##### 



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

|    |  |                                                                                   
|--- |  | ----------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

or

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

For the transition period from ______to ______

Commission File Number 0-28070

Jacksonville Bancorp, Inc.




(Exact name of registrant as specified in its charter)


|                                |  |                       
|------------------------------- |  | ----------------------
|Texas                           |  | 75-2632781            
|                                |  |                       
|(State or other jurisdiction of |  | (I.R.S. Employer      
|incorporation or organization)  |  | Identification Number)
|                                |  |                       
|Commerce at Neches              |  |                       
|Jacksonville, Texas             |  | 75766                 
|                                |  |                       
|(Address of principal           |  | (Zip Code)            
|executive office)               |  |                       

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

|      |  |          
|----- |  | ---------
|Yes X |  | No ______

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

|           |  |     
|---------- |  | ----
|Yes ______ |  | No X

As of August 11, 2003, the latest practicable date, 2,774,710 shares of the
registrants common stock, $.01 par value, were issued and 1,797,965 shares were
outstanding.





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##### 



JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES

INDEX

|           |  |                                                                                                                                         |  |     
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I.    |  | Financial Information                                                                                                                   |  |     
|          
|           |  |                                                                                                                                         |  | Page
|           |  |                                                                                                                                         |  |     
|Item 1.    |  | Financial Statements                                                                                                                    |  |     
|           |  |                                                                                                                                         |  |     
|           |  | Consolidated Statements of Financial
Condition as of June 30, 2003
(Unaudited) and September 30, 2002 (Audited)                         |  | 3   
|           |  |                                                                                                                                         |  |     
|           |  | Consolidated Statements of Earnings for the
Nine and Three Months Ended June 30, 2003
and 2002 (Unaudited)                              |  | 4   
|           |  |                                                                                                                                         |  |     
|           |  | Consolidated Statements of Cash Flows for
the Nine Months Ended June 30, 2003 and
2002 (Unaudited)                                      |  | 5   
|           |  |                                                                                                                                         |  |     
|           |  | Consolidated Statements of Changes in
Stockholders Equity for the Nine Months Ended
June 30, 2003 (Unaudited)                          |  | 6   
|           |  |                                                                                                                                         |  |     
|           |  | Notes to Unaudited Financial Statements                                                                                                 |  | 7   
|           |  |                                                                                                                                         |  |     
|Item 2.    |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations
for the Nine and Three Months Ended June 30, 2003 |  | 10  
|           |  |                                                                                                                                         |  |     
|Item 3.    |  | Quantitative and Qualitative Disclosures about
Market Risk                                                                              |  | 16  
|           |  |                                                                                                                                         |  |     
|Item 4.    |  | Controls and Procedures                                                                                                                 |  | 17  
|           |  |                                                                                                                                         |  |     
|PART II.   |  | Other Information                                                                                                                       |  |     
|          
|           |  |                                                                                                                                         |  |     
|Item 1.    |  | Legal Proceedings                                                                                                                       |  | 18  
|Item 2.    |  | Changes in Securities and Use of Proceeds                                                                                               |  | 18  
|Item 3.    |  | Defaults upon Senior Securities                                                                                                         |  | 18  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                                     |  | 18  
|Item 5.    |  | Other Information                                                                                                                       |  | 18  
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                                        |  | 19  
|Signatures |  |                                                                                                                                         |  |     



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##### 



Part I  Financial Information
Item 1., Financial Statements

JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)

|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |               |         |         |         | 
|-------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | -------- | ------- | ------------- | ------- | ------- | ------- | 
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         | June 30, |         | September 30,
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |              
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         | 2003     |         | 2002         
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |              
|ASSETS               |                                                                                                                                                                                                         | (Unaudited)                                        |                            | (Audited)                                 
|                     | Cash on hand and in banks                                                                                                                                                                               |                                                    | $                          | 4,075                                      |         |          | $       | 3,957         |        
|                     | Interest-bearing deposits                                                                                                                                                                               |                                                    |                            | 15,969                                     |         |          |         | 11,395        |        
|                     | Investment securities:                                                                                                                                                                                  |                                                    |                            |                                            |         |          |         |               |        
|                     |                                                                                                                                                                                                         | Held-to-maturity, at cost                          |                            |                                            | 2,516   |          |         |               | 8,006   |        
|                     |                                                                                                                                                                                                         | Available-for-sale, at estimated market value      |                            |                                            | 46,560  |          |         |               | 29,208  |        
|                     | Mortgage-backed certificates:                                                                                                                                                                           |                                                    |                            |                                            |         |          |         |               |        
|                     |                                                                                                                                                                                                         | Held-to-maturity, at cost                          |                            |                                            | 9,883   |          |         |               | 37,688  |        
|                     |                                                                                                                                                                                                         | Available-for-sale, at estimated market value      |                            |                                            | 94,770  |          |         |               | 52,037  |        
|                     | Loans receivable, net                                                                                                                                                                                   |                                                    |                            | 279,055                                    |         |          |         | 265,091       |        
|                     | Accrued interest receivable                                                                                                                                                                             |                                                    |                            | 3,070                                      |         |          |         | 2,929         |        
|                     | Foreclosed real estate, net                                                                                                                                                                             |                                                    |                            | 685                                        |         |          |         | 87            |        
|                     | Premises and equipment, net                                                                                                                                                                             |                                                    |                            | 5,692                                      |         |          |         | 5,361         |        
|                     | Stock in Federal Home Loan Bank of Dallas, at cost                                                                                                                                                      |                                                    |                            | 3,234                                      |         |          |         | 3,168         |        
|                     | Investment in real estate at cost                                                                                                                                                                       |                                                    |                            | 1,118                                      |         |          |         | 1,212         |        
|                     | Mortgage servicing rights                                                                                                                                                                               |                                                    |                            | 674                                        |         |          |         | 652           |        
|                     | Goodwill and other intangible assets, net                                                                                                                                                               |                                                    |                            | 3,385                                      |         |          |         | 3,515         |        
|                     | Other assets                                                                                                                                                                                            |                                                    |                            | 1,061                                      |         |          |         | 944           |        
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |               |        
|                     |                                                                                                                                                                                                         |                                                    | Total assets               |                                            | $       | 471,747  |         |               | $       | 425,250 |        
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |               |        
|LIABILITIES          |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |              
|                     | Deposits                                                                                                                                                                                                |                                                    | $                          | 385,722                                    |         |          | $       | 353,896       |        
|                     | FHLB Advances                                                                                                                                                                                           |                                                    |                            | 34,510                                     |         |          |         | 25,129        |        
|                     | Advances from borrowers for taxes and insurance                                                                                                                                                         |                                                    |                            | 3,703                                      |         |          |         | 4,023         |        
|                     | Accrued expenses and other liabilities                                                                                                                                                                  |                                                    |                            | 3,886                                      |         |          |         | 2,993         |        
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |               |        
|                     |                                                                                                                                                                                                         |                                                    | Total liabilities          |                                            |         | 427,821  |         |               |         | 386,041 |        
|STOCKHOLDERS EQUITY |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |              
|                     | Common stock, $.01 par value, 25,000,000
shares authorized; 2,774,710 and 2,738,569
shares issued; and 1,797,965 and 1,761,824
shares outstanding at June 30, 2003 and
September 30, 2002, respectively |                                                    |                            | 28                                         |         |          |         | 27            |        
|                     |                                                                                                                                                                                                         | Additional paid in capital                         |                            |                                            | 23,878  |          |         |               | 23,428  |        
|                     |                                                                                                                                                                                                         | Retained earnings, substantially restricted        |                            |                                            | 36,164  |          |         |               | 32,310  |        
|                     |                                                                                                                                                                                                         | Accumulated other comprehensive income, net of tax |                            |                                            | 731     |          |         |               | 377     |        
|                     | Less:                                                                                                                                                                                                   |                                                    |                            |                                            |         |          |         |               |        
|                     |                                                                                                                                                                                                         | Treasury shares, at cost (976,745 shares)          |                            |                                            | (16,015 | )        |         |               | (16,015 | )      
|                     |                                                                                                                                                                                                         | Shares acquired by Employee Stock Ownership Plan   |                            |                                            | (860    | )        |         |               | (918    | )      
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |               |        
|                     |                                                                                                                                                                                                         |                                                    | Total stockholders equity |                                            |         | 43,926   |         |               |         | 39,209  |        
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |               |        
|                     |                                                                                                                                                                                                         |                                                    |                            | Total liabilities and stockholders equity |         | $        | 471,747 |               |         | $       | 425,250 | 
|                     |                                                                                                                                                                                                         |                                                    |                            |                                            |         |          |         |               |        

3



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##### 



JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Unaudited

|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |       |       | 
|----------------------------- | ------------------------------------------------------- | ------------------------ | ------------------------- | ------ | ----------------- | ------ | ------------------ | ------ | ------ | ------ | ----- | ----- | ----- | ----- | ----- | ----- | ----- | ----- | 
|                              |                                                         |                          |                           |        | Nine Months Ended |        | Three Months Ended
|                              |                                                         |                          |                           |        | June 30,          |        | June 30,          
|                              |                                                         |                          |                           |        |                   |        |                   
|                              |                                                         |                          |                           |        | 2003              |        | 2002               |        | 2003   |        | 2002 
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |      
|INTEREST INCOME               |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |      
|                              | Loans receivable                                        |                          | $                         | 15,766 |                   |        | $                  | 16,281 |        |        | $     | 5,200 |       |       | $     | 5,416 |      
|                              | Mortgage-backed securities                              |                          |                           | 2,710  |                   |        |                    | 3,363  |        |        |       | 802   |       |       |       | 1,119 |      
|                              | Investment securities                                   |                          |                           | 1,565  |                   |        |                    | 1,105  |        |        |       | 602   |       |       |       | 414   |      
|                              | Other                                                   |                          |                           | 174    |                   |        |                    | 233    |        |        |       | 51    |       |       |       | 70    |      
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      
|                              |                                                         | Total interest income    |                           |        | 20,215            |        |                    |        | 20,982 |        |       |       | 6,655 |       |       |       | 7,019 |      
|INTEREST EXPENSE              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |      
|                              | Deposits                                                |                          |                           | 7,979  |                   |        |                    | 8,991  |        |        |       | 2,554 |       |       |       | 2,904 |      
|                              | Other                                                   |                          |                           | 995    |                   |        |                    | 1,511  |        |        |       | 320   |       |       |       | 436   |      
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      
|                              |                                                         |                          | Total interest expense    |        |                   | 8,974  |                    |        |        | 10,502 |       |       |       | 2,874 |       |       |       | 3,340 | 
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      
|                              |                                                         |                          | Net interest income       |        |                   | 11,241 |                    |        |        | 10,480 |       |       |       | 3,781 |       |       |       | 3,679 | 
|PROVISION FOR LOSSES ON LOANS |                                                         |                          | 117                       |        |                   |        | 74                 |        |        |        | 45    |       |       |       | 26    |      
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      
|                              | Net interest income after
provision for losses on loans |                          |                           | 11,124 |                   |        |                    | 10,406 |        |        |       | 3,736 |       |       |       | 3,653 |      
|NONINTEREST INCOME            |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |      
|                              | Fees and deposit service charges                        |                          |                           | 1,956  |                   |        |                    | 1,740  |        |        |       | 697   |       |       |       | 567   |      
|                              | Real estate operations, net                             |                          |                           | 54     |                   |        |                    | 52     |        |        |       | 11    |       |       |       | 4     |      
|                              | Gain (loss) on sale of investment
securities            |                          |                           | (9     | )                 |        |                    |       |        |        |       | (1    | )     |       |       |      |      
|                              | Other                                                   |                          |                           | 210    |                   |        |                    | 176    |        |        |       | 69    |       |       |       | 32    |      
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      
|                              |                                                         | Total noninterest income |                           |        | 2,211             |        |                    |        | 1,968  |        |       |       | 776   |       |       |       | 603   |      
|NONINTEREST EXPENSE           |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |      
|                              | Compensation and benefits                               |                          |                           | 3,900  |                   |        |                    | 3,569  |        |        |       | 1,323 |       |       |       | 1,182 |      
|                              | Occupancy and equipment                                 |                          |                           | 790    |                   |        |                    | 724    |        |        |       | 256   |       |       |       | 211   |      
|                              | Insurance expense                                       |                          |                           | 95     |                   |        |                    | 84     |        |        |       | 30    |       |       |       | 29    |      
|                              | Amortization of intangible assets                       |                          |                           | 130    |                   |        |                    | 115    |        |        |       | 43    |       |       |       | 43    |      
|                              | Other                                                   |                          |                           | 1,393  |                   |        |                    | 1,326  |        |        |       | 493   |       |       |       | 446   |      
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      
|                              |                                                         |                          | Total noninterest expense |        |                   | 6,308  |                    |        |        | 5,818  |       |       |       | 2,145 |       |       |       | 1,911 | 
|INCOME BEFORE TAXES ON INCOME |                                                         |                          | 7,027                     |        |                   |        | 6,556              |        |        |        | 2,367 |       |       |       | 2,345 |      
|TAXES ON INCOME               |                                                         |                          | 2,399                     |        |                   |        | 2,261              |        |        |        | 801   |       |       |       | 811   |      
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      
|                              | Net earnings                                            |                          | $                         | 4,628  |                   |        | $                  | 4,295  |        |        | $     | 1,566 |       |       | $     | 1,534 |      
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      
|EARNINGS PER SHARE            |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |      
|                              | Basic                                                   |                          | $                         | 2.71   |                   |        | $                  | 2.49   |        |        | $     | .91   |       |       | $     | .90   |      
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      
|                              | Diluted                                                 |                          | $                         | 2.54   |                   |        | $                  | 2.37   |        |        | $     | .85   |       |       | $     | .85   |      
|                              |                                                         |                          |                           |        |                   |        |                    |        |        |        |       |       |       |       |       |       |      

4



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##### 



JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Unaudited

|                                                 |                                                                                   |                                               |                                                               |                                                     |         |             |         |             |         |        |         |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------- | --------------------------------------------------- | ------- | ----------- | ------- | ----------- | ------- | ------ | ------- | -
|                                                 |                                                                                   |                                               |                                                               |                                                     |         | Nine Months |         | Nine Months
|                                                 |                                                                                   |                                               |                                                               |                                                     |         | Ended       |         | Ended      
|                                                 |                                                                                   |                                               |                                                               |                                                     |         | June 30,    |         | June 30,   
|                                                 |                                                                                   |                                               |                                                               |                                                     |         | 2003        |         | 2002       
|                                                 |                                                                                   |                                               |                                                               |                                                     |         |             |         |            
|CASH FLOWS FROM OPERATING ACTIVITIES             |                                                                                   |                                               |                                                               |                                                     |         |             |         |            
|                                                 | Net income                                                                        |                                               | $                                                             | 4,628                                               |         |             | $       | 4,295       |        
|                                                 | Adjustments to reconcile net income to net
cash provided by operating activities: |                                               |                                                               |                                                     |         |             |         |             |        
|                                                 |                                                                                   | Depreciation                                  |                                                               |                                                     | 406     |             |         |             | 373     |       
|                                                 |                                                                                   | Amortization of intangibles                   |                                                               |                                                     | 130     |             |         |             | 115     |       
|                                                 |                                                                                   | Amortization / Accretion of securities        |                                                               |                                                     | 146     |             |         |             | 2       |       
|                                                 |                                                                                   | Provision for losses on loans and real estate |                                                               |                                                     | 117     |             |         |             | 74      |       
|                                                 |                                                                                   | Loans originated for sale                     |                                                               |                                                     | (28,782 | )           |         |             | (27,179 | )     
|                                                 |                                                                                   | Loans sold                                    |                                                               |                                                     | 28,782  |             |         |             | 27,179  |       
|                                                 |                                                                                   | Loss (Gain) on sale of other real estate      |                                                               |                                                     | (73     | )           |         |             | (15     | )     
|                                                 |                                                                                   | Gain on sale of investment real estate        |                                                               |                                                     | (69     | )           |         |             |        |       
|                                                 |                                                                                   | Loss (Gain) on loans sold                     |                                                               |                                                     | (22     | )           |         |             | (12     | )     
|                                                 |                                                                                   | Loss (Gain) on sale of securities             |                                                               |                                                     | 9       |             |         |             |        |       
|                                                 |                                                                                   | Accrual of MRP awards                         |                                                               |                                                     |        |             |         |             | 14      |       
|                                                 |                                                                                   | Release of ESOP shares                        |                                                               |                                                     | 135     |             |         |             | 102     |       
|                                                 |                                                                                   | Change in assets and liabilities:             |                                                               |                                                     |         |             |         |             |         |       
|                                                 |                                                                                   |                                               | (Increase) decrease in accrued interest receivable            |                                                     |         | (141        | )       |             |         | (175   | )      
|                                                 |                                                                                   |                                               | (Increase) decrease in prepaid expenses and
other assets      |                                                     |         | (117        | )       |             |         | (3,282 | )      
|                                                 |                                                                                   |                                               | Increase (decrease) in accrued expenses and
other liabilities |                                                     |         | 893         |         |             |         | 839    |        
|                                                 |                                                                                   |                                               |                                                               |                                                     |         |             |         |             |        
|                                                 |                                                                                   |                                               |                                                               | Net cash provided by (used in) operating activities |         |             | 6,042   |             |         |        | 2,330   |  
|CASH FLOWS FROM INVESTING ACTIVITIES             |                                                                                   |                                               |                                                               |                                                     |         |             |         |            
|                                                 | Purchase of investment securities                                                 |                                               |                                                               | (52,840                                             | )       |             |         | (31,472     | )      
|                                                 | Proceeds on maturity of investment securities                                     |                                               |                                                               | 41,178                                              |         |             |         | 21,425      |        
|                                                 | Net principal payments (origination) on loans                                     |                                               |                                                               | (14,804                                             | )       |             |         | (17,115     | )      
|                                                 | Proceeds from sale of foreclosed real estate                                      |                                               |                                                               | 198                                                 |         |             |         | 34          |        
|                                                 | Purchase of mortgage-backed securities                                            |                                               |                                                               | (71,491                                             | )       |             |         | (50,689     | )      
|                                                 | Principal paydowns on mortgage-backed securities                                  |                                               |                                                               | 56,563                                              |         |             |         | 28,863      |        
|                                                 | Capital expenditures                                                              |                                               |                                                               | (737                                                | )       |             |         | (862        | )      
|                                                 | Purchase of stock in FHLB Dallas                                                  |                                               |                                                               | (66                                                 | )       |             |         | (532        | )      
|                                                 | Investment in real estate                                                         |                                               |                                                               |                                                    |         |             |         | (39         | )      
|                                                 | Proceeds from sale of investment real estate                                      |                                               |                                                               | 163                                                 |         |             |         |            |        
|                                                 |                                                                                   |                                               |                                                               |                                                     |         |             |         |             |        
|                                                 |                                                                                   |                                               |                                                               | Net cash used in investing activities               |         |             | (41,836 | )           |         |        | (50,387 | )
|CASH FLOWS FROM FINANCING ACTIVITIES             |                                                                                   |                                               |                                                               |                                                     |         |             |         |            
|                                                 | Net increase in deposits                                                          |                                               |                                                               | 31,826                                              |         |             |         | 72,882      |        
|                                                 | Net decrease in advances for taxes and insurance                                  |                                               |                                                               | (320                                                | )       |             |         | (1,068      | )      
|                                                 | Dividends paid                                                                    |                                               |                                                               | (774                                                | )       |             |         | (645        | )      
|                                                 | Advances from FHLB                                                                |                                               |                                                               | 15,550                                              |         |             |         | 31,000      |        
|                                                 | Payment of FHLB advances                                                          |                                               |                                                               | (6,169                                              | )       |             |         | (48,601     | )      
|                                                 | Proceeds from exercise of stock options                                           |                                               |                                                               | 373                                                 |         |             |         | 312         |        
|                                                 | Purchase of Treasury stock                                                        |                                               |                                                               | 0                                                   |         |             |         | (1,977      | )      
|                                                 |                                                                                   |                                               |                                                               |                                                     |         |             |         |             |        
|                                                 |                                                                                   |                                               |                                                               | Net cash provided by (used in) financing activities |         |             | 40,486  |             |         |        | 51,903  |  
|                                                 |                                                                                   |                                               |                                                               |                                                     |         |             |         |             |        
|                                                 |                                                                                   |                                               |                                                               | Net increase (decrease) in cash and cash equiv.     |         |             | 4,692   |             |         |        | 3,846   |  
|                                                 |                                                                                   |                                               |                                                               |                                                     |         |             |         |             |        
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |                                                                                   |                                               | 15,352                                                        |                                                     |         |             | 13,639  |            
|                                                 |                                                                                   |                                               |                                                               |                                                     |         |             |         |             |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD       |                                                                                   | $                                             | 20,044                                                        |                                                     |         | $           | 17,485  |            
|                                                 |                                                                                   |                                               |                                                               |                                                     |         |             |         |             |        

5



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##### 



JACKSONVILLE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 2003
(DOLLARS IN THOUSANDS)
Unaudited

|                              |                              |                                                                                             |  |  |       |   |        |               |   | 
|----------------------------- | ---------------------------- | ------------------------------------------------------------------------------------------- |  |  | ----- | - | ------ | ------------- | - | 
|                              |                              |                                                                                             |  |  |       |   |        | Total        
|                              |                              |                                                                                             |  |  |       |   |        | Stockholders'
|                              |                              |                                                                                             |  |  |       |   |        | Equity       
|                              |                              |                                                                                             |  |  |       |   |        |              
|Balance at September 30, 2002 |                              |                                                                                             |  |  |       | $ | 39,209 |              
|                              |                              | Net earnings                                                                                |  |  | 4,628 |   |        |               |   | 
|                              |                              | Other comprehensive income  net change in
unrealized gain on securities available for sale |  |  | 355   |   |        |               |   | 
|                              |                              |                                                                                             |  |  |       |   |        |              
|                              | Comprehensive income         |                                                                                             |  |  |       |   |        | 4,983         |  
|                              | Accrual of ESOP compensation |                                                                                             |  |  |       |   |        | 135           |  
|                              | Cash dividends               |                                                                                             |  |  |       |   |        | (774          | )
|                              | Proceeds from stock options  |                                                                                             |  |  |       |   |        | 373           |  
|                              | Treasury shares purchased    |                                                                                             |  |  |       |   |        |              |  
|Balance at June 30, 2003      |                              |                                                                                             |  |  |       | $ | 43,926 |              
|                              |                              |                                                                                             |  |  |       |   |        |              

6



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##### 



JACKSONVILLE BANCORP, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1  BASIS OF PRESENTATION

The unaudited financial statements of Jacksonville Bancorp, Inc.
(Jacksonville or the Company)were prepared in accordance with instructions
for Form 10-Q and, therefore, do not include information or footnotes necessary
for a complete presentation of financial position, results of operations, and
cash flows in conformity with U.S. generally accepted accounting principles.
However, all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of management, are necessary for a fair presentation of
the financial statements have been included. The results of operations for the
nine and three month periods ended June 30, 2003 and 2002 are not necessarily
indicative of the results which may be expected for an entire fiscal year. These
financial statements should be read in conjunction with the audited financial
statements and the notes thereto for the year ended September 30, 2002.

NOTE 2  EARNINGS PER SHARE

Basic earnings per share for the nine and three month periods ended June
30,2003 and 2002 have been computed by dividing net earnings by the weighted
average number of shares outstanding. Shares controlled by the ESOP are
accounted for in accordance with Statement of Position 93-6 under which
unallocated shares are not considered in the weighted average number of shares
of common stock outstanding. Diluted earnings per share have been computed,
giving effect to outstanding stock purchase options by application of the
treasury stock method.

Following is a summary of shares used for calculating basic and diluted
earnings per share:

|                                         |  |                   |           |                    |  |      |           |      |  |  |           |  |  |  |           | 
|---------------------------------------- |  | ----------------- | --------- | ------------------ |  | ---- | --------- | ---- |  |  | --------- |  |  |  | --------- | 
|                                         |  | Nine Months Ended |           | Three Months Ended
|                                         |  | June 30,          |           | June 30,          
|                                         |  | 2003              |           | 2002               |  | 2003 |           | 2002
|                                         |  |                   |           |                    |  |      |           |     
|Basic EPS  Average
shares outstanding   |  |                   | 1,705,995 |                    |  |      | 1,723,528 |      |  |  | 1,726,780 |  |  |  | 1,698,484 | 
|Effect of dilutive
stock options         |  |                   | 116,805   |                    |  |      | 91,706    |      |  |  | 109,252   |  |  |  | 107,351   | 
|                                         |  |                   |           |                    |  |      |           |      |  |  |           |  |  |  |           | 
|Diluted EPS  Average
shares outstanding |  |                   | 1,822,800 |                    |  |      | 1,815,234 |      |  |  | 1,836,032 |  |  |  | 1,805,835 | 
|                                         |  |                   |           |                    |  |      |           |      |  |  |           |  |  |  |           | 

NOTE 3  RECLASSIFICATION OF PREVIOUS STATEMENTS

Certain items previously reported have been reclassified to
conform with the current periods reporting format.

Additionally, results for the three and nine month periods ended June
30,2002 have been restated on a comparable basis to reflect, as of the date of
the Carthage Branch acquisition, the adoption of SFAS No. 147, Acquisition of
Certain Financial Institutions. The effect of this restatement is to increase
the net income by $38,000 and increase earnings per share by $.02 basic and $.02
diluted for the quarter ended June 30,2002. For the nine months ended June 30,
2002, the effect of this restatement is to increase the net income by $101,000
and increase earnings per share by $.06 basic and $.06 diluted.

7



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##### 



NOTE 4  RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued Statement No. 148,  Accounting for
Stock-Based Compensation  Transition and Disclosure. This Statement amends
FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. This Statement is effective for financial
statements for fiscal years ending after December 15, 2002. Management is
currently evaluating the provisions of this Statement and its impact on
financial condition and results of operation. Currently, management does not
believe that adopting this statement will have a material impact on its
financial condition or results of operations.

SFAS No. 147, (Acquisitions of Certain Financial Institutions), was issued
in October 2002. This statement requires acquisitions of financial institutions
(except mutual institutions) to be accounted for in accordance with SFAS No. 141
and SFAS No. 72 and removes them from the scope of SFAS No, 142. Thus the
requirement to recognize and amortize any excess of the fair value of
liabilities assumed over the fair value of tangible and identifiable intangible
assets acquired as an unidentifiable intangible asset no longer applies to
acquisitions within the scope of this statement. It also amends SFAS No. 144 to
include in its scope long-term customer-relationship intangible assets (core
base intangibles). Consequently, those intangibles assets are subject to the
same undiscounted cash flow recoverability test and impairment loss recognition
and measurement provisions that Statement 144 requires for other long-lived
assets that are held and used. The Company adopted this statement retroactive to
the date of the Carthage, Texas branch purchase and ceased amortization of the
previously recognized unidentifiable intangible asset considered to be goodwill.
See note 3 regarding the restatement of information previously reported for the
period ended June 30, 2002.

In August 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. However, the Statement
retains the fundamental provisions of Statement 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale.

This Statement supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, this Statement retains the requirement of Opinion 30 to report
discontinued operations separately from continuing operations and extends that
reporting to a component of an entity that either has been disposed of (by sale,
by abandonment, or in distribution to owners) or is classified as held for sale.
This Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a temporarily controlled
subsidiary. The Company has adopted the provisions of this statement in the year
ended September 30, 2003 and does not

8



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##### 



expect the adoption of the Statement to
have an impact on its earnings, financial condition, or equity.

In June 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. As used in this
Statement, a legal obligation is an obligation that a party is required to
settle as a result of an existing or enacted law, statute, ordinance, or written
or oral contract or by legal construction of a contract under the doctrine of
promissory estoppel. This Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made.
The associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. The Company has adopted the provisions of this
statement in the year ended September 30, 2003 and does not expect the adoption
of the Statement to have an impact on its earnings, financial condition, or
equity.

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
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 December 31, 2001. Management
evaluated the provisions of these Statements which impact the accounting for
future business combinations including the acquisition of the Carthage, Texas
branch in November, 2001 and adopted statements 141 and 142 in the quarter
ending December 31, 2001.

9



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| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Discussion of Changes in Financial Condition from September 30, 2002 to June 30,
2003.

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

At June 30, 2003, the assets of Jacksonville totaled $471.7 million compared
to $425.3 million at September 30, 2002, an increase of $46.5 million. This
increase was primarily due to an increase in cash on hand and in banks of $4.6
million; an increase in investment securities of $11.9 million; an increase in
mortgage backed securities of $14.9 million; and an increase in loans
receivable, net of $14.0 million.

Cash on hand increased during the period ending June 30, 2003 to $4.1
million from the $4.0 million reported at September 30, 2002. Interest-bearing
deposits increased $4.6 million to $16.0 million during the period primarily due
to an increase in deposits at the Federal Home Loan Bank.

The investment securities portfolio, held-to-maturity, decreased during the
period from a total of $8.0 million at September 30, 2002 to $2.5 million at
June 30, 2003, while investment securities available-for-sale, increased $17.4
million during the period. The $11.9 million net increase was primarily the
result of purchases of investment securities during the period net of
maturities. The shift in the amount of investments classified as
available-for-sale versus held-to-maturity reflects managements decision to
classify new investment purchases as available-for-sale. This classification
provides management with more flexibility to manage these assets as market
conditions dictate.

Mortgage-backed securities, held-to-maturity, decreased from a total of
$37.7 million at September 30, 2002 to $9.9 million at June 30, 2003. Mortgage
backed securities, available-for-sale, increased $42.7 million during
the period. Mortgage-backed securities, available-for-sale and held-to-maturity,
increased a net of $14.9 million during the period primarily as a result of the
purchase of mortgage-backed securities during the period net of repayments. The
shift in the amount of mortgage-backed securities classified as
available-for-sale versus held-to-maturity reflects managements decision to
classify new mortgage-backed securities purchases as available-for-sale.
This classification provides management with more flexibility to manage these
assets as market conditions dictate.

10



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##### 



Loans receivable, net increased by $14.0 million from $265.1 million at
September 30, 2002, to $279.1 million at June 30, 2003. The increase was
primarily funded from increases in deposits. For the nine month period ended
June 30, 2003, Jacksonville also originated $28.8 million in loans sold to the
secondary market compared to $27.2 million for the nine month period ended June
30, 2002. Of the total loans sold during the nine months ended June 30, 2003,
$4.4 million were whole loan sales, servicing released, with the balance of
$24.4 million sold with servicing retained.

Accrued interest receivable increased $141,000 to $3.1 million at June 30,
2003.

Foreclosed real estate, net, increased from $87,000 at September 30, 2002 to
$685,000 at June 30, 2003 primarily due to the foreclosure during the second
quarter of a commercial office building with an acquisition value of $319,000.

Premises and equipment, net increased $331,000, during the period primarily
as a result of the renovations at the Palestine, Texas branch and at the home
office.

Investment in real estate at cost, decreased $94,000 during the period
primarily as a result of the sale of five lots in the Hallsville subdivision.
Goodwill and other intangible assets decreased $130,000 primarily as a result of
the amortization of the core base intangible resulting from the Carthage, Texas
branch acquisition.

All remaining asset classifications for June 30, 2003 remained relatively
comparable to those numbers disclosed at September 30, 2002.

The Companys nonperforming assets, which primarily consist of non-accrual
loans, real estate and other assets acquired through foreclosure totaled $1.8
million or .38% of assets, at June 30, 2003, compared to $781,000, or .18% of
assets, at September 30, 2002. The following table sets forth information
relating to the Companys nonperforming assets at the dates indicated.

|                                                 |                                            |   |                        |       |                    |   |     |     |  
|------------------------------------------------ | ------------------------------------------ | - | ---------------------- | ----- | ------------------ | - | --- | --- | -
|                                                 |                                            |   | June 30, 2003          |       | September 30, 2002
|                                                 |                                            |   |                        |       |                   
|                                                 |                                            |   | (Dollars in thousands)
|Mortgage Loans                                   |                                            |   |                        |       |                    |   |     |    
|                                                 | Single family residential                  |   | $                      | 855   |                    |   | $   | 407 |  
|                                                 | Multi-family residential                   |   |                        |      |                    |   |     |    |  
|                                                 | Commercial                                 |   |                        |      |                    |   |     |    |  
|                                                 | Construction                               |   |                        |      |                    |   |     |    |  
|                                                 | Land                                       |   |                        | 26    |                    |   |     | 104 |  
|Business and Consumer Loans                      |                                            |   |                        |       |                    |   |     |    
|                                                 | Commercial business                        |   |                        |      |                    |   |     |    |  
|                                                 | Consumer                                   |   |                        | 228   |                    |   |     | 183 |  
|                                                 |                                            |   |                        |       |                    |   |     |     |  
|                                                 | Total nonperforming loans                  |   | $                      | 1,109 |                    |   | $   | 694 |  
|Real estate owned and other
acquired assets, net |                                            |   | 703                    |       |                    |   | 87  |    
|                                                 |                                            |   |                        |       |                    |   |     |     |  
|Total non-performing assets                      |                                            | $ | 1,812                  |       |                    | $ | 781 |    
|                                                 |                                            |   |                        |       |                    |   |     |     |  
|Nonperforming loans to total
loans               |                                            |   | .31                    | %     |                    |   | .26 | %  
|                                                 | Total nonperforming assets
to total assets |   |                        | .32   | %                  |   |     | .18 | %

11



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At June 30, 2003, the accrued interest reserve for mortgage loans and
non-mortgage loans for interest in excess of 90 days was $68,000 compared to
$41,000 at September 30, 2002. During the nine month period ended June 30, 2003,
no interest income was actually recorded on any loans after they were placed on
non-accrued status.

At June 30, 2003, liabilities of the Company totaled $427.8 million
compared to $386.0 million at September 30, 2002. Deposits grew $31.8 million
for the period from $353.9 million to $385.7 million at June 30, 2003. FHLB
advances increased from $25.1 million at September 30, 2002 to $34.5 million at
June 30, 2003.

Advances from borrowers for taxes and insurance decreased from $4.0 million
to $3.7 million at June 30, 2003. This decrease is the result of the payment
from customers escrow accounts of all amounts due to taxing agencies for the
year 2002, net of monthly escrow payments made by loan customers.

Accrued expenses and other liabilities increased $893,000 during the
period.

Stockholders equity increased during the nine month period ended June 30,
2003 by $4.7 million from $39.2 million to $43.9 million. Common stock and paid
in capital increased a total of $451,000 during the period. This increase was
primarily a result of the receipt of $373,000 in proceeds from the exercise of
stock options during the period and a $78,000 increase in paid in capital due to
reflecting the change in the cost and current market value of the ESOP shares
released during the period. Retained earnings increased from $32.3 million at
September 30, 2002 to $36.2 million at June 30, 2003 primarily as a result of
net income for the period less dividends.

Shares acquired by the Employee Stock Ownership Plan decreased by $58,000
due to payments made on the ESOP loan during the period.

Accumulated other comprehensive income, which reflects a net unrealized
gain, net of tax, on investment and mortgage-backed securities, available for
sale, increased from $377,000 at September 30, 2002 to $731,000 at June 30, 2003
which reflects a net increase in the market value of the securities during the
period. These gains were based on marked-to-market values of the portfolios at
the respective periods in accordance with FASB 115.

Comparison of Operating Results for the three and nine months ended June 30,
2003 and 2002.

Net earnings for the three months ended June 30, 2003 totaled $1.6 million
compared to $1.5 million for the same period in 2002. Net interest income after
provision for losses on loans increased $83,000 from the prior period.
Non-interest income increased $173,000 from $603,000 for the quarter ended June
30, 2002 to $776,000 for the June 30, 2003 quarter. Non-interest expense
increased from $2.0 million for the quarter ended June 30, 2002 to $2.1 million
for the June 30, 2003 period. Federal income taxes decreased $10,000 from
$811,000 for the three months ended June 30, 2002 to $801,000 for the current
quarter.

Net earnings for the nine months ended June 30, 2003 equaled $4.6 million
compared to $4.3 million for the same period in 2002, an increase of 7.75%. Net
interest income after provision for losses on loans increased $718,000 from
$10.4 million at June 30, 2002 to $11.1 million at June 30, 2003. Non-interest
income totaled $2.0 million for the nine months ended June 30, 2002 compared to
$2.2 million for the comparable period ended June 30, 2003. Non-interest
expenses increased from $5.8 million to $6.3 million for the comparable periods.

12



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##### 



Net Interest Income

Total interest income decreased by $364,000 to $6.7 million for the three
months ended June 30, 2003 compared to the same period in the prior year.
Interest income from loans receivable decreased $216,000 due primarily to a
decrease in the average interest rate of loans in the comparative periods.
Interest on mortgage-backed securities decreased $317,000 from $1.1 million for
the quarter ended June 30, 2002 to $802,000 for the quarter ended June 30, 2003
due primarily to a decrease in the yield on the mortgage backed securities
portfolio. Interest on investment securities increased $188,000 from $414,000
for the quarter ended June 30, 2002 to $602,000 for the period ended June 30,
2003 which is attributable to an increased investment portfolio balance. Other
interest income decreased from $70,000 for the three month period ended June 30,
2002 to $51,000 for the comparable period ended June 30, 2003. The decrease was
primarily due to a reduction in interest received on interest bearing deposits
in the Federal Home Loan Bank and other banks.

Total interest expense decreased by $466,000 for the three months ended
June 30, 2003 compared to the same period in 2002. Interest on deposits
decreased from $2.9 million for the three months ended June 30, 2002 to $2.6
million for the June 30, 2003 quarter, a 12.1% decrease. Interest on FHLB
advances decreased $116,000 for the comparable periods.

For the nine months ended June 30, 2003, net interest income after
provision for loan losses increased by $718,000 to $11.1 million, a 6.9%
increase from the comparable period ended June 30, 2002. Total interest income
for the nine month period ended June 30, 2003 was $20.2 million compared to
$21.0 million at June 30, 2002. Total interest expense decreased to $9.0 million
from $10.5 million for the comparable periods.

Provisions for Losses on Loans

The provisions for losses on loans are the result of managements decision
to have adequate reserves based on historical experience, industry standards,
the amount of non-performing assets, general economic conditions in the
Companys market area, and the collectability of the loan portfolio. Based on
these factors, the loan loss provision for the three month period ended June 30,
2003 was increased by $19,000 to $45,000 compared to $26,000 for the quarter
ended June 30, 2002. For the nine month period ended June 30, 2003 the provision
was $117,000 compared to $74,000 for the comparable period in 2002.

13



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##### 



The following table sets forth the activity in the Companys allowance for
loan losses during the periods indicated.

|                                                                        |                     |   |                   |      |                    |   |       |    |      |   |       |      |   |   |       |     |  
|----------------------------------------------------------------------- | ------------------- | - | ----------------- | ---- | ------------------ | - | ----- | -- | ---- | - | ----- | ---- | - | - | ----- | --- | -
|                                                                        |                     |   | Nine Months Ended |      | Three Months Ended
|                                                                        |                     |   |                   |      |                   
|                                                                        |                     |   | June 30,          |      | June 30,          
|                                                                        |                     |   |                   |      |                   
|                                                                        |                     |   | 2003              |      | 2002               |   | 2003  |    | 2002
|                                                                        |                     |   |                   |      |                    |   |       |    |     
|Allowance at beginning
of period                                        |                     | $ | 1,291             |      |                    | $ | 1,227 |    |      | $ | 1,345 |      |   | $ | 1,276 |    
|Provision for loan
losses                                               |                     |   | 117               |      |                    |   | 63    |    |      |   | 45    |      |   |   | 26    |    
|Charge-offs:                                                            |                     |   |                   |      |                    |   |       |    |      |   |       |      |   |   |       |    
|                                                                        | Consumer            |   |                   | (142 | )                  |   |       | 54 |      |   |       | (123 | ) |   |       | (26 | )
|                                                                        | Commercial business |   |                   |     |                    |   |       |   |      |   |       |     |   |   |       |    |  
|Recoveries                                                              |                     |   | 1                 |      |                    |   | 3     |    |      |   |      |      |   |   |      |    
|                                                                        |                     |   |                   |      |                    |   |       |    |      |   |       |      |   |   |       |    
|Net Charge-offs                                                         |                     |   | (141              | )    |                    |   | (51   | )  |      |   | (123  | )    |   |   | (26   | )  
|                                                                        |                     |   |                   |      |                    |   |       |    |      |   |       |      |   |   |       |    
|Allowance at end of
period                                              |                     | $ | 1,267             |      |                    | $ | 1,239 |    |      | $ | 1,267 |      |   | $ | 1,276 |    
|                                                                        |                     |   |                   |      |                    |   |       |    |      |   |       |      |   |   |       |    
|Allowance for loan
losses to total
nonperforming loans at
end of period |                     |   | 114               | %    |                    |   | 266   | %  |      |   | 114   | %    |   |   | 180   | %  
|                                                                        |                     |   |                   |      |                    |   |       |    |      |   |       |      |   |   |       |    
|Allowance for loan
losses to total loans at
end of period               |                     |   | .45               | %    |                    |   | .52   | %  |      |   | .45   | %    |   |   | .48   | %  
|                                                                        |                     |   |                   |      |                    |   |       |    |      |   |       |      |   |   |       |    

Of the $123,000 in charge-offs reported for the quarter ended June 30,
2003, $80,000 is relative to one loan allegedly involving fraud on the part of
the borrowers representative.

Non-Interest Income

Non-interest income consists primarily of fees collected on mortgage and
consumer loans, service charges on deposit accounts and income from real estate
operations. Non-interest income increased $173,000 from $603,000 for the three
month period ended June 30, 2002 to $776,000 for the June 30, 2003 period. The
increase was primarily due to an increase in fees and deposit service charges of
$130,000; and an increase of $37,000 in other non-interest income.

For the nine month period, non-interest income increased from $2.0 million
at June 30, 2002 to $2.2 million at June 30, 2003 primarily due to an increase
in fees and deposit service charges of $216,000; an increase in other
non-interest income of $34,000; offset by a loss of $9,000 on sale of investment
securities.

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Non-Interest Expense

Non-interest expense increased to $2.1 million for the quarter ended June
30, 2003 from $1.9 million for the quarter ended June 30, 2002. The increase was
primarily due to an increase in compensation and benefits of $141,000; an
increase of $45,000 in occupancy and equipment, and an increase of $47,000 in
other non-interest expense.

Non-interest expense increased by $490,000 for the nine month period from
$5.8 million at June 30, 2002 to $6.3 million at June 30, 2003. This increase
was primarily due to an increase in compensation and benefits of $331,000; an
increase of $66,000 in occupancy and equipment, and an increase in other non-interest expense of $67,000.

Taxes

The provision for income tax amounted to $801,000 and $2.4 million for the
three and nine months ended June 30, 2003 respectively, compared to $811,000 and
$2.3 million for the three and nine months ended June 30, 2002, respectively.

Liquidity

The State of Texas regulations require the Companys wholly owned
subsidiary, Jacksonville Savings Bank, SSB (the Bank) to maintain liquidity in
an amount not less than 10% of an amount equal to its average daily deposits for
the most recently completed calendar quarter in cash and readily marketable
investments. For the quarter ended June 30, 2003 the Banks liquidity was $172.0
million with a liquidity ratio of 45.9%.

The Company is subject to borrowing limitations with respect to the amount
of advances it may receive from the Federal Home Loan Bank of Dallas. At June
30, 2003, outstanding borrowings from the Federal Home Loan Bank of Dallas
totaled $34.5 million. The Companys borrowing limit with the Federal Home Loan
Bank is $196.3 million and is based upon the amount of stock ownership and
available collateral held by the Company. The Federal Home Loan Bank of Dallas
is an important source of liquidity to the Company, and the ability to tap into
that source is not without limits.

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 June 30, 2003, the
Bank had Tier 1 leveraged capital, Tier 1 risk-based capital and total
risk-based capital levels of 7.98%, 15.33%, 15.85%, respectively, which levels
exceed all current regulatory capital standards. These capital levels exceeded
the minimum requirements at that date by approximately $18.3 million, $27.2
million, and $18.8 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

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regulation (which changes from time to time and over which Jacksonville has no
control), and other risks detailed in this Form 10-Q 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.

Item 3. 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 shareholders 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.

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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 June 30, 2003, would
result in a 3.7% decrease in net interest income over the next twelve months,
while a 200 basis point decrease in rates would result in a 6.3% decrease 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 June 30, 2003, the Bank was within the Banks policy limits for changes
in the market value of portfolio equity set forth in the Interest Rate Risk
Policy. Based on the simulation model, a 200 basis point increase in interest
rates would result in an estimated decrease in the market value of portfolio
equity of 16.1% at June 30, 2003, compared to a 32.0% decrease in the market
value of portfolio equity at June 30, 2002. A 200 basis point decrease in
interest rates would result in an estimated increase in the market value of
portfolio equity of 4.6% at June 30, 2003, compared to a 2.1% decrease in the
market value of portfolio equity at June 30, 2002. The Banks policy limit for a
200 basis point increase in interest rates is currently set at 50%.

At June 30, 2003 the Bank had $46.6 million in available-for-sale
investments and $94.8 million in mortgage-backed securities, available-for-sale.
Management is closely monitoring the securities portfolios and is aware that it
can take steps to sell the securities to go to shorter term investments should
market conditions dictate.

Item 4. Controls and Procedures

Our management evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of the end of the period covered by this
report. Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934)
occurred during the most recent fiscal quarter that has materially affected, or
is reasonable likely to materially affected, or is reasonable likely to
materially affect, our internal control over financial reporting.

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JACKSONVILLE BANCORP, INC.

PART II  OTHER INFORMATION

|        |  |                  
|------- |  | -----------------
|ITEM 1. |  | LEGAL PROCEEDINGS



| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Jacksonville Bancorp, Inc., is involved only in routine legal
proceedings occurring in the ordinary course of business which in the
aggregate are believed by management to be immaterial to the financial
condition of the Bank.

|        |  |                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|ITEM 2. |  | CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                                           
|        |  |                                                                                                                                     
|        |  | Not Applicable                                                                                                                      
|        |  |                                                                                                                                     
|ITEM 3. |  | DEFAULTS UPON SENIOR SECURITIES                                                                                                     
|        |  |                                                                                                                                     
|        |  | Not Applicable                                                                                                                      
|        |  |                                                                                                                                     
|ITEM 4. |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                 
|        |  |                                                                                                                                     
|        |  | Not Applicable                                                                                                                      
|        |  |                                                                                                                                     
|ITEM 5. |  | OTHER INFORMATION                                                                                                                   
|        |  |                                                                                                                                     
|        |  | Not Applicable                                                                                                                      
|        |  |                                                                                                                                     
|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                                    
|(a)     |  | Exhibits:                                                                                                                           
|        |  | 31.1 Certification of Chief Executive Officer Pursuant to Rules 13a-14
and 15d-14 and Section 302 of the Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                                     
|        |  | 31.2 Certification of Chief Financial Officer Pursuant to Rules 13a-14
and 15d-14 and Section 302 of the Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                                     
|        |  | 32.1 Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).           
|        |  |                                                                                                                                     
|        |  | 32.2 Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).           
|        |  |                                                                                                                                     
|(b)     |  | 8K dated April 24, 2003  Announces Second Quarter Earnings 8K dated
June 11, 2003  Announces Declaration of Cash Dividend         

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SIGNATURES

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

|                      |  |                                                                                                              
|--------------------- |  | -------------------------------------------------------------------------------------------------------------
|                      |  | Jacksonville Bancorp, Inc.                                                                                   
|                     
|                      |  |                                                                                                              
|                     
|DATE: August 11, 2003 |  | By:/s/ Jerry Chancellor
        Jerry Chancellor, President and
        Chief Executive Officer              
|                     
|                      |  |                                                                                                              
|                     
|DATE: August 11, 2003 |  | By:/s/ Bill W. Taylor
        Bill W. Taylor
        Exec. Vice President and
        Chief Financial Officer

19