<PAGE>

                                                                      Exhibit 13







                           [JACKSONVILLE BANCORP LOGO]











                               2002 ANNUAL REPORT














<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                      <C>

President's Letter to Stockholders..........................................................i

Selected Consolidated Financial Data........................................................1

Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................................................3

Independent Auditors' Report..............................................................F-1
Consolidated Financial Statements:
  Consolidated Statements of Financial Condition..........................................F-2
  Consolidated Statements of Earnings.....................................................F-3
  Consolidated Statements of Stockholders' Equity.........................................F-4
  Consolidated Statements of Cash Flows...................................................F-6

Notes to Consolidated Financial Statements................................................F-7

Stock Information
Stockholder Information
Transfer Agent/Registrar
Shareholder Requests
Directors and Executive Officers
Banking Locations
</TABLE>



<PAGE>

[JACKSONVILLE BANCORP LOGO]




Dear Fellow Shareholders:

        Jacksonville Bancorp, Inc. completed fiscal 2002 with a record net
income of $6.0 million or $3.30 per diluted share. This represents a 54%
increase in earnings when compared to net earnings for the previous year of $3.9
million or $2.06 per diluted share. We were able to accomplish this increase in
earnings despite several events which created significant uncertainties in the
financial world.

        These improved financial results were not an accident. Since our initial
public offering in fiscal 1996, diluted earnings per share have increased an
average of over 34.9% annually. Not surprisingly, our earnings growth has been
reflected in the growth of the market price of the Company's stock. Our stock
price at September 30, 2002 was $24.81, up 30.6% from $19.00 at September 30,
2001 and up 148.1% from the initial public offering at March 31, 1996. The
Company's financial success since 1996 has been built upon the Board's and
Management's commitment to growing the Company through selective acquisitions,
the introduction of new products and services and the expansion of our market
presence by opening new branches.

        During fiscal 2002, we completed the acquisition of the Carthage, Texas
branch deposits which proved to be accretive to earnings. After learning the
Bank was the successful bidder for Carthage early in 2001, the decision was made
to borrow significant advances from the Federal Home Loan Bank to purchase
investments and to originate loans in anticipation of the proceeds from the
purchase. Upon closing the transaction in November, 2001 the advances were paid
from the proceeds of the acquisition. This Carthage deposit acquisition along
with our other retail growth resulted in deposit growth of 36% to $353.9 million
for the fiscal year. Even though deposits increased $93.6 million during the
year, we were actually able to decrease total interest expense as compared to
the prior year by $231,000 because of lower interest rates paid on deposits and
a reduction in FHLB advances of $23.0 million.

        Our investment securities and mortgage-backed securities portfolio
increased by 63.5%, to a total of $126.9 million. Similarly, our loans
receivable, net portfolio increased to $265.1 million in 2002 due to our
increased market share coupled with a favorable interest rate environment and
increased refinance activity. For the year ended September 30, 2002, the total
loan net portfolio increased 7.6% after selling $39.2 million of loan
originations to the secondary market.

        We continued to view the repurchase of our common stock as a favorable
long-term investment and a prudent use of capital. In 2002 we repurchased
107,185 shares at a cost of $2.3 million, or an average cost of $21.83 per
share.

        As we move into 2003, we will focus on our core business, mortgage and
consumer lending and increasing deposits to fund the lending activity. We will
continue a program of expense control and improved efficiency, keeping conscious
of our goals to provide high quality customer service. We plan also to focus on
expanding non-interest revenue sources.



                                        i

<PAGE>

        On behalf of the Board of Directors, officers and employees who
contributed to our strong performance in 2002, I thank you for your ongoing
support. We are proud to be entrusted to lead your Company and are excited about
the future of Jacksonville Bancorp, Inc.



Sincerely,


/s/ JERRY CHANCELLOR


Jerry Chancellor
President & CEO



                                       ii

<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

        The following selected consolidated financial and other data of the
Company does not purport to be complete and is qualified in its entirety by
reference to the more detailed financial information contained elsewhere herein.

<TABLE>
<CAPTION>
                                                                             September 30
                                                   ----------------------------------------------------------------
                                                     2002          2001          2000          1999          1998
                                                   --------      --------      --------      --------      --------
<S>                                                <C>           <C>           <C>           <C>           <C>
SELECTED FINANCIAL CONDITION AND  OTHER DATA:
Total assets ................................      $425,250      $350,994      $301,467      $290,392      $263,160
Cash and cash equivalents ...................        15,352        13,639         7,521         6,568        10,868
Investment securities .......................        37,214        18,773        22,017        18,711        20,013
Mortgage-backed securities ..................        89,725        58,858        32,727        37,640        31,866
Loans receivable, net .......................       265,091       246,432       226,854       216,267       191,153
Foreclosed real estate, net .................            87            63           124           346           531
Deposits ....................................       353,896       260,304       220,766       215,209       204,490
Borrowings ..................................        25,129        48,108        41,000        35,000        17,000
Stockholders' equity ........................        39,209        35,984        34,089        34,219        35,562
Full-service offices ........................             9             8             8             7             7
</TABLE>

<TABLE>
<CAPTION>
                                                                       Year Ended September 30,
                                                   ---------------------------------------------------------------
                                                     2002          2001          2000          1999          1998
                                                   -------       -------       -------       -------       -------
<S>                                                <C>           <C>           <C>           <C>           <C>
SELECTED OPERATING DATA:
Total interest income .......................      $28,066       $24,231       $22,350       $20,465       $18,541
Total interest expense ......................       13,811        14,041        12,328        10,711         9,628
                                                   -------       -------       -------       -------       -------
  Net interest income .......................       14,255        10,190        10,022         9,754         8,913
Provision for losses on loans ...............          102            86            69            60            35
                                                   -------       -------       -------       -------       -------
  Net interest income after provision for
     losses on loans ........................       14,153        10,104         9,953         9,694         8,878
Non-interest income .........................        2,567         2,379         1,740         1,687         1,554
Non-interest expense ........................        7,672         6,616         6,209         5,876         5,639
                                                   -------       -------       -------       -------       -------
Income before income taxes ..................        9,049         5,867         5,484         5,505         4,793
Income taxes ................................        3,073         1,990         1,813         1,867         1,468
                                                   -------       -------       -------       -------       -------
Net income ..................................      $ 5,976       $ 3,877       $ 3,671       $ 3,638       $ 3,325
                                                   =======       =======       =======       =======       =======
Earnings per share
  Basic .....................................      $  3.48       $  2.18       $  1.87       $  1.65       $  1.44
  Diluted ...................................         3.30          2.06          1.82          1.60          1.38
Dividends Payout Ratio ......................        14.30%        23.19%        26.35%        30.07%        34.60%

</TABLE>

<TABLE>
<CAPTION>
                                                                  At or For the Year Ended September 30,
                                                      ----------------------------------------------------------
                                                       2002         2001         2000         1999         1998
                                                      ------       ------       ------       ------       ------
<S>                                                   <C>          <C>          <C>          <C>          <C>
SELECTED OPERATING RATIOS(1):
Return on average assets .......................        1.50%        1.20%        1.25%        1.33%        1.37%
Return on average equity .......................       16.02        10.94        10.90        10.82         9.98
Average equity to average assets ...............        9.39        10.98        11.42        12.88        13.74
Equity to assets at end of period ..............        9.22        10.25        11.31        11.78        13.51
Interest rate spread(2) ........................        3.41         2.85         3.08         3.23         3.21
Net interest margin(2) .........................        3.72         3.31         3.56         3.72         3.84
Non-performing loans and troubled debt
  restructurings to total loans at end of
  period(3) ....................................         .38          .41          .35          .41          .55
Non-performing assets and troubled debt
  restructurings to total assets at end of
  period(3) ....................................         .26          .29          .31          .42          .60
Average interest-earning assets to average
  interest-bearing liabilities .................      112.66       110.00       111.08       111.90       115.38
Net interest income after provision for loan
  losses to total noninterest expense ..........      184.49       152.72       160.30       164.98       157.45
</TABLE>

                                              (See footnotes on following page.)



                                        1
<PAGE>

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

(1) With the exception of end of period ratios, all ratios are based on average
    monthly balances during the periods and are annualized where appropriate.

(2) Interest rate spread represents the difference between the weighted average
    yield on interest-earning assets and the weighted average rate on
    interest-bearing liabilities. Net interest margin represents net interest
    income as a percentage of average interest-earning assets.

(3) Non-performing loans consist of non-accrual loans and accruing loans that
    are contractually past due 90 days or more; non-performing assets consist of
    non-performing loans and real estate acquired by foreclosure, deed in lieu
    thereof or deemed in substance foreclosure; and troubled debt restructurings
    consist of restructured debt in accordance with Statement of Financial
    Accounting Standards No. 15.



                                        2
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

        Jacksonville Bancorp, Inc. (the "Company"), through its wholly-owned
subsidiary, Jacksonville IHC, Inc., ("IHC"), Jacksonville Savings Bank, SSB
("Jacksonville"), wholly owned subsidiary of IHC and JS&L Corporation ("JS&L"),
wholly owned subsidiary of Jacksonville, is primarily engaged in 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, and home equity
loans. It also has a significant amount of investments in mortgage-backed
securities, including collateralized mortgage obligations, and federal agency
obligations.

        The profitability of Jacksonville depends primarily on its net interest
income, which is the difference between interest and dividend income on
interest-earning assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing deposits and
borrowings. Jacksonville's net earnings also is dependent, to a lesser extent,
on the level of its noninterest income (including servicing fees and other fees)
and its noninterest expenses, such as compensation and benefits, occupancy and
equipment, insurance premiums, and miscellaneous other expenses, as well as
federal income tax expense.

ASSET AND LIABILITY MANAGEMENT

        The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate-sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest rate-sensitive assets exceeds the amount of interest
rate-sensitive liabilities and is considered negative when the amount of
interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would have the
opposite effect.

        The lending activities of savings associations have historically
emphasized long-term, fixed-rate loans secured by single-family residences, and
the primary source of funds of such institutions has been deposits and, more
recently, Federal Home Loan Bank ("FHLB") advances. The deposit accounts and
advances of savings associations generally bear interest rates that reflect
market rates and largely mature or are subject to repricing within a short
period of time. This factor, in combination with substantial investments in
long-term, fixed-rate loans, has historically caused the income earned by
savings associations on their loan portfolios to adjust more slowly to changes
in interest rates than their cost of funds.

        Jacksonville originates both fixed- and variable-rate residential real
estate loans as market conditions dictate. Jacksonville's mortgage loan
portfolio, as of September 30, 2002 consisted of 21% of adjustable or floating
rate loans. In order to meet its customers' demands for fixed-rate loans during
periods of lower interest rates, Jacksonville follows a policy of selling to
third parties a high percentage of the fixed-rate loans it originates while
retaining its variable-rate loans. The mixture of originations for sale and
originations for portfolio varies depending on the general mix of
interest-earning assets Jacksonville then currently holds in its portfolio and
other factors such as market fees for loan sales and the overall interest-rate
environment. Jacksonville has a policy to retain a large



                                        3
<PAGE>

portion of its fixed-rate residential first mortgage loans with terms of 15
years or less and to sell a majority of those fixed rate mortgages with terms in
excess of 15 years.

        Notwithstanding the foregoing, however, because Jacksonville's
interest-bearing liabilities which mature or reprice within short periods
substantially exceed its earning assets with similar characteristics, material
and prolonged increases in interest rates generally would adversely affect net
interest income, while material and prolonged decreases in interest rates
generally, but to a lesser extent because of their historically low levels,
would have the opposite effect.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Bank's interest rate risk and asset-liability management are the
responsibility of the Interest Rate Risk Committee which reports to the Board of
Directors and is comprised of members of the Bank's senior management. The
Committee is actively involved in formulating the economic projections used by
the Bank in its planning and budgeting process and establishes policies which
monitor and coordinate the Bank's sources, uses and pricing of funds.

        Interest rate risk, including mortgage prepayment risk, is the most
significant non-credit related risk to which the Bank is exposed. Net interest
income, the Bank's primary source of revenue, is affected by changes in interest
rates as well as fluctuations in the level and duration of assets and
liabilities on the Bank's balance sheet.

        Interest rate risk can be defined as the exposure of the Bank's net
interest income or financial position to adverse movements in interest rates. In
addition to directly impacting net interest income, changes in the level of
interest rates can also affect, (i) the amount of loans originated and sold by
the institution, (ii) the ability of borrowers to repay adjustable or
variable-rate loans, (iii) the average maturity of loans, which tend to increase
when new loan rates are substantially higher than rates on existing loans and,
conversely, decrease when rates on new loans are substantially lower than rates
on existing loans, (iv) the value of the Bank's mortgage loans and the resultant
ability to realize gains on the sale of such assets and (v) the carrying value
of investment securities classified as available-for-sale and the resultant
adjustments to shareholders' equity.

        The primary objective of the Bank's asset-liability management is to
maximize net interest income while maintaining acceptable levels of interest
rate sensitivity. To accomplish this the Bank monitors interest rate sensitivity
by use of a sophisticated simulation model which analyzes resulting net interest
income under various interest rate scenarios and anticipated levels of business
activity. Complicating management's efforts to measure interest rate risk is the
uncertainty of assumptions used for the maturity, repricing, and/or runoff
characteristics of some of the Bank's assets and liabilities.

        To cope with these uncertainties, management gives careful attention to
its assumptions. For example, certain of the Bank's interest-bearing deposit
products (NOW accounts, savings and money market deposits) have no contractual
maturity and based on historical experience have only a fractional sensitivity
to movements in market rates. Because management believes it has some control
with respect to the extent and timing of rates paid on non-maturity deposits,
certain assumptions based on historical experience are built into the model.
Another major assumption built into the model involves the ability customers
have to prepay loans, often without penalty. The risk of prepayment tends to
increase when interest rates fall. Since future prepayment behavior of loan
customers is uncertain, the resultant interest rate sensitivity of loan assets
cannot be determined exactly. The Bank utilizes market consensus prepayment
assumptions related to residential mortgages.

        The Bank uses simulation analysis to measure the sensitivity of net
interest income over a specified time period (generally 1 year) under various
interest-rate scenarios using the assumptions discussed above. The Bank's policy
on interest rate risk specifies that if interest rates were to shift immediately
up or down 200 basis points, estimated net interest income should decline by
less than 20%. Management estimates, based on its simulation



                                        4
<PAGE>

model, that an instantaneous 200 basis point increase in interest rates at
September 30, 2002, would result in a .39% increase in net interest income over
the next twelve months, while a 200 basis point decrease in rates would result
in a 8.7% decrease in net interest income over the next twelve months. In 2001,
management estimated, based on its simulation model, that an instantaneous 200
basis point increase in interest rates at September 30, 2001, would result in a
7.5% decrease in net interest income over the next twelve months, while a 200
basis point decrease in rates would result in less than a 8.6% increase in net
interest income over the next twelve months. It should be emphasized that the
results are highly dependent on material assumptions such as those discussed
above. It should also be noted that the exposure of the Bank's net interest
income to gradual and/or modest changes in interest rates is relatively small.
At September 30, 2002 the Bank was within the acceptable ranges set forth in the
Bank's Interest Rate Risk policy.

REGULATORY CAPITAL REQUIREMENTS

        The Bank is required to maintain specified amounts of capital pursuant
to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") and regulations promulgated by the FDIC thereunder. The capital
standards generally require the maintenance of regulatory capital sufficient to
meet a Tier 1 leveraged capital requirement, a Tier 1 risk-based capital
requirement and a total risk-based capital requirement. At September 30, 2002,
Jacksonville Savings Bank had Tier 1 leveraged capital, and Tier 1 risk based
capital and total risk based capital levels of 7.61%, 13.23% and 13.77%,
respectively, which levels exceed all current regulatory capital by $15.1
million, $22.2 million, and $13.9 million respectively.

"SAFE HARBOR" STATEMENT

        In addition to historical information, forward-looking statements are
contained herein that are subject to risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations, include, but are not limited to, the impact of economic conditions
(both generally and more specifically in the markets in which Jacksonville
operates), the impact of competition for Jacksonville's customers from other
providers of financial services, the impact of government legislation and
regulation (which changes from time to time and over which Jacksonville has no
control), and other risks detailed in this Form 10-K and in the Company's other
Securities and Exchange Commission filings. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly revise these forward-looking statements, to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission.

RECENT ACCOUNTING PRONOUNCEMENTS

        The Financial Accounting Standards Board (FASB) issued Statement Number
141, "Business Combinations" (SFAS No. 141), and Statement Number 142, "Goodwill
and Other Intangible Assets" (SFAS No. 142), in June 2001. The Statements
require that all business combinations be accounted for using the purchase
method of accounting and prohibit use of the pooling-of-interests method.
Intangible assets acquired in a business combination must be recognized as an
asset apart from goodwill (goodwill is measured as the excess of the cost of an
acquired entity over the net amounts assigned to assets acquired and liabilities
assumed) if the assets arise from contractual or other legal rights. If an
intangible asset does not arise from contractual or other legal rights, it must
be recognized as an asset apart from goodwill only if it is separable, that is,
capable of being separated or divided from the acquired enterprise and sold,
transferred, licensed, rented, or exchanged (regardless of whether there is an
intent to do so). Goodwill will not be amortized but must be tested for
impairment annually at the reporting unit level. The provisions of the
Statements apply to all combinations initiated after June 30, 2001. The Company
adopted Statements 141 and 142 in the quarter ending December 31, 2001 effective
with the completion of the acquisition of the Carthage, Texas branch.



                                        5
<PAGE>

        SFAS No. 144, (Accounting for the Impairment or Disposal of Long-Lived
Assets), was issued in August of 2001. The statement amends SFAS No.121 and
addresses the financial accounting and reporting for the impairment or disposal
of long-lived assets. The statement retains certain provisions of SFAS No. 121,
but removes goodwill from its scope along with other revisions to existing
accounting practice. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The Company does not believe this statement will have any material impact on its
financial condition or operations.

        SFAS No. 147, (Acquisitions of Certain Financial Institutions), was
issued in October 2002. This statement requires acquisitions of financial
institutions (except mutual institutions) to be accounted for in accordance with
SFAS No. 141 and SFAS No. 72 and removes them from the scope of SFAS No, 142.
Thus the requirement to recognize and amortize any excess of the fair value of
liabilities assumed over the fair value of tangible and identifiable intangible
assets acquired as an unidentifiable intangible asset no longer applies to
acquisitions within the scope of this statement. It also amends SFAS No. 144 to
include in its scope long-term customer-relationship intangible assets (core
base intangibles). Consequently, those intangibles assets are subject to the
same undiscounted cash flow recoverability test and impairment loss recognition
and measurement provisions that Statement 144 requires for other long-lived
assets that are held and used. The Company adopted this statement retroactive to
the date of the Carthage, Texas branch purchase and ceased amortization of the
previously recognized unidentifiable intangible asset considered to be goodwill.
See notes 2 and 22 to the consolidated financial statements.

                CHANGES IN FINANCIAL CONDITION FOR 2002 AND 2001

ASSETS

        GENERAL. Jacksonville Bancorp, Inc., is the indirect parent holding
company of Jacksonville Savings Bank, the Company's principal subsidiary.
Jacksonville Bancorp, Inc., became the holding company of Jacksonville Savings
Bank as part of a second step conversion to stock form in 1996. At present
Jacksonville Savings Bank is directly held by Jacksonville IHC, Inc.,
(established as the holding company for Jacksonville Savings Bank in 1997) which
is in turn wholly owned by Jacksonville Bancorp, Inc. Jacksonville IHC, Inc.,
was formed in order to minimize Company taxes that must be paid based upon Texas
source income. In addition to holding all the issued and outstanding shares of
Jacksonville Savings Bank, Jacksonville IHC's only other business activity was
to loan funds to Jacksonville's Employee Stock Ownership Plan. Jacksonville
Savings Bank currently owns 100% of the capital stock of JS&L Corporation
("JS&L"), established in December 1979. JS&L is used as a diversification
vehicle by the Company. Its main activity has been the servicing of purchased
residential first and second lien notes and real estate development.

        Total assets of the Company increased $74.3 million to $425.3 million at
September 30, 2002 from $351.0 million at September 30, 2001. This increase was
primarily due to increases in investments, mortgage-backed securities, loans
receivable and intangible assets, net, offset by decreases in assets classified
as other assets. The growth in assets was funded by a $93.6 million net increase
in deposits offset by a $23.0 million decrease in advances from the FHLB. The
Company repurchased $2.3 million of its common stock, on the open market, during
the year ended September 30, 2002, increasing its common shares held in treasury
from 869,560 shares at September 30, 2001 to 976,745 shares at September 30,
2002. Retained earnings increased $5.1 million or 18.8% from $27.2 million at
September 30, 2001 to $32.3 million at September 30, 2002. The discussion that
follows focuses on major changes in asset mix during the year.

        CASH AND CASH EQUIVALENTS. Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits and cash on hand, increased by
$1.7 million to $15.4 million at September 30, 2002 compared to $13.6 million at
September 30, 2001. The increase of $1.7 million was primarily due to an
increase in cash on hand associated with the Carthage branch acquisition and an
increase in deposits at the Federal Home Loan



                                        6
<PAGE>

Bank of Dallas. These increased balances are intended to be utilized to fund new
loan originations as well as purchases of investment and mortgage-back
securities in the future.

        INVESTMENT SECURITIES.

        (1) Held-to-maturity - At September 30, 2002 the Company had investment
securities, classified as held-to-maturity, of $8.0 million compared to $4.5
million at September 30, 2001.

        (2) Available-for-sale - Investments, available-for-sale, increased
$14.9 million from $14.3 million at September 30, 2001 to $29.2 million at
September 30, 2002.

        The increase in investment securities can be primarily attributed to the
investment of funds received from the deposit growth during the year, rather
than an increase in estimated market value of investment securities
available-for-sale.

        MORTGAGE-BACKED SECURITIES (INCLUDES COLLATERALIZED MORTGAGE
OBLIGATIONS).

        (1) Held-to-maturity - During the year, held-to-maturity mortgage-backed
securities increased from $14.6 million at September 30, 2001 to $37.7 million
at September 30, 2002.

        (2) Available-for-sale - Available-for-sale certificates increased from
$44.3 million at September 30, 2001 to $52.0 million at September 30, 2002.

        This increase in mortgage-backed securities can also be attributed to
the investment of funds received from the deposit growth during the year, rather
than an increase in estimated market value of mortgage-backed securities
availiable-for-sale.

        LOANS RECEIVABLE, NET. Loans receivable, net, increased $18.7 million or
7.6% to $265.1 million at September 30, 2002 compared to $246.4 million for the
comparable period in 2001. The increase was primarily due to an increase in
single-family residential loans of $7.9 million or 4.3% and an increase in
commercial real estate loans of $6.0 million or 35.7%, offset by a decrease in
consumer loans of $1.5 million or 6.4%. Loans receivable, net, amounted to 62.3%
of total assets at September 30, 2002 compared to 70.2% of total assets at
September 30, 2001.

        PREMISES AND EQUIPMENT. Premises and equipment increased $579,000 from
$4.8 million at September 30, 2001 to $5.4 million at September 30, 2002 due
primarily to the acquisition of the Carthage branch facilities.

        STOCK IN FEDERAL HOME LOAN BANK. Federal Home Loan Bank stock represents
an equity interest in the FHLB that does not have a readily determinable fair
value (for purposes of Federal Accounting Standards Board Statement No. 115)
because its ownership is restricted and it lacks a market. It can be sold only
to the FHLB or to another member institution. It is carried at cost. Both cash
and stock dividends are received on FHLB stock and are reported as income. The
stock dividends are redeemable at par value. At September 30, 2002, Federal Home
Loan Bank stock amounted to $3.2 million compared to $2.6 million at September
30, 2001. The increase was primarily a result of the FHLB's requirement to hold
stock based on the level of the Bank's outstanding advances. The Bank had
purchased additional stock during the year during a period of higher borrowings
and chose not to redeem the excess stock upon repayment of the advances.

        INVESTMENT IN REAL ESTATE. The Company reported $1.2 million in
investment in real estate at September 30, 2002, an increase of $36,000 from the
$1.2 million reported at September 30, 2001. There are currently twelve houses
completed or under construction in the Hallsville subdivision. Five lots were
sold during fiscal 2002.



                                        7
<PAGE>

        INTANGIBLE ASSETS. Intangible assets totaled $3.5 million at September
30, 2002. Intangible assets consisted primarily of goodwill and core base
deposit intangibles associated with the Carthage branch acquisition.

        OTHER ASSETS. Other assets at September 30, 2002 totaled $945,000
compared to $1.3 million for the comparable period in 2001. This decrease is due
primarily to a reduction in a receivable related to the proceeds of $500,000 due
from a called investment security received shortly after the end of fiscal 2001.

LIABILITIES AND STOCKHOLDERS' EQUITY

        GENERAL. The Company's primary funding sources include deposits, FHLB
advances and stockholders' equity. The discussion that follows focuses on the
major changes in this mix during fiscal 2002.

        DEPOSITS. Total deposits increased by $93.6 million to $353.9 million at
September 30, 2002 compared to $260.3 million at September 30, 2001. During the
year ended September 30, 2002 NOW accounts and checking accounts grew by $14.0
million which was an increase of 34.2% from the September 30, 2001 balance of
$40.9 million. Certificates of deposit comprise the largest component of the
deposit portfolio, and these accounts totaled $244.5 million at fiscal year end.
Certificates of deposits amounted to 69.1% of the Company's total deposits at
September 30, 2002 compared to 73.1% at the comparable period in 2001. Total
deposits funded 83.2% of total assets at September 30, 2002 compared to 74.2% at
September 30, 2001.

        FEDERAL HOME LOAN BANK ADVANCES. The Company uses advances from the FHLB
of Dallas as an additional source of funds to meet loan demand. At September 30,
2002 the outstanding amount of these borrowings was $25.1 million, which is a
$23.0 million decrease from the $48.1 million outstanding at September 30, 2001.
At September 30, 2002 advances funded 5.9% of total assets compared to 13.7% at
September 30, 2001.

        EQUITY. At September 30, 2002, total stockholders' equity amounted to
$39.2 million or 9.2% of assets compared to $36.0 million or 10.3% of assets at
September 30, 2001. The increase of $3.2 million is primarily due to increases
in net income of $6.0 million, employee and management awards of $86,000,
partially offset by the repurchase of 107,185 shares of common stock totaling
$2.3 million; a decrease of $25,000 in unrealized gain on securities; and the
payment of cash dividends of $855,000 during the fiscal year ended September 30,
2002.


                CHANGES IN FINANCIAL CONDITION FOR 2001 AND 2000

        ASSETS

        GENERAL. Total assets of the Company increased $49.5 million to $351.0
million at September 30, 2001 from $301.5 million at September 30, 2000. This
increase was primarily due to increases in interest bearing deposits,
mortgage-backed securities, and loans receivable, net, offset by decreases in
investment securities. The growth in assets was funded by a $7.1 million net
increase in advances from the FHLB together with a $39.5 million net increase in
deposits. The Company repurchased $2.9 million of its common stock, on the open
market, during the year ended September 30, 2001, increasing its common shares
held in treasury from 708,260 shares at September 30, 2000 to 869,560 shares at
September 30, 2001. Retained earnings increased $3.0 million or 12.3% from $24.2
million at September 30, 2000 to $27.2 million at September 30, 2001. The
discussion that follows focuses on major changes in asset mix during the year.

        CASH AND CASH EQUIVALENTS. Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits and cash on hand, increased by
$6.1 million to $13.6 million at September 30, 2001 compared to $7.5 million at
September 30, 2000. The increase of $6.1 million was primarily due to increases
in deposits at the Federal Home Loan Bank and purchases of certificates of
deposits in other insured financial



                                        8
<PAGE>

institutions. These increased balances are intended to be utilized to fund new
loan originations as well as purchases of investment and mortgage-back
securities in the future.

        INVESTMENT SECURITIES.

        (1) Held-to-maturity - At September 30, 2001 the Company held investment
securities, held-to-maturity of $4.5 million compared to $5.0 million at
September 30, 2000.

        (2) Available-for-sale - Investments, available-for-sale, decreased $2.7
million from $17.0 million at September 30, 2000 to $14.3 million at September
30, 2001 due primarily to management's decisions to use most called investment
proceeds to purchase mortgage-backed securities.

        MORTGAGE-BACKED SECURITIES (INCLUDES COLLATERALIZED MORTGAGE
OBLIGATIONS).

        (1) Held-to-maturity - During the year, held-to-maturity mortgage-backed
securities increased from $3.7 million at September 30, 2000 to $14.6 million at
September 30, 2001 primarily due to new purchases using FHLB advances in
anticipation of paying advances in full from cash proceeds from the Carthage
branch acquisition.

        (2) Available-for-sale - Available-for-sale certificates increased from
$29.0 million at September 30, 2000 to $44.3 million at September 30, 2001. This
increase in mortgage-backed securities available-for-sale was also the result of
buying mortgage-back securities product in anticipation of the Carthage branch
acquisition.

        LOANS RECEIVABLE, NET. Loans receivable, net, increased $19.6 million or
8.6% to $246.4 million at September 30, 2001 compared to $226.9 million for the
comparable period in 2000. The increase was primarily due to an increase in
single-family residential loans of $10.5 million or 6.2%; an increase in
construction loans, net of $14.8 million or 58.9% and a decrease in consumer
loans of $1.2 million or 4.9%. Loans receivable, net, amounted to 70.2% of total
assets at September 30, 2001 compared to 75.2% of total assets at September 30,
2000.

        PREMISES AND EQUIPMENT. Premises and equipment decreased $64,000 from
$4.85 million at September 30, 2000 to $4.78 million at September 30, 2001 due
primarily to depreciation of assets.

        STOCK IN FEDERAL HOME LOAN BANK. At September 30, 2001, Federal Home
Loan Bank stock amounted to $2.6 million compared to $2.2 million at September
30, 2002. This increase was primarily a result of the FHLB's requirement for
purchase of additional stock upon increased borrowings.

        INVESTMENT IN REAL ESTATE. The Company reported $1.18 million in
investment in real estate at September 30, 2001, a decrease of $70,000 from the
$1.25 million reported at September 30, 2000. There were then seven houses
completed or under construction in the Hallsville subdivision.

        OTHER ASSETS. Other assets at September 30, 2001 totaled $1.3 million
compared to $828,000 for the comparable period in 2000 due primarily to
reclassifying, at the request of examiners, the cash value of life insurance
policies of $733,000 previously netted against deferred compensation
liabilities.


LIABILITIES AND STOCKHOLDERS' EQUITY

        GENERAL. The Company's primary funding sources include deposits, FHLB
advances and stockholders' equity. The discussion that follows focuses on the
major changes in this mix during fiscal 2001.



                                        9
<PAGE>

        DEPOSITS. Total deposits increased by $39.5 million to $260.3 million at
September 30, 2001 compared to $220.8 million at September 30, 2000. During the
year ended September 30, 2001 demand and NOW accounts grew by $8.0 million which
was an increase of 24.4% from the September 30, 2000 balance of $32.9 million.
Certificates of deposit comprise the largest component of the deposit portfolio
and these accounts totaled $190.4 million at fiscal year end. Certificates of
deposits amounted to 73.1% of the Company's total deposits at September 30, 2001
compared to 74.3% at the comparable period in 2000. Total deposits funded 74.2%
of total assets at September 30, 2001 compared to 73.2% at September 30, 2000.

        FEDERAL HOME LOAN BANK ADVANCES. The Company used advances from the FHLB
of Dallas as an additional source of funds to meet loan demand. At September 30,
2001 the outstanding amount of these borrowings was $48.1 million, which is a
$7.1 million increase from the $41.0 million outstanding at September 30, 2000.
The Company has also used FHLB advances to fund investment strategies approved
by the Board of Directors in anticipation of retiring certain advances from the
proceeds of the branch acquisition in Carthage, Texas closed on November 9,
2001. At September 30, 2001 advances funded 13.7% of total assets compared to
13.6% at September 30, 2000.

        EQUITY. At September 30, 2001, total stockholders' equity amounted to
$36.0 million or 10.3% of assets compared to $34.1 million or 11.3% of assets at
September 30, 2000. The increase of $1.9 million is primarily due to increases
in net income of $3.9 million, employee and management awards of $233,000,
partially offset by the repurchase of 161,300 shares of common stock totaling
$2.9 million; an increase of $1.3 million in unrealized gain of securities; and
the paying of cash dividends of $899,000 during the fiscal year ended September
30, 2001. Stockholders' equity funded 10.3% of assets at September 30, 2001
compared to 11.3% at September 30, 2000.



                                       10
<PAGE>

     AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID

        The following table presents for the periods indicated the total dollar
amount of interest from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollar and rates, and the net interest margin. The table does
not reflect any effect of income taxes. All average balances are based on
month-end balances. Management believes that the use of average monthly balances
is representative of its operations.

<TABLE>
<CAPTION>
                                               September
                                                30, 2002                   2002                               2001
                                               ---------     ---------------------------------    --------------------------------
                                                 Yield/       Average                   Yield/    Average                   Yield/
                                                  Rate        Balance    Interest        Rate     Balance    Interest        Rate
                                               ---------     --------    --------       ------    --------   --------       ------
<S>                                            <C>          <C>         <C>           <C>        <C>        <C>            <C>
INTEREST-EARNING ASSETS:
   Loans receivable(1) ....................       7.83%      $260,454    $ 21,902        8.41%    $234,339   $ 19,772        8.44%
   Mortgage-backed securities .............       4.81         80,031       4,520        5.65       42,633      2,735        6.42
   Investment securities ..................       4.76         29,806       1,354        4.54       19,758      1,257        6.36
   Other interest-earning assets(2) .......       2.18         12,725         290        2.28       11,044        467        4.23
                                                             --------    --------                 --------   --------
Total interest-earning assets .............                   383,016    $ 28,066        7.33%     307,774   $ 24,231        7.87%
                                                             ========    ========    ========     ========   ========    ========
Non-interest-earning assets ...............                    14,402                               14,776
                                                             --------                             --------
       Total assets .......................                  $397,418                             $322,520
                                                             ========                             ========

INTEREST-BEARING LIABILITIES:
   Transaction accounts ...................       1.80%      $ 91,574    $  1,792        1.96%    $ 59,350   $  1,384        2.33%
   Time deposits ..........................       3.96        225,410      10,193        4.52      176,071     10,151        5.77
                                                             --------    --------                 --------   --------
       Total deposits .....................                   316,984      11,985        3.78      235,421     11,535        4.90
                                                             --------    --------                 --------   --------
   Borrowings .............................       4.85         35,772       1,826        5.10       44,480      2,506        5.63
                                                             --------    --------                 --------   --------
       Total interest-bearing
         liabilities ......................                   352,756    $ 13,811        3.92%     279,901   $ 14,041        5.02%
                                                             --------    ========    ========     --------   ========    ========

Non-interest-bearing liabilities ..........                     7,359                                7,194
                                                             --------                             --------
       Total liabilities ..................                   360,115                              287,095
                                                             --------                             --------

Stockholders' Equity ......................                    37,303                               35,425
                                                             --------                             --------
       Total liabilities and
         stockholders' equity .............                  $397,418                             $322,520
                                                             ========                             ========
Net interest income; interest rate
     spread ...............................                              $ 14,255        3.41%               $ 10,190        2.85%
                                                                         ========    ========                ========    ========
Net interest margin(3) ....................                                              3.72%                               3.31%
                                                                                     ========                            ========

Average interest-earning assets to
   average interest bearing liabilities ...                                            108.58%                             110.00%
                                                                                     ========                            ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                           2000
                                                                        ------------------------------------------
                                                                        Average                             Yield/
                                                                        Balance          Interest            Rate
                                                                        -------          --------          -------
<S>                                                                     <C>              <C>              <C>
INTEREST-EARNING ASSETS:
   Loans receivable(1) .........................................        $222,200         $ 18,557             8.35%
   Mortgage-backed securities ..................................          35,053            2,447             6.98
   Investment securities .......................................          19,278            1,078             5.59
   Other interest-earning assets(2) ............................           4,605              268             5.82
                                                                        --------         --------
Total interest-earning assets ..................................        $281,136         $ 22,350             7.95%
                                                                        ========         ========         ========
Non-interest-earning assets ....................................          13,703
                                                                        --------
       Total assets ............................................        $294,839
                                                                        ========

INTEREST-BEARING LIABILITIES:
   Transaction accounts ........................................        $ 53,999         $  1,326             2.46%
   Time deposits ...............................................         160,765            8,733             5.43
                                                                        --------         --------
       Total deposits ..........................................         214,764           10,059             4.68
                                                                        --------         --------
   Borrowings ..................................................          38,328            2,270             5.92
                                                                        --------         --------
       Total interest-bearing liabilities ......................         253,092         $ 12,329             4.87%
                                                                        --------         ========         ========
Non-interest-bearing liabilities ...............................           8,668
                                                                        --------
       Total liabilities .......................................         261,160
                                                                        --------

Stockholders' Equity ...........................................          33,679
                                                                        --------
       Total liabilities and stockholders' equity ..............        $294,839
                                                                        ========
Net interest income; interest rate speed .......................                         $ 10,021             3.08%
                                                                                         ========         ========
Net interest margin(3) .........................................                                              3.56%
                                                                                                          ========
Average interest-earning assets to average interest bearing
   liabilities .................................................                                            111.08%
                                                                                                          ========
</TABLE>

-------------------------------
(1) Includes non-accrual loans which do not significantly impact the average.
(2) Consists primarily of interest-bearing deposits.
(3) Net interest margin is net interest income divided by average
    interest-earning assets.



                                       11
<PAGE>

        The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected Jacksonville's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume), and (iii) total change in rate
and volume. The combined effect of changes in both rate and volume has been
allocated proportionately to the change due to rate and the change due to
volume.

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,
                                                -----------------------------------------------------------------------------
                                                            2002 vs. 2001                             2001 vs. 2000
                                                ------------------------------------      -----------------------------------
                                                       Increase                                 Increase
                                                      (Decrease)             Total             (Decrease)            Total
                                                        Due to             Increase               Due to            Increase
                                                ---------------------     ----------      ---------------------    ----------
                                                 Rate         Volume      (Decrease)       Rate         Volume     (Decrease)
                                                -------       -------     ----------      -------       -------    ----------
                                                                               (Dollars in Thousands)
<S>                                             <C>           <C>           <C>           <C>           <C>          <C>

INTEREST-EARNING ASSETS:
    Loans ................................      $   (66)      $ 2,196       $ 2,130       $   194       $ 1,021      $ 1,215
    Mortgage-backed securities ...........         (185)        1,970         1,785          (173)          461          288
    Investment securities ................         (125)          222            97           152            27          179
    Other interest-earning assets ........         (264)           87          (177)          (48)          247          199
                                                -------       -------       -------       -------       -------      -------
      Total interest-earning assets ......      $  (640)      $ 4,475       $ 3,835       $   125       $ 1,756      $ 1,881
                                                =======       =======       =======       =======       =======      =======

INTEREST-BEARING LIABILITIES:
    Deposits .............................      $  (870)      $ 1,320       $   450       $   479       $   998      $ 1,477
    Other borrowings .....................         (221)         (459)         (680)         (103)          339          236
                                                -------       -------       -------       -------       -------      -------
    Total interest-bearing liabilities ...      $(1,091)      $   861       $  (230)      $   376       $ 1,337      $ 1,713
                                                =======       =======       =======       =======       =======      =======
    Increase (decrease) in
      net interest income ................                                  $ 4,065                                  $   168
                                                                            =======                                  =======
</TABLE>


<TABLE>
<CAPTION>
                                                            Year Ended September 30,
                                                    ---------------------------------------
                                                                  2000 vs. 1999
                                                    ---------------------------------------
                                                           Increase
                                                          (Decrease)                Total
                                                            Due to                Increase
                                                    ----------------------       ----------
                                                      Rate         Volume        (Decrease)
                                                    -------        -------       ----------
                                                            (Dollars in Thousands)
<S>                                                 <C>            <C>             <C>

INTEREST-EARNING ASSETS:
   Loans ...................................        $    21        $ 1,444         $ 1,465
   Mortgage-backed securities ..............            156             68             224
   Investment securities ...................            114             84             198
   Other interest-earning assets ...........             40            (42)             (2)
                                                    -------        -------         -------
     Total interest-earning assets .........        $   331        $ 1,554         $ 1,885
                                                    =======        =======         =======

INTEREST-BEARING LIABILITIES:
   Deposits ................................        $   341        $   320         $   571
   Other borrowings ........................            263            784           1,074
                                                    -------        -------         -------
   Total interest-bearing liabilities ......        $   604        $ 1,014         $ 1,618
                                                    =======        =======         =======
   Increase (decrease) in
     net interest income ...................                                       $   267
                                                                                   =======
</TABLE>



                                       12
<PAGE>

COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED SEPTEMBER 30, 2002 AND
SEPTEMBER 30, 2001

        GENERAL. Jacksonville's net income of $6.0 million for the year ended
September 30, 2002 compared to $3.9 million for the year ended September 30,
2001, a $2.1 million or 54.1% increase. While total interest income increased
from $24.2 million for the year ended September 30, 2001 to $28.1 million for
fiscal 2002, total interest expense decreased from $14.0 million to $13.8
million for the comparable periods resulting in a net interest income before
provision for losses on loans of $14.3 million, an increase of $4.1 million.

        Non-interest income increased to $2.6 million during fiscal 2002 from
$2.4 million for the previous year, a $188,000 or 7.9% increase. Non-interest
expense increased from $6.6 million for fiscal 2001 to $7.7 million in 2002, a
15.9% increase.

        While interest earning assets average balances increased during the
year, the yield on these assets decreased by 54 basis points from 7.87% in
fiscal 2001 to 7.33% in fiscal 2002. The average paid on interest bearing
liabilities decreased 110 basis points from 5.02% in fiscal 2001 to 3.92% in
fiscal 2002. The interest rate spread increased from 2.85% in fiscal 2001 to
3.41% in 2002.

        Earnings per share amounted to $3.48 (basic) and $3.30 (diluted) for
fiscal 2002 as compared to $2.18 (basic) and $2.06 (diluted) in fiscal 2001. The
increase in earnings per share was due to an increase in net income and a
reduction in the weighted average number of shares outstanding due to the
Company's stock repurchases during fiscal 2002.

        NET INTEREST INCOME. Net interest income is determined by the interest
rate spread (i.e., the difference between the yield on interest-earning assets
and the rates paid on interest bearing liabilities) and changes in the average
amounts of interest-bearing assets and liabilities. Net interest income
increased by $4.1 million, or 39.9%, for the year ended September 30, 2002
compared to the year ended September 30, 2001. This increase was due to a $3.8
million increase in total interest income and a $231,000 decrease in total
interest expense.

        Interest income on loans receivable increased from $19.8 million in
fiscal 2001 to $21.9 million in 2002. For the same periods mortgage backed
securities interest increased from $2.7 million to $4.5 million and interest on
investment securities also increased from $1.3 million to $1.4 million. Other
interest income decreased $178,000.

        The increase in total interest income reflects an increase in average
balances primarily on mortgage-backed securities and on loan portfolios.

        The increases in the average balances of mortgage-backed securities and
loan receivable portfolios reflect some shift in portfolio mix by management of
Jacksonville as increased deposits were used to purchase mortgage-backed
securities, investment securities and to fund new loans.

        Total interest expense decreased $231,000 from $14.0 million in fiscal
2001 to $13.8 million for the current fiscal year. This decrease was due to an
increase of $450,000 in interest paid on deposit accounts and a decrease in
interest on borrowings from $2.5 million in fiscal 2001 to $1.8 million in 2002.
The average rate paid on deposits decreased from 4.9% in fiscal 2001 to 3.78% in
fiscal 2002, while the average rate paid on borrowings decreased from 5.63% to
5.10%.

        PROVISION FOR LOSSES ON LOANS. A provision for loan losses is charged to
earnings to bring the total allowance to a level considered adequate by
management to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on periodic evaluations
of the loan portfolio considering past experience, current economic conditions,
volume, growth, composition of the loan portfolio and other relevant factors.
Jacksonville's provision for loan losses increased from $85,500 for fiscal 2001
to $102,000 for fiscal 2002. The Company believes that the additional loan loss
reserves are prudent and warranted at this time due to the



                                       13
<PAGE>

weakening of the national economy and because of the increase in loan
portfolios. Jacksonville's allowance for losses amounted to $1.29 million at
September 30, 2002 as compared to $1.26 million at September 30, 2001.

        NON-INTEREST INCOME. The primary components of non-interest income are
comprised of service fees and deposit service charges, income from real estate
operations, net, other non-interest income and gain on sale of securities. Total
non-interest income amounted to $2.6 million for the year ended September 30,
2002 compared to $2.4 million for fiscal 2001. Fee and deposit service charge
showed an increase of $379,000 for the current year over the amount stated in
fiscal 2001 of $1.9 million, a 19.4% increase primarily attributable to
Jacksonville's checking account marketing strategies including overdraft
privileges and the increase in the level of demand and NOW accounts. Real estate
operations, net income decreased from $215,000 in 2001 to a loss of $31,000 for
fiscal 2002. This decrease is primarily contributed to the sale of a large tract
of repossessed real estate in fiscal 2001 and the expenses associated with the
Hallsville Subdivision during the fiscal year end September 30, 2002.
Jacksonville recognized no gain on sale of securities for the period ended
September 30, 2002 while reporting $42,000 gain in this category for the
comparable period in 2001. Other non-interest income increased from $171,000 in
2001 to $269,000 in 2002.

        NON-INTEREST EXPENSE. Non-interest expense includes salaries and
employee benefits, occupancy and equipment, deposit insurance premiums and other
non-interest expense. For the years ended September 30, 2002 and 2001,
non-interest expense totaled $7.7 million and $6.6 million, respectively. The
primary reason for the increase in non-interest expenses in fiscal 2002 was due
to a $412,000 increase in compensation and employee benefits; a $138,000
increase in occupancy and equipment; a $158,000 increase in amortization of
intangible assets; an increase in other non-interest expense of $332,000; and an
increase in insurance expense of $15,000.

        INCOME TAXES. Income tax expense amounted to $3.1 million during the
year ended September 30, 2002, compared to $2.0 million in fiscal 2001. The
increase was due to an increase in earnings during fiscal 2002. See Note 2 to
Consolidated Financial Statements.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND
SEPTEMBER 30, 2000

        GENERAL. Jacksonville's net income of $3.9 million for the year ended
September 30, 2001 compared to $3.7 million for the year ended September 30,
2000, a $206,000 or 5.6% increase. While total interest income increased from
$22.3 million for the year ended September 30, 2000 to $24.2 million for fiscal
2001, total interest expense also increased from $12.3 million to $14.0 million
for the comparable periods resulting in a net interest income increase before
provision for losses on loans of $168,000.

        Non-interest income increased to $2.4 million during fiscal 2001 from
$1.7 million for the previous year, a $639,000 or 36.7% increase. Non-interest
expense increased from $6.2 million for fiscal 2000 to $6.6 million in 2001, a
6.6% increase.

        While interest earning assets average balances increased during the
year, the yield on these assets decreased by eight basis points from 7.95% in
fiscal 2000 to 7.87% in fiscal 2001. The average paid on interest bearing
liabilities increased 15 basis points from 4.87% in fiscal 2000 to 5.02% in
fiscal 2001. The interest rate spread decreased from 3.08% in fiscal 2000 to
2.85% in 2001.

        Earnings per share totaled $2.18 (basic) and $2.06 (diluted) for fiscal
2001 as compared to $1.87 (basic) and $1.82 (diluted) in fiscal 2000. The
increase in earnings per share was due to an increase in net income and a
reduction in the weighted average number of shares outstanding due to the
Company's stock repurchases during fiscal 2001.



                                       14
<PAGE>

        NET INTEREST INCOME. Net interest income increased by $168,000, or 1.7%,
for the year ended September 30, 2001 compared to the year ended September 30,
2000. This increase was due to a $1.9 million increase in total interest income
offset by a $1.7 million increase in total interest expense.

        Interest income on loans receivable increased from $18.6 million in
fiscal 2000 to $19.8 million in 2001. For the same periods mortgage backed
securities interest increased from $2.4 million to $2.7 million and interest on
investment securities also increased from $1.1 million to $1.3 million. Other
interest income increased $199,000.

        The increase in total interest income reflects an increase in average
balances primarily on mortgage-backed securities and on loan receivable
portfolios.

        The increases in the average balances of mortgage-backed securities and
loan receivable portfolios reflect some shift in portfolio mix by management of
Jacksonville as increased deposits and FHLB advances were used to purchase
mortgage-backed securities and to fund new loans. These increases were made in
anticipation of the inflow of deposits from the acquisition of the Carthage,
Texas branch.

        Total interest expense increased $1.7 million from $12.3 million in
fiscal 2000 to $14.0 million for the current fiscal year. This increase was
primarily due to an increase of $1.5 million in interest paid on deposit
accounts and an increase in interest on borrowings from $2.3 million in fiscal
2000 to $2.5 million in 2001. The average rate paid on deposits increased from
4.68% in fiscal 2000 to 4.90% in fiscal 2001, while the average rate paid on
borrowings decreased from 5.92% to 5.63%.

        PROVISION FOR LOSSES ON LOANS. Jacksonville's provision for loan losses
increased from $69,000 for fiscal 2000 to $85,500 for fiscal 2001. The Company
believes that the additional loan loss reserves are prudent and warranted at
this time due to the weakening of the national economy and because of the
increase in loan portfolios. Jacksonville's allowance for losses amounted to
$1.3 million at September 30, 2001 as compared to $1.2 million at September 30,
2000.

        NON-INTEREST INCOME. The primary components of non-interest income are
comprised of service fees and charges, income from real estate operations, net,
other non-interest income and gain on sale of securities. Total non-interest
income amounted to $2.4 million for the year ended September 30, 2001 compared
to $1.7 million for fiscal 2000. Fee and deposit service charge showed an
increase of $580,000 for the current year over the amount stated in fiscal 2000
of $1.4 million, a 42.3% increase primarily attributable to Jacksonville's
checking account promotion marketing strategies including overdraft privileges.
Real estate operations, net income increased from $110,000 in 2000 to $215,000
for fiscal 2001. Jacksonville recognized a gain on sale of securities of $42,000
for the period ended September 30, 2001 while reporting no income in this
category for the comparable period in 2000. Other non-interest income fell from
$260,000 in 2000 to $171,000 in 2001.

        NON-INTEREST EXPENSE. Non-interest expense includes salaries and
employee benefits, occupancy and equipment, deposit insurance premiums and other
non-interest expense. For the years ended September 30, 2001 and 2000,
non-interest expense totaled $6.6 million and $6.2 million, respectively. The
primary reason for the increase in non-interest expenses in fiscal 2001 was due
to a $202,000 increase in compensation and employee benefits; a $51,000 increase
in occupancy and equipment; an increase in other non-interest expense of
$174,000; offset by a decrease in insurance expense of $19,000.

        INCOME TAXES. Income tax expense amounted to $2.0 million during the
year ended September 30, 2001, compared to $1.8 million in fiscal 2000. The
increase was due to an increase in earnings during fiscal 2001. See Note 2 to
Consolidated Financial Statements.



                                       15
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

        Jacksonville is required under applicable state regulations to maintain
specified levels of liquidity in an amount not less than 10% of its average
daily deposits for the most recently completed calendar quarter in cash and
readily marketable investments. At September 30, 2002 the Bank's liquidity was
$145.5 million with a liquidity ratio of 43.5%.

        Cash was generated by Jacksonville's operating activities of $7.6
million and $4.1 million during the years ended September 30, 2002 and 2001,
respectively, primarily as a result of net earnings of $6.0 million and $3.9
million, respectively. The adjustments to reconcile net earnings to net cash
provided by operations during the periods presented consisted primarily of the
provision for losses on loans, depreciation and amortization expense,
amortization of deferred loan origination fees and increases or decreases in
other assets and other liabilities.

        The primary investing activity of Jacksonville is lending and purchases
of investment and mortgage-backed securities, which is funded with cash provided
from operations and financing activities, as well as proceeds from amortization
and prepayments on existing loans and proceeds from maturities of investment
securities and mortgage-backed securities. During the year ended September 30,
2002, Jacksonville's investing activities used cash of $73.6 million,
principally as a result of net loan originations of $18.8 million; to purchase
mortgage backed securities totaling $67.5 million; to purchase investment
securities of $52.0 million; capital expenditures of $1.2 million; to purchase
stock in FHLB of $555,000; partially offset by proceeds on maturity of
investment securities of $33.6 million; principal paydown on MBS of $36.5
million; proceeds from sale of foreclosed real estate of $34,000; and proceeds
from sale of property, plant and equipment of $171,000.

        During the year ended September 30, 2001, Jacksonville's investing
activities used cash of $41.1 million, principally as a result of net loan
originations of $19.4 million, to purchase mortgage backed securities totaling
$47.0 million; to purchase investment securities of $15.5 million; capital
expenditures of $276,000; to purchase stock in FHLB of $457,000; partially
offset by proceeds on maturity and sale of investment securities of $19.4
million; principal paydown on MBS of $22.1 million; proceeds from sale of
foreclosed real estate of $68,000; and proceeds from sale of investment in real
estate of $70,000.

        During the year ended September 30, 2002, Jacksonville's financing
activities generated cash of $67.7 million as a result of a net increase in
deposits of $93.6 million; net decrease of $23.0 million in advances from FHLB;
net proceed from exercise of stock options of $312,000; offset by a net decrease
of $36,000 in advance payments by borrowers for property taxes and insurances;
the purchase of treasury stock in the amount of $2.3 million; and the payment of
dividends in the amount of $855,000.

        During the year ended September 30, 2001, Jacksonville's financing
activities generated cash of $43.1 million as a result of a net increase in
deposits of $39.5 million; net increase of $7.1 million in advances from FHLB;
net proceed from exercise of stock options of $261,000; offset by a net decrease
of $14,000 in advance payments by borrowers for property taxes and insurances;
the purchase of treasury stock in the amount of $2.9 million; and the payment of
dividends in the amount of $899,000.

        At September 30, 2002, Jacksonville had $8.4 million of outstanding
commitments to originate residential real estate loans, $81,000 to originate
other real estate loans, and no commitments to purchase investment securities.
At the same date, the total amount of certificates of deposit which are
scheduled to mature by September 30, 2003 are $154.6 million. Jacksonville
believes that it has adequate resources to fund commitments as they arise and
that it can adjust the rate on savings certificates to retain deposits in
changing interest rate environments. If Jacksonville requires funds beyond its
internal funding capabilities, it has sufficient mortgages to pledge as
collateral for advances from the FHLB of Dallas as an additional source of
funds.

        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



                                       16
<PAGE>

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.

        Jacksonville is required to maintain specified amounts of capital
pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA") and regulations promulgated by the FDIC thereunder. The capital
standards generally require the maintenance of regulatory capital sufficient to
meet a Tier 1 leveraged capital requirement, a Tier 1 risk-based capital
requirement and a total risk-based capital requirement. At September 30, 2002,
Jacksonville's Tier 1 leveraged capital and Tier 1 risk-based capital totaled
$31.9 million or 7.61% of adjusted total assets and 13.23% of risk-weighted
assets, respectively. These capital levels exceeded the minimum requirements at
that date by approximately $15.1 million and $22.2 million, respectively.
Jacksonville's total risk-based capital was $33.2 million at September 30, 2002
or 13.77% of risk-weighted assets which exceeded the current requirement of 8%
of risk-weighted assets by approximately $13.9 million.

IMPACT OF INFLATION AND CHANGING PRICES

        The consolidated financial statements and related financial data
presented herein have been prepared in accordance with GAAP, which generally
requires the measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing power
over time due to inflation.

        Unlike most industrial companies, virtually all of Jacksonville's assets
and liabilities are monetary in nature. As a result, interest rates generally
have a more significant impact on a financial institution's performance than
does the effect of inflation.



                                       17

<PAGE>

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Jacksonville Bancorp, Inc.

We have audited the accompanying consolidated statements of financial condition
of Jacksonville Bancorp, Inc. and subsidiaries, as of September 30, 2002 and
2001, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended September
30, 2002.

These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with U. S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jacksonville
Bancorp, Inc. and subsidiaries, as of September 30, 2002 and 2001, and the
results of their operations and cash flows for each of the years in the three
year period ended September 30, 2002, in conformity with U. S. generally
accepted accounting principles.





                                                  /s/ HENRY & PETERS, P.C.
                                                  HENRY & PETERS, P.C.




Tyler, Texas
November 6, 2002





                                       F-1



<PAGE>

                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           SEPTEMBER 30, 2002 AND 2001


<TABLE>
<CAPTION>
                                                                                     2002                   2001
                                                                                 -------------         -------------
<S>                                                                              <C>                   <C>
                                              ASSETS
  Cash on hand and in banks                                                      $   3,957,183         $   2,803,804
  Interest-bearing deposits                                                         11,395,212            10,835,214
  Investment securities:
     Held-to-maturity, approximate fair value of
          $8,115,888 and $4,583,475, respectively                                    8,005,603             4,500,000
     Available-for-sale, carried at fair value                                      29,208,330            14,272,940
  Mortgage-backed securities:
     Held-to-maturity, approximate fair value of
         $37,735,916 and $14,674,721, respectively                                  37,687,649            14,602,621
     Available-for-sale, carried at fair value                                      52,037,400            44,255,301
  Loans receivable, net                                                            265,090,618           246,431,572
  Accrued interest receivable                                                        2,928,855             2,726,856
  Foreclosed real estate, net                                                           87,006                63,107
  Premises and equipment, net                                                        5,361,276             4,781,968
  Stock in Federal Home Loan Bank of Dallas, at cost                                 3,168,100             2,613,200
  Investment in real estate                                                          1,211,730             1,175,974
  Mortgage servicing rights                                                            652,331               597,538
  Goodwill and other intangibles, net                                                3,514,562                     -
  Other assets                                                                         944,536             1,334,257
                                                                                 -------------         -------------
         Total assets                                                            $ 425,250,391         $ 350,994,352
                                                                                 =============         =============

                               LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Deposits                                                                       $ 353,896,248         $ 260,303,927
  Advances from Federal Home Loan Bank                                              25,129,010            48,107,774
  Advances from borrowers for taxes and insurance                                    4,023,222             4,059,632
  Accrued expenses and other liabilities                                             2,993,354             2,538,562
                                                                                 -------------         -------------
       Total liabilities                                                           386,041,834           315,009,895

STOCKHOLDERS' EQUITY
  Preferred stock, no par value, 5,000,000 shares authorized; none issued                    -                     -
  Common stock, $.01 par value, 25,000,000 shares authorized;
      2,738,569 and 2,705,395 shares issued;1,761,824 and 1,835,835
      shares outstanding in 2002 and 2001, respectively                                 27,386                27,053
  Additional paid-in capital                                                        23,427,329            23,045,963
  Retained earnings, substantially restricted                                       32,310,194            27,189,042
  Accumulated other comprehensive income, net of tax                                   376,658               401,315
  Less:
      Treasury stock, at cost (976,745 and 869,560 shares, respectively)           (16,015,455)          (13,675,620)
       Shares acquired by Employee Stock Ownership Plan                               (917,555)             (989,367)
       Shares acquired by Management Recognition Plan                                        -               (13,929)
                                                                                 -------------         -------------
            Total stockholders' equity                                              39,208,557            35,984,457
                                                                                 -------------         -------------
                 Total liabilities and stockholders' equity                      $ 425,250,391         $ 350,994,352
                                                                                 =============         =============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       F-2

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                       CONSOLIDATED STATEMENTS OF EARNINGS
                  YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                        2002                 2001                2000
                                                    ------------         ------------        ------------
<S>                                                 <C>                  <C>                 <C>

INTEREST INCOME
     Loans receivable                               $ 21,902,448         $ 19,772,106        $ 18,556,989
     Mortgage-backed securities                        4,519,882            2,734,813           2,446,644
     Investment securities                             1,353,829            1,257,104           1,077,837
     Other                                               289,784              467,352             268,419
                                                    ------------         ------------        ------------
         Total interest income                        28,065,943           24,231,375          22,349,889

INTEREST EXPENSE
     Deposits                                         11,984,928           11,535,088          10,058,508
     Interest on borrowings                            1,825,706            2,506,155           2,269,766
                                                    ------------         ------------        ------------
         Total interest expense                       13,810,634           14,041,243          12,328,274
                                                    ------------         ------------        ------------
         Net interest income                          14,255,309           10,190,132          10,021,615

PROVISION FOR LOSSES ON LOANS                            101,688               85,500              69,000
                                                    ------------         ------------        ------------
     Net interest income after provision for
          losses on loans                             14,153,621           10,104,632           9,952,615

NONINTEREST INCOME
     Fee and deposit service charges                   2,329,149            1,949,946           1,369,985
     Real estate operations, net                         (31,333)             215,182             109,850
     Other                                               269,214              171,377             260,481
     Gain on sale of securities                                -               42,411                   -
                                                    ------------         ------------        ------------
         Total noninterest income                      2,567,030            2,378,916           1,740,316

NONINTEREST EXPENSE
     Compensation and benefits                         4,674,496            4,262,859           4,061,053
     Occupancy and equipment                             940,610              802,974             751,964
     Amortization of intangibles                         157,795                    -                   -
     Insurance expense                                   111,680               96,532             115,889
     Other                                             1,787,173            1,454,245           1,280,162
                                                    ------------         ------------        ------------
         Total noninterest expense                     7,671,754            6,616,610           6,209,068
                                                    ------------         ------------        ------------

INCOME BEFORE TAXES ON INCOME                          9,048,897            5,866,938           5,483,863

TAXES ON INCOME
     Current                                           2,955,548            1,544,085           1,818,796
     Deferred                                            117,680              446,000              (6,000)
                                                    ------------         ------------        ------------
          Total income tax expense                     3,073,228            1,990,085           1,812,796
                                                    ------------         ------------        ------------
               Net earnings                            5,975,669            3,876,853           3,671,067
                                                    ============         ============        ============

EARNINGS PER COMMON SHARE
     Basic                                          $       3.48         $       2.18        $       1.87
                                                    ============         ============        ============
     Diluted                                        $       3.30         $       2.06        $       1.82
                                                    ============         ============        ============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       F-3

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                    Additional       Compre-             Other
                                                     Common           Paid-in        hensive         Comprehensive      Retained
                                                      Stock           Capital         Income         Income (Loss)      Earnings
                                                   ------------    ------------    ------------      ------------     ------------
<S>                                                <C>             <C>             <C>               <C>              <C>

BALANCE AT SEPTEMBER 30, 1999                      $     26,760    $ 22,722,712                      $   (801,201)    $ 21,507,284

     ESOP shares released                                     -          20,072                                 -                -
     Accrual of management
          recognition plan awards                             -               -                                 -                -
     Comprehensive income:
         Net earnings                                         -               -    $  3,671,067                 -        3,671,067
         Other comprehensive income, net
             of tax, unrealized (loss) on
             securities available-for-sale                    -               -         (99,651)          (99,651)               -
                                                                                   ------------
                 Comprehensive income                                              $  3,571,416
                                                                                   ============
     Dividends declared                                       -               -                                 -         (967,395)
     Purchase of 212,500 Treasury shares                      -               -                                 -                -
                                                   ------------    ------------                      ------------     ------------

BALANCE AT SEPTEMBER 30, 2000                            26,760      22,742,784                          (900,852)      24,210,956

     Exercise of stock options (29,423 shares)              293         261,072                                 -                -
     ESOP shares released                                     -          42,107                                 -                -
     Accrual of management
          recognition plan awards                             -               -                                 -                -
     Comprehensive income:
         Net earnings                                         -               -    $  3,876,853                 -        3,876,853
         Other comprehensive income, net
             of tax, unrealized gain on
             securities available-for-sale                    -               -       1,302,167         1,302,167                -
                                                                                   ------------
                 Comprehensive income                                              $  5,179,020
                                                                                   ============
     Dividends declared                                       -               -                                 -         (898,767)
     Purchase of 161,300 Treasury shares                      -               -                                 -                -
                                                   ------------    ------------                      ------------     ------------

BALANCE AT SEPTEMBER 30, 2001                      $     27,053    $ 23,045,963                      $    401,315     $ 27,189,042
                                                   ============    ============                      ============     ============


<CAPTION>

                                                                          Shares             Shares            Total
                                                        Treasury         Acquired           Acquired       Stockholders'
                                                         Stock            by ESOP            by MRP            Equity
                                                      ------------      ------------      ------------     -------------
<S>                                                   <C>               <C>               <C>              <C>

BALANCE AT SEPTEMBER 30, 1999                         $ (7,771,886)     $ (1,116,537)     $   (348,206)     $ 34,218,926

     ESOP shares released                                        -            60,991                 -            81,063
     Accrual of management
          recognition plan awards                                -                 -           167,139           167,139
     Comprehensive income:
         Net earnings                                            -                 -                 -         3,671,067
         Other comprehensive income, net
             of tax, unrealized (loss) on
             securities available-for-sale                       -                 -                 -           (99,651)

                 Comprehensive income

     Dividends declared                                          -                 -                 -          (967,395)
     Purchase of 212,500 Treasury shares                (2,982,082)                -                 -        (2,982,082)
                                                      ------------      ------------      ------------      ------------

BALANCE AT SEPTEMBER 30, 2000                          (10,753,968)       (1,055,546)         (181,067)       34,089,067

     Exercise of stock options (29,423 shares)                   -                 -                 -           261,365
     ESOP shares released                                        -            66,179                 -           108,286
     Accrual of management
          recognition plan awards                                -                 -           167,138           167,138
     Comprehensive income:
         Net earnings                                            -                 -                 -         3,876,853
         Other comprehensive income, net
             of tax, unrealized gain on
             securities available-for-sale                       -                 -                 -         1,302,167

                 Comprehensive income

     Dividends declared                                          -                 -                 -          (898,767)
     Purchase of 161,300 Treasury shares                (2,921,652)                -                 -        (2,921,652)
                                                      ------------      ------------      ------------      ------------

BALANCE AT SEPTEMBER 30, 2001                         $(13,675,620)     $   (989,367)     $    (13,929)     $ 35,984,457
                                                      ============      ============      ============      ============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       F-4

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
                                    CONTINUED

<TABLE>
<CAPTION>
                                                                                                     Accumulated
                                                                     Additional       Compre-            Other
                                                      Common           Paid-in        hensive        Comprehensive      Retained
                                                       Stock           Capital         Income        Income (Loss)      Earnings
                                                   ------------     ------------    ------------     ------------     ------------
<S>                                                <C>              <C>             <C>              <C>              <C>

BALANCE AT SEPTEMBER 30, 2001                      $     27,053     $ 23,045,963                     $    401,315     $ 27,189,042

     Exercise of stock options (33,174 shares)              333          311,596                                -                -
     ESOP shares released                                                 69,770                                -                -
     Accrual of management
          recognition plan awards                             -                -                                -                -
     Comprehensive income:
         Net earnings                                         -                -    $  5,975,669                -        5,975,669
         Other comprehensive income, net
             of tax, unrealized (loss) on
             securities available-for-sale                    -                -         (24,657)         (24,657)               -
                                                                                    ------------
                 Comprehensive income                                               $  5,951,012
                                                                                    ============
     Dividends declared                                       -                -                                -         (854,517)
     Purchase of 107,185 Treasury shares                      -                -                                -                -
                                                   ------------     ------------                     ------------     ------------

BALANCE AT SEPTEMBER 30, 2002                      $     27,386     $ 23,427,329                     $    376,658     $ 32,310,194
                                                   ============     ============                     ============     ============


<CAPTION>

                                                                           Shares             Shares            Total
                                                         Treasury         Acquired           Acquired        Stockholders'
                                                          Stock            by ESOP            by MRP            Equity
                                                       ------------      ------------      ------------      ------------
<S>                                                    <C>               <C>               <C>               <C>

BALANCE AT SEPTEMBER 30, 2001                          $(13,675,620)     $   (989,367)     $    (13,929)     $ 35,984,457

     Exercise of stock options (33,174 shares)                    -                 -                 -           311,929
     ESOP shares released                                         -            71,812                 -           141,582
     Accrual of management
          recognition plan awards                                 -                 -            13,929            13,929
     Comprehensive income:
         Net earnings                                             -                 -                 -         5,975,669
         Other comprehensive income, net
             of tax, unrealized (loss) on
             securities available-for-sale                        -                 -                 -           (24,657)

                 Comprehensive income

     Dividends declared                                           -                 -                 -          (854,517)
     Purchase of 107,185 Treasury shares                 (2,339,835)                -                 -        (2,339,835)
                                                       ------------      ------------      ------------      ------------

BALANCE AT SEPTEMBER 30, 2002                          $(16,015,455)     $   (917,555)              $ -      $ 39,208,557
                                                       ============      ============      ============      ============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       F-5

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                      2002             2001             2000
                                                                                  ------------     ------------     ------------
<S>                                                                               <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                                                  $  5,975,669     $  3,876,853     $  3,671,067
      Adjustments to reconcile net income to net cash
           provided by operating activities:
            Depreciation                                                               484,585          339,770          317,868
            Amortization/accretion of securities                                       135,524          146,516           79,783
            Amortization of intangibles                                                157,795                -                -
            Provision for losses on loans                                              101,688           85,500           69,000
            Loans originated for sale                                              (39,208,136)     (20,932,788)     (20,875,987)
            Loans sold                                                              39,208,136       20,932,788       20,875,987
            Net gain on sale of investment securities                                        -          (42,316)               -
            Net gain on sale of other real estate                                       (6,467)        (188,917)         (27,508)
            Net gain on sale of non-foreclosed real estate                             (12,955)         (36,539)               -
            Accrual of MRP awards                                                       13,929          167,138          167,139
            Release of ESOP shares                                                     141,582          108,286           81,063
            Change in assets and liabilities:
                Decrease (increase) in other assets                                    389,723       (1,177,451)         (28,755)
                Increase  (decrease) in accrued expenses and other liabilities         483,227        1,020,777         (256,844)
                Decrease in deferred income                                            (15,729)         (20,310)         (73,116)
                Decrease (increase) in mortgage servicing rights                       (54,793)          27,967          (37,952)
                Increase in accrued interest receivable                               (201,999)        (203,107)        (269,591)
                                                                                  ------------     ------------     ------------
                    Net cash provided by operating activities                        7,591,779        4,104,167        3,692,154

CASH FLOWS FROM INVESTING ACTIVITIES
      Proceeds on maturity of investment securities                                 33,560,977       18,373,775        3,082,075
      Proceeds from sale of investment securities                                            -        1,021,668                -
      Proceeds from sale of property, plant, and equipment                             171,140                -            5,500
      Purchase of investment securities                                            (52,030,000)     (15,500,000)      (6,388,617)
      Net principal payments/originations on loans                                 (18,812,416)     (19,444,687)     (10,598,344)
      Proceeds from sale of foreclosed real estate                                      34,250           67,550          192,610
      Purchase of mortgage-backed securities                                       (67,527,420)     (46,965,170)        (569,446)
      Principal paydowns on mortgage-backed securities                              36,515,434       22,051,666        5,252,444
      Capital expenditures                                                          (1,222,078)        (276,063)        (586,145)
      Purchase of stock in FHLB Dallas                                                (554,900)        (456,700)        (182,100)
      Premium on acquisition of Carthage branch                                     (3,672,357)            -  -                -
      Investment in real estate                                                        (35,756)          69,996         (533,174)
                                                                                  ------------     ------------     ------------
                     Net cash used in investing activities                         (73,573,126)     (41,057,965)     (10,325,197)

CASH FLOWS FROM FINANCING ACTIVITIES
      Net increase in deposits                                                      93,592,321       39,537,683        5,557,040
      Decrease in advance payments by
          borrowers for property taxes and insurance                                   (36,410)         (14,285)         (21,508)
      Advances from FHLB                                                            31,000,000       43,000,000       15,000,000
      Payment of FHLB advances                                                     (53,978,764)     (35,892,226)      (9,000,000)
      Proceeds from exercise of stock options                                          311,929          261,365                -
      Purchase of Treasury stock                                                    (2,339,835)      (2,921,652)      (2,982,082)
      Dividends paid                                                                  (854,517)        (898,767)        (967,395)
                                                                                  ------------     ------------     ------------
                     Net cash provided by financing activities                      67,694,724       43,072,118        7,586,055
                                                                                  ------------     ------------     ------------
                     Net increase in cash and cash equivalents                       1,713,377        6,118,320          953,012

CASH AND CASH EQUIVALENTS
      Beginning of year                                                             13,639,018        7,520,698        6,567,686
                                                                                  ------------     ------------     ------------
      End of year                                                                 $ 15,352,395     $ 13,639,018     $  7,520,698
                                                                                  ============     ============     ============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       F-6

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001

NOTE 1 - BASIS OF PRESENTATION
    The accompanying consolidated financial statements include the accounts of
    Jacksonville Bancorp, Inc. (Company), and its wholly-owned subsidiary
    Jacksonville IHC, Inc. (IHC), and its wholly-owned subsidiary Jacksonville
    Savings Bank, SSB (Bank), and its wholly-owned subsidiary JS&L Corporation
    (JS&L). The Company, through its principal subsidiary, the Bank, is
    primarily engaged in 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 the East Texas area. To a lesser extent,
    the Bank also originates construction loans, land loans, and consumer loans.
    IHC's main activity is holding an intercompany loan receivable from the Bank
    in connection with the Bank's employee stock ownership plan. JS&L's main
    activity is the servicing of purchased residential mortgage notes
    receivable. All significant intercompany transactions and balances are
    eliminated in consolidation.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    INVESTMENT AND MORTGAGE-BACKED SECURITIES
    The Association classifies and accounts for debt and equity securities as
    follows:

        HELD-TO-MATURITY
        Debt and equity securities that management has the positive intent and
        ability to hold until maturity are classified as held-to-maturity and
        are carried at their remaining unpaid principal balance, net of
        unamortized premiums or unaccreted discounts. Premiums are amortized and
        discounts are accreted using the level interest yield method over the
        estimated remaining term of the underlying security.

        AVAILABLE-FOR-SALE
        Debt and equity securities that will be held for indefinite periods of
        time, including securities that may be sold in response to changes in
        market interest or prepayment rates, needs for liquidity and changes in
        the availability of and the yield of alternative investments are
        classified as available-for-sale. These assets are carried at market
        value. Market value is determined using published quotes as of the close
        of business. Unrealized gains and losses are excluded from earnings and
        reported net of tax as a separate component of retained earnings until
        realized.

        TRADING SECURITIES
        Debt and equity securities that are bought and held principally for the
        purpose of selling them in the near term are classified as trading
        securities and reported at market value, with unrealized gains and
        losses included in earnings.

    PREMISES AND EQUIPMENT
    Land is carried at cost. Buildings, leasehold improvements, and furniture,
    fixtures, and equipment are carried at cost, less accumulated depreciation
    and amortization. Buildings and furniture, fixtures and equipment are
    depreciated using the straight-line method over the estimated useful lives
    of the assets. The cost of leasehold improvements is being amortized using
    the straight-line method over the terms of the related leases.

    FEDERAL INCOME TAXES
    The Company and its subsidiaries file a consolidated Federal income tax
    return. The tax provision or benefit is based on income or loss reported for
    financial statement purposes, and differs from amounts currently payable or
    refundable because certain revenues and expenses are recognized for
    financial reporting purposes differently than they are recognized for tax
    reporting purposes. The cumulative effects of any temporary differences are
    reflected as deferred income taxes using the liability method (see Note 11).

    LOANS RECEIVABLE
    Loans receivable are stated at unpaid principal balances, less the allowance
    for loan losses, and net deferred loan origination fees and discounts.
    Discounts on loans are recognized over the lives of the loans using the
    interest method.



                                       F-7

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
    The allowance for loan losses is increased by charges to income and
    decreased by charge-offs (net of recoveries). Management's periodic
    evaluation of the adequacy of the allowance is based on the Bank's past loan
    loss experience, known and inherent risks in the portfolio, adverse
    situations that may affect the borrower's ability to repay, estimated value
    of any underlying collateral, and current economic conditions. Currently,
    the allowance for loan losses is formally reevaluated on a quarterly basis.
    In management's opinion there are no material loans, either individually or
    in the aggregate, which are impaired as defined by Statement of Financial
    Accounting Standards No. 114, as amended by Statement No. 118. While
    management uses available information to recognize losses on loans, further
    additions to the allowance may be necessary based on changes in economic
    conditions. In addition, various regulatory agencies as an integral part of
    their examinations, periodically review the allowance for loan losses.

    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 back to normal, in which case the loan is returned to
    accrual status.

    LOANS HELD-FOR-SALE
    Mortgage loans originated and intended for sale in the secondary market are
    carried at the lower of cost or estimated market value in the aggregate. Net
    unrealized losses are recognized by charges to earnings.

    LOAN ORIGINATION AND COMMITMENT FEES AND RELATED COSTS
    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. 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.

    REAL ESTATE
    Real estate properties acquired through loan foreclosure are initially
    recorded at the lower of cost (loan balance) or fair value, less estimated
    costs of disposition, at the date of foreclosure. Investment in real estate
    is recorded at cost. Costs relating to development and improvement of
    property are capitalized, whereas costs relating to holding 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. Currently, all major
    foreclosed real estate properties are formally reevaluated on a quarterly
    basis to determine the adequacy of the allowance for losses.

    Gains on sale of real estate are accounted for in accordance with Statement
    of Financial Accounting Standards No. 66. When the borrower's initial cash
    down payment does not meet the minimum requirements, the gain on sale is
    deferred and recorded on the installment basis until such time as sufficient
    principal payments are received to meet the minimum down payment
    requirements. Losses on sale of real estate are recognized at the date of
    sale.

    ESTIMATES
    The preparation of consolidated financial statements in conformity with
    generally accepted accounting principles requires management to make
    estimates and assumptions that affect the reported amounts of assets and
    liabilities and disclosure of contingent assets and liabilities at the date
    of the financial statements and the reported amounts of revenues and
    expenses during the reporting period. Actual results could differ from those
    estimates.



                                       F-8

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
    ESTIMATES - CONTINUED
    Material estimates that are particularly susceptible to significant change
    relate to the determination of the allowance for losses on loans and the
    valuation of real estate acquired in connection with foreclosures or in
    satisfaction of loans. In connection with the determination of the
    allowances for losses on loans and foreclosed real estate, management
    obtains independent appraisals for significant properties.

    MORTGAGE SERVICING RIGHTS
    The cost of mortgage servicing rights is amortized in proportion to, and
    over the period of, estimated net servicing revenues. Impairment of mortgage
    servicing rights is assessed based on the estimated fair value of those
    rights. Fair values are estimated using discounted cash flows based on
    current market interest rates and market data regarding sales of mortgage
    servicing rights. The Bank sells predominately single-family first mortgage
    loans with simple risk characteristics and uses a single stratum for
    purposes of measuring impairment. The amount of impairment recognized is the
    amount by which the capitalized mortgage servicing rights exceed their fair
    value.

    EARNINGS PER SHARE
    The Company has adopted the provisions of Statement of Financial Accounting
    Standards No. 128, "Earnings Per Share" (FAS 128). The standard requires a
    dual presentation of basic and diluted EPS. This statement provides for a
    "basic" EPS computation based upon weighted-average shares outstanding.
    Shares issued to its Employee Stock Ownership Plan (ESOP) are accounted for
    in accordance with AICPA Statement of Position 93-6. The new standard
    requires a dual presentation of basic and diluted EPS. Diluted EPS is
    similar to fully diluted EPS required under APB 15 for entities with complex
    capital structures.

    Earnings per share on a basic and diluted basis is calculated as follows:


<TABLE>
<CAPTION>
                                                            Years Ended September 30,
                                                ------------------------------------------------
                                                   2002               2001               2000
                                                ----------         ----------         ----------
<S>                                             <C>                <C>                <C>
Basic net earnings per share
  Net income                                    $5,975,669         $3,876,853         $3,671,067
  Weighted-average shares outstanding            1,717,933          1,777,226          1,963,050
                                                ----------         ----------         ----------
      Per share                                 $     3.48         $     2.18         $     1.87
                                                ==========         ==========         ==========

Diluted net earnings per share
  Net income                                    $5,975,669         $3,876,853         $3,671,067
  Weighted-average shares outstanding
    plus assumed conversions                     1,813,391          1,879,008          2,013,660
                                                ----------         ----------         ----------
      Per share                                 $     3.30         $     2.06         $     1.82
                                                ==========         ==========         ==========

Calculation of weighted average shares
  outstanding plus assumed conversions
    Weighted-average shares outstanding          1,717,933          1,777,226          1,963,050
    Effect of dilutive stock options                95,458            101,782             50,610
                                                ----------         ----------         ----------
                                                 1,813,391          1,879,008          2,013,660
                                                ==========         ==========         ==========
</TABLE>

    STOCK-BASED COMPENSATION
    Statement of Financial Accounting Standards No. 123, "Accounting for
    Stock-Based compensation," encourages, but does not require companies to
    record compensation cost for stock-based employee compensation plans at fair
    value. The Company has chosen to continue to account for stock-based
    compensation using the intrinsic value method prescribed in Accounting
    Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
    and related Interpretations. Accordingly, compensation cost for stock
    options is measured as the excess, if any, of the quoted market price of the
    company's stock at the date of the grant over the amount an employee must
    pay to acquire the stock.



                                       F-9


<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
    GOODWILL AND OTHER INTANGIBLES
    Other intangible assets (core base deposits) are being amortized on the
    straight-line method over a period of 8 years. Goodwill is not being
    amortized. On a periodic basis, management performs an evaluations to
    determine whether any impairment of the goodwill and intangibles has
    occurred; if any such impairment is determined, a writedown of the
    intangibles and goodwill is recorded.

    In June 2001, the Financial Accounting Standards Board (FASB) issued
    Statement of Financial Accounting Standards (SFAS) No. 141, "Business
    Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets".
    SFAS No. 141 requires all business combinations initiated after June 30,
    2001 to be accounted for using the purchase method. SFAS No. 142 eliminates
    the amortization of goodwill relating to past and future acquisitions and
    subjects goodwill to an impairment assessment that must be performed at
    least annually. The provisions of both statements were applied to the branch
    acquisition discussed in Note 22. Additionally, SFAS No. 147, "Acquisitions
    of Certain Financial Institutions" was issued in October 2002 and the
    provisions of that statement have been applied at the same date as the
    adoption of SFAS No. 142. This resulted in $210,397 of amortization
    previously reported in interim statements being reversed in the fourth
    quarter of the fiscal year ended September 30, 2002.

    COMPREHENSIVE INCOME
    Statement of Financial Accounting Standards No. 130, "Reporting
    Comprehensive Income" (FAS 130), establishes standards for reporting and
    display of comprehensive income and its components in a full set of
    general-purpose financial statements. The standard requires that all items
    that are required to be recognized under accounting standards as components
    of comprehensive income be reported in a financial statement that is
    displayed with the same prominence as other financial statements.

    CASH FLOWS
    For purposes of the statement of cash flows, the Company considers all
    highly liquid debt instruments purchased with an original maturity of three
    months or less to be cash equivalents. A summary of cash and cash
    equivalents follows at September 30:

<TABLE>
<CAPTION>
                                                                    2002                  2001                  2000
                                                                ------------          ------------          ------------
<S>                                                             <C>                   <C>                   <C>
Cash on hand and in banks                                       $  3,957,183          $  2,803,804          $  2,701,637
Interest bearing deposits                                         11,395,212            10,835,214             4,819,061
                                                                ------------          ------------          ------------
    Cash and cash equivalents                                   $ 15,352,395          $ 13,639,018          $  7,520,698
                                                                ============          ============          ============

Supplemental disclosure:
  Cash paid for:
    Interest                                                    $ 13,874,452          $ 14,003,149          $ 12,325,178
                                                                ============          ============          ============
    Income taxes                                                $  2,355,000          $  2,073,261          $  1,837,052
                                                                ============          ============          ============

Non-cash operating activities:
  Change in deferred taxes on net unrealized gains
    and losses on securities available-for-sale                 $     12,702          $   (670,813)         $     51,335
                                                                ============          ============          ============

Non-cash investing activities:
  Change in net unrealized gains and losses
    on securities available-for-sale                            $    (37,359)         $  1,972,980          $   (150,986)
                                                                ============          ============          ============
  Transfer from loans to real estate acquired
    through foreclosure                                         $    127,000          $    178,000          $    231,000
                                                                ============          ============          ============
  Loans made relating to sale of foreclosed real estate         $     75,500          $    307,000          $    289,000
                                                                ============          ============          ============
</TABLE>



                                      F-10

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 3 - INVESTMENT SECURITIES
    The amortized cost and estimated market values of investments in debt
    securities are as follows as of September 30, 2002:

<TABLE>
<CAPTION>
                                                          Available-for-sale
                               -----------------------------------------------------------------------
                                                                                           Estimated
                                Amortized          Unrealized          Unrealized            Market
                                   Cost               Gains               Losses              Value
                               -----------         -----------         -----------         -----------
<S>                            <C>                 <C>                 <C>                 <C>

U.S. Agency securities         $28,971,697         $   241,648         $     5,015         $29,208,330
                               ===========         ===========         ===========         ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                Held-to-maturity
                                    -----------------------------------------------------------------
                                                                                          Estimated
                                     Amortized         Unrealized       Unrealized          Market
                                        Cost              Gains           Losses             Value
                                    ------------      ------------     ------------      ------------
<S>                                 <C>               <C>              <C>               <C>
U. S. Agency securities             $  8,005,603      $    117,785     $      7,500      $  8,115,888
                                    ============      ============     ============      ============
</TABLE>

    The amortized cost and estimated market values of investments in debt
    securities are as follows as of September 30, 2001:

<TABLE>
<CAPTION>
                                                            Available-for-sale
                                    -----------------------------------------------------------------
                                                                                          Estimated
                                     Amortized         Unrealized       Unrealized          Market
                                        Cost              Gains           Losses            Value
                                    -----------      ------------     ------------       -----------
<S>                                 <C>              <C>              <C>                <C>
U.S. Agency securities              $13,978,972      $    293,968     $          -       $14,272,940
                                    ===========      ============     ============       ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                Held-to-maturity
                                    ----------------------------------------------------------------
                                                                                          Estimated
                                     Amortized        Unrealized       Unrealized           Market
                                        Cost             Gains           Losses             Value
                                    -----------      ------------     ------------       -----------
<S>                                 <C>              <C>              <C>                <C>
U. S. Agency securities             $ 4,500,000      $     83,745     $          -       $ 4,583,475
                                    ===========      ============     ============       ===========
</TABLE>

    The scheduled maturities of securities at September 30, 2002 were as
    follows:

<TABLE>
<CAPTION>
                                           Held-to-maturity                      Available-for-sale
                                              securities                              securities
                                   -------------------------------         -------------------------------
                                                        Estimated                               Estimated
                                    Amortized            Market            Amortized             Market
                                       Cost               Value               Cost                Value
                                   -----------         -----------         -----------         -----------
<S>                                <C>                 <C>                 <C>                 <C>
Due in one year or less            $         -         $         -         $10,499,722         $10,502,010
Due from one to five years           4,452,933           4,528,750           3,497,715           3,553,060
Due from five to ten years           3,552,670           3,587,138          12,974,260          13,153,260
Due after ten years                          -                   -           2,000,000           2,000,000
                                   -----------         -----------         -----------         -----------
                                   $ 8,005,603         $ 8,115,888         $28,971,697         $29,208,330
                                   ===========         ===========         ===========         ===========
</TABLE>

    The scheduled maturities of securities at September 30, 2001 were as
    follows:

<TABLE>
<CAPTION>
                                          Held-to-maturity                       Available-for-sale
                                             securities                              securities
                                   -------------------------------         -------------------------------
                                                       Estimated                               Estimated
                                    Amortized            Market             Amortized            Market
                                       Cost               Value                Cost               Value
                                   -----------         -----------         -----------         -----------
<S>                                <C>                 <C>                 <C>                 <C>
Due in one year or less            $         -         $         -         $   495,899         $   507,500
Due from one to five years           2,500,000           2,535,660           9,983,073          10,161,060
Due from five to ten years           2,000,000           2,047,815           3,500,000           3,604,380
                                   -----------         -----------         -----------         -----------
                                   $ 4,500,000         $ 4,583,475         $13,978,972         $14,272,940
                                   ===========         ===========         ===========         ===========
</TABLE>



                                      F-11

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 4 - MORTGAGE-BACKED SECURITIES
    The amortized cost and estimated market values of mortgage-backed securities
    are summarized as follows:

<TABLE>
<CAPTION>
                                                                Held-to-maturity
                                     --------------------------------------------------------------
                                                                                          Estimated
    September 30,                     Amortized       Unrealized       Unrealized           Market
        2002                             Cost            Gains           Losses             Value
--------------------                 -----------     ------------     ------------      ------------
<S>                                  <C>             <C>              <C>                <C>
GNMA certificates                    $   282,656     $      8,168     $          -       $   290,824
FHLMC certificates                     4,627,287           34,692            4,010         4,657,969
FNMA certificates                     10,141,953           78,901            4,361        10,216,493
CMO certificates                      22,635,753           51,660          116,783        22,570,630
                                     -----------     ------------    -------------       -----------
                                     $37,687,649     $    173,421     $    125,154       $37,735,916
                                     ===========     ============     ============       ===========
</TABLE>

<TABLE>
<CAPTION>
                                                              Available-for-sale
                                     ---------------------------------------------------------------
                                                                                          Estimated
   September 30,                      Amortized        Unrealized      Unrealized           Market
       2002                             Cost              Gains          Losses              Value
--------------------                 -----------      ------------    ------------       -----------
<S>                                  <C>              <C>             <C>                <C>
GNMA certificates                    $ 1,680,675      $     28,615    $          -       $ 1,709,290
FHLMC certificates                     9,533,640            57,580           7,107         9,584,113
FNMA certificates                     29,764,912           214,286          43,536        29,935,662
CMO certificates                      10,724,118            93,254           9,037        10,808,335
                                     -----------      ------------    ------------       -----------
                                     $51,703,345      $    393,735    $     59,680       $52,037,400
                                     ===========      ============    ============       ===========
</TABLE>

<TABLE>
<CAPTION>
                                                          Held-to-maturity
                                     --------------------------------------------------------------
                                                                                         Estimated
   September 30,                      Amortized      Unrealized       Unrealized           Market
       2001                              Cost           Gains           Losses             Value
--------------------                 -----------    ------------     ------------       -----------
<S>                                  <C>            <C>              <C>                <C>
GNMA certificates                    $   368,792    $     13,710     $          -       $   382,502
FHLMC certificates                       694,572           6,269            5,968           694,873
FNMA certificates                      3,523,276          30,046            3,065         3,550,257
CMO certificates                      10,015,981          31,108                -        10,047,089
                                     -----------    ------------     ------------       -----------
                                     $14,602,621    $     81,133     $      9,033       $14,674,721
                                     ===========    ============     ============       ===========
</TABLE>

<TABLE>
<CAPTION>
                                                              Available-for-sale
                                     ---------------------------------------------------------------
                                                                                         Estimated
    September 30,                     Amortized        Unrealized       Unrealized          Market
        2001                             Cost             Gains           Losses            Value
--------------------                 -----------      ------------     ------------      -----------
<S>                                  <C>              <C>              <C>               <C>
GNMA certificates                    $ 2,946,501      $     21,802     $          -      $ 2,968,303
FHLMC certificates                     2,681,997            12,356            5,370        2,688,983
FNMA certificates                      9,529,206            96,827           50,585        9,575,448
CMO certificates                      28,783,511           243,441            4,385       29,022,567
                                     -----------      ------------     ------------      -----------
                                     $43,941,215      $    374,426     $     60,340      $44,255,301
                                     ===========      ============     ============      ===========
</TABLE>



                                      F-12

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 4 - MORTGAGE-BACKED SECURITIES - CONTINUED
    The scheduled maturities of mortgage-backed securities as of September 30,
    2002 were as follows:

<TABLE>
<CAPTION>
                                            Held-to-maturity                Available-for-sale
                                               securities                        securities
                                     -----------------------------      -----------------------------
                                                        Estimated                          Estimated
                                      Amortized           Market         Amortized           Market
                                         Cost             Value             Cost              Value
                                     -----------       -----------      -----------       -----------
<S>                                  <C>               <C>              <C>               <C>
Due in one year or less              $12,588,317       $12,523,250      $ 5,430,080       $ 5,437,177
Due from one to five years            10,553,568        10,575,445        5,831,498         5,939,448
Due from five to ten years             5,199,937         5,242,318        9,423,762         9,530,633
Due after ten years                    9,345,827         9,394,903       31,018,005        31,130,142
                                     -----------       -----------      -----------       -----------
                                     $37,687,649       $37,735,916      $51,703,345       $52,037,400
                                     ===========       ===========      ===========       ===========
</TABLE>

    The scheduled maturities of mortgage-backed securities at September 30, 2001
    were as follows:

<TABLE>
<CAPTION>
                                           Held-to-maturity                  Available-for-sale
                                              securities                          securities
                                     -----------------------------      -----------------------------
                                                       Estimated                           Estimated
                                      Amortized          Market          Amortized           Market
                                         Cost             Value             Cost             Value
                                     -----------       -----------      -----------       -----------
<S>                                  <C>               <C>              <C>               <C>
Due in one year or less              $ 3,357,292       $ 3,359,370      $ 7,807,107       $ 7,870,552
Due from one to five years             7,298,226         7,353,583       15,131,432        15,311,832
Due from five to ten years               193,743           195,825        9,925,715         9,988,550
Due after ten years                    3,753,360         3,765,943       11,076,961        11,084,367
                                     -----------       -----------      -----------       -----------
                                     $14,602,621       $14,674,721      $43,941,215       $44,255,301
                                     ===========       ===========      ===========       ===========
</TABLE>

NOTE 5 - LOANS RECEIVABLE
    Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                                September 30,
                                                    ------------------------------------
                                                         2002                   2001
                                                    -------------          -------------
<S>                                                 <C>                    <C>
Mortgage loans (principally conventional):
  Single family residential                         $ 189,458,924          $ 181,563,178
  Multi-family residential                              1,041,913                454,145
  Commercial                                           22,885,698             16,859,579
  Construction                                         40,804,530             39,916,558
  Land                                                  3,372,400              3,092,508
                                                    -------------          -------------
                                                      257,563,465            241,885,968
Business and Consumer loans:
  Commercial business                                     411,046                365,485
  Consumer:
    Secured by deposits                                 2,727,024              2,765,460
    Secured by vehicles                                10,497,495             11,474,952
    Personal real estate loans                          4,186,920              4,934,724
    Other                                               4,044,167              3,753,362
                                                    -------------          -------------
                                                       21,866,652             23,293,983
                                                    -------------          -------------
    Total loans                                       279,430,117            265,179,951
  Less:
    Undisbursed portion of loans in process           (12,585,628)           (17,041,296)
    Unearned discounts                                    (19,462)               (21,266)
    Net deferred loan-origination fees                   (442,708)              (428,646)
    Allowance for loan losses                          (1,291,701)            (1,257,171)
                                                    -------------          -------------
      Net loans                                     $ 265,090,618          $ 246,431,572
                                                    =============          =============
</TABLE>



                                      F-13


<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 5 - LOANS RECEIVABLE - CONTINUED
    The Bank at September 30 had mortgage loan commitments outstanding
    substantially all of which are at rates to be determined at closing (rates
    range from 5.00% to 10.00%) as follows:

<TABLE>
<CAPTION>
                                     2002              2001
                                 -----------        ----------
<S>                              <C>                <C>
Variable-rate                    $ 1,073,570        $  416,601
Fixed-rate                         7,282,131         6,002,398
                                 -----------        ----------
                                 $ 8,355,701        $6,418,999
                                 ===========        ==========
</TABLE>

    The Bank had committed to sell a substantial portion of fixed-rate loans
    when funded.

    Activity in the allowance for loan losses is summarized as follows as of
    September 30:

<TABLE>
<CAPTION>
                                                2002             2001              2000
                                             ----------       ----------        ----------
<S>                                          <C>              <C>               <C>
Balance at beginning of period               $1,257,171       $1,227,480        $1,211,602
  Provision charged to income                   101,688           85,500            69,000
  Charge-offs                                   (70,009)         (58,309)          (54,329)
  Recoveries                                      2,851            2,500             1,207
                                             ----------       ----------        ----------
Balance at end of period                     $1,291,701       $1,257,171        $1,227,480
                                             ==========       ==========        ==========
</TABLE>

    At September 30, 2001 and 2000, there were no material loans which were
    impaired as defined by FASB Statement No. 114, as amended by FASB Statement
    No. 118. However, the Bank did have non-accrual loans, for which FASB
    Statement No. 114 does not apply, of $694,000 and $624,000 at September 30,
    2002 and 2001, respectively. The Bank is not committed to lend additional
    funds to debtors whose loans have been modified.

    Loans to executive officers and directors totaled $680,000 and $950,000 at
    September 30, 2002 and 2001, respectively.

    Mortgage loans serviced for others are not included in the accompanying
    consolidated statements of financial condition. The unpaid principal
    balances of these loans are summarized as follows as of September 30:

<TABLE>
<CAPTION>
                                             2002            2001               2000
                                         -----------      -----------       -----------
<S>                                      <C>              <C>               <C>
Mortgage loans underlying FHLMC
  pass-through securities                $91,865,674      $85,822,482       $87,993,036
                                         ===========      ===========       ===========
</TABLE>

    Custodial escrow balances maintained in connection with the foregoing loan
    servicing were approximately $1,773,000 and $1,911,000, at September 30,
    2002 and 2001, respectively.

NOTE 6 - REAL ESTATE
    An analysis of the activity in the allowance for losses in real estate
    acquired in settlement of loans at September 30 is as follows:

<TABLE>
<CAPTION>
                                                                2001            2000
                                                            -----------      -----------
<S>                                                         <C>              <C>
     Balance at beginning of period                         $ 1,210,523      $ 1,304,828
Provisions for losses                                                 -                -
       Charge-offs                                           (1,210,523)         (94,305)
       Recoveries                                                     -                -
                                                            -----------      -----------
     Balance at end of period                               $         -      $ 1,210,523
                                                            ===========      ===========
</TABLE>

    For regulatory reporting purposes the above amounts are reported as
    "specific" reserves and are allocated to specific properties. The Bank
    carries its "general valuation allowance" as an allowance for loan losses
    (see Note 5).



                                      F-14

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 7 - ACCRUED INTEREST RECEIVABLE
    Accrued interest receivable is summarized as follows as of September 30:

<TABLE>
<CAPTION>
                                               2002              2001
                                            -----------      -----------
<S>                                         <C>              <C>
Investment securities                       $   289,955      $   294,778
Mortgage-backed securities                      206,291          210,170
Loans receivable                              2,432,609        2,221,908
                                            -----------      -----------
                                            $ 2,928,855      $ 2,726,856
                                            ===========      ===========
</TABLE>

NOTE 8 - PREMISES AND EQUIPMENT
    Premises and equipment consist of the following:


<TABLE>
<CAPTION>
                                                       September 30,
                                              -----------------------------          Estimated
                                                  2002             2001            Useful Lives
                                              -----------       -----------        -------------
<S>                                           <C>               <C>                <C>
Land                                          $ 1,040,614       $ 1,073,779              -
Building and improvements                       4,806,351         4,292,439        5 to 40 years
Furniture, fixtures and equipment               3,458,836         2,875,650        3 to 15 years
                                              -----------       -----------
                                                9,305,801         8,241,868
Less accumulated depreciation                   3,944,525         3,459,900
                                              -----------       -----------
                                              $ 5,361,276       $ 4,781,968
                                              ===========       ===========
</TABLE>

NOTE 9 - DEPOSITS
    Deposits at September 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                  2002                              2001
                                   ------------------------------------------------------------------
                                       Amount             Percent        Amount              Percent
                                   -------------         ---------   --------------        ----------
<S>                                <C>                   <C>         <C>                   <C>
Transaction accounts:
  Demand and NOW                    $ 54,911,883             15.52     $ 40,907,420            15.72
  Money market                        37,600,130             10.62       16,067,104             6.17
  Passbook savings                    16,864,434              4.77       12,964,632             4.98
                                    ------------          --------     ------------         --------
                                     109,376,447             30.91       69,939,156            26.87
                                    ------------          --------     ------------         --------
Certificates of deposit:
  2% to 3%                            57,122,233             16.14                -                -
  3% to 4%                            92,725,673             26.20       12,639,397             4.86
  4% to 5%                            41,020,600             11.59       48,125,165            18.49
  5% to 6%                            30,782,798              8.70       64,356,742            24.72
  6% to 7%                            22,091,110              6.24       64,116,023            24.63
  7% to 8%                               700,570               .20          991,236              .38
  8% to 9%                                76,817               .02          136,208              .05
                                    ------------          --------     ------------         --------
                                     244,519,801             69.09      190,364,771            73.13
                                    ------------          --------     ------------         --------
                                    $353,896,248            100.00     $260,303,927           100.00
                                    ============          ========     ============         ========
</TABLE>

    The aggregate amount of short-term jumbo certificates of deposit with a
    minimum denomination of $100,000 was approximately $63,765,000 and
    $43,097,000 at September 30, 2002 and 2001, respectively.

    Scheduled maturities of certificates of deposit were as follows as of
    September 30, 2002:

<TABLE>
<CAPTION>
Term to maturity                                         Amount             Percent
----------------                                      ------------         --------
<S>                                                   <C>                  <C>
Within 12 months                                      $154,645,234            63.24
12 to 24 months                                         51,645,048            21.12
24 to 36 months                                         13,349,691             5.46
Greater than 36 months                                  24,879,828            10.17
                                                      ------------         --------
                                                      $244,519,801           100.00
                                                      ============         ========
</TABLE>



                                      F-15

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED


NOTE 9 - DEPOSITS - CONTINUED
    Interest expense on deposits at September 30 is summarized as follows:

<TABLE>
<CAPTION>
                                                2002             2001              2000
                                            -----------      -----------       -----------
<S>                                         <C>              <C>               <C>
Money Market                                $ 1,308,552      $   837,343       $   747,523
Passbook savings                                351,751          373,322           400,232
NOW                                             131,318          173,798           177,534
Certificates of deposit                      10,193,307       10,150,625         8,733,219
                                            -----------      -----------       -----------
                                            $11,984,928      $11,535,088       $10,058,508
                                            ===========      ===========       ===========
</TABLE>

    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. Required reserves must be
    maintained in the form of vault cash or a non-interest-bearing account at a
    Federal Reserve Bank.

NOTE 10 - BORROWINGS
    Information related to Federal Home Loan Bank borrowings as of September 30
    is provided in the table below:

<TABLE>
<CAPTION>
                                                                 2002              2001
                                                            -------------     ------------
<S>                                                         <C>              <C>
Balance at end of period                                      $25,129,010      $48,107,774
Average amount outstanding during the period                   36,730,317       44,480,000
Maximum amount outstanding during the period                   62,000,000       49,000,000
Weighted average interest rate during the period                    5.16%            5.63%
Interest rates at end of period                              2.16% -6.20%    2.68% - 6.20%
</TABLE>

    These borrowings are payable at maturity and may be subject to earlier call
    by Federal Home Loan Bank.

    Scheduled repayments and potential calls of Federal Home Loan Bank
    borrowings at September 30, 2002 were as follows:

<TABLE>
<CAPTION>
                                     Maturing          Callable
                                   -----------      ------------
<S>                                <C>              <C>
Under 1 year                       $         -      $          -
1 to 5 years                        20,129,010         5,000,000
6 to 10 years                        5,000,000                 -
Over 10 years                                -                 -
                                   -----------      ------------
                                   $25,129,010      $  5,000,000
                                   ===========      ============
</TABLE>

    The advances are collateralized by a blanket lien on first mortgage loans.

NOTE 11 - FEDERAL INCOME TAXES
    The Company and its subsidiaries file a consolidated federal income tax
    return.

    The provision for Federal income taxes differs from that computed at the
    statutory corporate tax rate as follows:

<TABLE>
<CAPTION>
                                                           2002             2001               2000
                                                        ----------       ----------        ----------
<S>                                                     <C>              <C>               <C>
Computed "expected" tax expense                         $3,076,625       $1,994,759        $1,864,513
Adjustments:
  SFAS No. 122 mortgage servicing rights                   (18,630)           9,509           (12,904)
  Bad-debt deduction and real estate losses                      -                -           (22,377)
  Other                                                     15,233          (14,183)          (16,436)
                                                        ----------       ----------        ----------
                                                        $3,073,228       $1,990,085        $1,812,796
                                                        ==========       ==========        ==========
</TABLE>



                                      F-16

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED


NOTE 11 - FEDERAL INCOME TAXES - CONTINUED
    Deferred taxes are provided for timing differences in the recognition of
    income and expense for tax and financial statement purposes. The sources and
    effects of these differences are as follows:

<TABLE>
<CAPTION>
                                                            2002             2001              2000
                                                          --------         --------          --------
<S>                                                       <C>              <C>               <C>
Deferred loan fees                                        $ (5,678)        $  5,472          $ 14,144
FHLB stock dividends                                        29,975           46,751            52,875
Deferred compensation and other employee benefits           25,762          (30,966)          (75,591)
Deferred loan costs                                         33,952            7,362               561
Allowance for loan losses                                  (16,132)         405,637                 -
Amortization of intangibles                                 22,659                -                 -
Other, net                                                  27,142           11,744             2,011
                                                          --------         --------          --------
                                                          $117,680         $446,000          $ (6,000)
                                                          ========         ========          ========
</TABLE>

    The components of the net deferred tax assets/liabilities (included in other
    assets) at September 30 were comprised of the following:

<TABLE>
<CAPTION>
                                                               2002               2001
                                                            ----------         ---------
<S>                                                         <C>                <C>
Deferred income tax assets:
  Deferred loan fees                                        $  171,562         $ 165,884
  Deferred compensation and other employee benefits            373,083           398,846
  Deferred loan costs                                           22,517            56,469
                                                            ----------         ---------
    Total deferred income tax assets                           567,162           621,199

Deferred income tax liabilities:
  Net unrealized gain on available-for-sale securities         194,031           206,849
  Allowance for loan losses                                    487,249           503,381
  FHLB stock dividends                                         328,113           298,138
  Book/tax depreciation difference                             214,141           187,000
  Intangible assets                                             22,659                 -
                                                            ----------         ---------
    Total deferred income tax liabilities                    1,246,193         1,195,368
                                                            ----------         ---------
  Net deferred income tax assets (liabilities)              $ (679,031)        $(574,169)
                                                            ==========         =========
</TABLE>

    Stockholders' equity at September 30, 2002 and 2001, includes approximately
    $3,000,000, for which deferred Federal income tax liability has not been
    fully recognized. These amounts represent an allocation of bad-debt
    deductions for tax purposes only (base year bad debt reserve). Reduction of
    amounts so allocated for purposes other than tax bad-debt losses would
    create income for tax purposes only, which would be subject to the
    then-current corporate income tax rate.

NOTE 12 - PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION

    The Bank has a qualified defined benefit retirement plan covering
    substantially all of its employees. The benefits are based on each
    employee's years of service and the average of the highest compensation for
    sixty consecutive completed calendar months. The benefits are reduced by a
    specified percentage of the employee's social security benefit. An employee
    becomes fully vested upon completion of five years of qualifying service. It
    is the policy of the Bank to fund an amount between the minimum and the
    maximum amount that can be deducted for Federal income tax purposes.



                                      F-17

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 12 - PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION - CONTINUED
    The following table sets forth the plan's funded status and amounts
    recognized in the Bank's consolidated statements of financial condition at
    September 30:

        Actuarial present value of benefit obligations:

<TABLE>
<CAPTION>
                                                                            2002              2001
                                                                         ----------        ----------
<S>                                                                      <C>               <C>
  Accumulated benefit obligation:
    Vested                                                               $1,580,315        $1,254,074
    Nonvested                                                                42,915            23,913
                                                                         ----------        ----------
                                                                          1,623,230         1,277,987
  Effect of projected future compensation                                   346,481           559,249
                                                                         ----------        ----------

Projected benefit obligation for service rendered to date                 1,969,711         1,837,236
Plan assets at fair value; primarily cash and short-term investments      2,466,352         2,183,226
                                                                         ----------        ----------
Plan assets in excess of (less than) projected benefit obligation        $  496,641        $  345,990
                                                                         ==========        ==========

</TABLE>

    The components of computed net pension expense for the years ended September
    30 are as follows:

<TABLE>
<CAPTION>
                                                            2002             2001             2000
                                                         ---------        ---------         ---------
<S>                                                      <C>              <C>               <C>
Service cost - benefits earned during the year           $ 117,539        $ 104,574         $ 110,952
Interest cost on projected benefit obligation              112,213          101,612            91,601
Actual return on plan assets                              (139,637)        (124,893)         (124,558)
Net amortization and deferral                               (9,725)          (8,443)            1,884
                                                         ---------        ---------         ---------
      Net pension expense                                $  80,390        $  72,850         $  79,879
                                                         =========        =========         =========

Assumptions used to develop the net periodic pension cost were:
    Discount rate                                             6.50%            6.50%             6.50%
    Expected long-term rate of return on assets               6.00%            6.00%             6.00%
    Rate on increase in compensation levels                   5.00%            5.00%             5.00%
</TABLE>

    The Bank has a defined contribution thrift plan in effect for substantially
    all employees. Compensation and benefits expense includes $58,233 in 2002,
    $53,697 in 2001, and $50,271 in 2000 for such plan. The thrift plan permits
    employee contributions in the amount of 1% to 6% of compensation. The Bank
    contributes for each thrift plan participant a matching contribution equal
    to 50% of the participant's contribution. In addition to the required
    matching contributions, the Bank may contribute an additional amount of
    matching contributions determined by the Board of Directors at its
    discretion.

    In addition to the aforementioned benefit plans, the Bank has deferred
    compensation arrangements with key officers and certain directors. The
    deferred compensation is funded through life insurance contracts and calls
    for annual payments for a period of ten years. The Bank funds the cost of
    the insurance for the officers while the cost of directors' insurance is
    funded through a reduction in their normal directors' fees. Vesting occurs
    after specified years of service and payments begin upon retirement. Expense
    reported in the statement of earnings under these arrangements totaled
    approximately $101,000 in 2002, $112,000 in 2001, and $112,000 in 2000. At
    September 30, 2002 and 2001, the Bank had recorded a net liability of
    $300,000, related to such arrangements.



                                      F-18

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 13 - EMPLOYEE STOCK OWNERSHIP PLAN
    The Bank has established an Employee Stock Ownership Plan (ESOP) for
    employees age 21 or older who have at least one year of credited service
    with the Bank. The ESOP will be funded by the Bank's contributions made in
    cash (which primarily will be invested in Company common stock) or common
    stock. Benefits may be paid either in shares of common stock or in cash. The
    Bank accounts for its ESOP in accordance with the AICPA's Statement of
    Position 93-6.

    In prior years the ESOP acquired 202,048 shares of Company stock through
    borrowings from IHC. The Bank makes annual contributions to the ESOP equal
    to the debt service, less dividends received on the unallocated shares. The
    ESOP shares have been pledged as collateral for the loan. As the loan is
    repaid, shares are released from collateral and committed for allocation to
    active employees, based on the proportion of debt service paid in the year.
    The shares pledged as collateral are reported as stock acquired by the ESOP
    plan in the statement of financial condition. As shares are released from
    collateral, the Bank reports compensation expense equal to the average fair
    value of the shares over the period in which the shares were earned. Also,
    the shares become outstanding for earnings per share computations. Dividends
    on allocated shares are recorded as a reduction of retained earnings, and
    dividends on unallocated shares are recorded as a reduction of the loan and
    accrued interest. ESOP compensation expense was $85,900, $53,878, and
    $27,000, for the years ended September 30, 2002, 2001, and 2000,
    respectively. At September 30, 2002 and 2001, $128,683 and 120,051 ESOP
    shares, respectively, have been released for allocation, of which 122,206
    and 113,573 were allocated to participants at September 30, 2002 and 2001,
    respectively. Of the 122,206 allocated to participant at September 30, 2002,
    14,611 shares have been distributed to participants who have withdrawn from
    the plan. The fair value of the unallocated shares of 79,842 and 88,475 at
    September 30, 2002 and 2001, was approximately $1,981,000 and $1,681,000,
    respectively.

NOTE 14 - MANAGEMENT RECOGNITION PLAN
    In prior years, the Bank has adopted a Management Recognition Plan (MRP) to
    provide officers and employees with a proprietary interest in the
    Association as incentive to contribute to its success.

    The Bank contributed $292,500 to the MRP Trust, and the MRP Trust purchased
    41,472 shares of common stock, all of which were awarded to officers. The
    shares granted were in the form of restricted stock to be earned and payable
    over a three-year period at the rate of one-third per year beginning, March
    31, 1995.

    In October 1996, the Bank adopted a second MRP Trust. The Bank contributed
    $835,700 to the MRP Trust, and the MRP Trust purchased 55,028 shares of
    common stock. The shares granted were in the form of restricted stock to be
    earned and payable over a five-year period at twenty percent (20%) per year,
    beginning on October 22, 1997.

    Compensation expense in the amount of the fair market value of the common
    stock at the date of the grant to the officer or employee is being
    recognized pro rata over the period during which the shares are earned and
    payable. MRP expense included in compensation and benefits in the
    accompanying consolidated statements of earnings totaled $13,929, $167,000,
    and $167,000 for the years ended September 30, 2002, 2001, and 2000,
    respectively.

NOTE 15 - STOCK OPTION PLANS
    Certain directors and officers have options to purchase shares of the Bank'
    common stock under its 1994, 1996 and 2001 Stock Incentive Plans. The option
    price is the fair market value at the date of grant and all shares have been
    granted and the options maximum term is ten years. The option price ranges
    from $7.05 to $21.87 per share and expire between March 2004 and March 2012.
    All available options under the 1994 and 1996 plans have been granted and
    are fully vested. Under the 2001 plan, 81,000 options have been granted and
    19,000 remain available for future awards. Of the options awarded, 49,500
    vest in three years and 31,500 vest in five years.



                                      F-19

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 15 - STOCK OPTION PLANS - CONTINUED
    A summary of activity in the Company's stock incentive plans follows:


<TABLE>
<CAPTION>
                                                           Number             Aggregate       Weighted Average
                                                             of                Option               Price
                                                           Shares               Price             Per Share
                                                        -----------          -----------          ---------
<S>                                                     <C>                 <C>                   <C>
Options outstanding at September 30, 2000
  (exercise price of $7.05 to $12.63 per share)             244,611          $ 2,627,459          $   10.74
  Options granted                                                 -                    -                  -
  Options exercised                                         (29,423)            (261,365)              8.88
                                                        -----------          -----------          ---------
Options outstanding at September 30, 2001                   215,188            2,366,094              11.00
  Options granted                                            81,000            1,771,470              21.87
  Options exercised                                         (33,174)            (311,929)              9.40
                                                        -----------          -----------          ---------
Options outstanding at September 30, 2002
  (exercise price of $7.05 to $21.87 per share)             263,014          $ 3,825,635          $   14.54
                                                        ===========          ===========          =========

1994 option plan                                             43,848          $   309,128          $    7.05
1996 option plan                                            138,166            1,745,037              12.63
2002 option plan                                             81,000            1,771,470              21.87
                                                        -----------          -----------          ---------
                                                            263,014          $ 3,825,365          $   14.54
                                                        ===========          ===========          =========

Exercisable at September 30, 2002                           182,021          $ 2,054,164          $   11.29
                                                        ===========          ===========          =========
</TABLE>

    No compensation cost has been recognized in the accompanying statements of
    operations for the Company's stock option plans. Had compensation cost for
    the Company's stock options plans been determined based on fair values at
    the grant dates for awards under those plans consistent with the method of
    SFAS No. 123, the Company's net income would have been reduced on a proforma
    basis by approximately $60,000 in 2002; $83,000 in 2001; and $83,000 in
    2000. Earning per share would have been reduced by $.03 basic and diluted in
    2002; $.05 basic and $.04 diluted in 2001; and $.04 basic and diluted in
    2000. The foregoing proforma amounts have been calculated using a binomial
    model and allocating compensation cost and a straight-line basis over the
    vesting period of the grant. The fair value of each option grant for the
    1996 (fully vested in 2001) plan was estimated with the following
    weighted-average assumptions: dividend yield of 3%; expected volatility of
    20%; risk-free interest rate of 6.6%; and expected life of 8 years. The fair
    value of each option grant for the 2001 (fully vested in 2006) plan was
    estimated with the following weighted average assumptions; dividend yield of
    2.2%; expected volatility of 25%; risk-free interest rate of 3.4%; and
    expected life of 6 years.

NOTE 16 - COMMITMENTS AND CONTINGENCIES
    In the ordinary course of business, the Company and subsidiaries have
    various outstanding commitments and contingent liabilities that are not
    reflected in the accompanying consolidated financial statements. In
    addition, the Company and subsidiaries are defendants in certain claims and
    legal actions arising in the ordinary course of business. In the opinion of
    management, after consultation with legal counsel, the ultimate disposition
    of these matters is not expected to have a material adverse effect on the
    consolidated financial position of the Company and subsidiaries.

    The Bank is obligated under noncancelable operating leases for certain
    computer equipment. Leases are generally short-term and the remaining
    commitment at September 30, 2002, is not significant to the Company's
    operations or financial condition.

    The Bank leases office space for a branch location under an operating lease
    expiring August 2007. Rent expense was $30,000 for the years ended September
    30, 2002 and 2001. The Bank has the option to extend the term of this lease
    for up to two consecutive terms of five years. In the normal course of
    business, operating leases are generally renewed or replaced by other
    leases.



                                      F-20

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 17 - REGULATORY MATTERS
    The Bank is subject to various regulatory capital requirements administered
    by the federal banking agencies. Failure to meet minimum capital
    requirements can initiate certain mandatory - and possibly additional
    discretionary - actions by regulators that, if undertaken, could have a
    direct material effect on the Bank's financial statements. Under capital
    adequacy guidelines and the regulatory framework for prompt corrective
    action, the Bank must meet specific capital guidelines that involve
    quantitative measures of the Bank's assets, liabilities, and certain
    off-balance-sheet items as calculated under regulatory accounting practices.
    The Bank's capital amounts and classification are also subject to
    qualitative judgments by the regulators about components, risk-weightings,
    and other factors.

    Quantitative measures established by regulation to ensure capital adequacy
    require the Bank to maintain minimum amounts and ratios (set forth in the
    table below) of total and Tier I capital (as defined in the regulations) to
    risk-weighted assets (as defined), and of Tier I capital to average assets
    (as defined). Management believes that, as of September 30, 2002 and 2001,
    the Bank met all capital adequacy requirements to which it is subject.

<TABLE>
<CAPTION>
                                                                                                    To Be Well
                                                                                                Capitalized Under
                                                                        For  Capital            Prompt Corrective
                                           Actual:                   Adequacy Purposes:         Action Provisions:
                                  ----------------------------------------------------------------------------------
As of September 30, 2002:           Amount           Ratio         Amount          Ratio      Amount          Ratio
-------------------------         -----------       -------      -----------      -------   -----------      -------
<S>                               <C>               <C>          <C>              <C>       <C>              <C>
   Risk-based capital
     (to risk-weighted assets)    $33,167,000        13.8%       $19,273,520        8.0%    $24,091,900       10.0%

   Tier I capital
     (to risk-weighted assets)    $31,875,000        13.2%       $ 9,636,760        4.0%    $14,455,140        6.0%

   Tier I capital
     (to average assets)          $31,875,000         7.6%       $16,754,960        4.0%    $20,943,700        5.0%

As of September 30, 2001:
-------------------------
   Risk-based capital
     (to risk-weighted assets)    $34,628,000        17.6%       $15,732,000        8.0%    $19,650,000       10.0%

   Tier I capital
     (to risk-weighted assets)    $33,371,000        17.0%       $ 7,866,000        4.0%    $11,799,000        6.0%

   Tier I capital
     (to average assets)          $33,371,000         9.8%       $13,659,360        4.0%    $17,074,200        5.0%
</TABLE>

NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
    The Company is party to financial instruments with off-balance-sheet risk in
    the normal course of business to meet the financing needs of its customers.
    These financial instruments include commitments to extend credit. Those
    instruments involve, to varying degrees, elements of credit and interest
    rate risk in excess of the amount recognized in the financial statements.
    The contractual amounts of those instruments reflect the extent of
    involvement the Company has in particular classes of financial instruments.

    The Company's exposure to credit loss in the event of nonperformance by the
    other party to the financial instrument for commitments to extend credit is
    represented by the contractual amount of those instruments. The Company uses
    the same credit policies in making commitments and conditional obligations
    as they do for on-balance-sheet instruments. Unless noted otherwise, the
    Company generally requires collateral to support financial instruments with
    credit risk.



                                      F-21

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - CONTINUED
    Commitments to extend credit are agreements to lend to a customer as long as
    there is no violation of any condition established in the contract.
    Commitments generally have fixed expiration dates or other termination
    clauses and may require payment of a fee. Since the majority of the
    commitments are expected to be funded, the total commitment amounts
    represent future expected cash requirements. The Company evaluates each
    customer's credit worthiness on a case-by-case basis. The amount of
    collateral obtained if deemed necessary by the Company upon extension of
    credit is based in part on management's credit evaluation of the
    counter-part. Collateral held varies, but consists principally of
    residential real estate and deposits.

NOTE 19 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
    Although the Bank has a diversified loan portfolio, a significant portion of
    its loans are secured by real estate. Repayment of these loans is in part
    dependent upon the economic conditions in the market area. Part of the risk
    associated with real estate loans has been mitigated, since much of this
    group represents loans secured by residential dwellings that are primarily
    owner-occupied. Losses on this type of loan have historically been less than
    those on speculative and commercial properties. The Bank's loan policy
    requires appraisal prior to funding any real estate loans and outlines the
    appraisal requirements on those renewing.

NOTE 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
    The following methods and assumptions were used to estimate the fair value
    of each class of financial instruments for which it is practicable to
    estimate that value:

    CASH AND INTEREST-BEARING DEPOSITS
    For these short-term instruments, the carrying amount is a reasonable
    estimate of fair value.

    INVESTMENT AND MORTGAGE-BACKED SECURITIES
    For securities held as investments, fair value equals quoted market price,
    if available. If a quoted market price is not available, fair value is
    estimated using quoted market prices for similar securities.

    ACCRUED INTEREST
    The carrying amounts of accrued interest approximates their fair values.

    LOANS RECEIVABLE
    For certain homogeneous categories of loans, such as residential mortgages,
    fair value is estimated using the quoted market prices for securities backed
    by similar loans, adjusted for differences in loan characteristics. The fair
    value of other types of loans is estimated by discounting the future cash
    flows, using the current rates at which similar loans would be made to
    borrowers with similar credit ratings and for the same remaining maturities.

    DEPOSIT LIABILITIES
    The fair value of demand deposits, savings accounts, and certain money
    market deposits is the amount payable on demand at the reporting date. The
    fair value of fixed-maturity certificates of deposit is estimated using the
    rates currently offered for deposits of similar remaining maturities.

    BORROWINGS
    Rates currently available to the Bank for debt with similar terms and
    remaining maturities are used to estimate fair value of existing debt.

    COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS-OF-CREDIT
    At September 30, 2002 and 2001, the Bank had not issued any standby
    letters-of-credit. Commitments to extend credit totaled $8,355,701 and
    $6,418,999, at September 30, 2002 and 2001, respectively, and consisted
    primarily of agreements to fund mortgage loans at the prevailing rates based
    upon acceptable collateral. Fees charged for these commitments are not
    significant to the operations or financial position of the Bank and
    primarily represent a recovery of underwriting costs. The Company has not
    been required to perform on any financial guarantees during the past two
    years. The Company has not incurred any losses on its commitments in the
    last three years.



                                      F-22

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
    The estimated fair values of the Company's financial instruments at
    September 30 are as follows:

<TABLE>
<CAPTION>
                                                           2002                                   2001
                                             -------------------------------       -------------------------------
                                               Carrying             Fair             Carrying              Fair
                                                Amount              Value             Amount              Value
                                             ------------       ------------       ------------       ------------
<S>                                          <C>                <C>                <C>                <C>
Financial assets:
  Cash and interest-bearing deposits         $ 15,352,395       $ 15,352,395       $ 13,639,018       $ 13,639,018
                                             ============       ============       ============       ============
  Investment securities                      $ 37,213,933       $ 37,324,218       $ 18,772,940       $ 18,856,415
                                             ============       ============       ============       ============
  Accrued interest receivable                $  2,928,855       $  2,928,855       $  2,726,856       $  2,726,856
                                             ============       ============       ============       ============
  Loans and mortgage-backed securities       $356,107,368                          $306,546,665
  Less:  Allowance for loan losses              1,291,701                             1,257,171
                                             ------------                          ------------
                                             $354,815,667       $364,324,000       $305,289,494       $313,569,000
                                             ============       ============       ============       ============
Financial liabilities:
  Deposits                                   $353,896,248       $352,258,000       $260,303,927       $260,671,000
                                             ============       ============       ============       ============
  Borrowings                                 $ 25,129,010       $ 27,070,000       $ 48,107,774       $ 49,285,000
                                             ============       ============       ============       ============
</TABLE>

NOTE 21 - CONDENSED FINANCIAL STATEMENTS OF JACKSONVILLE BANCORP, INC. (PARENT
    COMPANY ONLY)
    Jacksonville Bancorp, Inc., was organized in December 1995, and began
    operations on March 29, 1996, effective with the Reorganization. The
    Company's condensed balance sheets as of September 30 and related condensed
    statements of earnings for the years ended September 30 are as follows:

<TABLE>
<CAPTION>
                                                                     2002                  2001
                                                                 ------------          ------------
<S>                                                              <C>                   <C>
                             BALANCE SHEETS
ASSETS
  Cash in Bank                                                   $  1,722,535          $    289,991
  Investment in subsidiary                                         37,708,357            36,041,442
  Other assets                                                              -                43,493
                                                                 ------------          ------------
      Total assets                                               $ 39,430,892          $ 36,374,926
                                                                 ============          ============

LIABILITIES AND STOCKHOLDERS' EQUITY
  Other liabilities                                              $     14,400          $     14,400
  Dividends payable                                                   220,228               229,492
  Stockholders' equity                                             39,196,264            36,131,034
                                                                 ------------          ------------
        Total liabilities and stockholders' equity               $ 39,430,892          $ 36,374,926
                                                                 ============          ============

                        STATEMENTS OF EARNINGS

  General and administrative expenses                            $    205,310          $    128,032
                                                                 ------------          ------------
    Loss before income taxes and equity in undistributed
      earnings of subsidiaries                                        205,310               128,032
  Income tax (benefit)                                                (49,798)              (43,493)
                                                                 ------------          ------------
    Loss before equity in earnings of subsidiaries                    155,512                84,539
  Dividends from subsidiaries                                       4,436,250             3,364,625
  Equity in undistributed earnings of subsidiaries                  1,580,247               635,992
                                                                 ------------          ------------
        Net earnings                                             $  5,860,985          $  3,916,078
                                                                 ============          ============
</TABLE>



                                      F-23

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2002 AND 2001
                                    CONTINUED

NOTE 22 - BRANCH ACQUISITION
    Effective November 9, 2001, the Bank purchased a branch location in
    Carthage, Texas, for a premium of $3,593,000. In connection with the
    acquisition, the Bank assumed deposit liabilities of approximately
    $44,900,000, recorded loans of approximately $636,000 and recorded premises
    and equipment of approximately $238,000. Of the premium amount,
    approximately $1,375,000 was assigned to core deposit intangibles.















                                      F-24


<PAGE>
            [The following text appears on the inside back cover.]

                                STOCK INFORMATION

        Shares of Jacksonville Bancorp, Inc.'s common stock are traded
nationally under the symbol "JXVL" on the NASDAQ National Market System. At
December 18, 2002, the Company had 321 registered holders of common stock, not
including persons or entities whose stock is held in nominee or "street" name
through various brokerage firms or banks.

        The following table sets forth the reported high and low sale prices of
a share of the Company's common stock as reported by NASDAQ and cash dividends
paid per share of common stock during the periods indicated.

<TABLE>
<CAPTION>
                                              HIGH                 LOW             DIVIDEND
                                           -----------          ----------        ----------
<S>                                        <C>                  <C>               <C>
Quarter ended December 31, 2000               16.375              13.813            0.125
Quarter ended March 31, 2001                  18.25               16.125            0.125
Quarter ended June 30, 2001                   19.64               16.50             0.125
Quarter ended September 30, 2001              21.65               17.25             0.125

Quarter ended December 31, 2001               20.85               18.10             0.125
Quarter ended March 31, 2002                  24.00               20.05             0.125
Quarter ended June 30, 2002                   26.30               22.90             0.125
Quarter ended September 30, 2002              27.20               22.75             0.125
</TABLE>


                             STOCKHOLDER INFORMATION

        Jacksonville Bancorp, Inc. is a Texas-chartered corporation and savings
and loan holding company. Its primary asset, Jacksonville Savings Bank, SSB is a
Texas-chartered stock savings bank which conducts business from its main office
in Jacksonville, Texas and eight branch offices in the neighboring communities.


                                    TRANSFER AGENT/REGISTRAR

                                        Mellon Investor Services
                                        85 Challenger Road
                                        Overpeck Centre
                                        Ridgefield Park, New Jersey 07660
                                        1-800-635-9270


                              SHAREHOLDER REQUESTS

        Requests for annual reports, quarterly reports and related stockholder
literature should be directed to Corporate Secretary, Jacksonville Bancorp,
Inc., Commerce and Neches Streets, Jacksonville, Texas 75766.

        Shareholders needing assistance with stock records, transfers or lost
certificates, please contact the Company's transfer agent, Mellon Investor
Services.



<PAGE>
                [The following text appears on the back cover.]

                        DIRECTORS AND EXECUTIVE OFFICERS


<TABLE>
<S>                                                         <C>
W. G. BROWN                                                 JERRY M. CHANCELLOR
Chairman of the Board of the Company; Retired, Owner of     Director, President and Chief Executive Officer of the
Brown Lumber Industries                                     Company


RAY W. BEALL                                                BILL W. TAYLOR
Director of the Company; Retired senior executive for       Director, Executive Vice President and C.F.O. of the
Beall's Department Store                                    Company


CHARLES BROADWAY
Director of the Company, Retired Chief Executive Officer    DR. JOE TOLLETT
of the Company                                              Director of the Company; Retired Pediatrician


ROBERT BROWN
Vice Chairman of the Company; C.E.O., Brown Lumber          JERRY HAMMONS
Industries                                                  Director and Senior Vice President of the Company
</TABLE>


                                BANKING LOCATIONS

                                   MAIN OFFICE
                           Commerce and Neches Streets
                            Jacksonville, Texas 75766
                                 (903) 586-9861

                                 BRANCH OFFICES

<TABLE>
<S>                                            <C>
1015 North Church Street                       617 South Palestine Street
Palestine, Texas 75801                         Athens, Texas 75751
(903) 729-3228                                 (903) 677-2511


107 East Fourth Street                         5620 Old Bullard Road
Rusk, Texas 75785                              Tyler, Texas 75703
(903) 683-2287                                 (903) 534-9144


1412 Judson Road                               515 E. Loop 281
Longview, Texas 75601                          Longview, Texas 75608
(903) 758-0118                                 (903) 663-9271


2507 University Boulevard                      121 South Market
Tyler, Texas 75707                             Carthage, Texas 75633
(903) 566-5575                                 (903) 693-7161
</TABLE>