<PAGE>




                                                                      EXHIBIT 13
                           [JACKSONVILLE BANCORP LOGO]








                               2001 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:

Recently our country experienced a great tragedy in our homeland. The tragedy
continues today with the threat of further terrorist attacks on American people
and American interest both here and abroad. We at Jacksonville Bancorp, Inc. are
deeply saddened by the injuries and loss of lives as a result of these evil
deeds. Our thoughts and prayers are with the families at this difficult time.

On behalf of our directors, management and staff of our Company, we are pleased
to provide you with our 2001 annual report. Fiscal 2001 was another successful
year for our Company with assets growing to $351.0 million, a 16.4% increase
from fiscal 2000, and an increase in deposits to $260.3 million. We look with
pride at the strength of our Company which is reflected in our overall capital
position of $36.0 million, well in excess of capital requirements as mandated by
regulators.

Net profit for fiscal 2001 reached $3.88 million compared to $3.67 million as
reported for the previous year, a 5.6% increase. Diluted earnings per share
increased 13.2% from $1.82 in fiscal 2000 to $2.06 for the current year. All
this was accomplished even though fiscal 2001 was characterized by volatile
interest rate swings, political uncertainties, and a weakening economy.

At September 30, 2001 book value per share amounted to $19.60, compared to
$17.32 at the previous year end. Market value of our stock increased from
$14.375 at September 30, 2000 to $19.00 at the end of this fiscal year. In
addition, the Company continued to pay a quarterly cash dividend of $.125 per
share during the year.

We are pleased to report that during this current year our Company successfully
repurchased an additional 161,300 shares of Company common stock in an effort to
enhance earnings per share and long-term stockholders' value. During the year a
total of 29,423 option shares were exercised leaving a balance of 1,835,835
outstanding shares at September 30, 2001.

Loan originations for the year totaled $133.9 million of which the Company sold
$11.7 million in loans to Federal Home Loan Mortgage Corporation and retained
servicing rights on these loans. Additionally, $9.2 million whole loans were
sold to the secondary market, servicing released. The growth in the amount of
loans originated continues to be indicative of the strength of our market share
in the East Texas area.


On November 9, 2001 Jacksonville Savings Bank, S.S.B. successfully completed the
acquisition of the Carthage, Texas branch from Jefferson Heritage Bank. The
purchase of this branch fulfills our mission to purchase or develop branches in
the East Texas market areas where our management team has strong market
knowledge and banking relationship development potential. We look forward to the
opportunities the acquisition of this branch affords us.



                                       i
<PAGE>

In 2002 we will strive to gain more market share in East Texas by delivering
banking services that exceed customers' expectations, while continuing the
profitability of our banking operations. We remain committed to maximizing the
value of your investment in Jacksonville Bancorp, Inc.

On behalf of the Board of Directors, management and staff, we thank you for your
ongoing interest in the Company and your support in pursuit of our goals.

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
                                                          -------------------------------------------------------------
                                                            2001        2000        1999        1998         1997
                                                          ---------   ---------   ---------   ---------   ---------
<S>                                                       <C>         <C>         <C>         <C>         <C>
SELECTED FINANCIAL CONDITION AND OTHER
DATA:
Total assets ..........................................   $ 350,994   $ 301,467   $ 290,392   $ 263,160   $ 233,944
Cash and cash equivalents .............................      13,639       7,521       6,568      10,868       4,114
Investment securities .................................      18,773      22,017      18,711      20,013      25,931
Mortgage-backed securities ............................      58,858      32,727      37,640      31,866      21,217
Loans receivable, net .................................     246,432     226,854     216,267     191,153     174,044
Foreclosed real estate, net ...........................          63         124         346         531         526
Deposits ..............................................     260,304     220,766     215,209     204,490     190,033
Borrowings ............................................      48,108      41,000      35,000      17,000       2,000
Stockholders' equity ..................................      35,984      34,089      34,219      35,562      33,788
Full-service offices ..................................           8           8           7           7           6
</Table>

<Table>
<Caption>

                                                                            Year Ended September 30,
                                                          -------------------------------------------------------------
                                                            2001          2000         1999         1998         1997
                                                          ---------    ---------    ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>          <C>          <C>
SELECTED OPERATING DATA:
Total interest income .................................   $  24,231    $  22,350    $  20,465    $  18,541    $  17,172
Total interest expense ................................      14,041       12,328       10,711        9,628        8,771
                                                          ---------    ---------    ---------    ---------    ---------
         Net interest income ..........................      10,190       10,022        9,754        8,913        8,401
Provision for losses on loans .........................          86           69           60           35          110
                                                          ---------    ---------    ---------    ---------    ---------
         Net interest income after provision for
            losses on loans ...........................      10,104        9,953        9,694        8,878        8,291
Non-interest income ...................................       2,379        1,740        1,687        1,554        1,392
Non-interest expense ..................................       6,616        6,209        5,876        5,639        5,063
                                                          ---------    ---------    ---------    ---------    ---------
Income before income taxes ............................       5,867        5,484        5,505        4,793        4,620
Income taxes ..........................................       1,990        1,813        1,867        1,468        1,380
                                                          ---------    ---------    ---------    ---------    ---------
Net income ............................................   $   3,877    $   3,671    $   3,638    $   3,325    $   3,240
                                                          =========    =========    =========    =========    =========
Earnings per share
         Basic ........................................   $    2.18    $    1.87    $    1.65    $    1.44    $    1.30
         Diluted ......................................        2.06         1.82         1.60         1.38         1.27
                                                          ---------    ---------    ---------    ---------    ---------
Dividends Payout Ratio ................................       23.19%       26.35%       30.07%       34.60%       36.98%
                                                          =========    =========    =========    =========    =========
</Table>


<Table>
<Caption>

                                                                      At or For the Year Ended September 30,
                                                          -------------------------------------------------------------
                                                             2001         2000        1999         1998         1997
                                                          ---------    ---------    ---------    ---------    ---------
<S>                                                       <C>         <C>         <C>         <C>         <C>
SELECTED OPERATING RATIOS(1):
Return on average assets ..............................        1.20%        1.25%        1.33%        1.37%        1.45%
Return on average equity ..............................       10.94        10.90        10.82         9.98         9.35
Average equity to average assets ......................       10.98        11.42        12.88        13.74        15.54
Equity to assets at end of period .....................       10.25        11.31        11.78        13.51        14.44
Interest rate spread(2) ...............................        2.85         3.08         3.23         3.21         3.32
Net interest margin(2) ................................        3.31         3.56         3.72         3.84         3.94
Non-performing loans and troubled debt
         restructurings to total loans at end of
         period(3) ....................................         .41          .35          .41          .55          .59
Non-performing assets and troubled debt
         restructurings to total assets at end of
         period(3) ....................................         .29          .31          .42          .60          .66
Average interest-earning assets to average
         interest-bearing liabilities .................      110.00       111.08       111.90       115.38       114.95
Net interest income after provision for loan
         losses to total noninterest expense ..........      152.72       160.30       164.98       157.45       163.78
</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, 2001 consisted of 22% of adjustable or floating
rate loans. In order to meet its customers' demands for fixed-rate loans during
periods of lower interest rates, until 1994 Jacksonville followed a policy of
selling to third parties a high percentage of the fixed-rate loans it originated
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. As interest rates declined in late 1991,



                                       3
<PAGE>

Jacksonville originated an increasingly higher percentage of fixed-rate
residential first mortgage loans and continued to sell approximately 90% of such
loans upon origination. Since 1994, it had been Jacksonville's policy to retain
a large portion of its fixed-rate residential first mortgage loans with terms of
15 years or less and selling those fixed rate mortgages with terms in excess of
15 years. However , beginning in fiscal 2000, management elected to portfolio a
greater percentage of its 30 year fixed rate mortgages due to increased interest
rates, but continued to sell some loans in the secondary market. This policy
continued during fiscal 2000 even though there were volatile interest rate
swings.

         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.




                                       4
<PAGE>

         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 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 a 8.6%
decrease in net interest income over the next twelve months. In 2000, management
estimated, based on its simulation model, that an instantaneous 200 basis point
increase in interest rates at September 30, 2000, would result in a 11.4%
decrease in net interest income over the next twelve months, while a 200 basis
point decrease in rates would result in less than a 1.5% 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, 2001 the Bank was at or within the acceptable range 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 Tier 1 leveraged capital requirement, a Tier 1 risk-based capital
requirement and a total risk-based capital requirement. At September 30, 2001,
Jacksonville Savings Bank had Tier 1 leveraged capital, and Tier 1 risk based
capital and total risk based capital levels of 9.77%, 16.97% and 17.61%,
respectively, which levels exceed all current regulatory capital by $19.7
million, $25.5 million, and $18.9 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 Jacksonville'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. Jacksonville 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 Jacksonville 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 shall 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 shall
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



                                       5
<PAGE>

intent to do so). Goodwill will not be amortized but must be tested for
impairment annually at the reporting unit level. The provision of the Statements
applies to all combinations initiated after June 30, 2001. Management is
currently evaluating the provision of these Statements which will impact the
accounting for any future business combinations including the acquisition of a
Carthage, Texas branch from Jefferson Heritage Bank, Denton, Texas. Jacksonville
anticipates adopting statement 141 and 142 in the quarter ending December 31,
2001 effective with the completion of this acquisition.


                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 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




                                       6
<PAGE>

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. 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,
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 are currently 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.

         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 NOW accounts and checking 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.



                                       7
<PAGE>

                CHANGES IN FINANCIAL CONDITION FOR 2000 AND 1999

         At September 30, 2000, Jacksonville's assets totaled $301.5 million, as
compared to $233,000 at September 30, 1999. Total assets increased $10.6
million, or 4.9%, from fiscal 1999 to fiscal 2000. The increase in total assets
during fiscal 2000 was primarily the result of the following: an increase in
cash and interest bearing deposits of $953,000; an increase in loan receivable
net of $10.6 million, an increase in premises and equipment of $263,000; an
increase in investment in real estate of $533,000; an increase in investment
securities of $3.3 million; offset by a decrease in mortgage backed securities
of $4.9 million.

         The growth in assets was funded by a $6.0 million net increase in
advances from the FHLB, together with a $5.6 million net increase in deposits.

         During the year ended September 30, 2000, total liabilities increased
$11.3 million or 4.41% to $256.0 million at September 30, 1999 to $267.3 million
for fiscal year ended September 30,2000. This $11.3 million increase was
primarily the result of an increase in total deposits of $5.6 million; an
increase in advances from FHLB of $6.0 million; offset by a decrease in accrued
expenses and other liabilities of $257,000.

         Stockholders' equity decreased from $34.2 million at September 30, 1999
to $34.1 million at September 30, 2000, a decrease of $130,000. The decrease was
primarily the results of annual earnings after dividends less the purchase of
212,500 Treasury shares in the amount of $3.0 million.





                                       8
<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, 2001                2001                                    2000
                                       ----------  -----------------------------------    ----------------------------------------

                                          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(3) ..................   8.26%  $ 234,339   $   19,772         8.44%   $   222,200   $    18,557           8.35%
   Mortgage-backed securities ...........   6.32      42,633        2,735         6.42         35,053         2,447           6.98
   Investment securities ................   6.01      19,758        1,257         6.36         19,278         1,078           5.59
   Other interest-earning assets(1) .....   4.27      11,044          467         4.23          4,605           268           5.82
                                                   ---------   ----------                 -----------   -----------
Total interest-earning assets ...........            307,774   $   24,231         7.87%       281,136   $    22,350           7.95%
                                                   =========   ==========    =========    ===========   ===========    ===========
Non-interest-earning assets .............             14,776                                   13,703
                                                   ---------                              -----------
       Total assets .....................          $ 322,520                              $   294,839
                                                   =========                              ===========

INTEREST-BEARING LIABILITIES:
   Transaction accounts .................   1.75%  $  59,350   $    1,384         2.33%   $    53,999   $     1,326           2.46%
   Time deposits ........................   5.53     176,071       10,151         5.77        160,765         8,733           5.43
                                                   ---------   ----------                 -----------   -----------
       Total deposits ...................            235,421       11,535         4.90        214,764        10,059           4.68
                                                   ---------   ----------                 -----------   -----------
   Borrowings ...........................   4.85      44,480        2,506         5.63         38,328         2,270           5.92
                                                   ---------   ----------                 -----------   -----------
       Total interest-bearing
            liabilities .................            279,901   $   14,041         5.02%       253,092   $    12,329           4.87%
                                                   ---------   ==========    =========    -----------   ===========    ===========
Non-interest-bearing liabilities ........              7,194                                    8,069
                                                   ---------                              -----------
       Total liabilities ................            287,095                                  261,160
                                                   ---------                              -----------

Stockholders' Equity ....................             35,425                                   33,679
                                                   ---------                              -----------
       Total liabilities and
            stockholders' equity ........          $ 322,520                              $   294,839
                                                   =========                              ===========
Net interest income; interest rate
     spread .............................                      $   10,190         2.85%                 $    10,021           3.08%
                                                               ==========    =========                  ===========    ===========
Net interest margin(2) ..................                                         3.31%                                       3.56%
                                                                             =========                                 ===========
Average interest-earning assets to
   average interest bearing
   liabilities ..........................                                       110.00%                                     111.08%
                                                                             =========                                 ===========
</Table>

<Table>
<Caption>

                                                                                         1999
                                                                     ----------------------------------------------
                                                                        Average                           Yield/
                                                                        Balance         Interest           Rate
                                                                     ------------     ------------     ------------
<S>                                                                  <C>              <C>              <C>
INTEREST-EARNING ASSETS:
   Loans receivable(3) .........................................     $    205,057     $     17,092             8.34%
   Mortgage-backed securities ..................................           34,029            2,223             6.53
   Investment securities .......................................           17,684              880             4.98
   Other interest-earning assets(1) ............................            5,380              270             5.02
                                                                     ------------     ------------     ------------
Total interest-earning assets ..................................     $    262,150     $     20,465             7.81%
                                                                     ============     ============     ============
Non-interest-earning assets ....................................           11,529
                                                                     ------------
       Total assets ............................................     $    273,679
                                                                     ============

INTEREST-BEARING LIABILITIES:
   Transaction accounts ........................................     $     54,114     $      1,289             2.38%
   Time deposits ...............................................          155,623            8,199             5.27%
                                                                     ------------     ------------
       Total deposits ..........................................          209,737            9,488             4.52
                                                                     ------------
   Borrowings ..................................................           24,542            1,223             4.98
                                                                     ------------     ------------     ------------
       Total interest-bearing liabilities ......................          234,279     $     10,711             4.57%
                                                                     ------------     ============     ============
Non-interest-bearing liabilities ...............................            5,785
                                                                     ------------
       Total liabilities .......................................          240,064
                                                                     ------------

Stockholders' Equity ...........................................           33,615
                                                                     ------------
       Total liabilities and stockholders' equity ..............     $    273,679
                                                                     ============
Net interest income; interest rate speed .......................                      $      9,754             3.23%
                                                                                      ============     ============
Net interest margin(2) .........................................                                               3.72%
                                                                                                       ============
Average interest-earning assets to average interest bearing
   liabilities .................................................                                             111.90%
                                                                                                       ============
</Table>

----------
(1)    Consists primarily of interest-bearing deposits.

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

(3)    Includes non-accrual loans which do not significantly impact the average.

                                       9
<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,
                                                   --------------------------------------------------------------------------------
                                                                 2001 vs. 2000                            2000 vs. 1999
                                                   --------------------------------------     -------------------------------------
                                                           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 ...............................     $     194      $   1,021     $   1,215     $      21    $   1,444      $   1,465
         Mortgage-backed securities ..........          (173)           461           288           156           68            224
         Investment securities ...............           152             27           179           114           84            198
         Other interest-earning assets .......           (48)           247           199            40          (42)            (2)
                                                   ---------      ---------     ---------     ---------    ---------      ---------
           Total interest-earning assets .....     $     125      $   1,756     $   1,881     $     331    $   1,554      $   1,885
                                                   =========      =========     =========     =========    =========      =========

INTEREST-BEARING LIABILITIES:
         Deposits ............................     $     479      $     998     $   1,477     $     341    $     320      $     571
         Other borrowings ....................          (103)           339           236           263          784          1,074
                                                   ---------      ---------     ---------     ---------    ---------      ---------
         Total interest-bearing liabilities ..     $     376      $   1,337     $   1,713     $     604    $   1,014      $   1,618
                                                   =========      =========     =========     =========    =========      =========
         Increase (decrease) in
           net interest income ...............                                  $     168                                 $     267
                                                                                =========                                 =========
</Table>



<Table>
<Caption>

                                                                            Year Ended September 30,
                                                                 ------------------------------------------------

                                                                                   1999 vs. 1998
                                                                 ------------------------------------------------
                                                                            Increase
                                                                           (Decrease)                    Total
                                                                             Due to                    Increase
                                                                 ------------------------------      ------------
                                                                    Rate              Volume          (Decrease)
                                                                 ------------      ------------      ------------
                                                                             (Dollars in Thousands)
<S>                                                              <C>               <C>               <C>
INTEREST-EARNING ASSETS:
         Loans .............................................     $       (421)     $      2,071      $      1,650
         Mortgage-backed securities ........................              (44)              766               722
         Investment securities .............................              (86)             (295)             (381)
         Other interest-earning assets .....................              (19)              (48)              (67)
                                                                 ------------      ------------      ------------
           Total interest-earning assets ...................     $       (570)     $      2,494      $      1,924
                                                                 ============      ============      ============

INTEREST-BEARING LIABILITIES:
         Deposits ..........................................     $       (382)     $        522      $        140
         Other borrowings ..................................              (30)              973               943
                                                                 ------------      ------------      ------------
         Total interest-bearing liabilities ................     $       (412)     $      1,495      $      1,083
                                                                 ============      ============      ============
         Increase (decrease) in net interest income ........                                         $        841
                                                                                                     ============
</Table>




                                       10
<PAGE>



COMPARISON OF RESULTS OF OPERATIONS FOR 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.

         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 liabilities. 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. 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 $69,000 for fiscal 2000
to $85,500 for fiscal 2001.




                                       11
<PAGE>

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. See Note
2 to Consolidated Financial Statements.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND
SEPTEMBER 30, 1999

         GENERAL. Jacksonville's net income for the year ended September 30,
2000 was $3.7 million, compared to $3.6 million for the year ended September 30,
1999. In fiscal 2000, the increase in net interest income was the primary reason
for the increase in net income compared to fiscal 1999. However, while total
interest income increased from $20.5 million for the year ended September 30,
1999 to $22.3 million for fiscal 2000, total interest expense also increased
from $10.7 million to $12.3 million for the comparable periods resulting in a
declining interest rate margin. The increase in net interest income was also
partially offset by increases in non-interest expenses from $5.9 million for the
year ended September 30, 1999 to $6.2 million for fiscal year 2000.

         Interest-earning assets increased $10.2 million or 3.7% during the
fiscal year ended September 30, 2000. The amount of such assets increased
primarily as a result of use of the increase in deposits and advances from the
Federal Home Loan Bank to fund loans receivable portfolio. As the average
balance of interest-earning assets increased, the Bank also experienced
generally higher interest rates during the period in which loans were originated
which resulted in the average yield on interest-earning assets increasing by 14
basis points from 7.81% in fiscal 1999 to 7.95% in fiscal 2000. The positive
impact on earnings resulting from the increase in average balance on
Jacksonville's interest-earning assets was offset by a 30 basis point increase
in the average paid on interest bearing liabilities from 4.57% in fiscal 1999 to
4.87% in fiscal 2000. The interest rate spread decreased from 3.23% in fiscal
1999 to 3.08% in 2000.

         NET INTEREST INCOME. Net interest income increased by $268,000, or
2.7%, for the year ended September 30, 2000 compared to the year ended September
30, 1999. This increase was due to a $1.9 million, or 9.2%, increase in total
interest income offset by a $1.6 million or 15.1% increase in total interest
expense.

         The $1.9 million increase in total interest income was primarily the
result of increases in interest on loans receivable of $1.5 million or 8.6%,
interest on mortgage-backed securities of $224,000 or 10.1%, an increase of
$198,000 or 22.5% in interest income on investment securities, offset by a
decrease in other interest income of



                                       12
<PAGE>

$2,000. The increase in interest income from loans receivable was due primarily
to a $17.1 million, or 8.4%, increase in the average balance of Jacksonville's
loan portfolio. The increase in interest income from mortgage-backed securities
reflects an increase in average balance from $34.0 million in fiscal 1999 to
$35.1 million in fiscal 2000 with an increase in average yield from 6.53% to
6.98% in the respective periods. The increase in interest income from investment
securities reflects primarily an increase in average balance from $17.7 million
to $19.3 million, or 9.0%. The increase in the average balance of securities
reflects some shift in portfolio mix by management of Jacksonville as funds were
used to purchase available-for-sale securities and to fund new mortgage loans.

         The $1.6 million increase in total interest expense from $10.7 million
for the year ended September 30, 1999, to $12.3 million for the year ended
September 30, 2000, was primarily due to an increase in interest rates paid on
deposits, and to an increase in interest paid on FHLB advances. The average rate
paid on deposits increased from 4.52% in fiscal 1999 to 4.68% in fiscal 2000.

         Jacksonville's net interest rate spread was 3.08% for the year ended
September 30, 2000 as compared to 3.23% in fiscal 1999.

         PROVISION FOR LOSSES ON LOANS. Jacksonville's provision for loan losses
was $69,000 for the year ended September 30, 2000 compared to $60,000 for the
year ended September 30, 1999. Non-performing loans decreased to $472,000 during
fiscal 2000, and net charge-offs for the period increased $36,000 and totaled
$54,000 for the year. The Company's level of net loans outstanding increased
$10.6 million which included an increase of 3.9% in mortgage loans. Overall
economic conditions remained stable for the market area and credit quality for
the applicants showed no material change. Upon consideration of such factors,
Jacksonville determined that $69,000 in provisions for losses on loans were
appropriate in fiscal 2000, primarily because of the increase in the loan
portfolio. Jacksonville's allowance for losses amounted to $1.2 million at
September 30, 2000 an increase $15,000 from the amount at September 30, 1999.

         NON-INTEREST INCOME. Total non-interest income amounted to $1.74
million for the year ended September 30, 2000 compared to $1.69 million in
fiscal 1999. The $53,000 increase was due primarily to an increase in fees and
deposit service charges of $47,000; an increase of $46,000 in other non-interest
income partially offset by a decrease in income from origination of mortgage
servicing of $15,000 and a decrease in income from real estate operations, net
of $25,000. The increase in income from fees and deposit service charges
primarily reflects an increase in service charges on deposits.

         NON-INTEREST EXPENSE. Non-interest expense amounted to $6.2 million for
the year ended September 30, 2000 compared to $5.9 million during fiscal 1999.
The primary reason for the $333,000, or 5.7% increase in non- interest expense
during fiscal 1999 was from increases in compensation and benefits of $231,000;
in occupancy and equipment of $101,000, and other non-interest expenses of
$51,000, offset by a reduction in insurance expense of $50,000. Some of the
increase in non-interest expense is attributed to cost of staffing and other
expenses associated with the opening of a second branch in Tyler, Texas.
Non-interest expense was reduced by approximately $155,000 due to a refund of
previous years' state franchise taxes (1996 through 1999) based on a recent
ruling made by the Texas State Controllers Office related to treatment of
available-for-sale securities.

         INCOME TAXES. Income tax expense amounted to $1.8 million during the
year ended September 30, 2000, compared to $1.9 million in fiscal 1999. The
changes in such amounts primarily reflect differences in gross income levels of
Jacksonville.

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



                                       13
<PAGE>

readily marketable investments. At September 30, 2001 the Bank's liquidity was
$93.8 million with a liquidity ratio of 38.6%.

         Cash was generated by Jacksonville's operating activities of $4.1
million and $3.7 million during the years ended September 30, 2001 and 2000,
respectively, primarily as a result of net earnings of $3.9 million and $3.7
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,
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, 2000, Jacksonville's investing
activities used cash of $10.3 million, principally as a result of net loan
originations of $10.6 million, to purchase mortgage backed securities totaling
$569,000; to purchase investment securities of $6.4 million; capital
expenditures of $586,000; investment in real estate of $533,000; to purchase
stock in FHLB of $182,000; partially offset by proceeds on maturity of
investment securities of $3.1 million; principal paydown on MBS of $5.3 million;
and proceeds from sale of foreclosed real estate of $193,000.

         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.

         During the year ended September 30, 2000, Jacksonville's financing
activities generated cash of $ 7.6 million as a result of a net increase in
deposits of $5.6 million; net increase of $6.0 million in advances from FHLB;
offset by the purchase of Treasury Stock in the amount of $3.0 million; the
payment of dividends in the amount of $1.0 million; and a net decrease of
$22,000 in advance payments by borrowers for property taxes and insurance.

         At September 30, 2001, Jacksonville had $5.4 million of outstanding
commitments to originate residential real estate loans, $1.0 million 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, 2002 are $125.7 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, advances from the FHLB of Dallas are available as
an additional source of funds.

         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, 2001,
Jacksonville's Tier 1 leveraged capital and Tier 1 risk-based capital totaled
$33.4 million or 9.77% of adjusted total assets and 16.97% of risk-weighted
assets, respectively. These capital levels exceeded the




                                       14
<PAGE>

minimum requirements at that date by approximately $19.7 million and $25.5
million, respectively. Jacksonville's total risk- based capital was $34.6
million at September 30, 2001 or 17.61% of risk-weighted assets which exceeded
the current requirement of 8% of risk-weighted assets by approximately $18.9
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 require 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.




                                       15
<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, 2001 and
2000, 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, 2001.

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, 2001 and 2000, and the
results of their operations and cash flows for each of the years in the three
year period ended September 30, 2001, in conformity with U. S. generally
accepted accounting principles.





                                                  /s/ HENRY & PETERS, P.C.

                                                  HENRY & PETERS, P.C.


Tyler, Texas
November 15, 2001







                                       F-1


<PAGE>
                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           SEPTEMBER 30, 2001 AND 2000


<Table>
<Caption>

                                                                                  2001                2000
                                                                              -------------      -------------
<S>                                                                           <C>                <C>
                                                  ASSETS
  Cash on hand and in banks                                                   $   2,803,804      $   2,701,637
  Interest-bearing deposits                                                      10,835,214          4,819,061
  Investment securities:
     Held-to-maturity, approximate fair market value of
          $4,583,475 and $4,792,500, respectively                                 4,500,000          5,000,000
     Available-for-sale, carried at fair value                                   14,272,940         17,017,020
  Mortgage-backed securities:
     Held-to-maturity, approximate fair market value of
         $14,674,721 and $3,668,056, respectively                                14,602,621          3,700,341
     Available-for-sale, carried at fair value                                   44,255,301         29,026,660
  Loans receivable, net                                                         246,431,572        226,853,940
  Accrued interest receivable                                                     2,726,856          2,523,749
  Foreclosed real estate, net                                                        63,107            123,646
  Premises and equipment, net                                                     4,781,968          4,845,675
  Stock in Federal Home Loan Bank of Dallas, at cost                              2,613,200          2,156,500
  Investment in real estate                                                       1,175,974          1,245,970
  Mortgage servicing rights                                                         597,538            625,505
  Other assets                                                                    1,334,257            827,619
                                                                              -------------      -------------
         Total assets                                                         $ 350,994,352      $ 301,467,323
                                                                              =============      =============

                                    LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Deposits                                                                    $ 260,303,927      $ 220,766,244
  Advance from Federal Home Loan Bank                                            48,107,774         41,000,000
  Advances from borrowers for taxes and insurance                                 4,059,632          4,073,917
  Accrued expenses and other liabilities                                          2,538,562          1,538,095
                                                                              -------------      -------------
       Total liabilities                                                        315,009,895        267,378,256

STOCKHOLDERS' EQUITY
  Preferred stock, no par value, 5,000,000 shares authorized; none issued                --                 --
  Common stock, $.01 par value, 25,000,000 shares authorized;
  2,705,395 and 2,675,972 shares issued; 1,835,835 and 1,967,712
      shares outstanding in 2001 and 2000, respectively                              27,053             26,760
  Additional paid-in capital                                                     23,045,963         22,742,784
  Retained earnings, substantially restricted                                    27,189,042         24,210,956
  Accumulated other comprehensive income (loss)                                     401,315           (900,852)
  Less:
      Treasury stock, at cost (869,560 and 708,260 shares, respectively)        (13,675,620)       (10,753,968)
       Shares acquired by Employee Stock Ownership Plan                            (989,367)        (1,055,546)
       Shares acquired by Management Recognition Plan                               (13,929)          (181,067)
                                                                              -------------      -------------
            Total stockholders' equity                                           35,984,457         34,089,067
                                                                              -------------      -------------
                 Total liabilities and stockholders' equity                   $ 350,994,352      $ 301,467,323
                                                                              =============      =============
</Table>


See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>
                      JACKSONVILLE BANCORP, INC.
                  CONSOLIDATED STATEMENTS OF EARNINGS
             YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999


<Table>
<Caption>

                                                     2001            2000              1999
                                                 ------------    ------------      ------------
<S>                                              <C>             <C>               <C>
INTEREST INCOME
     Loans receivable                            $ 19,772,106    $ 18,556,989      $ 17,091,560
     Mortgage-backed securities                     2,734,813       2,446,644         2,223,096
     Investment securities                          1,257,104       1,077,837           880,071
     Other                                            467,352         268,419           270,598
                                                 ------------    ------------      ------------
         Total interest income                     24,231,375      22,349,889        20,465,325

INTEREST EXPENSE
     Deposits                                      11,535,088      10,058,508         9,488,048
     Interest on borrowings                         2,506,155       2,269,766         1,223,328
                                                 ------------    ------------      ------------
         Total interest expense                    14,041,243      12,328,274        10,711,376
                                                 ------------    ------------      ------------
         Net interest income                       10,190,132      10,021,615         9,753,949

PROVISION FOR LOSSES ON LOANS                          85,500          69,000            60,000
                                                 ------------    ------------      ------------
     Net interest income after provision for
          losses on loans                          10,104,632       9,952,615         9,693,949

NONINTEREST INCOME
     Fee and deposit service charges                1,949,946       1,369,985         1,322,649
     Real estate operations, net                      215,182         109,850           135,196
     Other                                            171,377         260,481           229,361
     Gain on sale of securities                        42,411              --                --
                                                 ------------    ------------      ------------
         Total noninterest income                   2,378,916       1,740,316         1,687,206

NONINTEREST EXPENSE
     Compensation and benefits                      4,262,859       4,061,053         3,829,581
     Occupancy and equipment                          802,974         751,964           650,676
     Insurance expense                                 96,532         115,889           165,849
     Other                                          1,454,245       1,280,162         1,229,471
                                                 ------------    ------------      ------------
         Total noninterest expense                  6,616,610       6,209,068         5,875,577
                                                 ------------    ------------      ------------

INCOME BEFORE TAXES ON INCOME                       5,866,938       5,483,863         5,505,578

TAXES ON INCOME
     Current                                        1,544,085       1,818,796         1,759,347
     Deferred                                         446,000          (6,000)          108,000
                                                 ------------    ------------      ------------
          Total income tax expense                  1,990,085       1,812,796         1,867,347
                                                 ------------    ------------      ------------
               Net earnings                         3,876,853       3,671,067         3,638,231
                                                 ============    ============      ============

EARNINGS PER COMMON SHARE
     Basic                                       $       2.18    $       1.87      $       1.65
                                                 ============    ============      ============
     Diluted                                     $       2.06    $       1.82      $       1.60
                                                 ============    ============      ============

</Table>

See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999


<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, 1998                    $     26,760     $ 22,649,848                      $     74,882      $ 18,963,133
    ESOP shares released                                   --           72,864                                --                --
    Accrual of management
        recognition plan awards                            --               --                                --                --
    Comprehensive income:
        Net earnings                                       --               --     $  3,638,231               --         3,638,231
        Other comprehensive income, net
            of tax, unrealized (loss) on
               securities available-for-sale               --               --         (876,083)        (876,083)               --
                                                                                   ------------
                   Comprehensive income                                            $  2,762,148
                                                                                   ============
     Dividends declared                                    --               --                                --        (1,094,080)
     Purchase of 54,825 Treasury shares                    --               --                                --                --
                                                 ------------     ------------                      ------------      ------------

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
                                                 ============     ============                      ============      ============

<Caption>

                                                                      Shares           Shares            Total
                                                   Treasury          Acquired         Acquired        Stockholders'
                                                    Stock            by ESOP           by MRP            Equity
                                                 ------------      ------------      ------------     -------------

<S>                                              <C>               <C>               <C>               <C>
BALANCE AT SEPTEMBER 30, 1998                    $ (4,413,266)     $ (1,223,932)     $   (515,344)     $ 35,562,081
    ESOP shares released                                   --           107,395                --           180,259
    Accrual of management
        recognition plan awards                            --                --           167,138           167,138
    Comprehensive income:
        Net earnings                                       --                --                --         3,638,231
        Other comprehensive income, net
            of tax, unrealized (loss) on
               securities available-for-sale               --                --                --          (876,083)

                   Comprehensive income

     Dividends declared                                    --                --                --        (1,094,080)
     Purchase of 54,825 Treasury shares            (3,358,620)               --                --        (3,358,620)
                                                 ------------      ------------      ------------      ------------

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
                                                 ============      ============      ============      ============
</Table>

See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>


                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
                                    CONTINUED

<Table>
<Caption>

                                                                                                     Accumulated
                                                                    Additional         Compre-           Other
                                                     Common          Paid-in           hensive       Comprehensive
                                                     Stock           Capital           Income        Income (Loss)
                                                  ------------     ------------     ------------     -------------
<S>                                               <C>              <C>              <C>              <C>
BALANCE AT SEPTEMBER 30, 2000                     $     26,760     $ 22,742,784                      $   (900,852)

     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               --
         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                                     --               --                                --
     Purchase of 161,300 Treasury shares                    --               --                                --
                                                  ------------     ------------                      ------------

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


<Caption>

                                                                                   Shares           Shares            Total
                                                 Retained        Treasury         Acquired         Acquired        Stockholders'
                                                 Earnings         Stock            by ESOP          by MRP           Equity
                                               ------------     ------------     ------------     ------------     -------------

<S>                                            <C>              <C>              <C>              <C>              <C>
BALANCE AT SEPTEMBER 30, 2000                  $ 24,210,956     $(10,753,968)    $ (1,055,546)    $   (181,067)    $ 34,089,067

     Exercise of stock options(29,423 share              --               --               --               --          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               --               --               --        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)              --               --               --         (898,767)
     Purchase of 161,300 Treasury shares                 --       (2,921,652)              --               --       (2,921,652)
                                               ------------     ------------     ------------     ------------     ------------

BALANCE AT SEPTEMBER 30, 2001                  $ 27,189,042     $(13,675,620)    $   (989,367)    $    (13,929)    $ 35,984,457
                                               ============     ============     ============     ============     ============
</Table>

See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>
                           JACKSONVILLE BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999

<Table>
<Caption>

                                                                                     2001            2000              1999
                                                                                 ------------     ------------     ------------
<S>                                                                              <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                                                 $  3,876,853     $  3,671,067     $  3,638,231
      Adjustments to reconcile net income to net cash
        provided by operating activities:
           Depreciation                                                               339,770          317,868          259,416
           Amortization/accretion of securities                                       146,516           79,783          175,132
           Provision for losses on loans and on real estate                            85,500           69,000           60,000
           Loans originated for sale                                              (20,932,788)     (20,875,987)     (23,866,321)
           Loans sold                                                              20,932,788       20,875,987       23,866,321
           Net gain on sale of investment securities                                  (42,316)              --               --
           Net gain on sale of other real estate                                     (188,917)         (27,508)        (187,400)
           Net gain on sale of non-foreclosed real estate                             (36,539)              --               --
           Accrual of MRP awards                                                      167,138          167,139          167,138
           Release of ESOP shares                                                     108,286           81,063          180,259
           Change in assets and liabilities:
               (Increase) decrease in other assets                                 (1,177,451)         (28,755)         250,647
               Increase  (decrease) in accrued expenses and other liabilities       1,020,777         (256,844)        (409,027)
               Decrease in deferred income                                            (20,310)         (73,116)         (23,925)
               Decrease (increase) in mortgage servicing rights                        27,967          (37,952)         (53,090)
               Increase in accrued interest receivable                               (203,107)        (269,591)        (163,688)
                                                                                 ------------     ------------     ------------
                   Net cash provided by operating activities                        4,104,167        3,692,154        3,893,693

CASH FLOWS FROM INVESTING ACTIVITIES
      Proceeds on maturity of investment securities                                18,373,775        3,082,075       13,965,068
      Proceeds from sale of investment securities                                   1,021,668               --               --
      Purchase of investment securities                                           (15,500,000)      (6,388,617)     (12,998,125)
      Net principal payments/originations on loans                                (19,444,687)     (10,598,344)     (24,934,510)
      Proceeds from sale of foreclosed real estate                                     67,550          192,610          132,693
      Proceeds from sale of equipment                                                      --            5,500               --
      Purchase of mortgage-backed securities                                      (46,965,170)        (569,446)     (14,751,466)
      Principal paydowns on mortgage-backed securities                             22,051,666        5,252,444        7,809,676
      Capital expenditures                                                           (276,063)        (586,145)        (906,536)
      Purchase of stock in FHLB Dallas                                               (456,700)        (182,100)        (352,500)
      Investment in real estate                                                        69,996         (533,174)        (712,796)
                                                                                 ------------     ------------     ------------
                    Net cash used in investing activities                         (41,057,965)     (10,325,197)     (32,748,496)

CASH FLOWS FROM FINANCING ACTIVITIES
      Net increase in deposits                                                     39,537,683        5,557,040       10,719,286
      (Decrease) increase in advance payments by
          borrowers for property taxes and insurance                                  (14,285)         (21,508)         288,257
      Advances from FHLB                                                           43,000,000       15,000,000       49,500,000
      Payment of FHLB advances                                                    (35,892,226)      (9,000,000)     (31,500,000)
      Proceeds from exercise of stock options                                         261,365               --               --
      Purchase of Treasury stock                                                   (2,921,652)      (2,982,082)      (3,358,620)
      Dividends paid                                                                 (898,767)        (967,395)      (1,094,080)
                                                                                 ------------     ------------     ------------
                    Net cash provided by financing activities                      43,072,118        7,586,055       24,554,843
                                                                                 ------------     ------------     ------------
                    Net increase (decrease) in cash and cash equivalents            6,118,320          953,012       (4,299,960)

CASH AND CASH EQUIVALENTS
      Beginning of year                                                             7,520,698        6,567,686       10,867,646
                                                                                 ------------     ------------     ------------
      End of year                                                                $ 13,639,018     $  7,520,698     $  6,567,686
                                                                                 ============     ============     ============
</Table>

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>


                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000

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, 2001 AND 2000
                                    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, 2001 AND 2000
                                    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,
                                           --------------------------------------------
                                              2001            2000             1999
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Basic net earnings per share
  Net income                               $  3,876,853    $  3,671,067    $  3,638,231
  Weighted-average shares outstanding         1,777,226       1,963,050       2,202,425
                                           ------------    ------------    ------------
      Per share                            $       2.18    $       1.87    $       1.65
                                           ============    ============    ============

Diluted net earnings per share
  Net income                               $  3,876,853    $  3,671,067    $  3,638,231
  Weighted-average shares outstanding
    plus assumed conversions                  1,879,008       2,013,660       2,278,965
                                           ------------    ------------    ------------
      Per share                            $       2.06    $       1.82    $       1.60
                                           ============    ============    ============

Calculation of weighted average shares
  outstanding plus assumed conversions
    Weighted-average shares outstanding       1,777,226       1,963,050       2,202,425
    Effect of dilutive stock options            101,782          50,610          76,540
                                           ------------    ------------    ------------
                                              1,879,008       2,013,660       2,278,965
                                           ============    ============    ============
</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, 2001 AND 2000
                                    CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

   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>

                                                              2001             2000              1999
                                                           ------------     ------------     ------------
<S>                                                        <C>              <C>              <C>
Cash on hand and in banks                                  $  2,803,804     $  2,701,637     $  2,995,572
Interest bearing deposits                                    10,835,214        4,819,061        3,572,114
                                                           ------------     ------------     ------------
    Cash and cash equivalents                              $ 13,639,018     $  7,520,698     $  6,567,686
                                                           ============     ============     ============

Supplemental disclosure:
  Cash paid for:
    Interest                                               $ 14,003,149     $ 12,325,178     $ 10,644,167
                                                           ============     ============     ============
    Income taxes                                           $  2,073,261     $  1,837,052     $  2,090,000
                                                           ============     ============     ============

Non-cash operating activities:
  Change in deferred taxes on net unrealized gains
    and losses on securities available-for-sale            $   (670,813)    $     51,335     $    451,315
                                                           ============     ============     ============

Non-cash investing activities:
  Change in net unrealized gains and losses
    on securities available-for-sale                       $  1,972,980     $   (150,986)    $ (1,327,398)
                                                           ============     ============     ============
  Transfer from loans to real estate acquired
    through foreclosure                                    $    178,000     $    231,000     $    391,000
                                                           ============     ============     ============
  Loans made relating to sale of foreclosed real estate    $    307,000     $    289,000     $    630,000
                                                           ============     ============     ============
</Table>





                                      F-10


<PAGE>



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000
                                    CONTINUED

NOTE 3 - INVESTMENT SECURITIES

   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 amortized cost and estimated market values of investments in debt
   securities are as follows as of September 30, 2000:

<Table>
<Caption>

                                                          Available-for-sale
                                   -----------------------------------------------------------------
                                                                                          Estimated
                                    Amortized        Unrealized        Unrealized           Market
                                       Cost             Gains            Losses             Value
                                   -----------       -----------       -----------       -----------
<S>                                <C>               <C>               <C>               <C>
      U.S. Agency securities       $17,332,099       $        --       $   315,079       $17,017,020
                                   ===========       ===========       ===========       ===========
</Table>


<Table>
<Caption>

                                                           Held-to-maturity
                                    -------------------------------------------------------------
                                                                                       Estimated
                                    Amortized         Unrealized      Unrealized         Market
                                      Cost              Gains           Losses            Value
                                    ----------        ----------      ----------       ----------
<S>                                 <C>               <C>             <C>              <C>
      U. S. Agency securities       $5,000,000        $      --       $  207,500       $4,792,500
                                    ==========        =========       ==========       ==========
</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>

   The scheduled maturities of securities at September 30, 2000 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          $        --       $        --       $   500,000       $   493,750
      Due from one to five years         5,000,000         4,792,500        15,873,745        15,578,270
      Due from five to ten years                --                --           958,354           945,000
                                       -----------       -----------       -----------       -----------
                                       $ 5,000,000       $ 4,792,500       $17,332,099       $17,017,020
                                       ===========       ===========       ===========       ===========
</Table>

                                      F-11


<PAGE>



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000
                                    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
            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>

<Table>
<Caption>

                                                    Held-to-maturity
                               -------------------------------------------------------------
                                                                                  Estimated
        September 30,          Amortized        Unrealized       Unrealized         Market
            2000                 Cost              Gains           Losses            Value
      ------------------       ----------       ----------       ----------       ----------
<S>                            <C>              <C>              <C>              <C>
      GNMA certificates        $  422,663       $   11,594       $    8,484       $  425,773
      FHLMC certificates          866,497            4,353           17,358          853,492
      FNMA certificates         2,411,181               --           22,390        2,388,791
                               ----------       ----------       ----------       ----------
                               $3,700,341       $   15,947       $   48,232       $3,668,056
                               ==========       ==========       ==========       ==========
</Table>

<Table>
<Caption>

                                                      Available-for-sale
                               -----------------------------------------------------------------
                                                                                     Estimated
        September 30,           Amortized        Unrealized        Unrealized          Market
            2000                   Cost             Gains            Losses            Value
      ------------------       -----------       -----------       -----------       -----------
<S>                            <C>               <C>               <C>               <C>
      GNMA certificates        $ 3,528,200       $        --       $   115,746       $ 3,412,454
      FHLMC certificates         1,693,415                --            20,821         1,672,594
      FNMA certificates         11,597,655                --           354,143        11,243,512
      CMO certificates          13,257,237                --           559,137        12,698,100
                               -----------       -----------       -----------       -----------
                               $30,076,507       $        --       $ 1,049,847       $29,026,660
                               ===========       ===========       ===========       ===========
</Table>


                                      F-12

<PAGE>




                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000
                                    CONTINUED


NOTE 4 - MORTGAGE-BACKED SECURITIES - CONTINUED

   The scheduled maturities of mortgage-backed securities as of 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>


   The scheduled maturities of mortgage-backed securities at September 30, 2000
   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          $        --       $        --       $        --       $        --
      Due from one to five years                --                --                --                --
      Due from five to ten years         1,260,203         1,245,330         4,179,743         4,064,322
      Due after ten years                2,440,138         2,422,726        25,896,764        24,962,338
                                       -----------       -----------       -----------       -----------
                                       $ 3,700,341       $ 3,668,056       $30,076,507       $29,026,660
                                       ===========       ===========       ===========       ===========
</Table>

NOTE 5 - LOANS RECEIVABLE

   Loans receivable are summarized as follows:

<Table>
<Caption>

                                                                 September 30,
                                                        ----------------------------------
                                                            2001                 2000
                                                        -------------        -------------
<S>                                                     <C>                  <C>
      Mortgage loans (principally conventional):
        Single family residential                       $ 181,563,178        $ 171,041,329
        Multi-family residential                              454,145              769,895
        Commercial                                         16,859,579           14,499,004
        Construction                                       39,916,558           25,116,466
        Land                                                3,092,508            2,741,027
                                                        -------------        -------------
                                                          241,885,968          214,167,721
      Business and Consumer loans:
        Commercial business                                   365,485              515,191
        Consumer:
          Secured by deposits                               2,765,460            2,350,074
          Secured by vehicles                              11,474,952           12,462,234
          Personal real estate loans                        4,934,724            5,468,922
          Other                                             3,753,362            3,826,534
                                                        -------------        -------------
                                                           23,293,983           24,622,955
                                                        -------------        -------------
          Total loans                                     265,179,951          238,790,676
        Less:
          Undisbursed portion of loans in process         (17,041,296)         (10,224,002)
          Unearned discounts                                  (21,266)             (29,881)
          Net deferred loan-origination fees                 (428,646)            (455,373)
          Allowance for loan losses                        (1,257,171)          (1,227,480)
                                                        -------------        -------------
            Net loans                                   $ 246,431,572        $ 226,853,940
                                                        =============        =============
</Table>


                                      F-13


<PAGE>



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000
                                    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 5.75% to 10.00%) as follows:

<Table>
<Caption>

                                                  2001             2000
                                               ----------       ----------
<S>                                            <C>              <C>
      Variable-rate                            $  416,601       $  144,870
      Fixed-rate                                6,002,398        4,095,784
                                               ----------       ----------
                                               $6,418,999       $4,240,654
                                               ==========       ==========
</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>

                                              2001               2000               1999
                                           -----------        -----------        -----------
<S>                                        <C>                <C>                <C>
      Balance at beginning of period       $ 1,227,480        $ 1,211,602        $ 1,170,321
        Provision charged to income             85,500             69,000             60,000
        Charge-offs                            (58,309)           (54,329)           (18,719)
        Recoveries                               2,500              1,207                 --
                                           -----------        -----------        -----------
      Balance at end of period             $ 1,257,171        $ 1,227,480        $ 1,211,602
                                           ===========        ===========        ===========
</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 $624,000 and $525,000, at September 30,
   2001 and 2000, respectively. The Bank is not committed to lend additional
   funds to debtors whose loans have been modified.

   Loans to executive officers and directors totaled $950,000 and $728,000 at
   September 30, 2001 and 2000, 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>

                                               2001               2000            1999
                                            -----------       -----------       -----------
<S>                                         <C>               <C>               <C>
      Mortgage loans underlying FHLMC
        pass-through securities             $85,822,482       $87,993,036       $82,417,319
                                            ===========       ===========       ===========
</Table>

   Custodial escrow balances maintained in connection with the foregoing loan
   servicing were approximately $1,911,000 and $1,920,000, at September 30, 2001
   and 2000, 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               1999
                                                -----------        -----------        -----------
<S>                                             <C>                <C>                <C>
           Balance at beginning of period       $ 1,210,523        $ 1,304,828        $ 1,304,828
           Provisions for losses                         --                 --                 --
             Charge-offs                         (1,210,523)           (94,305)                --
             Recoveries                                  --                 --                 --
                                                -----------        -----------        -----------
           Balance at end of period             $        --        $ 1,210,523        $ 1,304,828
                                                ===========        ===========        ===========
</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, 2001 AND 2000
                                    CONTINUED

NOTE 7 - ACCRUED INTEREST RECEIVABLE

   Accrued interest receivable is summarized as follows as of September 30:

<Table>
<Caption>

                                                  2001             2000
                                               ----------       ----------
<S>                                            <C>              <C>
      Investment securities                    $  294,778       $  383,835
      Mortgage-backed securities                  210,170          204,576
      Loans receivable                          2,221,908        1,935,338
                                               ----------       ----------
                                               $2,726,856       $2,523,749
                                               ==========       ==========
</Table>


NOTE 8 - PREMISES AND EQUIPMENT

   Premises and equipment consist of the following:

<Table>
<Caption>

                                                     September 30,
                                              ---------------------------        Estimated
                                                 2001              2000         Useful Lives
                                              ----------       ----------       -------------
<S>                                           <C>              <C>              <C>
      Land                                    $1,073,779       $1,073,779                  --
      Building and improvements                4,292,439        4,196,536       5 to 40 years
      Furniture, fixtures and equipment        2,875,650        2,739,980       3 to 15 years
                                              ----------       ----------
                                               8,241,868        8,010,295
      Less accumulated depreciation            3,459,900        3,164,620
                                              ----------       ----------
                                              $4,781,968       $4,845,675
                                              ==========       ==========
</Table>


NOTE 9 - DEPOSITS

   Deposits at September 30 are summarized as follows:

<Table>
<Caption>

                                                  2001                            2000
                                     ----------------------------    -----------------------------
                                        Amount            Percent       Amount            Percent
                                     ------------         -------    ------------         -------
<S>                                  <C>                  <C>        <C>                  <C>
      Transaction accounts:
        Demand and NOW               $ 40,907,420           15.72    $ 32,885,268           14.89
        Money market                   16,067,104            6.17      10,487,201            4.76
        Passbook savings               12,964,632            4.98      13,315,561            6.03
                                     ------------          ------    ------------          ------
                                       69,939,156           26.87      56,688,030           25.68
                                                           ------    ------------          ------
      Certificates of deposit:
        3% to 4%                       12,639,397            4.86              --              --
        4% to 5%                       48,125,165           18.49      23,597,831           10.69
        5% to 6%                       64,356,742           24.72      80,437,436           36.44
        6% to 7%                       64,116,023           24.63      59,189,331           26.81
        7% to 8%                          991,236             .38         715,550             .32
        8% to 9%                          136,208             .05         138,066             .06
                                     ------------          ------    ------------          ------
                                      190,364,771           73.13     164,078,214           74.32
                                     ------------          ------    ------------          ------
                                     $260,303,927          100.00    $220,766,244          100.00
                                     ============          ======    ============          ======
</Table>


   The aggregate amount of short-term jumbo certificates of deposit with a
   minimum denomination of $100,000 was approximately $43,097,000 and
   $32,312,000 at September 30, 2001 and 2000, respectively.

   Scheduled maturities of certificates of deposit were as follows as of
   September 30, 2001:

<Table>
<Caption>

      Term to maturity                              Amount               Percent
      ----------------                           ------------            -------
<S>                                              <C>                     <C>
      Within 12 months                           $125,718,624              66.04
      12 to 24 months                              46,056,362              24.19
      24 to 36 months                              16,933,324               8.90
      Greater than 36 months                        1,656,461                .87
                                                 ------------            -------
                                                 $190,364,771             100.00
                                                 ============            =======
</Table>


                                      F-15


<PAGE>



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000
                                    CONTINUED

NOTE 9 - DEPOSITS - CONTINUED

   Interest expense on deposits at September 30 is summarized as follows:

<Table>
<Caption>

                                       2001              2000               1999
                                    -----------       -----------       -----------
<S>                                 <C>               <C>               <C>
      Money Market                  $   837,343       $   747,523       $   703,551
      Passbook savings                  373,322           400,232           395,352
      NOW                               173,798           177,534           189,723
      Certificates of deposit        10,150,625         8,733,219         8,199,422
                                    -----------       -----------       -----------
                                    $11,535,088       $10,058,508       $ 9,488,048
                                    ===========       ===========       ===========
</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>

                                                                 2001              2000
                                                             ------------       ------------
<S>                                                          <C>                <C>
      Balance at end of period                                $48,107,774        $41,000,000
      Average amount outstanding during the period             44,480,000         38,328,000
      Maximum amount outstanding during the period             49,000,000         42,000,000
      Weighted average interest rate during the period               5.63%              5.92%
      Interest rates at end of period                        2.68% - 6.20%      5.21% - 6.65%
</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, 2001 were as follows:

<Table>
<Caption>

                                               Maturing          Callable
                                             -----------       -----------
<S>                                          <C>               <C>
      Under 1 year                           $14,000,000       $        --
      1 to 5 years                            20,000,000         5,000,000
      6 to 10 years                           14,107,774         5,000,000
      Over 10 years                                   --                --
                                             -----------       -----------
                                             $48,107,774       $10,000,000
                                             ===========       ===========
</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>

                                                           2001               2000               1999
                                                        -----------        -----------        -----------
<S>                                                     <C>                <C>                <C>
      Computed "expected" tax expense                   $ 1,994,759        $ 1,864,513        $ 1,871,897
      Adjustments:
        SFAS No. 122 mortgage servicing rights                9,509            (12,904)           (18,051)
        Bad-debt deduction and real estate losses                --            (22,377)           (43,316)
        Other                                               (14,183)           (16,436)            56,817
                                                        -----------        -----------        -----------
                                                        $ 1,990,085        $ 1,812,796        $ 1,867,347
                                                        ===========        ===========        ===========
</Table>




                                      F-16


<PAGE>



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000
                                    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>

                                                                 2001            2000             1999
                                                              ---------        ---------        ---------
<S>                                                           <C>              <C>              <C>
      Deferred loan fees                                      $   5,472        $  14,144        $  18,668
      FHLB stock dividends                                       46,751           52,875           32,893
      Deferred compensation and other employee benefits         (30,966)         (75,591)          19,426
      Deferred loan costs                                         7,362              561            2,492
      Allowance for loan losses                                 405,637               --               --
      Other, net                                                 11,744            2,011           34,521
                                                              ---------        ---------        ---------
                                                              $ 446,000        $  (6,000)       $ 108,000
                                                              =========        =========        =========
</Table>

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

<Table>
<Caption>

                                                                      2001              2000
                                                                   -----------        -----------
<S>                                                                <C>                <C>
      Deferred income tax assets:
        Net unrealized loss on available-for-sale securities       $        --        $   464,075
        Deferred loan fees                                             165,884            171,356
        Deferred compensation and other employee benefits              398,846            376,223
        Deferred loan costs                                             56,469             63,831
                                                                   -----------        -----------
          Total deferred income tax assets                             621,199          1,075,485

      Deferred income tax liabilities:
        Net unrealized gain on available-for-sale securities           206,849                 --
        Allowance for loan losses                                      405,637                 --
        FHLB stock dividends                                           298,138            251,387
        Book/tax depreciation difference                               187,000            180,023
                                                                   -----------        -----------
          Total deferred income tax liabilities                      1,097,624            431,410
                                                                   -----------        -----------
        Net deferred income tax assets (liabilities)               $  (476,425)       $   644,075
                                                                   ===========        ===========
</Table>

   Stockholders' equity at September 30, 2001 and 2000, includes approximately
   $3,000,000, for which no deferred Federal income tax liability (approximately
   $1,020,000) has been 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, 2001 AND 2000
                                    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>

                                                                                    2001             2000
                                                                                 ----------       ----------
<S>                                                                              <C>              <C>
            Accumulated benefit obligation:
              Vested                                                             $1,254,074       $1,173,742
              Nonvested                                                              23,913           21,295
                                                                                 ----------       ----------
                                                                                  1,277,987        1,195,037
            Effect of projected future compensation                                 559,249          458,664
                                                                                 ----------       ----------

          Projected benefit obligation for service rendered to date               1,837,236        1,653,701
          Plan assets at fair value; primarily cash and short-term investments    2,183,226        2,200,517
                                                                                 ----------       ----------
          Plan assets in excess of (less than) projected benefit obligation      $  345,990       $  546,816
                                                                                 ==========       ==========
</Table>

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

<Table>
<Caption>

                                                              2001             2000            1999
                                                           ---------        ---------        ---------
<S>                                                        <C>              <C>              <C>
      Service cost - benefits earned during the year       $ 104,574        $ 110,952        $ 120,801
      Interest cost on projected benefit obligation          101,612           91,601          141,472
      Actual return on plan assets                          (124,893)        (124,558)        (105,165)
      Net amortization and deferral                           (8,443)           1,884           (3,046)
                                                           ---------        ---------        ---------
            Net pension expense                            $  72,850        $  79,879        $ 154,062
                                                           =========        =========        =========
</Table>

   Assumptions used to develop the net periodic pension cost were:

<Table>

<S>                                                     <C>         <C>         <C>
      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 $53,697 in 2001,
   $50,271 in 2000, and $49,679 in 1999 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 $112,000 in 2001, $112,000 in 2000, and $112,000 in 1999. At
   September 30, 2001 and 2000, 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, 2001 AND 2000
                                    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 $53,878, $27,000, and
   $131,000, for the years ended September 30, 2001, 2000, and 1999,
   respectively. At September 30, 2001 and 2000, 120,051 and 111,419 ESOP
   shares, respectively, have been released for allocation, of which 113,573 and
   104,943 were allocated to participants at September 30, 2001 and 2000,
   respectively. The fair value of the uncollected shares of 88,475 and 97,105
   at September 30, 2001 and 2000, was approximately $1,681,000 and $1,396,000,
   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 $167,000, $167,000, and $167,000
   for the years ended September 30, 2001, 2000, and 1999, respectively.

NOTE 15 - STOCK OPTION PLANS

   Certain directors and officers have options to purchase shares of the Bank'
   common stock under its 1994 and 1996 Stock Incentive Plans. The option price
   is the fair market value at the date of grant and all shares have been
   granted. The option price ranges from $7.05 to $12.63 per share and expire
   between March 2004 and October 2007.




                                      F-19


<PAGE>



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000
                                    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                 244,618        $ 2,627,086              10.74
        Options granted                                              --                 --                 --
        Options exercised                                       (29,423)          (261,365)              8.88
                                                            -----------        -----------        -----------
      Options outstanding at September 30, 2001
        (exercise price of $7.05 to $12.63 per share)           215,195        $ 2,365,721        $     10.94
                                                            ===========        ===========        ===========

      Exercisable at September 30, 2001                         183,954        $ 1,971,682        $     10.72
                                                            ===========        ===========        ===========
</Table>

   The weighted average fair value at date of grant for options granted under
   the 1996 Stock Incentive Plans was approximately $4.10 per option. The fair
   value of options at date of grant was estimated using a binomial model with
   the following assumptions:

<Table>


<S>                                            <C>
      Expected life (years)                      8
      Interest rate                            6.6%
      Volatility                                20%
      Dividend yield                             3%
</Table>

   Stock-based compensation costs would have reduced net income on a proforma
   basis for 2001 and 2000, by approximately $83,000 and $88,000, respectively,
   had the fair values of options granted in that year been recognized as
   compensation expense on a straight-line basis over the vesting period of the
   grant. The proforma effect on net income for 2001 and 2000 is not
   representative of the proforma effect on net income for future years, because
   it does not take into effect grants made in prior 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, 2001, 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 2002. Rent expense was $30,000 for the years ended September
   30, 2001 and 2000. 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, 2001 AND 2000
                                    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, 2001 and 2000,
   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:
                                             ----------------------------------------------------------------------------------
<S>                                          <C>               <C>         <C>               <C>        <C>              <C>
   As of September 30, 2001:                    Amount         Ratio          Amount         Ratio         Amount         Ratio
   -------------------------                 -----------       -----       -----------       -----      -----------       -----
      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%

  As of September 30, 2000:
      Risk-based capital
        (to risk-weighted assets)            $33,680,000       19.2%       $14,015,920       8.0%       $17,519,000      10.0%

      Tier I capital
        (to risk-weighted assets)            $32,453,000       18.5%       $ 7,007,960       4.0%       $10,511,940       6.0%

      Tier I capital
        (to average assets)                  $32,453,000       10.8%       $11,982,880       4.0%       $14,978,600       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, 2001 AND 2000
                                    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, 2001 and 2000, the Bank had not issued any standby
   letters-of-credit. Commitments to extend credit totaled $6,418,999 and
   $4,240,654, at September 30, 2001 and 2000, 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, 2001 AND 2000
                                    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>

                                                                 2001                                 2000
                                                   -------------------------------       -------------------------------
                                                     Carrying            Fair              Carrying             Fair
                                                      Amount             Value              Amount              Value
                                                   ------------       ------------       ------------       ------------
<S>                                                <C>                <C>                <C>                <C>
      Financial assets:
        Cash and interest-bearing deposits         $ 13,639,018       $ 13,639,018       $  7,520,698       $  7,520,698
                                                   ============       ============       ============       ============
        Investment securities                      $ 18,772,940       $ 18,856,415       $ 22,017,020       $ 21,809,520
                                                   ============       ============       ============       ============
        Accrued interest receivable                $  2,726,856       $  2,726,856       $  2,523,749       $  2,523,749
                                                   ============       ============       ============       ============
        Loans and mortgage-backed securities       $306,546,665                          $260,808,421
        Less:  Allowance for loan losses              1,257,171                             1,227,480
                                                   ------------                          ------------
                                                   $305,289,494       $313,569,000       $259,580,941       $259,200,000
                                                   ============       ============       ============       ============
      Financial liabilities:
        Deposits                                   $260,303,927       $260,671,000       $220,766,244       $215,265,000
                                                   ============       ============       ============       ------------
        Borrowings                                 $ 48,107,774       $ 49,285,000       $ 41,000,000       $ 40,675,000
                                                   ============       ============       ============       ============
</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>

                                                                               2001                2000
                                                                           ------------        ------------
                                               BALANCE SHEETS

<S>                                                                        <C>                 <C>
            ASSETS
              Cash in Bank                                                 $    289,991        $    555,926
              Investment in subsidiary                                       36,041,442          33,752,855
              Other assets                                                       43,493              69,412
                                                                           ------------        ------------
                  Total assets                                             $ 36,374,926        $ 34,378,193
                                                                           ============        ============

            LIABILITIES AND STOCKHOLDERS' EQUITY
              Other liabilities                                            $     14,400        $     10,800
              Dividends payable                                                 229,492             245,977
              Stockholders' equity                                           36,131,034          34,121,416
                                                                           ------------        ------------
                    Total liabilities and stockholders' equity             $ 36,374,926        $ 34,378,193
                                                                           ============        ============

                                           STATEMENTS OF EARNINGS

              General and administrative expenses                          $    128,032        $    109,200
                                                                           ------------        ------------
                Loss before income taxes and equity in undistributed
                  earnings of subsidiaries                                      128,032             109,200
              Income tax (benefit)                                              (43,493)            (36,630)
                                                                           ------------        ------------
                Loss before equity in earnings of subsidiaries                   84,539              72,570
              Dividends from subsidiaries                                     3,364,625           3,475,438
              Equity in undistributed earnings of subsidiaries                  635,992             280,291
                                                                           ------------        ------------
                    Net earnings                                           $  3,916,078        $  3,683,159
                                                                           ============        ============
</Table>


                                      F-23


<PAGE>



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2001 AND 2000
                                    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 and recorded
   loans of approximately $636,000.





                                      F-24




<PAGE>


                                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 7, 2001, the Company had 1,816,924 shares of common stock outstanding
and had 1,436 registered holders of common stock, 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 (the common stock
commenced trading on the NASDAQ National Market System on March 29, 1996) and
cash dividends paid per share of common stock during the periods indicated. Data
prior to that date is given with respect to Jacksonville Savings & Loan
Association.

<Table>
<Caption>

                                              HIGH         LOW         DIVIDEND
                                             ------       ------       --------
<S>                                          <C>          <C>          <C>
      Quarter ended December 31, 1999         15.75       13.125        0.125
      Quarter ended March 31, 2000            14.00       12.50         0.125
      Quarter ended June 30, 2000             13.875      12.313        0.125
      Quarter ended September 30, 2000        14.50       12.438        0.125

      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
</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 seven 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>




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

ROBERT BROWN                                                   JERRY HAMMONS
Vice Chairman of the Company; C.E.O., Brown Lumber             Director and Senior Vice President of the Company
Industries
</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
Tyler, Texas 75707
(903) 566-5575
</Table>