<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

                  For the fiscal year ended September 30, 2002

                                       OR

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

          For the transition period from __________ to _______________

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

                           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. ____



<PAGE>

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

Yes              No   X
    -----           -----

As of December 6, 2002, the aggregate market value of the 1,332,662 shares of
Common Stock of the Registrant held by non-affiliates on such date, was
approximately $30.9 million. This figure is based on the closing price of $28.20
per share of the Registrant's Common Stock on March 28, 2002, the last trading
date of the Registrant's second fiscal quarter. 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 6, 2002: 1,761,824.

                       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, 2002 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 90
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 Lithotech 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
market area. Colleges and universities include the University of Texas at Tyler,
Stephen F. Austin University, Tyler Junior College, Texas



                                        1

<PAGE>

College, Lon Morris College, Jacksonville College, LeTourneau University and
Trinity Valley Junior College. According to reports from the Bureau of Labor
Statistics, as of September 30, 2002, the unemployment rate in Cherokee County
and surrounding counties in East Texas was estimated to be 5.4% as compared to
4.8% in 2001 and the estimated unemployment rates for the United States during
these periods were 5.9% and 5.4% respectively.

LENDING ACTIVITIES

        At September 30, 2002, Jacksonville's net loan portfolio totaled $265.1
million representing approximately 62.3% of Jacksonville's $425.3 million of
total assets at that date. The principal lending activity of Jacksonville is the
origination of single-family residential loans. At September 30, 2002,
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, 2002,
Jacksonville's single-family residential loan portfolio totaled $189.5 million,
representing approximately 67.8% of Jacksonville's total loans, before net
items, at that date. Jacksonville held $22.9 million in commercial real estate
loans at that date, representing 8.2% of total loans, before net items. Of the
commercial real estate loans, $782,000, or 3.4%, 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 $10.8
million in new commercial real estate loans during fiscal 2002. Other
significant areas of lending activity by Jacksonville are construction loans,
consumer loans and land loans, which, as of September 30, 2002, represented
$40.8 million, or 14.6%, $21.5 million, or 7.7% and $3.4 million, or 1.2% of net
loans. Home equity loans in the amount of $27.2 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, 2002, Jacksonville's limit on loans-to-one borrower was
$5.0 million, and its five largest loans or groups of loans-to-one borrower,
including related entities, aggregated $4.7 million, $3.6 million, $2.7 million,
$2.2 million, and $2.2 million. The first group of loans totaling $4.7 million
consists of ten loans secured by 1-4 family units, six loans for the
construction of a single family residences, two loans secured by commercial
buildings, and two loans for the development of single family subdivisions. The
second group of loans for $3.6 million consists of two loans secured by
residential subdivisions, three loans for the construction of single family
residences, and one loan for the construction of a shopping center. The third
group is made up of one loan for the development of a single family subdivision,
five loans for the construction of single family residences and one loan secured
by land for future development. The fourth largest group of loans consist of a
loan for the development of a residential subdivision, one loan for the
construction of a single family residence, and for loans secured by 1-4 family
units. The fifth largest loan totaling $1.4 million consisted of one loan
secured by a church.



                                        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,
                                              --------------------------------------------------------------------------------
                                                       2002                         2001                         2000
                                              ----------------------       ----------------------       ----------------------
                                               Amount          %            Amount          %            Amount           %
                                              --------      --------       --------      --------       --------      --------
                                                                       (Dollars in Thousands)
<S>                                           <C>           <C>            <C>           <C>            <C>           <C>

MORTGAGE LOANS:
  Single-family residential (1)               $189,459          67.8%      $181,563          68.4%      $171,041          71.7%
  Multi-family residential                       1,042           0.4            454           0.2            770           0.3
  Commercial real estate                        22,886           8.2         16,860           6.4         14,499           6.1
  Construction                                  40,804          14.6         39,917          15.0         25,117          10.5
  Land                                           3,372           1.2          3,093           1.2          2,741           1.1
                                              --------      --------       --------      --------       --------      --------
        Total mortgage loans                  $257,563          92.2%      $241,887          91.2%      $214,168          89.7%
                                              --------      --------       --------      --------       --------      --------

BUSINESS AND CONSUMER LOANS:
  Commercial business                         $    411           0.1%      $    365            .2%      $    515            .2%
  Consumer loans:
       Secured by deposits                       2,727           1.0          2,765           1.0          2,350           1.0
       Secured by vehicles                      10,498           3.8         11,475           4.3         12,462           5.2
       Personal real estate loans                4,187           1.5          4,935           1.9          5,469           2.3
       Other                                     4,044           1.4          3,753           1.4          3,827           1.6
                                              --------      --------       --------      --------       --------      --------
       Total consumer loans                     21,456           7.7         22,928           8.6         24,108          10.1
                                              --------      --------       --------      --------       --------      --------
       Total business and consumer loans        21,867           7.8         23,293           8.8         24,623          10.3
                                              --------      --------       --------      --------       --------      --------
       Total loans                            $279,430         100.0%      $265,180         100.0%      $238,791         100.0%
                                              --------      ========       --------      ========       --------      ========

Less:
  Undisbursed portion of loans in
     process                                  $ 12,586                     $ 17,041                     $ 10,224
  Unearned discounts                                18                           21                           31
  Net deferred loan origination fees               443                          429                          455
  Unrealized losses on loans held for
     sale                                           --                           --                           --
  Allowance for loan losses                      1,292                        1,257                        1,227
                                              --------                     --------                     --------
       Net loans                              $265,091                     $246,432                     $226,854
                                              ========                     ========                     ========
</TABLE>


<TABLE>
<CAPTION>
                                                                      September 30,
                                               -----------------------------------------------------------
                                                          1999                             1998
                                               --------------------------       --------------------------
                                                 Amount             %             Amount             %
                                               ----------      ----------       ----------      ----------
                                                                  (Dollars in Thousands)
<S>                                            <C>             <C>              <C>             <C>
MORTGAGE LOANS:
  Single-family residential (1)                $  164,661            72.9%      $  149,961            74.7%
  Multi-family residential                            819              .4            1,091              .5
  Commercial real estate                           12,000             5.3            9,764             4.9
  Construction                                     21,171             9.4           15,486             7.7
  Land                                              3,172             1.4            3,771             1.9
                                               ----------      ----------       ----------      ----------
       Total mortgage loans                    $  201,823            89.4%      $  180,073            89.7%
                                               ----------      ----------       ----------      ----------

BUSINESS AND CONSUMER LOANS:
  Commercial business                          $        6             --%       $       55             --%
  Consumer loans:
     Secured by deposits                            2,183             1.0            2,023             1.0
     Secured by vehicles                           12,414             5.4           10,577             5.3
     Personal real estate loans                     5,399             2.4            5,171             2.6
     Other                                          4,019             1.8            2,884             1.4
                                               ----------      ----------       ----------      ----------
     Total consumer loans                          24,015            10.6           20,655            10.3
                                               ----------      ----------       ----------      ----------
       Total business and consumer loans           24,021            10.6           20,710            10.3
                                               ----------      ----------       ----------      ----------
     Total loans                               $  225,844           100.0%      $  200,783           100.0%
                                               ----------      ==========       ----------      ==========
Less:
  Undisbursed portion of loans in process      $    7,835                       $    7,846
  Unearned discounts                                   34                               46
  Net deferred loan origination fees                  496                              568
  Unrealized losses on loans held for
    sale                                               --                               --
  Allowance for loan losses                         1,212                            1,170
                                               ----------                       ----------
     Net loans                                 $  216,267                       $  191,153
                                               ==========                       ==========
</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, 2002, 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
                                     9/30/03         9/30/04         9/30/05         9/30/02         9/30/02         9/30/02
                                   ----------      ----------      ----------      -----------     -----------     -----------
                                                                      (Dollars in Thousands)
<S>                                <C>             <C>             <C>             <C>             <C>             <C>
Single-family residential(1)         $   199         $   465         $   722         $ 3,613         $26,857         $50,878
Multi-family residential                  --              --              --              --             296             419
Commercial real estate                     2              --              14             272           4,906           5,604
Construction                          40,804              --              --              --              --              --
Land                                      --              16              --             141             746             821
Commercial business                       44              87              97             177               6              --
Consumer                               3,660           2,266           3,509           6,641           2,636           1,758
                                     -------         -------         -------         -------         -------         -------
         Total                       $44,709         $ 2,834         $ 4,342         $10,844         $35,447         $59,480
                                     =======         =======         =======         =======         =======         =======
</TABLE>


<TABLE>
<CAPTION>
                                              Due More
                                              than 15
                                            Years after
                                              9/30/02           Total
                                            -----------       --------
                                              (Dollars in Thousands)
<S>                                         <C>              <C>
Single-family residential (1)                $106,725         $189,459
Multi-family residential                          327            1,042
Commercial real estate                         12,088           22,886
Construction                                       --           40,804
Land                                            1,648            3,372
Commercial business                                --              411
Consumer                                          986           21,456
                                             --------         --------
         Total                               $121,774         $279,430
                                             ========         ========
</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, 2002 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)         $152,825         $ 36,435         $189,260
Multi-family residential                  161              881            1,042
Commercial real estate                  7,767           15,117           22,884
Construction                               --               --               --
Land                                    1,032            2,340            3,372
Commercial business                       367               --              367
Consumer                               17,796               --           17,796
                                     --------         --------         --------
         Total                       $179,948         $ 54,773         $234,721
                                     ========         ========         ========
</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 and 2002 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 the Federal Home
Loan Mortgage Corporation ("FHLMC"), servicing of the loans is usually released
to the buyers. At September 30, 2002, $91.9 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, most 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, 2002, $153.0 million
or 54.7% of Jacksonville's total loans, before net items, were fixed-rate
single-family residential loans, and $36.5 million or 13.1% of such total loans
were adjustable-rate single-family residential mortgage loans. Of these
adjustable mortgages, $14.8 million, or 40.5%, 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,
                                                                -----------------------------------------------
                                                                   2002              2001                2000
                                                                ---------          ---------          ---------
                                                                             (Dollars in Thousands)
<S>                                                             <C>                <C>                <C>
LOAN ORIGINATIONS:
         Single-family residential                              $  85,295          $  70,931          $  50,762
         Multi-family residential                                     675                120                 --
         Land                                                       1,447                590                694
         Commercial real estate                                    10,825              4,489              3,031
         Construction                                              45,659             45,536             21,245
         Commercial business                                          241                252                387
         Consumer                                                  11,725             11,944             12,968
                                                                ---------          ---------          ---------
              Total loans originated                              155,867            133,862             89,087
         Purchases                                                     --                 --                 --
              Total loans originated and purchased                155,867            133,862             89,087
                                                                ---------          ---------          ---------

SALES AND LOAN PRINCIPAL REDUCTIONS:
         Loans sold                                                39,208             20,933             20,876
         Loan principal repayments                                102,306             86,377             54,716
                                                                ---------          ---------          ---------
              Total loans sold and principal reductions           141,514            107,310             75,592

Increase (decrease) due to other items, net (1)                      (103)              (163)              (548)
                                                                ---------          ---------          ---------
Net increase (decrease) in loan portfolio                       $  14,250          $  26,389          $  12,947
                                                                =========          =========          =========
</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,
2002, $189.5 million or 67.8% 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. Jacksonville makes a limited number of 100%
loan to value 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.



                                        6

<PAGE>

        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 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 $179.2 million of loans to FHLMC and has retained the
servicing on all of these loans. Since that same date, Jacksonville has sold
$59.2 million of loans to the mortgage banking company. During fiscal 2002,
Jacksonville sold $29.0 million of loans to FHLMC and $10.2 million to the
mortgage banking company as compared to $11.7 million of loans to FHLMC and $9.2
million to the mortgage banking company during fiscal 2001. Loan sales were up
primarily as a result of the increase in originations during fiscal 2002.

        During the year ended September 30, 2002, Jacksonville originated $85.3
million of single-family residential loans of which $79.2 million, or 92.8%,
were fixed rate and $6.1 million, or 7.2%, were adjustable rate. Of the
fixed-rate single-family residential loans originated during the period,
Jacksonville sold $29.0 million, or 36.6%, to FHLMC. The volume of single-family
residential loans originated increased by 20.3% from $70.9 million during fiscal
2001 as compared to $85.3 million during fiscal 2002 and the percentage of sales
of such originations increased from 29.5% in fiscal 2001 to 46.0% in fiscal
2002. Single family loan originations increased in fiscal 2002 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. 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, 2002, $36.5 million, or
19.3%, 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 7.2%, 3.7%, and 17.8% of Jacksonville's total
originations of single-family residential loans during the years ended September
30, 2002, 2001, and 2000, respectively.



                                        7

<PAGE>

        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
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 $2.0
million as of September 30, 2002. 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.

        HOME EQUITY LOANS. In recent years, Jacksonville has increased its
emphasis on the origination of home equity loans. 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. At September
30, 2002 Jacksonville had $27.2 million or 9.7 % of the total loan portfolio,
before net items, in home equity loans.

        COMMERCIAL MORTGAGE LOANS. At September 30, 2002, $22.9 million, or
8.2%, of Jacksonville's total loan portfolio, before net items, consisted of
loans secured by existing commercial real estate. Of these commercial mortgage
loans, $782,000, or 3.4%, 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, 2002, 2001 and 2000 were, respectively, $10.8 million, $4.5
million, and $3.0 million.

        As of September 30, 2002, the commercial mortgage loans in
Jacksonville's portfolio not secured by real estate acquired in satisfaction of
debts previously contracted or improvements thereon totaled $22.1 million. These
loans have terms up to 30 years and have both fixed and adjustable rates. At
September 30, 2002, $15.0 million, or 67.9%, 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.



                                        8

<PAGE>

        CONSTRUCTION LOANS. At September 30, 2002, construction loans totaled
$40.8 million or 14.6% of the total loan portfolio, before net items.

        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,
2002 to $45.7 million from $45.5 million during fiscal 2001.

        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, 2002, land loans totaled $3.3 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, 2002, was
approximately $46,000.

        CONSUMER LOANS. At September 30, 2002, consumer loans totaled $21.5
million or 7.7% 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 $2.7 million at September 30, 2002. 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, 2002. 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, 2002, the bank had 264 personal real estate loans with
an average balance of $16,000. Jacksonville's vehicle loan portfolio totaled
$10.5 million at September 30, 2002. 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.



                                        9

<PAGE>

        MULTI-FAMILY AND COMMERCIAL BUSINESS LOANS. At September 30, 2002, $1.0
million or 0.4%, and $411,000, or 0.1%, 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 its primary lending
activities to other types of lending. Of the eight multi-family loans in
Jacksonville's loan portfolio as of September 30, 2002, the largest loan had a
principal amount of $419,000 which represented 40.2% of the multi-family loan
portfolio. As of September 30, 2002, Jacksonville had 30 commercial business
loans, the largest having a balance of $61,000 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 2002
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 amount
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, 2002, Jacksonville had
$443,000 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.

ASSET QUALITY

        DELINQUENT LOANS. The following table sets forth information concerning
delinquent loans at September 30, 2002, 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                     $   828            47.3%          $   --              --%        $    --              --%
      60-89 days                          79             4.5               --              --              --              --
      90 days and over                   407            23.3               --              --              --              --
                                     -------         -------          -------         -------         -------         -------
         Total delinquent loans      $ 1,314            75.1%          $   --              --%        $    --              --%
                                     =======         =======          =======         =======         =======         =======
</TABLE>



                                       10

<PAGE>


<TABLE>
<CAPTION>
                                          Construction                     Land                          Consumer
                                     -----------------------       -----------------------        -----------------------
                                     Amount       Percentage       Amount       Percentage        Amount       Percentage
                                     ------       ----------       ------       ----------        ------       ----------
                                                                    (Dollars in Thousands)
<S>                                  <C>          <C>              <C>          <C>               <C>          <C>

Loans delinquent for:
      30-59 days                     $   --             --%         $  --             --%         $  147            8.4%
      60-89 days                         --             --             --             --               2            0.1
      90 days and over                   --             --            104            5.9             183           10.5
                                     ------         ------         ------         ------          ------         ------
         Total delinquent loans      $   --             --%        $  104            5.9%         $  332           19.0%
                                     ======         ======         ======         ======          ======         ======
</TABLE>


<TABLE>
<CAPTION>
                                              Total
                                      -----------------------
                                      Amount       Percentage
                                      ------       ----------
                                      (Dollars in Thousands)
<S>                                   <C>             <C>
Loans delinquent for:
       30-59 days                     $  975           55.7%
       60-89 days                         81            4.6
       90 days and over                  694           39.7
                                      ------         ------
          Total delinquent loans      $1,750          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 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. 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



                                       11

<PAGE>

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 $87,000, $63,000, and $124,000 as of September 30, 2002, 2001, and
2000 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, 2002, Jacksonville had no REO sold and accounted for by the deposit method.

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

<TABLE>
<CAPTION>
                                                                                   September 30,
                                                       ----------------------------------------------------------------------
                                                        2002            2001            2000            1999            1998
                                                       ------          ------          ------          ------          ------
                                                                               (Dollars in Thousands)
<S>                                                    <C>             <C>             <C>             <C>             <C>
Non-accruing loans:
      Single-family residential (1)                    $  407          $  401          $  338          $  435          $  642
      Multi-family residential                             --              --              --              --              --
      Commercial                                           --              --              --              --              --
      Construction                                         --              --              --              --              --
      Land                                                104              89              --              --              --
      Commercial business                                  --              --              --              --              --
      Consumer                                            183             134             134             109              36
                                                       ------          ------          ------          ------          ------
         Total non-accruing loans                         694             624             472             544             678
Accruing loans 90 days or more delinquent                  --              --              --              --              --
                                                       ------          ------          ------          ------          ------
   Total non-performing loans                             694             624             472             544             678
                                                       ------          ------          ------          ------          ------
Real estate owned (2)                                      87              63             124             346             531
                                                       ------          ------          ------          ------          ------
   Total non-performing assets                         $  781          $  687          $  596          $  890          $1,209
                                                       ======          ======          ======          ======          ======
Troubled debt restructurings                           $  310          $  320          $  328          $  338          $  379
                                                       ======          ======          ======          ======          ======
Total non-performing loans and troubled debt
   restructurings as a percentage of total net
   loans                                                  .38%            .41%            .35%            .41%            .55%
                                                       ======          ======          ======          ======          ======
Total non-performing assets and troubled debt
   restructurings as a percentage of total
   assets                                                 .26%            .29%            .31%            .42%            .60%
                                                       ======          ======          ======          ======          ======
</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, 2002, 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.



                                       12

<PAGE>

        The interest income that would have been recorded during fiscal 2002,
2001, and 2000 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 $41,000, $63,000, and $25,000, 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, 2002, 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 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, 2002 consisted of
$4,000 of assets classified as special mention, $2,420,000 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, $87,000, or 3.6%, were residential real estate parcels
acquired as real estate owned, $1,670,000, or 69.0%, were single-family
residential loans, $55,000, or 2.3%, were land loans and $342,000, or 14.1%,
were commercial loans. The remaining balance of $221,000, or 9.1%, was in
consumer loans and $45,000, or 1.9%, in repossessed autos.

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

<TABLE>
<CAPTION>
                                                    September 30,
                                         ------------------------------------
                                          2002           2001           2000
                                         ------         ------         ------
                                                (Dollars in Thousands)
<S>                                      <C>            <C>            <C>
Classification:
   Special mention                       $    4         $   58         $   11
   Substandard                            2,420          1,960            818
   Doubtful                                  --             --             --
   Loss                                      --             --             --
                                         ------         ------         ------
         Total classified assets         $2,424         $2,018         $  829
                                         ======         ======         ======
</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 2002 non-performing loans increased to $694,000 while net charge-offs
for the period totaled $67,000. The Company's level of net loans outstanding
increased $18.7 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 $102,000 in
provisions for loan losses were appropriate primarily because of the



                                       13

<PAGE>
 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, 2002, Jacksonville's allowance for loan losses amounted
to $ 1.3 million, an increase of $35,000 from September 30, 2001.

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

<TABLE>
<CAPTION>
                                                                       Year Ended September 30,
                                       -----------------------------------------------------------------------------------------
                                          2002                2001                2000                1999                1998
                                       ---------           ---------           ---------           ---------           ---------
                                                                    (Dollars in Thousands)
<S>                                    <C>                 <C>                 <C>                 <C>                 <C>

Total net loans outstanding            $ 265,091           $ 246,432           $ 226,854           $ 216,267           $ 191,153
                                       =========           =========           =========           =========           =========
Average loans outstanding              $ 260,454           $ 234,339           $ 222,200           $ 205,057           $ 180,021
                                       =========           =========           =========           =========           =========
Balance at beginning of period         $   1,257           $   1,227           $   1,212           $   1,170           $   1,192
Charge-offs
     Consumer loans                          (70)                (58)                (54)                (18)                (57)
Recoveries                                     3                   3                  --                  --                  --
                                       ---------           ---------           ---------           ---------           ---------
Net charge-offs                              (67)                (55)                (54)                (18)                (57)
Provision for losses on loans                102                  85                  69                  60                  35
                                       ---------           ---------           ---------           ---------           ---------
Balance at end of period               $   1,292           $   1,257           $   1,227           $   1,212           $   1,170
                                       =========           =========           =========           =========           =========
Allowance for loan losses as a
percent of total net loans
   outstanding                               .49%                .51%                .54%                .56%                .61%
                                       =========           =========           =========           =========           =========
Ratio of net charge-offs to
   average loans outstanding                 .03%                .02%                .02%                .01%                .03%
                                       =========           =========           =========           =========           =========
</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,
                                           --------------------------------------------------------------------------------------
                                                   2002                           2001                            2000
                                           -----------------------        -----------------------        ------------------------
                                                        % of Loan                    % of Loan in                      % of Loan
                                                         in Each                          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                             $1,097           84.9%         $  997           79.3%         $  962           78.4%
Commercial business loans                      --             --              --             --              --             --
Consumer loans                                195           15.1             260           20.7             265           21.6
                                           ------         ------          ------         ------          ------         ------
   Total allowance for loan losses         $1,292          100.0%         $1,257          100.0%         $1,227          100.0%
                                           ======         ======          ======         ======          ======         ======
</TABLE>


<TABLE>
<CAPTION>
                                                               September 30,
                                           --------------------------------------------------------
                                                    1999                             1998
                                           -----------------------        -------------------------
                                                       % of Loans                     % of Loan in
                                                         in Each                           Each
                                                       Category to                     Category to
                                                          Total                           Total
                                           Amount         Loans           Amount          Loans
                                           ------      -----------        ------      ------------
                                                          (Dollars in Thousands)
<S>                                        <C>         <C>               <C>          <C>
Mortgage loans                             $  957           79.0%         $1,092           93.3%
Commercial business loans                      --             --              --             --
Consumer loans                                255           21.0              78            6.7
                                           ------         ------          ------         ------
   Total allowance for loan losses         $1,212          100.0%         $1,170          100.0%
                                           ======         ======          ======         ======
</TABLE>



                                       14

<PAGE>

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, 2002, $35.3 million of
Jacksonville's mortgage-backed 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,
                                                                    ----------------------------------------------
                                                                      2002               2001               2000
                                                                    --------           --------           --------
                                                                                (Dollars in Thousands)
<S>                                                                 <C>                <C>                <C>
Mortgage-backed securities at beginning of period - at cost         $ 58,543           $ 33,777           $ 38,540
   Purchases                                                          67,527             46,965                569
   Sales                                                                  --                 --                 --
   Repayment                                                         (36,679)           (22,199)            (5,332)
                                                                    --------           --------           --------
Mortgage-backed securities at end of period - at cost               $ 89,391           $ 58,543           $ 33,777
                                                                    ========           ========           ========

Weighted average yield at end of period                                 4.81%              6.42%              6.41%
                                                                    ========           ========           ========
</TABLE>

        At September 30, 2002, Jacksonville's mortgage-backed securities had an
amortized cost value and estimated market value of $89.4 million and $89.8
million, respectively. Of the $89.4 million portfolio, $34.4 million was
scheduled to mature in five years or less; $14.6 million was scheduled to mature
in over five years but less than ten years; and $40.4 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 $89.4 million of
mortgage backed securities on September 30, 2002, $54.1 million consisted of
fixed rate and $35.3 million were adjustable rate securities. Of Jacksonville's
total investment in mortgage-backed securities at September 30, 2002, $39.9
million consisted of FNMA certificates, $2.0 million consisted of GNMA
certificates and $14.2 million consisted of FHLMC certificates and $33.3 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



                                       15

<PAGE>

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.

        Interest rates declined during 2002. Should they continue to decline or
remain the same, the Company's interest income will be adversely impacted since
the Company will be unable to replace maturing securities with new securities of
comparable yields.

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 Director,
the President, the Executive Vice President, the Senior Vice President and the
First Vice President. The members of the Investment Committee are: Robert Brown,
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, 2002, Jacksonville had U.S. Government agency
held-to-maturity securities with an amortized cost of $8.0 million and an
estimated market value of $8.1 million. See Note 3 to the Consolidated Financial
Statement for further information. At September 30, 2002, Jacksonville held U.S.
Government Agency securities as available-for-sale with an amortized cost of
$29.0 million and an estimated market value of $29.2 million.

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


<TABLE>
<CAPTION>
                                                              September 30,
                                                ------------------------------------------
                                                  2002             2001             2000
                                                --------         --------         --------
                                                          (Dollars in Thousands)
<S>                                             <C>              <C>              <C>
Available for sale (1):
   Mortgage-backed securities
        CMO Certificates                        $ 10,808         $ 29,023         $ 12,698
        FNMA Certificates                         29,936            9,575           11,244
        FHLMC Certificates                         9,584            2,689            1,673
        GNMA Certificates                          1,709            2,968            3,412
   U.S. agency securities                         29,208           14,273           17,017
                                                --------         --------         --------
           Total available for sale               81,245           58,528           46,044
                                                --------         --------         --------

Held to maturity(1):
   Mortgage-backed securities:
        CMO Certificates                          22,636           10,016
        FNMA Certificates                         10,142            3,523            2,411
        FHLMC Certificates                         4,627              695              866
        GNMA Certificates                            283              369              423
   U.S. Treasury notes                                --               --               --
   U.S. agency securities                          8,006            4,500            5,000
                                                --------         --------         --------
           Total held to maturity                 45,694           19,103            8,700
                                                --------         --------         --------
              Total investment and
                 mortgage-backed securities     $126,939         $ 77,631         $ 54,744
                                                ========         ========         ========
</TABLE>

        (1) Securities classified as available for sale were carried at fair
value at September 30, 2002, 2001, and 2000. Securities classified as
held-to-maturity were carried at historical cost at all respective dates.



                                       16

<PAGE>

        At September 30, 2002, $10.5 million or 28.2% 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
3.30%. Included in the amount is $10.0 million invested in an adjustable rate
mortgage fund with a yield of 3.15%. Of the remaining investment securities,
$8.0 million was scheduled to mature after one year through five years, $16.7
million was scheduled to mature six years through ten years, and $2.0 million
scheduled to mature in over ten years.

        The following table sets forth certain information regarding the
maturities of Jacksonville's investment securities at September 30, 2002.

<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         $    --         --%       $ 4,453         5.19%      $ 3,553       5.46%      $    --         --%
                               -------                   -------                    -------                  -------
   Total                       $    --                   $ 4,453                    $ 3,553                  $    --
                               =======                   =======                    =======                  =======
AVAILABLE FOR SALE
U.S. agency securities         $10,500        3.30%      $ 3,498         5.44%      $12,974       5.18%        2,000        6.20%
                               -------                   -------                    -------                  -------
   Total                       $10,500                   $ 3,498                    $12,974                  $ 2,000
                               =======                   =======                    =======                  =======
Unrealized gain on
     securities available
     for sale                        2                        55                        179                       --
                               -------                   -------                    -------                  -------
   Total                       $10,502                   $ 8,006                    $16,706                  $ 2,000
                               =======                   =======                    =======                  =======
</TABLE>


<TABLE>
<CAPTION>
                                            Total
                                  --------------------------
                                   Amount            Yield
                                  -------           -------
                                   (Dollars in Thousands)
<S>                               <C>                <C>

HELD TO MATURITY
U.S. agency securities            $ 8,006            5.31%
                                  -------
   Total                          $ 8,006
                                  =======
AVAILABLE FOR SALE
U.S. agency securities            $28,972            4.60%
                                  -------
   Total                          $28,972
                                  =======
Unrealized gain on
     securities available
     for sale                         236
                                  -------
   Total                          $37,214
                                  =======
</TABLE>

INTEREST-BEARING DEPOSITS

        As of September 30, 2002, Jacksonville also had demand deposit accounts
in the FHLB of Dallas of $10.3 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, 2002 Jacksonville had 11
certificates of deposits totaling $1.1 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.



                                       17
<PAGE>

        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
$26.0 million at September 30, 2002.

        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.

        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,
                                  --------------------------------------------------------------------------------------
                                           2002                           2001                          2000
                                  -----------------------        -----------------------        ------------------------
                                   Amount       Percentage        Amount       Percentage        Amount       Percentage
                                  --------      ----------       --------      ----------       --------      ----------
<S>                               <C>           <C>              <C>           <C>              <C>           <C>
Certificate accounts:                                              (Dollars in Thousands)
    2.00 - 3.00%                  $ 57,122          16.14%             --             --              --             --
    3.01 - 4.00%                    92,726          26.20        $ 12,639           4.86%             --             --
    4.01 - 6.00%                    71,803          20.29         112,483          43.21        $104,035          47.12%
    6.01 - 8.00%                    22,792           6.44          65,107          25.01          59,905          27.14
    8.01 - 10.00%                       77            .02             136            .05             138            .06
                                  --------       --------        --------       --------        --------       --------
Total certificate accounts        $244,520          69.09%       $190,365          73.13%       $164,078          74.32%
                                  ========       ========        ========       ========        ========       ========

Transaction accounts:
    Passbook savings              $ 16,864           4.77%       $ 12,965           4.98%       $ 13,316           6.03%
    Money Market                    37,600          10.62          16,067           6.17          10,487           4.76
    Demand and NOW Accounts         54,912          15.52          40,907          15.72          32,885          14.89
                                  --------       --------        --------       --------        --------       --------
Total transaction accounts        $109,376          30.91%       $ 69,939          26.87%       $ 56,688          25.68%
                                  ========       ========        ========       ========        ========       ========
Total deposits                    $353,896         100.00%       $260,304         100.00%       $220,766         100.00%
                                  ========       ========        ========       ========        ========       ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                          September 30,
                                              -----------------------------------
                                                2002          2001          2000
                                              -------       -------       -------
                                                      (Dollars in Thousands)
<S>                                           <C>           <C>           <C>
Net increase (decrease) before interest
    credited                                  $84,645       $31,111       $(1,680)
Interest credited                               8,947         8,427         7,237
                                              -------       -------       -------
Net increase (decrease) in deposits           $93,592       $39,538       $ 5,557
                                              =======       =======       =======
</TABLE>



                                       18
<PAGE>

        The following table shows the interest rate and maturity information for
Jacksonville's certificates of deposit at September 30, 2002.

<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>
2.00 - 3.00%        $ 54,168       $  2,954             --             --       $ 57,122
3.01 - 4.00%          52,974         29,821       $  8,538       $  1,393         92,726
4.01 - 6.00%          36,271          8,354          4,374         22,804         71,803
6.01 - 8.00%          11,173         10,541            437            641         22,792
8.01 - 10.00%             60             --             --             17             77
                    --------       --------       --------       --------       --------
                    $154,646       $ 51,670       $ 13,349       $ 24,855       $244,520
                    ========       ========       ========       ========       ========
</TABLE>

        The following table sets forth the maturities of Jacksonville's
certificates of deposit having principal amounts of $100,000 or more at
September 30, 2002.

<TABLE>
<CAPTION>
Certificates of Deposit Maturing in Quarter Ending:
---------------------------------------------------
                                                 (Dollars in Thousands)
<S>                                              <C>
December 31, 2002                                        $10,459
March 31, 2003                                            10,082
June 30, 2003                                              6,294
September 30, 2003                                         6,963
After September 30, 2003                                  29,967
                                                         -------
Total certificates of deposit with balances of
     $100,000 or more                                    $63,765
                                                         =======
</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,
                                           -------------------------------------
                                             2002           2001           2000
                                           -------        -------        -------
                                                  (Dollars in Thousands)
<S>                                        <C>            <C>            <C>
Maximum balance                            $61,987        $49,000        $42,000
Average balance                             36,730         45,505         38,328
Weighted average interest
     rate of FHLB advances                    4.97%          5.51%          5.92%
</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,
                                         ----------------------------------------
                                           2002            2001            2000
                                         --------        --------        --------
                                                  (Dollars in Thousands)
<S>                                      <C>             <C>             <C>
FHLB long-term advances                  $ 25,129        $ 34,108        $ 17,500
    Weighted average interest rate           5.16%           5.33%           5.64%
FHLB short-term advances                       --        $ 14,000        $ 23,500
    Weighted average interest rate             --%           3.43%           6.63%
</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



                                       19
<PAGE>

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, 2002, Jacksonville had $25.1 million in advances from the FHLB of
Dallas, as compared to $48.1 million at September 30, 2001.

        Borrowings from the Federal Home Loan Bank of Dallas are an important
source of funding for Jacksonville and are subject to limitations imposed by the
FHLB of Dallas. In general, the FHLB of Dallas limits borrowing to 50% of a
member's total assets, subject to collateral availability. At September 30,
2002, Jacksonville's borrowing limit was $204.5 million, of which $25.1 million
was due to the FHLB of Dallas at that date, leaving a total remaining line of
credit with the FHLB of Dallas of $179.3 million at that date. The Company had
sufficient mortgage assets to collateralize the remaining line on September 30,
2002.

        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, 2002, the outstanding balance of that loan was
$918,000.

        COMPETITION. The Company faces significant competition for real estate
loans, principally from mortgage banking companies, other savings institutions,
commercial banks and credit unions. Factors which affect competition generally
include the general and local economic conditions, current interest rate levels
and volatility in the mortgage markets. The Company also faces significant
competition in attracting deposits. Its most direct competition for deposits has
historically come from commercial banks and other savings institutions located
in its market area. The Company faces additional significant competition for
investors' funds from other financial intermediaries. The Company competes for
deposits principally by offering depositors a variety of deposit programs,
convenient branch locations, hours and other services. The Company does not rely
upon any individual group or entity for a material portion of its deposits.

        Federal legislation in recent years has eliminated many of the
distinctions between commercial banks and savings institutions and holding
companies and allowed bank holding companies to acquire savings institutions.
Such legislation has generally resulted in an increase in the competition
encountered by savings institutions and has resulted in a decrease in both the
number of savings institutions and the aggregate size of the savings industry.

        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 12 loans ranging in size from $2,000 to $52,000, 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, 2002
and September 30, 2001, JS&L had a loss of $14,000 and a net profit of $42,000,
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, 2002, the interim loan balance totaled $906,000. There are
currently twelve houses completed or under construction in the subdivision.

        Total investment in JS&L at September 30, 2002 was $1.0 million. Total
capital of JS&L at September 30, 2002 was $1.0 million.



                                       20
<PAGE>

        Jacksonville IHC, Inc. holds all the issued and outstanding stock of
Jacksonville Savings Bank, SSB, a wholly owned subsidiary of the Company. 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.

        EMPLOYEES. Jacksonville and its subsidiary had 112 full-time employees
at September 30, 2002. 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

        SARBANES-OXLEY ACT OF 2002. On July 30, 2002, the President signed into
law the Sarbanes-Oxley Act of 2002 implementing legislative reforms intended to
address corporate and accounting fraud. In addition to the establishment of a
new accounting oversight board which will enforce auditing, quality control and
independence standards and will be funded by fees from all publicly traded
companies, the bill restricts provision of both auditing and consulting services
by accounting firms. To ensure auditor independence, any non-audit services
being provided to an audit client will require preapproval by the company's
audit committee members. In addition, the audit partners must be rotated. The
bill requires chief executive officers and chief financial officers, or their
equivalent, to certify to the accuracy of periodic reports filed with the SEC,
subject to civil and criminal penalties if they knowingly or willfully violate
this certification requirement. In addition, under the Act, counsel will be
required to report evidence of a material violation of the securities laws or a
breach of fiduciary duty by a company to its chief executive officer or its
chief legal officer, and, if such officer does not appropriately respond, to
report such evidence to the audit committee or other similar committee of the
board of directors or the board itself.

        Longer prison terms will also be applied to corporate executives who
violate Federal securities laws, the period during which certain types of suits
can be brought against a company or its officers has been extended, and bonuses
issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from insider trading during
retirement plan "blackout" periods, and loans to company executives are
restricted. In addition, a provision directs that civil penalties levied by the
SEC as a result of any judicial or administrative action under the Act be
deposited to a fund for the benefit of harmed investors. The Federal Accounts
for Investor Restitution ("FAIR") provision also requires the SEC to develop
methods of improving collection rates. The legislation accelerates the time
frame for disclosures by public companies as they must immediately disclose any
material changes in their financial condition or operations. Directors and
executive officers must also provide information for most changes in ownership
in a company's securities within two business days of the change.

        The Act also increases the oversight of, and codifies certain
requirements relating to audit committees of public companies and how they
interact with the company's "registered public accounting firm" ("RPAF"). Audit
committee members must be independent and are barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial expert"
(as such term will be defined by the SEC) and if not, why not. Under the Act, a
RPAF is prohibited from performing statutorily mandated audit services for a
company if such company's chief executive officer, chief financial officer,
comptroller, chief accounting officer or any person serving in equivalent
positions has been employed by such firm and participated in the audit of such
company during the one-year period preceding



                                       21
<PAGE>

the audit initiation date. The Act also prohibits any officer or director of a
company or any other person acting under their direction from taking any action
to fraudulently influence, coerce, manipulate or mislead any independent public
or certified accountant engaged in the audit of the company's financial
statements for the purpose of rendering the financial statement's materially
misleading. The Act also requires the SEC to prescribe rules requiring inclusion
of an internal control report and assessment by management in the annual report
to shareholders. The Act requires the RPAF that issues the audit report to
attest to and report on management's assessment of the company's internal
controls. In addition, the Act requires that each financial report required to
be prepared in accordance with (or reconciled to) generally accepted accounting
principles and filed with the SEC reflect all material correcting adjustments
that are identified by a RPAF in accordance with generally accepted accounting
principles and the rules and regulations of the SEC.

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(l) 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 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



                                       22
<PAGE>

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 of the Office of Thrift Supervision 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.

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.



                                       23
<PAGE>

        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, 2002, the Bank was in compliance with
the above restrictions.

        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.



                                       24
<PAGE>

        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,
2002, the required Tier 1 leverage capital ratio requirement for the Bank was
4.00% and its actual Tier 1 leverage capital ratio was 7.61%.

        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, 2002, the Bank's Tier 1 capital to risk-weighted assets
ratio was 13.23%. On the same date, the Bank's total risked-based capital
percentage was 13.77%.

        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,
       -                                                                --------------------      ---------------------
                                                                                2002                     2001
       -                                                                --------------------      ---------------------
                                                                        Actual      Required      Actual       Required
       -                                                                -------     --------      ------       --------
<S>                                                                     <C>         <C>           <C>          <C>
Leverage ratio (or tangible capital requirement) (1):
   Tier 1 capital to total assets                                         7.61%        4.00%        9.77%        4.00%

Tier 1 risk-based capital ratio (or core capital requirement) (1):
  Tier 1 risk-based capital to risk weighted assets                      13.23         4.00        16.97         4.00

Total risk-based capital ratio:
   Total risk-based capital risk to risk weighted assets                 13.77         8.00        17.61         8.00
</TABLE>



                                       25
<PAGE>

        The following table sets forth a reconciliation between the Bank's
stockholders' equity and each of its three regulatory capital requirements at
September 30, 2002.

<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                                                    $ 36,640         $ 36,640         $ 36,640
Less unrealized gain (loss) on securities
   available-for-sale                                                 377              377              377
Less nonallowable assets:
    Disallowed goodwill and other disallowed
       intangible goods                                            (3,369)          (3,369)          (3,369)
    Principally equity investment in subsidiary                    (1,019)          (1,019)          (1,019)
Plus allowances for loan and lease losses                              --               --            1,292
                                                                 --------         --------         --------
    Total regulatory capital                                       31,875           31,875           33,167
    Minimum required capital                                       16,755            9,637           19,273
                                                                 --------         --------         --------
    Excess regulatory capital                                    $ 15,120         $ 22,238         $ 13,894
                                                                 ========         ========         ========
    Bank's regulatory capital percentage (1)                          7.6%            13.2%            13.8%
    Minimum regulatory capital required percentage                    4.0%             4.0%             8.0%
                                                                 --------         --------         --------
    Bank's regulatory capital percentage in excess of
       requirement                                                    3.6%             9.2%             5.8%
                                                                 ========         ========         ========
</TABLE>


-------------------------------

(1) Tier 1 capital is computed as a percentage of total adjusted assets of
$418.9 million. Risk-based capital is computed as a percentage of adjusted
risk-weighted assets of $240.9 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,
2002, the Bank was categorized as well capitalized.

        The FDIA provides 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.

        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



                                       26
<PAGE>

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 $1.0 million at September 30, 2002. 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.

        The Federal banking agencies have agreed to adopt, for regulatory
purposes, SFSA 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, 2002, the Bank had $81.2
million of securities, available-for-sale, with $377,000 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



                                       27
<PAGE>

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 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



                                       28
<PAGE>

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.

        Under current CRA regulations issued by the FDIC and other Federal
banking agencies, institutions are rated based on their actual performance in
meeting community credit needs. In particular, the agencies 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 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. As of the date of its most recent regulatory
examination, the bank was rated "satisfactory" with respect to its CRA
compliance.

        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
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, 2002, with in excess of 94% 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.



                                       29
<PAGE>

        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, 2002, the Bank's advances from the FHLB of Dallas amounted to
$25.1 million or 6.5% 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, 2002, the
Bank had $3.2 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, 2002,
dividends paid by the FHLB of Dallas to the Bank totaled $88,000.

        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, 2002, 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.

        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 a 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



                                       30
<PAGE>

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.

FEDERAL TAXATION

        GENERAL. The Bank is subject to Federal income taxation in the same
general manner as other corporations with some exceptions, including
particularly the reserve for bad debts discussed below. The following discussion
of Federal taxation is intended only to summarize certain pertinent Federal
income tax matters and is not a comprehensive description of the tax rules
applicable to the Bank.

        METHOD OF ACCOUNTING. For Federal income tax purposes, the Bank
currently reports its income and expenses on the accrual method of accounting,
uses a tax year ending September 30, and files a consolidated Federal income tax
return with the Company and affiliated entities.

        BAD DEBT RESERVES. The Company uses the experience method of computing
reserves for bad debts for Federal income tax purposes. The bad debt deduction
allowable under this method is available to small banks with assets less than
$500 million.

        The Bank has been audited by the IRS or the statute of limitations has
expired with respect to consolidated Federal income tax returns through the year
ended September 30, 1998. With respect to years examined by the IRS, either all
deficiencies have been satisfied or sufficient reserves have been established to
satisfy asserted deficiencies. In the opinion of management, any examination of
still open returns would not result in a deficiency which could have a material
adverse effect on the financial condition of the Bank.

        TEXAS TAXATION. The Bank is subject to a state franchise tax which is
based on the greater of .25 percent of its capital or 4 1/2 percent of its
earned surplus for the year.



                                       31
<PAGE>

ITEM 2. PROPERTIES.

        At September 30, 2002, the Company conducted its business from its main
office at Commerce & Neches Streets, Jacksonville, Texas, and eight 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, 2002.

<TABLE>
<CAPTION>
Description/                        Leased/    Net Book Value
Address                              Owned       Of Property      Deposits
---------------------------        --------    ---------------   ----------
                                           (Dollars in Thousands)
<S>                                <C>         <C>              <C>
Main Office
Commerce and Neches Street
Jacksonville, Texas                  Owned         $   781         $92,114

Branch Office
1015 North Church Street
Palestine, Texas                     Owned           1,026          68,991

Branch Office
107 East Fourth Street
Rusk, Texas                          Owned              98          15,066

Branch Office
1412 Judson Road
Longview, Texas                      Owned             481          28,094

In-Store Branch Office
Wal-Mart Supercenter
515 E. Loop 281
Longview, Texas                     Leased             163           5,284

Branch Office
617 South Palestine Street
Athens, Texas                        Owned             469          39,527

Branch Office
5620 Old Bullard Road
Tyler, Texas                         Owned             863          45,634

Branch Office
2507 University Blvd
Tyler, Texas                         Owned           1,169           9,714


Branch Office
121 S. Market St
Carthage, Texas                      Owned             312          49,472
</TABLE>

---------------------------

        In addition, the Company through its J S&L subsidiary has an investment
of $1.0 million at September 30, 2002, in developed residential housing lots.



                                       32
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

        The Company 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 the Company.

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 the
inside back cover of the Company's 2002 Annual Report to Stockholders, which
is included herein as Exhibit 13 ("2002 Annual Report") and from Part III,
Item 12 hereof.

ITEM 6. SELECTED FINANCIAL DATA.

        The information required herein is incorporated by reference from pages
1 and 2 of the Company's 2002 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 17 of the Company's 2002 Annual Report.

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

        The information required herein is incorporated by reference from pages
4 to 5 of the Company's 2002 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 2002 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 8 of the Company's definitive proxy statement, dated January 21, 2003,
("Proxy Statement").



                                       33
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

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

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.

        EQUITY COMPENSATION PLAN INFORMATION. The following table sets forth
certain information for all equity compensation plans and individual
compensation arrangements (whether with employees or non-employees, such as
directors), in effect as of September 30, 2002.

<TABLE>
<CAPTION>
                                                                                        Number of Shares Remaining
                                   Number of Shares to be                                        Available
                                 issued upon the Exercise of     Weighted-Average     for Future Issuance (Excluding
                                    Outstanding Options,        Exercise Price of                 Shares
        Plan Category                Warrants and Rights       Outstanding Options     Reflected in the First Column)
-------------------------------  ---------------------------   -------------------    -------------------------------
<S>                              <C>                           <C>                    <C>
Equity Compensation Plans
   Approved by Security Holders            263,013                    $14.54                       9,000

Equity Compensation Plans Not
   Approved by Security Holders                 --                        --                          --
                                           -------                    ------                       -----
Total                                      263,013                    $14.54                       9,000
                                           =======                    ======                       =====
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

ITEM 14. CONTROLS AND PROCEDURES.

        Within 90 days prior to the date of this annual report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.

        Disclosure controls and procedures are the controls and other procedures
of the Company that are designed to ensure that the information required to be
disclosed by the Company in its reports filed or submitted under the Securities
Exchange Act of 1934, as amended ("Exchange Act") is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in its reports filed under
the Exchange Act is accumulated and communicated to the Company's management,
including the principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.


                                       34
<PAGE>

PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT 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,
                2002 and 2001

                Consolidated Statements of Earnings for the Years Ended
                September 30, 2002, 2001, and 2000

                Consolidated Statements of Changes in Stockholders' Equity for
                the Years Ended September 30, 2002, 2001, and 2000

                Consolidated Statements of Cash Flows for the Years Ended
                September 30, 2002, 2001, and 2000

                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.



                                       35
<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>
   2.1       Acquisition Agreement by and Among Jacksonville Bancorp, Inc. Jacksonville IHC, Inc. and
             Jacksonville Savings and Loan Association*
   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       2001 Stock Option Plan*****
  10.8       Employment Agreement by and among Jacksonville Bancorp, Inc., Jacksonville IHC, Inc.,
             Jacksonville Savings Bank, SSB and Jerry M. Chancellor
  10.9       Employment Agreement by and among Jacksonville Bancorp, Inc., Jacksonville IHC, Inc.,
             Jacksonville Savings Bank, SSB and Bill W. Taylor
  10.10      Employment Agreement by and among Jacksonville Bancorp, Inc. Jacksonville IHC, Inc.,
             Jacksonville Savings Bank, SSB and Jerry Hammons
   13        2002 Annual Report to Stockholders for the year ended September 30, 2002
   21        Subsidiaries of Registrant
   23        Consent of Independent Auditors
  99.1       Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
             2002 (18 U.S.C. 1350)
  99.2       Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
             2002 (18 U.S.C. 1350)
</TABLE>

-----------------

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

**      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 proxy statement on Schedule 14A filed December 21, 2001.

(b)     Reports on Form 8-K during the quarter ended September 30, 2002:

        1.      On July 19, 2002, the Company filed a current report on Form 8-K
                reporting earnings for the quarter ended June 30, 2002.

        2.      On September 10, 2002, 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.



                                       36
<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 18, 2002                           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 18, 2002
-----------------------------------------------------
Jerry M. Chancellor, Director and Chief
 Executive Officer (Principal Executive Officer)



/s/ W.G. Brown                                                        December 18, 2002
-----------------------------------------------------
W. G. Brown, Chairman



/s/ Robert Brown                                                      December 18, 2002
-----------------------------------------------------
Robert Brown, Vice-Chairman



/s/ Charles Broadway                                                  December 18, 2002
-----------------------------------------------------
Charles Broadway, Director



/s/ Ray W. Beall                                                      December 18, 2002
-----------------------------------------------------
Ray W. Beall, Director



/s/ Dr. Joe Tollett                                                   December 18, 2002
-----------------------------------------------------
Dr. Joe Tollett, Director



/s/ Bill W. Taylor                                                    December 18, 2002
-----------------------------------------------------
Bill W. Taylor, Director and Executive Vice President
(Principal Financial and Accounting Officer)


/s/ Jerry Hammons                                                     December 18, 2002
-----------------------------------------------------
Jerry Hammons, Director/Senior Vice President
</TABLE>



                                       37
<PAGE>

                                 CERTIFICATIONS


I, Jerry M. Chancellor, certify that:

1.      I have reviewed this annual report on Form 10-K of Jacksonville Bancorp,
Inc. (the "Registrant");

2.      Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.      Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

4.      The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

    a) designed such disclosure controls and procedures to ensure that material
    information relating to the Registrant, including its consolidated
    subsidiaries, is made known to us by others within those entities,
    particularly during the period in which this annual report is being
    prepared;

    b) evaluated the effectiveness of the Registrant's disclosure controls and
    procedures as of a date within 90 days prior to the filing date of this
    annual report (the "Evaluation Date"); and

    c) presented in this annual report our conclusions about the effectiveness
    of the disclosure controls and procedures based on our evaluation as of the
    Evaluation Date;

5.      The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):

    a) all significant deficiencies in the design or operation of internal
    controls which could adversely affect the Registrant's ability to record,
    process, summarize and report financial data and have identified for the
    Registrant's auditors any material weaknesses in internal controls; and

    b) any fraud, whether or not material, that involves management or other
    employees who have a significant role in the Registrant's internal controls;
    and

6.      The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: December 18, 2002                 /s/ Jerry  M. Chancellor
                                        --------------------------------------
                                        Jerry M. Chancellor
                                        President and Chief Executive Officer



                                       38
<PAGE>

I, Bill W. Taylor, certify that:

1.      I have reviewed this annual report on Form 10-K of Jacksonville Bancorp,
Inc. (the "Registrant");

2.      Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.      Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

4.      The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

    a) designed such disclosure controls and procedures to ensure that material
    information relating to the Registrant, including its consolidated
    subsidiaries, is made known to us by others within those entities,
    particularly during the period in which this annual report is being
    prepared;

    b) evaluated the effectiveness of the Registrant's disclosure controls and
    procedures as of a date within 90 days prior to the filing date of this
    annual report (the "Evaluation Date"); and

    c) presented in this annual report our conclusions about the effectiveness
    of the disclosure controls and procedures based on our evaluation as of the
    Evaluation Date;

5.      The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):

    a) all significant deficiencies in the design or operation of internal
    controls which could adversely affect the Registrant's ability to record,
    process, summarize and report financial data and have identified for the
    Registrant's auditors any material weaknesses in internal controls; and

    b) any fraud, whether or not material, that involves management or other
    employees who have a significant role in the Registrant's internal controls;
    and

6.      The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date: December 18, 2002             /s/ Bill W. Taylor
                                    ------------------------------------
                                    Bill W. Taylor
                                    Executive Vice President and Chief
                                    Financial Officer



                                       39