  average loans outstanding                .02%              .02%              .01%              .03%              .01%
                                  ============      ============      ============      ============      ============
</Table>

         The following table presents the allocation of the allowance for loan
losses to the total amount of loans in each category listed at the dates
indicated.


<Table>
<Caption>

                                                                         September 30,
                                          ----------------------------------------------------------------------------
                                                   2001                      2000                       1999
                                          ----------------------     ----------------------     ----------------------
                                                      % of Loan                  % of Loan                  % of Loan
                                                        in Each                   in Each                    in Each
                                                      Category to               Category to                Category to
                                                        Total                      Total                      Total
                                           Amount       Loans         Amount       Loans         Amount       Loans
                                          ---------   ----------     ---------  -----------     ---------  -----------
                                                                    (Dollars in Thousands)

<S>                                       <C>         <C>            <C>        <C>             <C>        <C>
Mortgage loans                            $     997         79.3%    $     952         78.4%    $     957         79.0%
Commercial business loans                        --           --            --           --            --           --
Consumer loans                                  260         20.7           265         21.6           255         21.0
                                          ---------    ---------     ---------    ---------     ---------    ---------
       Total allowance for loan losses    $   1,257        100.0%    $   1,227        100.0%    $   1,212        100.0%
                                          =========    =========     =========    =========     =========    =========
</Table>



<Table>
<Caption>

                                                                 September 30,
                                          -------------------------------------------------------------
                                                     1998                             1997
                                          ----------------------------     ----------------------------
                                                          % of Loans                       % of Loan
                                                            in Each                          in Each
                                                          Category to                      Category to
                                                             Total                            Total
                                             Amount          Loans            Amount          Loans
                                          ------------    ------------     ------------    ------------
                                                             (Dollars in Thousands)

<S>                                       <C>             <C>              <C>             <C>
Mortgage loans                            $      1,092            93.3%    $      1,027            86.2%
Commercial business loans                           --              --               10              .8
Consumer loans                                      78             6.7              155            13.0
                                          ------------    ------------     ------------    ------------
       Total allowance for loan losses    $      1,170           100.0%    $      1,192           100.0%
                                          ============    ============     ============    ============
</Table>


MORTGAGE-BACKED SECURITIES

         Jacksonville has invested in a portfolio of mortgage-backed securities
which are insured or guaranteed by the FHLMC, FNMA or the GNMA. Jacksonville
also has in its mortgage-backed securities portfolio two private label C.M.O.'s.
Mortgage-backed securities increase the quality of Jacksonville's assets by
virtue of the guarantees that back them, are more liquid than individual
mortgage loans and may be used to collateralize borrowings or other obligations
of Jacksonville. In addition, at September 30, 2001, $5.6 million of
Jacksonville's mortgage-backed

                                       15

<PAGE>




securities consist of pools of adjustable-rate mortgages. Mortgage-backed
securities of this type serve to reduce the interest rate risk associated with
rising interest rates.

         The following table sets forth the activity in Jacksonville's
mortgage-backed securities portfolio during the periods indicated.


<Table>
<Caption>

                                                                           September 30,
                                                               ----------------------------------------
                                                                  2001           2000          1999
                                                               ------------  ------------  ------------
                                                                        (Dollars in Thousands)

<S>                                                            <C>           <C>           <C>
Mortgage-backed securities at beginning of period - at cost    $     33,777  $     38,540  $     31,773
  Purchases                                                          46,965           569        14,161
  Sales                                                                  --            --            --
  Repayments                                                        (22,199)       (5,332)       (7,394)
                                                               ------------  ------------  ------------
Mortgage-backed securities at end of period - at cost          $     58,543  $     33,777  $     38,540
                                                               ============  ============  ============

Weighted average yield at end of period                                6.42%         6.41%         6.70%
                                                               ============  ============  ============
</Table>


         At September 30, 2001, Jacksonville's mortgage-backed securities had an
amortized cost value and estimated market value of $58.5 million and $58.9
million, respectively. Of the $58.5 million portfolio, $33.6 million was
scheduled to mature in five years or less; $10.1 million was scheduled to mature
in over five years but less than ten years; and $14.8 million was scheduled to
mature after ten years. Due to prepayments of the underlying loans, the actual
maturities of mortgage-backed securities generally are substantially less than
the scheduled maturities.

         All mortgage-backed securities in the portfolio qualify for regulatory
liquidity under Texas state savings bank regulations. Of the $58.5 million of
mortgage backed securities on September 30, 2001, $52.9 million consisted of
fixed rate and $5.6 million were adjustable rate securities. Of Jacksonville's
total investment in mortgage-backed securities at September 30, 2001, $13.1
million consisted of FNMA certificates, $3.3 million consisted of GNMA
certificates and $3.4 million consisted of FHLMC certificates and $38.8 million
in C.M.O. certificates. See Note 4 to the Consolidated Financial Statements for
additional information.

         The actual maturity of a mortgage-backed security may be less than its
stated maturity due to prepayments of the underlying mortgages. Prepayments that
are faster than anticipated may shorten the life of the security and adversely
affect its yield to maturity. The yield is based upon the interest income and
the amortization of any premium or discount related to the mortgage-backed
security. In accordance with generally accepted accounting principles, premiums
and discounts are amortized over the estimated lives of the loans, which
decrease and increase interest income, respectively. The prepayment assumptions
used to determine the amortization period for premiums and discounts can
significantly affect the yield of the mortgage-backed security, and these
assumptions are reviewed periodically to reflect actual prepayments. Although
prepayments of underlying mortgages depend on many factors, including the type
of mortgages, the coupon rate, the age of mortgages, the geographical location
of the underlying real estate collateralizing the mortgages and general levels
of market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
falling mortgage interest rates, if the coupon rate of the underlying mortgages
exceeds the prevailing market interest rates offered for mortgage loans,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, Jacksonville may
be subject to reinvestment risk because to the extent that Jacksonville's
mortgage-backed securities amortize or prepay faster than anticipated,
Jacksonville may not be able to reinvest the proceeds of such repayments and
prepayments at a comparable rate.

INVESTMENT ACTIVITIES

         Jacksonville's investment securities portfolio is managed in accordance
with a written Investment Policy adopted by the Board of Directors and
administered by the Investment Committee which consists of one outside

                                       16

<PAGE>




Director, the President, the Executive Vice President, the Senior Vice President
and a vice president. The members of the Investment Committee are: Dr. Joe
Tollett, Jerry Chancellor and Bill W. Taylor, Jerry Hammons and Chan Campsey.
There is no investment limit for investments in U.S. Treasury obligations and
FHLB obligations having maturities of ten years or less and in other U.S.
federal agency or federally sponsored agency obligations, including, but not
limited to FHLMC, FNMA, GNMA and the Student Loan Marketing Association,
municipal obligations rated AAA, AA, A or BBB or issued by a public housing
agency and backed by the full faith and credit of the U.S. government having
maturities of 30 years or less. In addition, there are no investment limits on
bankers acceptances of 12 months or less and federal funds of 360 days or less.
Up to $100,000 per bank may be invested in commercial bank certificates of
deposit with maturities up to one year. Other investments must be approved by
the Board of Directors. At September 30, 2001, Jacksonville had U.S. Government
agency held-to-maturity securities with an amortized cost of $4.5 million and an
estimated market value of $4.6 million. See Note 3 to the Consolidated Financial
Statement for further information. At September 30, 2001, Jacksonville held U.S.
Government Agency securities as available-for-sale with an amortized cost of
$14.0 million and an estimated market value of $14.3 million.

         The following table sets forth Jacksonville's investment and
mortgage-backed securities at the dates indicated.


<Table>
<Caption>

                                                                 September 30,
                                                 ----------------------------------------------
                                                     2001             2000             1999
                                                 ------------     ------------     ------------
                                                            (Dollars in Thousands)
<S>                                              <C>              <C>              <C>
Available for sale(1):
  Mortgage-backed securities
       CMO Certificates                          $     29,023     $     12,698     $     14,161
       FNMA Certificates                                9,575           11,244           12,721
       FHLMC Certificates                               2,689            1,673            2,132
       GNMA Certificates                                2,968            3,412            3,969
  U.S. agency securities                               14,273           17,017           11,712
                                                 ------------     ------------     ------------
        Total available for sale                       58,528           46,044           44,695
                                                 ------------     ------------     ------------

Held to maturity(1):
  Mortgage-backed securities:
       CMO Certificates                                10,016
       FNMA Certificates                                3,523            2,411            2,866
       FHLMC Certificates                                 695              866            1,263
       GNMA Certificates                                  369              423              528
  U.S. Treasury notes                                      --               --               --
  U.S. agency securities                                4,500            5,000            6,999
                                                 ------------     ------------     ------------
       Total held to maturity                          19,103            8,700           11,656
                                                 ------------     ------------     ------------
        Total investment and mortgage-backed
            securities                           $     77,631     $     54,744     $     56,351
                                                 ============     ============     ============
</Table>


----------

(1) Securities classified as available for sale were carried at fair value at
September 30, 2001, 2000, and 1999. Securities classified as held-to-maturity
were carried at historical cost at all respective dates.

         At September 30, 2001, $508,000 or 2.7% of total investment securities
excluding mortgage backed securities, held by Jacksonville were scheduled to
mature in one year or less and had a weighted average yield of 6.82%. Of the
remaining investment securities, $12.7 million was scheduled to mature after one
year through five years and $5.6 million was scheduled to mature six years
through ten years.



                                       17

<PAGE>




         The following table sets forth certain information regarding the
maturities of Jacksonville's investment securities at September 30, 2001.


<Table>
<Caption>

                                                                 Contractually Maturing
                          -----------------------------------------------------------------------------------------------
                                       Weighted                Weighted                 Weighted                Weighted
                            Under 1    Average       1-5       Average        6-10      Average       Over 10   Average
                             Year        Rate       Years        Rate         Years       Rate         Years       Rate
                          ---------   ----------   ---------   ---------    ---------   ---------    ---------  ---------
                                                                 (Dollars in Thousands)

<S>                       <C>         <C>          <C>         <C>          <C>         <C>          <C>        <C>
HELD TO MATURITY
U.S. agency securities    $      --          --%   $   2,500        5.64%   $   2,000        6.02%   $      --         --%
                          ---------                ---------                ---------                ---------
  Total                   $      --                $   2,500                $   2,000                $      --
                          =========                =========                =========                ==========

AVAILABLE FOR SALE
U.S. agency securities    $     496        6.82%   $   9,983        6.03%   $   3,500        6.22%          --         --%
                          ---------                ---------                ---------                ---------
  Total                   $     496                $   9,983                $   3,500                $      --
                          =========                =========                =========                =========
Unrealized gain on
  securities available
  for sale                       12                      178                      104                       --
                          ---------                ---------                ---------                ---------
       Total              $     508                $  12,661                $   5,604                $      --
                          =========                =========                =========                =========
</Table>

<Table>
<Caption>

                                          Total
                            ---------------------------------
                               Amount                Yield
                            ------------         ------------
                                 (Dollars in Thousands)
<S>                         <C>                  <C>
HELD TO MATURITY
U.S. agency securities      $      4,500             5.81%
                            ------------
  Total                     $      4,500
                            ============
AVAILABLE FOR SALE
U.S. agency securities      $     13,979             6.11%
                            ------------
  Total                     $     13,979
                            ============
Unrealized gain on
   securities available
   for sale                          294
                            ------------
       Total                $     18,773
                            ============
</Table>


INTEREST-BEARING DEPOSITS

         As of September 30, 2001, Jacksonville also had demand deposit accounts
in the FHLB of Dallas of $4.7 million. In order to comply with a policy adopted
by its Board of Directors, Jacksonville's deposits in FDIC-insured institutions
are limited to $100,000 per bank in certificates of deposit with a maximum
maturity of five years. As of September 30, 2001 Jacksonville had 26
certificates of deposits totaling $2.6 million.

SOURCES OF FUNDS

         GENERAL. Deposits are the primary source of Jacksonville's funds for
lending and other investment purposes. In addition to deposits, Jacksonville
derives funds from loan principal repayments. Loan repayments are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings may
be used on a short-term basis to compensate for reductions in the availability
of funds from other sources. They may also be used on a longer term basis for
general business purposes.

         DEPOSITS. Jacksonville's deposits are attracted principally from within
Jacksonville's primary market area through the offering of a broad selection of
deposit instruments, including demand and NOW accounts, money market accounts,
passbook savings accounts, and term certificate accounts. Included among these
deposit products are individual retirement account certificates of approximately
$19.3 million at September 30, 2001.

         Deposit account terms vary, with the principal differences being the
minimum balance required, the time periods the funds must remain on deposit and
the interest rate.

                                       18

<PAGE>


         Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by Jacksonville on a periodic basis. Determination of
rates and terms are predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals and federal regulations.

         Jacksonville does not advertise for deposits outside its local market
area or utilize the services of deposit brokers.

        The following table sets forth the dollar amount of deposits in the
various types of deposit programs offered by Jacksonville at the dates
indicated.

<Table>
<Caption>

                                                                   September 30,
                             -----------------------------------------------------------------------------------------
                                         2001                          2000                           1999
                             ---------------------------    ---------------------------    ---------------------------
                                Amount       Percentage        Amount       Percentage        Amount       Percentage
                             ------------   ------------    ------------   ------------    ------------   ------------
                                                                  (Dollars in Thousands)
<S>                          <C>            <C>             <C>            <C>             <C>            <C>
Certificate Accounts:
  3.01 - 4.00%               $     12,639           4.86%             --             --              --             --
  4.01 - 6.00%                    112,483          43.21%   $    104,035          47.12%   $    143,412          66.64%
  6.01 - 8.00%                     65,107          25.01          59,905          27.14          16,822           7.81
  8.01 - 10.00%                       136            .05             138            .06             150            .07
                             ------------   ------------    ------------   ------------    ------------   ------------
Total certificate accounts   $    190,365          73.13%   $    164,078          74.32%   $    160,384          74.52%
                             ============   ============    ============   ============    ============   ============

Transaction accounts:
  Passbook savings           $     12,965           4.98%   $     13,316           6.03%   $     13,982           6.50%
  Money Market                     16,067           6.17          10,487           4.76          12,934           6.01
  Demand and NOW Accounts          40,907          15.72          32,885          14.89          27,909          12.97
                             ------------   ------------    ------------   ------------    ------------   ------------
Total transaction accounts   $     69,939          26.87%   $     56,688          25.68%   $     54,825          24.48%
                             ============   ============    ============   ============    ============   ============
Total deposits               $    260,304         100.00%   $    220,766         100.00%   $    215,209         100.00%
                             ============   ============    ============   ============    ============   ============
</Table>


         The following table sets forth the savings activities of Jacksonville
during the periods indicated.

<Table>
<Caption>

                                                            September 30,
                                            -----------------------------------------------
                                               2001              2000              1999
                                            ------------     ------------      ------------
                                                        (Dollars in Thousands)
<S>                                         <C>              <C>               <C>
Net increase (decrease) before interest
  credited                                  $     31,111     $     (1,680)     $      3,800
Interest credited                                  8,427            7,237             6,919
                                            ------------     ------------      ------------
Net increase (decrease) in deposits         $     39,538     $      5,557      $     10,719
                                            ============     ============      ============
</Table>


         The following table shows the interest rate and maturity information
for Jacksonville's certificates of deposit at September 30, 2001.

<Table>
<Caption>

                                                   Maturity Date
                  --------------------------------------------------------------------------------
                     One Year          Over            Over              Over
Interest Rate        Or Less        1-2 Years        2-3 Years          3 Years          Total
----------------  ------------     ------------     ------------     ------------     ------------
                                               (Dollars in Thousands)
<S>               <C>              <C>              <C>              <C>              <C>
3.01 - 4.00%      $     10,862     $      1,621     $        156               --     $     12,639
4.01 - 6.00%            71,212           33,538            7,157     $        576          112,483
6.01 - 8.00%            43,575           10,831            9,621            1,080           65,107
8.01 - 10.00%               69               67               --               --              136
                  ------------     ------------     ------------     ------------     ------------
                  $    125,718     $     46,057     $     16,934     $      1,656     $    190,365
                  ============     ============     ============     ============     ============
</Table>

                                       19

<PAGE>




         The following table sets forth the maturities of Jacksonville's
certificates of deposit having principal amounts of $100,000 or more at
September 30, 2001.


Certificates of Deposit Maturing in Quarter Ending:

<Table>
<Caption>
                                                (Dollars in Thousands)
<S>                                             <C>
December 31, 2001                                  $      7,507
March 31, 2002                                            7,270
June 30, 2002                                             5,173
September 30, 2002                                        9,588
After September 30, 2002                                 13,559
                                                   ------------
Total certificates of deposit with balances of
  $100,000 or more                                 $     43,097
                                                   ============
</Table>


         The following table sets forth the maximum month-end balance and
average balance of Jacksonville's FHLB advances during the periods indicated.
also see note 10 to the Consolidated Financial Statements.


<Table>
<Caption>

                                           Year Ended September 30,
                              ---------------------------------------------------
                                  2001               2000               1999
                              -------------      -------------      -------------
                                            (Dollars in Thousands)
<S>                           <C>                <C>                <C>
Maximum balance               $      49,000      $      42,000      $      39,000
Average balance                      45,505             38,328             24,542
Weighted average interest
  rate of FHLB advances                5.51%              5.92%              4.98%
</Table>


         The following table sets forth certain information as to Jacksonville's
long-term (terms to maturity in excess of 90 days) and short-term (terms to
maturity of 90 days or less) FHLB advances at the dates indicated.

<Table>
<Caption>

                                                      September 30,
                                     ------------------------------------------------
                                         2001              2000             1999
                                     ------------      ------------      ------------
                                                  (Dollars in Thousands)
<S>                                  <C>               <C>               <C>
FHLB long-term advances              $     34,108      $     17,500      $     27,500
  Weighted average interest rate             5.33%             5.64%             5.29%
FHLB short-term advances             $     14,000      $     23,500      $      7,500
  Weighted average interest rate             3.43%             6.63%             5.34%
</Table>


         BORROWINGS. Until fiscal 1998 wherein management elected to implement a
wholesale growth strategy using FHLB advances, Jacksonville had not frequently
borrowed from the FHLB of Dallas. It obtains advances from the FHLB of Dallas
upon the security of the common stock it owns in that bank and certain of its
residential mortgage loans, provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities. Such advances are generally available to meet seasonal and other
withdrawals of deposit accounts and to permit increased lending. At September
30, 2001, Jacksonville had $48.1 million in advances from the FHLB of Dallas, as
compared to $41 million at September 30, 2000.

         The Company's ESOP also borrowed funds from Jacksonville IHC for the
purchase of shares of the Company's Common Stock issued in connection with the
Conversion. As of September 30, 1999, the outstanding balance of that loan was
$1.1 million.

         SUBSIDIARIES. Jacksonville currently owns 100% of the capital stock of
JS&L Corporation ("JS&L") which was established in December 1979. JS&L is self
sufficient due to income from investments, interest from residential notes
receivable and lease income. Since its original charter, JS&L's main activity
has been the servicing of purchased residential first and second lien notes. The
portfolio includes 18 loans ranging in size from $1,000 to $54,000, some of
which were purchased at a discount. For most of the second lien notes purchased,
Jacksonville holds the first lien note. For the years ended September 30, 2001
and September 30, 2000, JS&L earned $42,000

                                       20
<PAGE>




and $46,000, respectively. JS&L now invests in investments permissible for
Jacksonville, leases computer equipment, and originates and buys first and
second liens. JS&L purchases first and second lien notes pursuant to a written
mortgage loan underwriting policy adopted by JS&L's board of directors. In
addition to these activities, during 1999 the Federal Deposit Insurance
Corporation gave approval for the Company through its subsidiary, JS&L, to enter
into a proposed residential real estate development in Hallsville, Texas, a
community near Longview, Texas. The project involved acquisition and development
of a 66 acre tract of land for single-family homes. JS&L executed a development
loan through its parent, Jacksonville on February 25, 1999 in the amount of
$1,500,000. At September 30, 2001, the interim loan balance totaled $1.1
million. There are currently seven houses completed or under construction in the
subdivision.

          Total investment in JS&L at September 30, 2001 was $1 million. Total
capital of JS&L at September 30, 2001 was $1 million.

          EMPLOYEES. Jacksonville and its subsidiary had 100 full-time employees
at September 30, 2001. None of these employees is represented by a collective
bargaining agent, and Jacksonville believes that it enjoys good relations with
its personnel.

                                   REGULATION

         Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Company, IHC and the Bank. The description
does not purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.

THE COMPANY AND IHC

         REGULATIONS. After Jacksonville converted to a Texas-chartered savings
bank, the Company continued to be subject to regulation as a savings and loan
holding company under the Home Owners' Loan Act, as amended ("HOLA"), instead of
being subject to regulation as a bank holding company under the Bank Holding
Company Act of 1956 because the Bank made an election under Section 10(1) of
HOLA to be treated as a "savings association" for purposes of Section 10(e) of
HOLA. As a result, the Company and IHC are registered unitary savings and loan
holding companies and are subject to OTS, Federal Deposit Insurance Corporation
("FDIC") and the Texas Savings and Loan Department (the "Department")
regulation, examination, supervision and reporting requirements. In addition,
because the capital stock of the Company is registered under Section 12(g) of
the Securities Exchange Act of 1934, the Company is also subject to various
reporting and other requirements of the SEC. As a subsidiary of a savings and
loan holding company, the Bank is also subject to certain Federal and state
restrictions in its dealings with the Company and affiliates thereof.

         FEDERAL ACTIVITIES RESTRICTIONS. Generally, there are only limited
restrictions on the activities of a unitary savings and loan holding company,
such as the Company, which applied to become or was a unitary savings and loan
holding company prior to May 4, 1999 and its non-savings institution
subsidiaries. Under the recently enacted Gramm-Leach-Bliley Act of 1999 (the
"GLBA"), however, companies which applied to the OTS after May 4, 1999 to become
unitary savings and loan holding companies will be restricted to engaging in
those activities traditionally permitted to multiple savings and loan holding
companies. If the Director of the OTS determines that there is reasonable cause
to believe that the continuation by a savings and loan holding company of an
activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings institution (i.e., a savings association or
savings bank), the Director may impose such restrictions as are deemed necessary
to address such risk, including limiting (i) payment of dividends by the savings
institution; (ii) transactions between the savings institution and its
affiliates; and (iii) any activities of the savings institution that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings institution. Notwithstanding the above
rules as to permissible business activities of grandfathered unitary savings and
loan




                                       21
<PAGE>

holding companies under the GLBA, if the savings institution subsidiary of such
a holding company fails to meet the Qualified Thrift Lender ("QTL") test, then
such unitary holding company also becomes subject to the activities restrictions
applicable to multiple savings and loan holding companies and, unless the
savings institution requalifies as a QTL within one year thereafter, must
register as, and become subject to the restrictions applicable to, a bank
holding company.

         If the Company or IHC were to acquire control of another savings
institution, other than through merger or other business combination with the
Bank, the Company and IHC would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
institution meets the QTL test, as set forth below, the activities of the
Company and any of its subsidiaries (other than the Bank or other subsidiary
savings institutions) would thereafter be subject to further restrictions. No
multiple savings and loan holding company or subsidiary thereof which is not a
savings institution may commence or continue beyond a limited period of time
after becoming a multiple savings and loan holding company or subsidiary thereof
any business activity, other than: (i) furnishing or performing management
services for a subsidiary savings institution; (ii) conducting an insurance
agency or escrow business; (iii) holding, managing, or liquidating assets owned
by or acquired from a subsidiary savings institution; (iv) holding or managing
properties used or occupied by a subsidiary savings institution; (v) acting as
trustee under deeds of trust; (vi) those activities authorized by regulation as
of March 5, 1987 to be engaged in by multiple savings and loan holding
companies; or (vii) unless the Director of the OTS by regulation prohibits or
limits such activities for savings and loan holding companies, those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies. The activities described in (i) through (vi) above may be engaged in
only after giving the OTS prior notice and being informed that the OTS does not
object to such activities. In addition, the activities described in (vii) above
also must be approved by the Director of the OTS prior to being engaged in by a
multiple savings and loan holding company.

         RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without prior
approval of the Director of the OTS, (i) control of any other savings
institution or savings and loan holding company or substantially all the assets
thereof or (ii) more than 5% of the voting shares of a savings institution or
holding company thereof which is not a subsidiary. Except with the prior
approval of the Director of the OTS, no director or officer of a savings and
loan holding company or person owning or controlling by proxy or otherwise more
than 25% of such company's stock, may acquire control of any savings
institution, other than a subsidiary savings institution, or of any other
savings and loan holding company.

         The Director of the OTS may approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state only if (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office located in the state of the association to be acquired as of March
5, 1987; (ii) the acquirer is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the FDIA, or
(iii) the statutes of the state in which the institution to be acquired is
located specifically permit institutions to be acquired by the state-chartered
institutions or savings and loan holding companies located in the state where
the acquiring entity is located (or by a holding company that controls such
state-chartered savings institutions).

         LIMITATIONS ON DIVIDENDS. The Company is a legal entity separate and
distinct from Jacksonville. The Company's principal source of revenue consists
of dividends from Jacksonville. The payment of dividends by Jacksonville is
subject to various regulatory requirements including a requirement, as a result
of the Company's savings and loan holding company status, that Jacksonville
notify the Director not less than 30 days in advance of any proposed declaration
by its directors of a dividend.

         TEXAS REGULATIONS. Under the Texas Savings Bank Act ("TSBA"), each
registered holding company, such as the Company and IHC, is required to file
reports with the Department as required by the Texas Savings and Loan
Commissioner ("Commissioner") and is subject to such examination as the
Commissioner may prescribe.



                                       22

<PAGE>

REGULATION OF THE BANK

         The Bank is required to file reports with the Department and the FDIC
concerning its activities and financial condition, in addition to obtaining
regulatory approvals prior to entering into certain transactions, such as any
merger or acquisition with another institution. The regulatory system to which
the Bank is subject is intended primarily for the protection of the deposit
insurance fund and depositors, not stockholders. The regulatory structure also
provides the Department and the FDIC with substantial discretion in connection
with their supervisory and enforcement functions. The Department and the FDIC
conduct periodic examinations of the Bank in order to assess its compliance with
federal and state regulatory requirements. As a result of such examinations, the
Department and the FDIC may require various corrective actions.

         Virtually every aspect of the Bank's business is subject to numerous
federal and/or state regulatory requirements and restrictions with respect to
such matters as, for example, the nature and amounts of loans and investments
that may be made, the issuance of securities, the amount of reserves that must
be established against deposits, the establishment of branches, mergers,
non-banking activities and other operations. Numerous laws and regulations also
set forth special restrictions and procedural requirements with respect to the
extension of credit, credit practices, the disclosure of credit terms and
discrimination in credit transactions.

         The description of statutory provisions and regulations applicable to
savings banks set forth in this Form 10-K does not purport to be a complete
description of such statutes and regulations and their effects on the Bank.
Furthermore, the Bank cannot predict what other new regulatory requirements
might be imposed in the future.

         LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between
savings institutions and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of
a savings institution (such as the Company and IHC) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in covered transactions with
any one affiliate to an amount equal to 10% of such institution's capital stock
and surplus, and contain an aggregate limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar transactions. In
addition to the restrictions imposed by Sections 23A and 23B, no savings
institution may (i) loan or otherwise extend credit to an affiliate, except for
any affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings institution.

         In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution (a "principal
stockholder"), and certain affiliated interests of each of them, may not exceed,
together with all other outstanding loans to such person and affiliated
interests, the savings institution's loans to one borrower limit (generally
equal to 15% of the institution's unimpaired capital and surplus). Section 22(h)
also requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered in comparable
transactions to other persons and also requires prior board approval for certain
loans. In addition, the aggregate amount of extensions of credit by a savings
institution to all insiders cannot exceed the institution's unimpaired capital
and surplus. Furthermore, Section 22(g) places additional restrictions on loans
to executive officers. At September 30, 2001, the Bank was in compliance with
the above restrictions.



                                       23
<PAGE>

         REGULATORY CAPITAL REQUIREMENTS. Federally-insured state-chartered
banks are required to maintain minimum levels of regulatory capital. These
standards generally must be as stringent as the comparable capital requirements
imposed on national banks. The FDIC also is authorized to impose capital
requirements in excess of these standards on individual banks on a case-by-case
basis.

         Under current FDIC regulations, the Bank is required to comply with
three separate minimum capital requirements: a "Tier 1 capital ratio" and two
"risk-based" capital requirements. "Tier 1 capital" generally includes common
stockholders' equity (including retained earnings), qualifying noncumulative
perpetual preferred stock and any related surplus, and minority interests in the
equity accounts of fully consolidated subsidiaries, minus intangible assets,
other than properly valued PMSRs up to certain specified limits and minus net
deferred tax assets in excess of certain specified limits.

         TIER 1 LEVERAGE CAPITAL RATIO. FDIC regulations establish a minimum
3.0% ratio of Tier 1 capital to total assets for the most highly-rated
state-chartered, FDIC-supervised banks, with an additional cushion of at least
100 to 200 basis points for all other state-chartered, FDIC-supervised banks,
which effectively imposes a minimum Tier 1 capital ratio for such other banks of
between 4.0% to 5.0%. Under FDIC regulations, highly-rated banks are those that
the FDIC determines are not anticipating or experiencing significant growth and
have well diversified risk, including no undue interest rate risk exposure,
excellent asset quality, high liquidity and good earnings. At September 30,
2001, the required Tier 1 leverage capital ratio requirement for the Bank was
4.00% and its actual Tier 1 leverage capital ratio was 9.77%.

         RISK-BASED CAPITAL REQUIREMENTS. The risk-based capital requirements
contained in FDIC regulations generally require the Bank to maintain a ratio of
Tier 1 capital to risk-weighted assets of at least 4.00% and a ratio of total
risk-based capital to risk-weighted assets of at least 8.00%. To calculate the
amount of capital required, assets are placed in one of four categories and
given a percentage weight (0%, 20%, 50% or 100%) based on the relative risk of
the category. For example, U.S. Treasury Bills and GNMA securities are placed in
the 0% risk category. FNMA and FHLMC securities are placed in the 20% risk
category, loans secured by one-to-four family residential properties and certain
privately-issued mortgage-backed securities are generally placed in the 50% risk
category and commercial and consumer loans and other assets are generally placed
in the 100% risk category. In addition, certain off-balance sheet items are
converted to balance sheet credit equivalent amounts and each amount is then
assigned to one of the four categories.

         For purposes of the risk-based capital requirements, "total capital"
means Tier 1 capital plus supplementary or Tier 2 capital, so long as the amount
of supplementary or Tier 2 capital that is used to satisfy the requirement does
not exceed the amount of Tier 1 capital. Supplementary or Tier 2 capital
includes, among other things, so-called permanent capital instruments
(cumulative or other perpetual preferred stock, mandatory convertible
subordinated debt and perpetual subordinated debt), so-called maturing capital
instruments (mandatorily redeemable preferred stock, intermediate-term preferred
stock, mandatory convertible subordinated debt and subordinated debt), and a
certain portion of the allowance for loan losses up to a maximum of 1.25% of
risk-weighted assets.

         At September 30, 2001, the Bank's Tier 1 capital to risk-weighted
assets ratio was 16.97%. On the same date, the Bank's total risked-based capital
percentage was 17.61%.



                                       24
<PAGE>



         The following table sets forth information with respect to each of the
Bank's capital requirements as of the dates shown.

<Table>
<Caption>

                                                                  As of September 30,                 As of September 30,
                                                             ------------------------------      ------------------------------
                                                                         2001                                 2000
                                                             ------------------------------      ------------------------------
                                                                Actual           Required           Actual           Required
                                                             ------------      ------------      ------------      ------------
<S>                                                          <C>               <C>               <C>               <C>
Leverage ratio (or tangible capital requirement)(1):
   Tier 1 capital to total assets                                    9.77%             4.00%            10.83%             4.00%

Tier 1 risk-based capital ratio (or core capital
      requirement)(1):
  Tier 1 risk-based capital to risk weighted assets                 16.97              4.00             18.52              4.00

Total risk-based capital ratio:
   Total risk-based capital risk to risk weighted assets            17.61              8.00             19.22              8.00
</Table>



         The following table sets forth a reconciliation between the bank's
stockholders' equity and each of its three regulatory capital requirements at
September 30, 2001.

<Table>
<Caption>

                                                                              Tier 1             Total
                                                          Tier 1            Risk-Based         Risk-Based
                                                          Capital            Capital            Capital
                                                        ------------       ------------       ------------
                                                                      (Dollars in Thousands)
<S>                                                     <C>                <C>                <C>
Total stockholders' equity for Jacksonville savings
  Bank, SSB                                             $     34,865       $     34,865       $     34,865
Unrealized gain on securities available-for-sale                (401)              (401)              (401)
Less nonallowable assets:
  Principally equity investment in subsidiary                 (1,093)            (1,093)            (1,093)
Plus allowances for loan and lease losses                         --                 --              1,257
                                                        ------------       ------------       ------------
  Total regulatory capital                                    33,371             33,371             34,628
  Minimum required capital                                    13,659              7,866             15,732
                                                        ------------       ------------       ------------
  Excess regulatory capital                             $     19,712       $     25,505       $     18,896
                                                        ============       ============       ============
  Bank's regulatory capital percentage(1)                       10.0%              17.0%              18.0%
  Minimum regulatory capital required percentage                 4.0%               4.0%               8.0%
                                                        ------------       ------------       ------------
  Bank's regulatory capital percentage in excess of
     requirement                                                 6.0%              13.0%              10.0%
                                                        ============       ============       ============
</Table>


----------

(1) Tier 1 capital is computed as a percentage of total adjusted assets of
$341.5 million. Risk-based capital is computed as a percentage of adjusted
risk-weighted assets of $196.7 million.

         FDIC INSURANCE PREMIUMS. The deposits of the Bank are insured to the
maximum extent permitted by the SAIF administered by the FDIC, and a resolution
of the Congress states that they are backed by the full faith and credit of the
U.S. Government. As the insurer, the FDIC is authorized to conduct examinations
of, and to require reporting by, FDIC-insured institutions. It also may prohibit
any FDIC-insured institution from engaging in any activity the FDIC determines
by regulation or order to pose a serious threat to the FDIC. The FDIC also has
the authority to initiate enforcement actions against savings institutions.

         The Bank currently pays deposit insurance premiums to the FDIC based on
a risk-based assessment system established by the FDIC for all SAIF-member
institutions. Under applicable regulations, institutions are assigned to one of
three capital groups based solely on the level of an institution's capital -
"well capitalized," "adequately capitalized" and "undercapitalized" - which are
defined in the same manner as the regulations establishing the prompt corrective
action system under Section 38 of the FDIA. These three groups are then divided
into three subgroups which reflect varying levels of supervisory concern, from
those which are considered to be healthy to those which are considered to be of
substantial supervisory concern. The matrix so created results in nine
assessment risk classifications with effective assessments between .04% for well
capitalized, healthy SAIF-member institutions to .27% for undercapitalized
SAIF-member institutions with substantial supervisory concerns. At September 30,
2001, the Bank was categorized as well capitalized.



                                       25
<PAGE>

         On September 30, 1997, amendments to the FDIA were signed into law. The
FDIA and implementing regulations provided that all SAIF-member institutions
would pay a special one time assessment of 65.7 basis points on the SAIF
assessment base as of March 31, 1995 to recapitalize the SAIF, which in the
aggregate, would be sufficient to bring the reserve ratio in the SAIF to 1.25%
of insured deposits. Jacksonville's special assessment amounted to $1.1 million
pursuant to the FDIA.

         The FDIA provided for FICO debt sharing by banks and thrifts with
proration sharing in the year 2000. Prior to the year 2000, SAIF insured
institutions will pay approximately 6.5 basis points for FICO, while BIF insured
institutions, such as commercial banks, will pay approximately 1.3 basis points.
The FICO provisions of the FDIA also prohibit deposit migration strategies to
avoid SAIF premiums. The FDIA also provided for the merger of the BIF and the
SAIF on January 1, 1999, with such merger being conditioned upon the prior
elimination of the federal thrift charter.

         Under Section 593 of the Internal Revenue Code, thrift institutions
such as the Bank, which meet certain definitional tests primarily relating to
their assets and the nature of their business, are permitted to establish a tax
reserve for bad debts and to make annual additions thereto, which additions may,
within specified limitations, be deducted in arriving at their taxable income.
The Bank's deduction with respect to "qualifying loans" which are generally
loans secured by certain interests in real property, prior to 1996, could be
computed using an amount based on the Bank's actual loss experience (the
"experience method") or a percentage of taxable income, computed without regard
to this deduction, and with additional modifications and reduced by the amount
of any permitted addition to the non-qualifying reserve.

         Effective January 1, 1996, the Bank is unable to make additions under
the "percentage" method to its tax bad debt reserve, and is only permitted to
deduct bad debts using the experience method and is additionally be required to
recapture (i.e. take into taxable income) over a six year period, the excess of
the balance of its bad debt reserve as of December 31, 1995 over the balance of
such reserve as of December 31, 1987 (if any). Such recapture requirements can
be suspended for each of two successive taxable years beginning January 1, 1996,
in which the Bank originates a minimum amount of certain residential loans based
upon the average of the principal amounts of such loans made by the Bank during
its six taxable years preceding 1996.

         REGULATORY CAPITAL REQUIREMENTS. The FDIA requires the Federal banking
agencies to revise their risk-based capital guidelines to, among other things,
take adequate account of interest rate risk. The Federal banking agencies
continue to consider modification of the capital requirements applicable to
banking organizations. In August 1995, the Federal banking agencies amended
their risk-based capital guidelines to provide that the banking agencies will
include in their evaluations of a bank's capital adequacy an assessment of the
bank's exposure to declines in the economic value of the bank's capital due to
changes in interest rates. The agencies also issued a proposed policy statement
that describes the process that the agencies will use to measure and assess the
exposure of a bank's capital to changes in interest rates. The agencies stated
that after they and the banking industry gain sufficient experience with the
measurement process, the agencies would issue proposed regulations for
establishing explicit charges against capital to account for interest rate risk.

         The FDIA also requires the FDIC and the other Federal banking agencies
to revise their risk-based capital standards, with appropriate transition rules,
to ensure that they take into account concentration of credit risk and the risks
of nontraditional activities and to ensure that such standards reflect the
actual performance and expected risk of loss of multifamily mortgages, of which
the Bank had $454,000 at September 30, 2001. In December 1995, the FDIC and the
other Federal banking agencies promulgated final amendments to their respective
risk-based capital requirements which would explicitly identify concentration of
credit risk and certain risks arising from nontraditional activities, and the
management of such risks as important factors to consider in assessing an
institution's overall capital adequacy.



                                       26
<PAGE>

         The Federal banking agencies have agreed to adopt for regulatory
purposes Statement 115, which, among other things, generally adds a new element
to stockholders' equity under generally accepted accounting principles by
including net unrealized gains and losses on certain securities. In December
1994, the FDIC issued final amendments to its regulatory capital requirements
which would require that the net amount of unrealized losses from
available-for-sale equity securities with readily determinable fair values be
deducted for purposes of calculating the Tier 1 capital ratio. All other net
unrealized holding gains (losses) on available-for-sale securities are excluded
from the definition of Tier 1 capital. At September 30, 2001, the Bank had $58.5
million of securities, available-for-sale, with $401,000 of aggregate net
unrealized gain thereon, net of taxes.

         SAFETY AND SOUNDNESS STANDARDS. Each Federal banking agency is required
to prescribe, for all insured depository institutions and their holding
companies, standards relating to internal controls, information systems and
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
compensation standards would prohibit employment contracts or other compensatory
arrangements that provide excess compensation, fees or benefits or could lead to
material financial loss to the institution. In addition, each Federal banking
agency also is required to adopt for all insured depository institutions and
their holding companies standards that specify (i) a maximum ratio of classified
assets to capital, (ii) minimum earnings sufficient to absorb losses without
impairing capital, (iii) to the extent feasible, a minimum ratio of market value
to book value for publicly-traded shares of the institution or holding company,
and (iv) such other standards relating to asset quality, earnings and valuation
as the agency deems appropriate. On July 10, 1995, the Federal banking agencies,
including the FDIC, adopted final rules and proposed guidelines concerning
safety and soundness required to be prescribed by regulations pursuant to
Section 39 of the FDIA. In general, the standards relate to operational and
managerial matters, asset quality and earnings and compensation. The operational
and managerial standards cover internal controls and information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits. Under the asset
quality and earnings standards, which were adopted by the Federal Banking
agencies in October 1996, the Bank would be required to establish and maintain
systems to identify problem assets and prevent deterioration in those assets and
evaluate and monitor earnings to ensure that earnings are sufficient to maintain
adequate capital reserves. If an insured institution fails to meet any of the
standards promulgated by the regulators, then such institution will be required
to submit a plan within 30 days to the FDIC specifying the steps that it will
take to correct the deficiency. In the event that an insured institution fails
to submit or fails in any material respect to implement a compliance plan within
the time allowed by the FDIC, Section 39 of the FDIA provides that the FDIC must
order the institution to correct the deficiency and may restrict asset growth,
require the savings institution to increase its ratio of tangible equity to
assets, restrict the rates of interest that the institution may pay or take any
other action that would better carry out the purpose of prompt corrective
action. The Bank believes that it has been and will continue to be in compliance
with each of the standards as they have been adopted by the FDIC.

         Finally, each Federal banking agency is required to prescribe standards
for the employment contracts and other compensation arrangements of executive
officers, employees, directors and principal stockholders of insured depository
institutions that would prohibit compensation and benefits and arrangements that
are excessive or that could lead to a material financial loss for the
institution. In February 1996, the FDIC adopted final regulations regarding the
payment of severance and indemnification to management officials and other
affiliates of insured institutions ("institution affiliated parties" or "IAPs").
The limitations on severance or "golden parachute" payments apply to "troubled"
institutions which seek to enter into contracts with IAPs. A golden parachute
payment is generally considered to be any payment to an IAP which is contingent
on the termination of that person's employment and is received when the insured
institution is in a troubled condition. The definition of golden parachute
payment does not include payment pursuant to qualified retirement plans,
non-qualified bona fide deferred compensation plans, nondiscriminatory severance
pay plans, other types of common benefit plans, state statutes and death
benefits. Certain limited exceptions to the golden parachute payment prohibition
are provided for in cases involving the hiring of an outside executive,
unassisted changes of control and where the FDIC provides written permission to
make such payment. The limitations on indemnification payments apply to all
insured




                                       27
<PAGE>

institutions, their subsidiaries and affiliated holding companies. Generally,
this provision prohibits such entities from indemnifying an IAP for that portion
of the costs sustained with regard to a civil or administrative enforcement
action commenced by any Federal banking agency which results in a final order or
settlement pursuant to which the IAP is assessed a civil monetary penalty,
removed from office, prohibited from participating in the affairs of an insured
institution or required to cease and desist from taking certain affirmative
actions. Nevertheless, institutions or holding companies may purchase commercial
insurance to cover such expenses (except for judgments or penalties) and the
institutions or holding company may advance legal expenses to the IAP if its
board of directors makes certain specific findings and the IAP agrees in writing
to reimburse the institution if it is ultimately determined that the IAP
violated a law, regulation or other fiduciary duty.

         ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS. The
activities and equity investments of FDIC-insured, state-chartered banks are
limited by Federal law to those that are permissible for national banks. An
insured state bank generally may not acquire or retain any equity investment of
a type, or in an amount, that is not permissible for a national bank. An insured
state bank is not prohibited from, among other things, (i) acquiring or
retaining a majority interest in a subsidiary, (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation or new construction of a qualified
housing project, provided that such limited partnership investments may not
exceed 2% of the bank's assets, (iii) acquiring up to 10% of the voting stock of
a company that solely provides or reinsures directors' and officers' liability
insurance, and (iv) acquiring or retaining the voting shares of a depository
institution if certain requirements are met.

         COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act
("CRA"), as implemented by FDIC regulations, a savings institution has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the FDIC, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution. As of the date of its most recent regulatory
examination, the bank was rated "satisfactory" with respect to its CRA
compliance.

         In May 1995, the FDIC and other Federal banking agencies promulgated
final revisions to their regulations concerning the CRA. The revised regulations
generally are intended to provide clearer guidance to financial institutions on
the nature and extent of their obligations under the CRA and the methods by
which the obligations will be assessed and enforced. Among other things, the
revised regulations substitute for the current process-based assessment factors
a new evaluation system that would rate institutions based on their actual
performance in meeting community credit needs. In particular, the revised system
will evaluate the degree to which an institution is performing under tests and
standards judged in the context of information about the institution, its
community, its competitors and its peers with respect to (i) lending, (ii)
service delivery systems and (iii) community development. The revised
regulations also specify that an institution's CRA performance will be
considered in an institution's expansion (e.g., branching) proposals and may be
the basis for approving, denying or conditioning the approval of an application.
Management of the Bank currently is unable to predict the effects of the
regulations under the CRA as recently adopted.

         QUALIFIED THRIFT LENDER TEST. For the Company to qualify as a savings
and loan holding company, the Bank is required to meet a QTL test set forth
under Section 10(m) of the Home Owners Loan Act, as amended, ("HOLA"). Under
Section 2303 of the Economic Growth and Regulatory Paperwork Reduction Act of
1996, a savings institution can comply with the QTL test set forth in the HOLA
and implementing regulations or by qualifying as a domestic building and loan
association as defined in Section 7701(a)(19) of the Internal Revenue Code. The
QTL test set forth in HOLA requires that a depository institution must have at
least 65% of its portfolio assets (which consist of total assets less
intangibles, properties used to conduct the savings institution's business and



                                       28
<PAGE>

liquid assets not exceeding 20% of total assets) in qualified thrift investments
on a monthly average basis in nine of every 12 months. Loans and mortgage-backed
securities secured by domestic residential housing, as well as certain
obligations of the FDIC and certain other related entities may be included in
qualifying thrift investments without limit. Certain other housing-related and
non-residential real estate loans and investments, including loans to develop
churches, nursing homes, hospitals and schools, and consumer loans and
investments in subsidiaries engaged in housing-related activities may also be
included. Qualifying assets for the QTL test include investments related to
domestic residential real estate or manufactured housing, the book value of
property used by an institution or its subsidiaries for the conduct of its
business, an amount of residential mortgage loans that the institution or its
subsidiaries sold within 90 days of origination, shares of stock issued by any
FHLB and shares of stock issued by the FHLMC or the FNMA. The Bank was in
compliance with the QTL test as of September 30, 2001, with in excess of 97% of
its assets invested in qualified thrift investments.

         LEGISLATIVE AND REGULATORY PROPOSALS. Proposals to change the laws and
regulations governing the operations and taxation of, and federal insurance
premiums paid by, savings banks and other financial institutions and companies
that control such institutions are frequently raised in Congress, state
legislatures and before the OTS, FDIC and other bank regulatory authorities. The
likelihood of any major changes in the future and the impact such changes might
have on the Bank are impossible to determine. Similarly, proposals to change the
accounting treatment applicable to savings banks and other depository
institutions are frequently raised by the SEC, the FDIC, the IRS and other
appropriate authorities, including, among others, proposals relating to fair
market value accounting for certain classes of assets and liabilities. The
likelihood and impact of any additional future accounting rule changes and the
impact such changes might have on the Bank are impossible to determine.

         FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Dallas, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions and commercial banks. Each FHLB serves
as a source of liquidity for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated obligations
of the FHLB System. It makes loans to members (i.e., advances) in accordance
with policies and procedures established by its Board of Directors. As of
September 30, 2001, the Bank's advances from the FHLB of Dallas amounted to
$48.1 million or 15.3% of its total liabilities.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of Dallas in an amount equal to the greater of 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of total advances. At September 30, 2001, the
Bank had $2.6 million in FHLB stock, which was in compliance with this
requirement.

         The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future. For the year ended September 30, 2001,
dividends paid by the FHLB of Dallas to the Bank totaled $138,000.

         FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
At September 30, 2001, the Bank was in compliance with such requirements.

         The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy applicable liquidity requirements.
Because required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce a bank's interest-earning assets. The amount of
funds necessary to satisfy this requirement has not had a material affect on the
Bank's operations.



                                       29
<PAGE>

         TEXAS SAVINGS BANK LAW. To qualify as a Texas Savings Bank,
Jacksonville must qualify under and continue to meet the asset test of Section
7701(a)(19), Internal Revenue Code of 1986, relating to domestic savings and
loan associations. A Texas savings bank may make a loan or investment or engage
in an activity permitted under state law for a bank or savings and loan
association or under federal law for a federal savings and loan association,
savings bank, or national bank if the financial institution's principal office
is located in this state. A savings bank may make commercial loans up to 50% of
the savings bank's total assets. A savings bank must maintain in its portfolio
not less than 15 percent of the savings bank's deposits from its local service
area in: (1) first and second lien residential mortgage loans or foreclosed
residential mortgage loans originated in the savings bank's local service area;
(2) home improvement loans; (3) interim residential construction loans; (4)
mortgage-backed securities secured by loans in the savings bank's local service
area; and (5) loans for community reinvestment. The loans to one borrower rules
for Texas savings bank may not be less restrictive than those applicable to
savings associations under the Federal Home Owners' Loan Act ("HOLA"). Under the
HOLA, unless more stringent conditions are imposed by the Director of the OTS,
savings associations are subject to the lending limits applicable to national
banks, which include a limitation on loans to any one borrower of 15% of
capital. Notwithstanding that limitation, savings associations generally may
make loans to one borrower not to exceed $500,000, to develop domestic
residential housing units, not to exceed the lesser of $30,000,000 or 30 percent
of the savings association's unimpaired capital and unimpaired surplus. For
loans to finance the sale of real property acquired in satisfaction of debts
previously contracted, loans to any one borrower may not exceed 50 percent of
unimpaired capital and surplus. A Texas savings bank or subsidiary may not
invest in an equity security unless the security qualifies as an investment
grade security under rules adopted by the Texas Commissioner and Finance
Commission or the security is an eligible investment for a federal savings and
loan association. Investments in subsidiaries are generally limited to 10
percent of the savings bank's total assets. Unless approved in advance by the
Commissioner, a Texas savings bank must maintain an amount equal to at least 10
percent of its average daily deposits for the most recently completed calendar
quarter in liquid investments specified by statute, including cash, reserve
balances, and readily marketable investments.





                                       30
<PAGE>




ITEM 2. PROPERTIES.

At September 30, 2001, Jacksonville conducted its business from its main office
at Commerce & Neches Streets, Jacksonville, Texas, and seven full-service
branches in Cherokee County and surrounding counties.

         Set forth below is certain information with respect to the office and
other properties of Jacksonville at September 30, 2001.


<Table>
<Caption>

Description/                                                 Leased/           Net Book Value
Address                                                       Owned             Of Property           Deposits
---------------------------------                            -------           --------------         ---------
                                                                          (Dollars in Thousands)
<S>                                                          <C>               <C>                    <C>
Main Office                                                  Owned             $         640          $  82,988
Commerce and Neches Street
Jacksonville, Texas

Branch Office                                                Owned                       673             62,070
1015 North Church Street
Palestine, Texas

Branch Office                                                Owned                       100             15,390
107 East Fourth Street
Rusk, Texas

Branch Office                                                Owned                       478             21,716
1412 Judson Road
Longview, Texas

In-Store Branch Office                                       Leased                      169              6,100
Wal-Mart Supercenter
515 E. Loop 281
Longview, Texas

Branch Office                                                Owned                       480             33,873
617 South Palestine Street
Athens, Texas

Branch Office                                                Owned                     1,043             31,733
5620 Old Bullard Road
Tyler, Texas

Branch Office                                                Owned                     1,199              6,434
2507 University Blvd
Tyler, Texas
</Table>



----------

         In addition, the Company through its J S&L subsidiary has an investment
of $1.1 million at September 30, 2001, in developed residential housing lots.

ITEM 3. LEGAL PROCEEDINGS.

         Jacksonville is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate, are believed by management
to be immaterial to the financial condition of Jacksonville.



                                       31
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         Not applicable.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The information required herein is incorporated by reference from page
15 of the Company's 2001 Annual Report to Stockholders, which is included herein
as Exhibit 13 ("2001 Annual Report").

ITEM 6. SELECTED FINANCIAL DATA.

         The information required herein is incorporated by reference from pages
1 and 2 of the Company's 2001 Annual Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

         The information required herein is incorporated by reference from pages
3 to 8 of the Company's 2001 Annual Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

         The information required herein is incorporated by reference from pages
4 to 5 of the Company's 2001 Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The information required herein is incorporated by reference from pages
F-1 to F-24 of Company's 2001 Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

         Not applicable.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information required herein is incorporated by reference from pages
2 to 4 and page 8 of the Company's definitive proxy statement, dated December
21, 2001, ("Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION.

         The information required herein is incorporated by reference from pages
9 to 12 of the Company's Proxy Statement.



                                       32
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information required herein is incorporated by reference from pages
3 to 5 of the Company's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required herein is incorporated by reference from page
14 of the Company's Proxy Statement.

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.

         (a)      Documents filed as part of this Report

                  (1) The following financial statements are incorporated by
                  reference from Item 8 hereof (see Exhibit 13 attached hereto):

                  Independent Auditor's Report

                  Consolidated Statements of Financial Condition at September
                  30, 2001 and 2000

                  Consolidated Statements of Earnings for the Years Ended
                  September 30, 2001, 2000, and 1999

                  Consolidated Statements of Changes in Stockholders' Equity for
                  the Years Ended September 30, 2001, 2000, and 1999

                  Consolidated Statements of Cash Flows for the Years Ended
                  September 30, 2001, 2000, and 1999

                  Notes to Consolidated Financial Statements

                  (2) All schedules for which provision is made in the
                  applicable accounting regulations of the Securities and
                  Exchange Commission are omitted because of the absence of
                  conditions under which they are required or because the
                  required information is included in the financial statements
                  and related notes thereto.





                                       33
<PAGE>




                  (3) The following exhibits are filed as part of this Form 10-K
                  and this list includes the Exhibit Index.

<Table>
<Caption>

             No.                             Exhibits
             ---                             --------
<S>                           <C>
             3.1              Articles of Incorporation*

             3.2              Bylaws*

             4.1              Specimen Common Stock Certificate*

             10.1             1994 Stock Incentive Plan**

             10.2             1994 Directors' Stock Option Plan**

             10.3             1994 Management Recognition Plan***

             10.4             1996 Management Recognition Plan***

             10.5             1996 Stock Option Plan**

             10.6             Employee Stock Ownership Plan*

             10.7             Acquisition Agreement by and among Jacksonville
                              Bancorp, Inc., Jacksonville IHC, Inc., and
                              Jacksonville Savings and Loan Association****

             10.8             1996 Management Recognition Plan***

             10.9             Employment Agreement by and among Jacksonville
                              Bancorp, Inc., Jacksonville Savings and Loan
                              Association and Jerry M. Chancellor
                              (representative of a similar agreements entered
                              into with Bill W. Taylor and Jerry Hammons)*

             13               2001 Annual Report to Stockholders specified
                              portion (p. 1 to 18) of the Registrant's Annual
                              Report to Stockholders for the year ended
                              September 30, 2001

             23               Consent of Independent Auditors
</Table>



        *Incorporated herein by reference to the Registrant's Registration
Statement No. 33-81015 on Form S-1.

        **Incorporated herein by reference to the Registrant's Registration
Statement No. 333-18031 on Form S-8.

        ***Incorporated herein by reference to the Registrant's Form 10-K filed
as of December 30, 1996.

        ****Incorporated herein by reference to the Registrant's Form 10-K filed
as of December 29, 1997.

        (b) Reports on Form 8-K during the quarter ended September 30, 2001:

----------

        1. On July 13, 2001, the Company filed a current report on Form 8-K
reporting earnings for the quarter ended June 30, 2001.

        2. On July 13, 2001, the Company filed a current report on Form 8-K
reporting agreement to acquire the Carthage Branch Office from Jefferson
Heritage Bank.

        3. On September 13, 2001, the Company filed a current report on Form 8-K
reporting the declaration of a $0.125 per share dividend.

        (c) See (a)(3) above for all exhibits filed herewith and the Exhibit
Index.

        (d) There are no other financial statements and financial statement
schedules which were excluded from Item 8 which are required to be included
herein.



                                       34
<PAGE>




                                   SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) 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.

DECEMBER 21, 2001                              By: /s/ Jerry M. Chancellor
                                                   -----------------------------
                                                   Jerry M. Chancellor
                                                   Chief Executive Officer


       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<Table>
<S>                                                                   <C>
/s/ Jerry M. Chancellor                                               December 21, 2001
-----------------------------------------------------
Jerry M. Chancellor, Director and Chief
 Executive Officer (Principal Executive Officer)

/s/ W.G. Brown                                                        December 21, 2001
-----------------------------------------------------
W. G. Brown, Chairman


/s/ Robert Brown                                                      December 21, 2001
-----------------------------------------------------
Robert Brown, Vice-Chairman


/s/ Charles Broadway                                                  December 21, 2001
-----------------------------------------------------
Charles Broadway, Director


/s/ Ray W. Beall                                                      December 21, 2001
-----------------------------------------------------
Ray W. Beall, Director


/s/ Dr. Joe Tollett                                                   December 21, 2001
-----------------------------------------------------
Dr. Joe Tollett, Director


/s/ Bill W. Taylor                                                    December 21, 2001
-----------------------------------------------------
Bill W. Taylor, Director and Executive Vice President
(Principal Financial and Accounting Officer)


/s/ Jerry Hammons                                                     December 21, 2001
-----------------------------------------------------
Jerry Hammons, Director/Senior Vice President
</Table>






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