<PAGE>










                                   Exhibit 13
                             Report to Stockholders




<PAGE>



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

                                  JACKSONVILLE BANCORP, INC.

                                  2002 Annual Report

<PAGE>



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

                                  JACKSONVILLE BANCORP, INC.

                                  Consolidated Financial Statements for the
                                  Years Ended December 31, 2002, 2001, and 2000
                                  Independent Auditors' Report

<PAGE>

To our Shareholders:

2002 was a challenging year for America and for Jacksonville Bancorp Inc. In the
aftermath of September 11th, our country experienced the ongoing threat of
terrorism, the prospect of war with Iraq, and the third year of a bear market.
The positive impact of historically low interest rates and a robust housing
market failed to provide sufficient momentum to reenergize the national economy
or prevent corporate cutbacks and layoffs. Locally, although we like to think
that west central Illinois is somewhat insulated from the global economic roller
coaster, area businesses and industries, and city and county governments, began
to feel the effect of the uncertain times. In spite of the year's less than
perfect economic and political conditions, we are pleased to report that in 2002
Jacksonville Bancorp, Inc. was able to grow and prosper.

Highlights of our 2002 operating results include substantial growth in assets
and deposits and a return to profitability after the major defalcation loss of
2001. Total assets at year-end stood at $252.5 million, an increase of over $11
million from December 31, 2001. Total deposits grew by more than 4% to $225.6
million. Loan originations reached $155 million, and while loans held in
portfolio declined to $142.9 million, loans sold and serviced for others rose to
a record level surpassing $150 million for the first time. After adding $2
million to our loan loss allowance, earnings for the year finished at $818,000.

A number of strategic and tactical initiatives were undertaken in 2002. In May,
the Bank completed a mid-tier reorganization that resulted in the creation of
Jacksonville Bancorp, Inc. The stock of this new mid-tier company, which
operates and owns 100% of Jacksonville Savings Bank, is 54.06% owned by
Jacksonville Bancorp MHC, and 45.94% owned by minority shareholders. The
advantages of the mid-tier organizational structure are greater operating
flexibility, a more efficient and less expensive merger and acquisition process,
and the ability to repurchase Jacksonville Bancorp, Inc. stock.

Technological initiatives in 2002 included upgrades to our computer system, the
introduction of an improved electronic bill payment system, the implementation
of an enhanced asset/liability management program, and final testing and
preparation for the introduction of company-wide check imaging in 2003. In the
area of bricks and mortar, ground was broken in September for a 13,000 square
foot expansion of our West Morton headquarters facility in Jacksonville. The new
addition, which will house our lending and underwriting center, is scheduled for
completion in October of 2003.

July was a bittersweet month for our staff and directors as Executive Vice
President Roger McKinney retired after 37 years of loyal service. Much of the
success that Jacksonville Savings achieved over the last four decades is due to
Roger's dedication and fine work. We want to express our sincere appreciation to
Roger and to wish him the very best in retirement.

As 2003 begins, we are confident that Jacksonville Bancorp Inc. is well
positioned to maintain its role as the area's leading community bank. Thank you
for your continuing support.


Andrew F. Applebee                Richard A. Foss
Chairman of the Board             President and CEO

<PAGE>
<TABLE>
<CAPTION>

TABLE OF CONTENTS
------------------------------------------------------------------------------------------------------------

                                                                                                   PAGE

<S>                                                                                                <C>
Business of the Company                                                                              1

Selected Consolidated Financial Information                                                         2-3

Management's Discussion and Analysis of Financial Condition and Results of Operations               4-20

Independent Auditors' Report                                                                        21

Consolidated Financial Statements                                                                  22-28

Notes to Consolidated Financial Statements                                                         29-54

Common Stock Information                                                                            55

Directors and Officers                                                                              56

Corporate Information                                                                               57

Annual Meeting                                                                                      57
</TABLE>


<PAGE>

                             BUSINESS OF THE COMPANY

Jacksonville Bancorp, Inc. (the "Company") was incorporated under Federal law on
May 3, 2002. The Company is a savings and loan holding company and its sole
business activity is the 100% ownership of Jacksonville Savings Bank (the
"Bank"). As part of our reorganization into the two-tier mutual holding company
form of ownership, the shareholder interests in the Bank were converted into
interests of the Company.

The Bank was founded in 1916 as an Illinois chartered savings and loan
association and converted to a state-chartered savings bank in 1992. The Bank is
headquartered in Jacksonville, Illinois and operates six branches in addition to
its main office. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC"). The Bank's deposits have been federally insured
since 1945 by the FDIC. The Bank has been a member of the Federal Home Loan Bank
("FHLB") System since 1932. At December 31, 2002, the Company had consolidated
total assets of $252.5 million, total deposits of $225.6 million and
stockholders' equity of $20.3 million.

On April 20, 1995, the Bank reorganized into the mutual holding company form of
ownership, pursuant to which the Bank amended its charter from an
Illinois-chartered mutual savings bank into an Illinois-chartered mutual holding
company ("MHC"), Jacksonville Bancorp, MHC. On December 28, 2000, Jacksonville
Bancorp, MHC, converted from an Illinois-chartered mutual holding company to a
federally-chartered mutual holding company. The MHC owns 54.06% of the
outstanding shares of the Company.

The Bank is a community-oriented savings bank engaged primarily in the business
of attracting retail deposits from the general public in the Bank's market area
and using such funds together with borrowings and funds from other sources to
originate consumer loans and mortgage loans secured by one- to four-family
residential real estate. The Bank also originates commercial real estate loans,
multi-family real estate loans, commercial business loans, and agricultural
loans. When possible, the Bank emphasizes the origination of mortgage loans with
adjustable interest rates ("ARM"), as well as fixed-rate balloon loans with
terms ranging from three to five years, consumer loans, which are primarily home
equity loans secured by second mortgages, commercial business loans, and
agricultural loans. The Bank also offers trust and investment services. The
investment center, Continental Capital Investment Services, Inc., is operated
through the Bank's wholly-owned subsidiary, Financial Resources Group, Inc.



                                       1

<PAGE>

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following tables set forth certain information concerning the consolidated
financial position, consolidated data from operations and performance ratios of
the Company at the dates and for the years indicated.

<TABLE>
<CAPTION>

                                                                          AT DECEMBER 31,
                                                 -------------------------------------------------------------------
                                                    2002          2001          2000          1999          1998
FINANCIAL CONDITION DATA                                                  (IN THOUSANDS)

<S>                                              <C>           <C>           <C>           <C>            <C>
Total assets                                     $ 252,504     $ 241,301     $ 227,915     $ 169,232      $ 169,291
Loans (1)                                          149,200       161,082       172,379       142,818        132,083
Investment securities (2)                           74,904        46,360        21,295         1,829          2,178
Mortgage-backed securities                           2,822         4,264         6,689         7,353          9,974
Cash and cash equivalents                           11,092        13,397         9,476         9,896         17,599
Deposits                                           225,602       216,899       197,799       139,190        147,848
Other borrowings                                     2,875         1,395         5,786         8,000            112
Stockholders' equity                                20,252        19,164        20,637        19,173         18,183

<CAPTION>

                                                                  YEARS ENDED DECEMBER 31,
                                                 -------------------------------------------------------------------
                                                    2002          2001          2000          1999          1998
OPERATING DATA                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                              <C>           <C>           <C>           <C>            <C>
Interest income                                  $  15,065     $  17,526     $  15,599     $  12,820      $  12,804
Interest expense                                     7,351         9,569         8,176         6,269          7,130
                                                 ---------     ---------     ---------     ---------      ---------

Net interest income                                  7,714         7,957         7,423         6,551          5,674
Provision for loan losses                            2,000         1,000           610           445            550
                                                 ---------     ---------     ---------     ---------      ---------
Net interest income after provision
for loan losses                                      5,714         6,957         6,813         6,106          5,124
Other income                                         2,490         2,010         1,424         1,284          1,588
Other expense (3)                                    6,919        11,282         5,793         5,176          4,979
                                                 ---------     ---------     ---------     ---------      ---------

Income (loss) before income taxes                    1,285        (2,315)        2,444         2,214          1,733
Income tax expense (benefit)                           467        (1,299)          826           854            649
                                                 ---------     ---------     ---------     ---------      ---------

Net income (loss)                                $     818     $  (1,016)    $   1,618     $   1,360      $   1,084
                                                 =========     =========     =========     =========      =========

Earnings per common share - basic                $    0.43     $   (0.53)    $    0.85     $    0.72      $    0.58
                                                 =========     =========     =========     =========      =========

Earnings per common share - diluted              $    0.42     $   (0.53)    $    0.85     $    0.71      $    0.56
                                                 =========     =========     =========     =========      =========
</TABLE>

(1)  Includes loans held for sale.

(2)  Includes FHLB stock, other equity investments, corporate bonds, municipal
     bonds, and certain securities backed by the U.S. Government or its
     agencies.

(3)  Includes losses due to loan defalcation of $62,000 in 2002 and $4,458,000
     in 2001.

                                                                     (Continued)


                                       2

<PAGE>

<TABLE>
<CAPTION>
                                                                AT OR FOR THE YEARS ENDED DECEMBER 31,
                                                 -------------------------------------------------------------------
KEY OPERATING RATIOS                                2002           2001          2000          1999          1998
<S>                                                 <C>           <C>           <C>           <C>          <C>
Return on average assets (net income
 (loss) divided by average assets)                    0.34 %       (0.44)%        0.82 %        0.82 %       0.64 %

Return on average equity (net income
 (loss) divided by average equity)                    4.19 %       (4.92)%        8.11 %        7.25 %       6.07 %

Average equity to average assets                      8.04 %        8.98 %       10.15 %       11.27 %      10.62 %

Interest rate spread (difference between
 average yield on interest-earning
 assets and average cost of interest-bearing
 liabilities)                                         3.27 %        3.67 %        3.54 %        3.81 %       3.14 %

Net interest margin (net interest income
 as a percentage of average interest-
 earning assets)                                      3.47 %        3.87 %        4.02 %        4.24 %       3.61 %

Dividend pay-out ratio (1)                           32.03 %      (25.69)%       30.59 %       42.13 %      52.83 %

Noninterest expense to average assets                 2.85 %        4.91 %        2.95 %        3.06 %       2.96 %

Average interest-earning assets to
 average interest-bearing liabilities               106.04 %      104.40 %      110.87 %      110.55 %     110.46 %

Allowance for loan losses to gross loans
 at end of period                                     1.43 %        0.70 %        0.70 %        0.58 %       0.60 %

Allowance for loan losses to
 nonperforming loans                                 53.69 %       27.37 %       62.55 %       48.68 %      77.62 %

Net loan charge-offs (recoveries) to
 average outstanding loans during the
 period                                               0.68 %        0.68 %        0.34 %        0.31 %       0.32 %

Nonperforming assets to total assets                  1.72 %        2.09 %        1.10 %        1.27 %       0.93 %
<CAPTION>

                                                                             DECEMBER 31,
                                                 -------------------------------------------------------------------
OTHER DATA                                          2002           2001          2000          1999          1998
<S>                                                   <C>           <C>           <C>           <C>          <C>
Number of offices                                     7             7             7             5            5
</TABLE>

(1)  Excludes dividends waived by the mutual holding company during 2002, 2001,
     and 2000.

                                       3

<PAGE>

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

GENERAL

Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the consolidated financial statements and
accompanying notes thereto.

Certain statements in this annual report and throughout Management's Discussion
and Analysis of Financial Condition and Results of Operations are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve known and unknown risk, uncertainties and other
factors that may cause the Company's actual results, performance or achievements
to be materially different from the results, performance or achievements
expressed or implied by the forward looking statement. Factors that impact such
forward looking statements include, among others, changes in general economic
conditions, changes in interest rates and competition. The Company declines any
obligation to publicly announce future events or developments that may affect
the forward-looking statements herein.

OPERATING STRATEGY

The business of the Company consists principally of attracting deposits from the
general public and using deposits to purchase and originate consumer loans and
mortgage loans secured by one- to four-family residences. The Company also
offers commercial and agricultural lending services. The Company's net income is
primarily dependent on net interest income, which is the difference between the
income earned on its interest-earning assets, such as loans and investments, and
the cost of its interest-bearing liabilities, primarily deposits. However, the
Company's net income is also affected by provisions for loan losses and other
operating income and expenses. General economic conditions, particularly changes
in market interest rates, government legislation, monetary policies, and
attendant actions of the regulatory authorities are the external influences
affecting many of the factors of the Company's net income.

Management has implemented various strategies designed to enhance its
profitability while still maintaining the Company's safety and soundness. These
strategies include reducing its exposure to interest rate risk by selling
fixed-rate loans to Freddie Mac and providing other fee-based services to its
customers. The Company recognizes the need to establish and adhere to strict
loan underwriting criteria and guidelines. In this regard, during 2002, the
Company hired an outside consultant to assist management in identifying
weaknesses in loan underwriting procedures and implementing remedial measures.
The Company generally limits its investment portfolio to investments in United
States Government and Agency securities, mortgage-backed securities
collateralized by U.S. Government Agencies, and local municipal issues.

It is management's intention to remain a retail financial institution dedicated
to financing home ownership and other consumer needs, and to provide quality
service to its customers located in Morgan, Macoupin, Montgomery and the
surrounding counties in Illinois.

                                       4
<PAGE>

MID-TIER REORGANIZATION

On May 3, 2002, Jacksonville Savings Bank and Jacksonville Bancorp, MHC, the
mutual holding company parent, reorganized into the two-tier mutual holding
company form of ownership by establishing a mid-tier stock holding company,
Jacksonville Bancorp, Inc. All outstanding shares of Jacksonville Savings Bank
common stock were converted on a one for one basis into shares of Jacksonville
Bancorp, Inc. common stock in the reorganization. Jacksonville Bancorp, Inc. now
owns 100% of the outstanding shares of Jacksonville Savings Bank.

CRITICAL ACCOUNTING POLICIES

In the ordinary course of business, the Company has made a number of estimates
and assumptions relating to the reporting of results of operations and financial
condition in preparing its financial statements in conformity with accounting
principles generally accepted in the United States of America. Actual results
could differ significantly from those estimates under different assumptions and
conditions. The Company believes the following discussion, including the
allowance for loan losses, goodwill, and mortgage servicing rights, addresses
the Company's most critical accounting policies, which are those that are most
important to the portrayal of the Company's financial condition and results and
require management's most difficult, subjective and complex judgements, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain.

ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is a material estimate
that is particularly susceptible to significant changes in the near term and is
established through a provision for loan losses. The allowance is based upon
past loan experience and other factors which, in management's judgement, deserve
current recognition in estimating loan losses. The evaluation includes a review
of all loans on which full collectibility may not be reasonable assured. Other
factors considered by management include the size and character of the loan
portfolio, concentrations of loans to specific borrowers or industries, existing
economic conditions and historical losses on each portfolio category. In
connection with the determination of the allowance for loan losses, management
obtains independent appraisals for significant properties, which collateralize
loans. Management believes it uses the best information available to make such
determinations. If circumstances differ substantially from the assumptions used
in making determinations, future adjustments to the allowance for loan losses
may be necessary and results of operations could be affected. While the Company
believes it has established its existing allowance for loan loses in conformity
with accounting principles generally accepted in the United States of America,
there can be no assurance that regulators, in reviewing the Bank's loan
portfolio, will not request an increase in the allowance for loan losses.
Because future events affecting borrowers and collateral cannot be predicted
with certainty, there can be no assurance that increases to the allowance will
not be necessary if loan quality deteriorates.

GOODWILL - Costs in excess of the estimated fair value of identified net assets
acquired through purchase transactions are recorded as an asset by the Company.
This amount was originally amortized into expense on a straight-line basis
assuming a life of twenty years. Effective January 1, 2002, the Company ceased
amortization in accordance with newly adopted accounting standards generally
accepted in the United States of America. The Company performed an initial
impairment assessment as of January 1, 2002 and annual impairment assessment as
of September 30, 2002. No impairment of goodwill was identified a result of
these tests. In making these impairment assessments, management must make
subjective assumptions regarding the fair value of the Company's assets and
liabilities. It is possible that these judgements may change over time as market
conditions or Company strategies change, and these changes may cause the Company
to record impairment charges to adjust the goodwill to its estimated fair value.

                                       5
<PAGE>

MORTGAGE SERVICING RIGHTS - The Company recognizes as a separate asset the
rights to service mortgage loans for others. The value of mortgage servicing
rights is amortized in relation to the servicing revenue expected to be earned.
Mortgage servicing rights are periodically evaluated for impairment based upon
the fair value of those rights. Estimating the fair value of the mortgage
servicing rights involves judgement, particularly of estimated prepayments
speeds of the underlying mortgages serviced. Net income could be affected if
management's assumptions and estimates differ from actual prepayments.

The above listing is not intended to be a comprehensive list of all the
Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by accounting principles
generally accepted in the United States of America, with no need for
management's judgement in their application. There are also areas in which
management's judgement in selecting any available alternative would not produce
a materially different result.

FINANCIAL CONDITION

Total assets increased to $252.5 million at December 31, 2002, compared to
$241.3 million at December 31, 2001. The increase of $11.2 million, or 4.6%, is
primarily due to a $28.5 million, or 63.1%, increase in investment securities,
partially offset by decreases in cash and cash equivalents, mortgage-backed
securities, and loans.

The growth in investment securities is primarily due to increased loan sales and
an $8.7 million, or 4.0%, growth in deposits. Declining market rates of interest
created an extraordinary volume of loan originations during 2002. The Company
originated over $155 million in loans during 2002, with approximately $86
million sold to Freddie Mac in the secondary market. Approximately 75% of the
originations are secured by real estate, including residential, commercial, and
agricultural properties. Due to the volume of consumer loans consolidated into
fixed-rate mortgages and sold to the secondary market, the Company's loan
portfolio declined by approximately $14 million.

Also contributing to the growth in investment securities is a decline of $2.3
million in cash and cash equivalents, $1.4 million in principal repayments on
mortgage-backed securities, and a $1.3 million decrease in income taxes
receivable. The decrease in income taxes receivable is due to tax refunds of
$986,000 received during 2002, normal tax accruals, and a $500,000 adjustment to
deferred taxes.

Deposit growth was not limited to any particular segment or product, but rather
reflects a general growth in deposits. Management believes that the deposit
growth was also affected by the poor performance of the stock market during
2002, which resulted in consumers seeking less volatile investments.

Stockholders' equity increased $1.1 million to $20.3 million at December 31,
2002. The increase reflects net income of $818,000, an increase of $427,000 in
unrealized gains on available-for-sale securities, and $106,000 from the
exercise of stock options, partially offset by the payment of $262,000 in
dividends.

                                       6
<PAGE>

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

GENERAL

The Company reported net income of $818,000 for the year ended December 31,
2002, compared to a net loss of $1,016,000 for the year ended December 31, 2001.
Net income in 2002 reflects a decrease in operating expenses during 2002
compared to 2001, in particular, a $4.5 million nonrecurring expense in 2001
related to loan defalcations. Other income increased $480,000, net interest
income decreased $243,000, the provision for loan losses increased $1.0 million,
other expenses increased $33,000, and income tax expense was $467,000 compared
to a tax benefit of $1.3 million in 2001.

INTEREST INCOME

Interest income decreased to $15.1 million for the year ended December 31, 2002
from $17.5 million for the year ended December 31, 2001. The decrease in 2002 of
$2.4 million resulted from decreased income of $2.8 million on loans, $221,000
on other interest-earnings assets, and $175,000 on mortgage-backed securities,
partially offset by an increase of $768,000 on income from investment
securities.

The decrease in interest income on loans was primarily due to a lower weighted
average yield of 7.70% for 2002 from 9.00% for 2001, as well as a decrease in
the average balance of loans outstanding to $152.8 million for 2002 compared to
$162.2 million for 2001. The decrease in the weighted average yield is due to
the declining interest rate environment experienced during 2002, which also
resulted in increased refinancing activity. This activity contributed to the
decreased average balance of loans as a large volume of consumer loans were
consolidated, secured with residential real estate, and sold into the secondary
market.

The increase in interest income on investment securities is due to the higher
average balance of investments, which totalled $56.5 million for 2002 compared
to $28.3 million for 2001. The higher average balance is due to the additional
cash generated from loan sales during 2002. The weighted average yield on
investments decreased to 5.20% for 2002 from the 7.66% for 2001. At the time of
the acquisition of Chapin State Bank in 2000, many of the acquired investments
were carrying unrealized losses, which are being amortized over the life of the
investments according to purchase accounting rules. As market rates declined
during 2001, many of these investments were called resulting in gains and losses
from securities transactions. These adjustments resulted in an additional
$268,000 in interest income for the year ended December 31, 2001. Without this
adjustment, the weighted average yield on investments for 2001 would have
equaled 6.71%.

The decreased income on mortgage-backed securities is primarily due to the
decline in the average balance of mortgage-backed securities during 2002 to $3.4
million from $5.4 million in 2001. The decreased balance is due to accelerated
principal repayments on the mortgage-backed securities, which have been
reinvested into U.S. Agency securities. The decline in the weighted average
yield to 6.09% for 2002 from 7.12% for 2001 also contributed to the decreased
income.

Other interest-earning assets consist of federal funds sold and interest-bearing
deposit accounts. The decrease in interest income is primarily the result of a
decrease in the weighted average yield to 1.54% for 2002 from 3.90% for 2001.
The average balances of the FHLB deposit account and federal funds sold
increased to $9.6 million for 2002 from $9.5 million for 2001.

INTEREST EXPENSE

Interest expense decreased to $7.4 million for the year ended December 31, 2002
from the $9.6 million for the year ended December 31, 2001. The decrease of $2.2
million in the cost of funds resulted from a $2.2 million decrease in interest
paid on deposits combined with a $41,000 decrease in interest on short-term
borrowings.

                                       7
<PAGE>

The lower interest expense on deposits is attributable to a decrease in the
weighted average yield on deposits to 3.52% for 2002 from 4.87% for 2001. The
lower weighted average yield was offset by an increase in the average balance of
deposits to $207.6 million for 2002 from $194.7 million for 2001.

The decreased interest expense on short-term borrowings is due to the weighted
average yield declining to 1.81% for 2002 from 3.91% for 2001. The average
balance of borrowings remained fairly stable at $2.1 million for 2002 from $2.0
million for 2001. Borrowings consist of commercial cash management accounts,
which are swept daily into overnight repurchase agreements, secured by U.S.
Government Agency securities. The Company repaid all outstanding advances with
the FHLB, totaling $5.0 million, on February 28, 2001. The Company did not
borrow any additional funds from the FHLB during 2001 or 2002.

PROVISION FOR LOAN LOSSES

The provision for loan losses is determined by management as the amount needed
to replenish the allowance for loan losses, after net charge-offs have been
deducted, to a level considered adequate to absorb known and probable losses in
the loan portfolio, in accordance with accounting principles generally accepted
in the United States of America.

The Company recorded $2.0 million in provision for loan losses during the year
ended December 31, 2002, compared to $1.0 million for the year ended December
31, 2001. The additional provision was made to bring the allowance for loan
losses to a level deemed adequate following management's evaluation of the
repayment capacity and collateral protection afforded by each problem credit
identified by management. This review also considered the current economic
downturn, which has resulted in increased bankruptcies and foreclosures in the
Company's market area, which have further contributed to the recent increases in
delinquencies and charge-offs. With the help of an outside consultant,
management has been reviewing all of its lending policies and procedures, as
well as staffing levels, in order to strengthen collection and underwriting
practices. The Company's officer loan committee is meeting on a daily basis to
address these issues and attempt to prevent any further deterioration in asset
quality.

The provision for loan losses increased $1.0 million for the year ended December
31, 2002 from the year ended December 31, 2001. The allowance for loan losses
increased to $2.1 million at December 31, 2002, from $1.1 million at December
31, 2001. The increase is due to the $2.0 million provision for loan losses
exceeding net charge-offs of $1.0 million. Net charge-offs decreased $65,000
during 2002 from $1.1 million during 2001. At December 31, 2002, approximately
32% of the Company's loan portfolio consisted of residential real estate loans
plus an additional 21% consisted of home equity loans. Commercial and
agricultural loans accounted for approximately 34% and consumer loans comprised
the remaining 13% of the loan portfolio. In 2002, approximately 24% of the net
charge-offs were attributed to residential real estate loans, 37% to home equity
loans, 8% to commercial loans and 31% to consumer loans. Nonperforming loans
decreased to $3.9 million, or 2.7% of net loans, at December 31, 2002 from $4.0
million, or 2.6% of net loans, at December 31, 2001.

While the Company has a loan review and monitoring system in place, management
has been reviewing its procedures in light of the recent loan losses. Management
has taken several steps to date to address any weaknesses in the loan portfolio.
Management has recently increased staffing in the loan department to help with
the collection of delinquent accounts. Management has expanded the scope of the
internal audit program and increased the staffing of the internal audit
department. Management will continue to evaluate the Company's underwriting
standards and procedures to identify areas which can be strengthened.

                                       8
<PAGE>

The allowance for loan losses is maintained to absorb known and probable losses
in the loan portfolio. The balance of the allowance is based on ongoing,
quarterly assessments of the probable estimated losses in the loan portfolio.
The Company's methodology for assessing the appropriateness of the allowance
consists of applying several formula methods to identified problem loans and
portfolio segments. The allowance for loan losses is calculated by estimating
the exposure on identified problem loans and applying loss factors to the
remainder of the loan portfolio based upon an internal risk grade of such loans
or pools of loans. Changes in risk grades of both performing and nonperforming
loans affect the amount of the allowance. Loss factors are based primarily on
historical loss experience over the past three to five years, and may be
adjusted for other significant conditions that, in management's judgement,
affect the collectibility of the loan portfolio.

Since the allowance for loan losses is based upon estimates of known and
probable losses in the portfolio, the amount actually observed can vary
significantly from the estimated amounts. The historical loss factors attempt to
reduce this variance by taking into account recent loss experience. Management
evaluates several other conditions in connection with the allowance, including
general economic and business conditions, credit quality trends, collateral
values, loan volumes and concentrations, seasoning of the portfolio, and
regulatory examination results. Management believes the current balance of the
allowance for loan losses is adequate. Management will continue to monitor the
loan portfolio and assess the adequacy of the allowance at least quarterly.

NON-INTEREST INCOME

Non-interest income increased $480,000 to $2.5 million for the year ended
December 31, 2002 from $2.0 million for the year ended December 31, 2001. The
increase is primarily due to increases of $216,000 in gains on sale of
securities and $101,000 in gains on sale of loans. Other income also increased
as a result of an $86,000 increase in commission income from brokerage
activities. The Company increased its brokerage activity following the hiring of
an additional, experienced investment broker as of January 1, 2002.

Gains on the sale of securities increased to $303,000 during 2002 from $87,000
during 2001. Securities totalling $20.1 million and $9.3 million, a portion of
which were due to be called, were sold during 2002 and 2001, respectively, in
order to realize gains. The increase in gains on sale of loans is due to the
increased volume of loan sales to Freddie Mac, which also resulted in a $50,000
increase in loan servicing fees for 2002 compared to 2001. During 2002, the
Company sold $86.1 million in fixed-rate, first lien mortgage loans in the
secondary market compared to $80.3 million sold during 2001. The increased
volume is the result of mortgage rates decreasing to the lowest levels recorded
in recent periods.

NON-INTEREST EXPENSE

Non-interest expense decreased $4.4 million during the year ended December 31,
2002, primarily due to the nonrecurring expense due to loan irregularities of
$4.5 million during 2001. The remainder of the higher non-interest expense is
concentrated in increased salaries and benefit expenses of $174,000 offset by
reduced amortization of intangible assets of $147,000. The Company did not
record any amortization expense for goodwill during the year ended December 31,
2002, compared to $147,000 expensed during 2001.

INCOME TAXES

The provision for income taxes increased $1.8 million to $467,000 during the
year ended December 31, 2002, compared to a tax benefit of $1.3 million for the
year ended December 31, 2001. The increase is primarily attributed to the net
profit before tax of $1.3 million during 2002 compared to the net operating loss
before taxes of $2.3 million for 2001.

                                       9
<PAGE>

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

GENERAL

The Company reported a net loss of $1,016,000 for the year ended December 31,
2001, compared to net income of $1,618,000 for the year ended December 31, 2000.
The decrease of $2.6 million is directly related to the $4.5 million
nonrecurring expense due to loan irregularities. Excluding this nonrecurring
expense and related tax adjustments, the Company's normal operations would have
resulted in net income of approximately $1,715,000. Normal operations included
increases of $535,000 in net interest income and $586,000 in noninterest income,
offset by increases of $390,000 in provision for loan losses and $1,031,000 in
other expenses.

INTEREST INCOME

Interest income increased to $17.5 million for the year ended December 31, 2001
from $15.6 million for the year ended December 31, 2000. The increase in 2001 of
$1.9 million resulted from increased income of $565,000 on loans, $1.4 million
on investment securities, and $84,000 on other interest-earnings assets, offset
by decreased income of $103,000 on mortgage-backed securities.

The increase in interest income on loans was primarily due to a higher weighted
average yield of 9.0% for 2001 from 8.7% for 2000. The average balance of loans
outstanding increased only slightly to $162.2 million for 2001 compared to
$161.9 million for 2000. The average for 2000 includes the loan portfolio
acquired in connection with our acquisition of Chapin State Company in July of
2000. The increase in the weighted average yield is due to the higher proportion
of consumer and agricultural loans that comprised the Chapin State portfolio.
Such loans typically earn a higher rate than residential real estate loans.

The increase in interest income on investment securities is due to the higher
average balance of the investment portfolio, which equaled $28.3 million for
2001 compared to $11.2 million for 2000. The higher average balance is due to
the growth in the investment portfolio and the fact that the investment
portfolio acquired from Chapin is only included for six months of 2000. The
weighted average yield on investments increased to 7.66% for 2001 from the 7.04%
for 2000. At the time of the Chapin State acquisition, many of the acquired
investments were carrying unrealized losses, which are being amortized over the
life of the investments according to purchase accounting rules. As market rates
declined during 2001, many of these investments were called resulting in gains
and losses from securities transactions. These adjustments resulted in an
additional $268,000 in interest income for the year ended December 31, 2001.
Without this adjustment, the weighted average yield on investments for 2001
would have equaled 6.71%.

The decreased income on mortgage-backed securities is primarily due to the
decline in the average balance during 2001 to $5.4 million from the $7.0 million
recorded for 2000. The declining average balances of mortgage-backed securities
were partially offset by a small increase in the weighted average yield to 7.1%
for 2001 from the 6.9% for 2000.

Other interest-earning assets consist of federal funds sold and interest-bearing
deposit accounts. The increase in interest income is primarily the result of an
increase in the average balance of these assets. The average balances of the
FHLB deposit account and federal funds sold increased $4.7 million and $500,000,
respectively, during 2001. The higher balances resulted from the cash flow
generated by increased loan sales to the secondary market. Partially offsetting
this increase was the decrease in the weighted average yield to 3.9% for 2001
from the 6.1% recorded during 2000.

                                       10
<PAGE>

INTEREST EXPENSE

Interest expense increased to $9.6 million for the year ended December 31, 2001
from the $8.2 million for the year ended December 31, 2000. The increase of $1.4
million in the cost of funds resulted from a $1.8 million increase in interest
paid on deposits offset by a $436,000 decrease in interest on short-term
borrowings.

The higher interest expense on deposits is attributed to an increase in average
interest-bearing liabilities of $36.2 million to $194.7 million for the year
ended December 31, 2001. The increase in average balances is due to the deposit
growth experienced during 2001 and the fact that deposits acquired from Chapin
are reflected for only six months of 2000. The weighted average yield was 4.87%
for 2001 and 4.83% for 2000.

The decreased interest expense on short-term borrowings is due to the average
balance declining to $2.0 million for 2001 from $8.2 million for 2000, coupled
with a decrease in the weighted average yield to 3.9% in 2001 from 6.3% in 2000.
The Company repaid all outstanding advances with the FHLB, totaling $5.0
million, on February 28, 2001. The Company did not borrow any additional funds
during 2001. The remainder of borrowings consist of commercial cash management
accounts, which the Company began offering in 2000. Excess balances in these
accounts are swept daily into overnight repurchase agreements, secured by U.S.
Government Agency securities. The average balance of these accounts during 2001
equalled $849,000 compared to $106,000 during 2000.

PROVISION FOR LOAN LOSSES

The provision for loan losses is determined by management as the amount needed
to replenish the allowance for loan losses, after net charge-offs have been
deducted, to a level considered adequate to absorb known and probable losses in
the loan portfolio, in accordance with accounting principles generally accepted
in the United States of America.

The provision for loan losses increased $390,000 to $1.0 million for the year
ended December 31, 2001. The allowance for loan losses decreased to $1.1 million
at December 31, 2001, from $1.2 million at December 31, 2000. The decrease is
due to net charge-offs of $1.1 million exceeding the $1.0 million provision for
loan losses. Net charge-offs increased to $1.1 million during 2001 from $542,000
during 2000. The increase is primarily due to additional credit losses of
$373,000 identified during the investigation of loan irregularities. The
increased charge-offs also reflect the continued emphasis on consumer loans,
which typically involve greater risk than residential lending. At December 31,
2001, approximately 30% of the Company's loan portfolio consisted of residential
real estate loans plus an additional 25% consisted of home equity loans.
Commercial and agricultural loans accounted for approximately 31% and consumer
loans comprised the remaining 14% of the loan portfolio. In 2001, approximately
10% of the net charge-offs were attributed to residential real estate loans, 24%
to home equity loans, 14% to commercial loans and 52% to consumer loans.
Nonperforming loans increased to $4.0 million, or 2.6% of net loans, at December
31, 2001 from $1.9 million, or 1.1% of net loans, at December 31, 2000. The
increase in nonperforming loans is primarily due to the delinquency of a $1.7
million loan, which is adequately secured by commercial real estate. Management
believes the volume of nonperforming loans has also been impacted by the
investigation of loan irregularities, and the resulting time and resources
allocated to that effort rather than collections.

                                       11
<PAGE>

The allowance for loan losses is maintained to absorb known and probable losses
in the loan portfolio. The balance of the allowance is based on ongoing,
quarterly assessments of the probable estimated losses in the loan portfolio.
The Company's methodology for assessing the appropriateness of the allowance
consists of applying several formula methods to identified problem loans and
portfolio segments. The allowance is calculated by applying loss factors to
outstanding loan balances, based on an internal risk grade of such loans or
pools of loans. Changes in risk grades of both performing and nonperforming
loans affect the amount of the allowance. Loss factors are based primarily on
historical loss experience over the past three to five years, and may be
adjusted for other significant conditions that, in management's judgement,
affect the collectibility of the loan portfolio.

Since the allowance for loan losses is based upon estimates of known and
probable losses in the portfolio, the amount actually observed can vary
significantly from the estimated amounts. The historical loss factors attempt to
reduce this variance by taking into account recent loss experience. Management
evaluates several other conditions in connection with the allowance, including
general economic and business conditions, credit quality trends, collateral
values, loan volumes and concentrations, seasoning of the portfolio, and
regulatory examination results. The formulas used in the analysis were changed
in 2000 to reflect the changing mix of the loan portfolio and increased loan
losses. Management believes the current balance of the allowance for loan losses
is adequate. Management will continue to monitor the loan portfolio and assess
the adequacy of the allowance at least quarterly.

NON-INTEREST INCOME

Non-interest income increased $586,000 to $2.0 million for the year ended
December 31, 2001 from the $1.4 million for the year ended December 31, 2000.
The increase is primarily due to increases of $474,000 in gains on sale of loans
and $101,000 in other income.

The increase in gain on sale of loans is due to the increased volume of loan
sales to Freddie Mac. During 2001, the Company sold $80.3 million in fixed-rate,
first-lien mortgage loans in the secondary market compared to $14.3 million sold
during 2000. The increased volume is the result of national mortgage rates
decreasing to the lowest levels recorded during the past thirty years.

The increase in other income is primarily comprised of $88,000 in gains on the
sale of available-for-sale securities. Securities totalling $9.3 million, which
were due to be called, were sold in order to realize larger gains. The remainder
of the increase, approximately $25,000, is due to new sources of fee income,
primarily trust and farm management, acquired from Chapin State which were
realized for a full year during 2001.

NON-INTEREST EXPENSE

Non-interest expense increased $5.5 million during the year ended December 31,
2001, primarily due to the nonrecurring expense due to loan irregularities of
$4.5 million, as discussed in Note 17 to the consolidated financial statements.
The remainder of the higher non-interest expense is concentrated in increased
salaries and benefits of $287,000, occupancy expense of $168,000, and
amortization of intangible assets of $114,000. The increases are primarily due
to the personnel, fixed assets, and intangible assets acquired from Chapin
State, which are only reflected for six months of 2000. Also contributing to the
growth in non-interest expense is a $108,000 increase in real estate owned
expense, which is due to the increased volume of real estate owned and the
related costs. The increase in other real estate is primarily due to the
bankruptcy of a local real estate developer.

                                       12
<PAGE>

INCOME TAXES

The provision for income taxes decreased $2.1 million to a negative $1.3 million
during the year ended December 31, 2001 compared to $826,000 for the year ended
December 31, 2000. The decrease is primarily attributed to the net operating
loss realized during 2001 combined with tax adjustments of $363,000. These tax
adjustments consisted of a one-time adjustment of $193,000 related to net
operating loss carryforwards acquired in the Chapin State acquisition and a
$170,000 benefit resulting from the annual review of the Company's deferred tax
accounts.























                                       13
<PAGE>

AVERAGE YIELDS EARNED AND RATES PAID

The earnings of the Company depend largely on the spread between the yield on
interest-earning assets and the cost of interest-bearing liabilities, as well as
the relative size of the Company's interest-earning assets and interest-bearing
liability portfolios. The following table sets forth, for the years indicated,
information regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities, resultant yields,
interest rate spread, net interest margin, and ratio of average interest-earning
assets to average interest-bearing liabilities. Average balances for a year have
been derived utilizing daily balances.

<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                          -------------------------------------------------------------------
                                                                        2002                               2001
                                                          --------------------------------  ---------------------------------
                                                                      INTEREST                           INTEREST
                                                           AVERAGE       AND      YIELD/      AVERAGE       AND       YIELD/
                                                           BALANCE    DIVIDENDS    COST       BALANCE    DIVIDENDS     COST
                                                          -------------------------------------------------------------------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                       <C>         <C>          <C>       <C>         <C>           <C>
Interest-earning assets:
 Loans (1)                                                $ 152,848   $ 11,773     7.70 %    $ 162,230   $ 14,606      9.00 %
 Investment securities                                       56,532      2,937     5.20 %       28,326      2,169      7.66 %
 Mortgage-backed securities                                   3,392        207     6.09 %        5,356        382      7.12 %
 Other                                                        9,612        148     1.54 %        9,459        369      3.90 %
                                                          ---------   --------               ---------   --------
      Total interest-earning assets                         222,384     15,065     6.77 %      205,371     17,526      8.53 %

Non-interest-earning assets                                  20,428                             24,587
                                                          ---------                          ---------
      Total assets                                        $ 242,812                          $ 229,958
                                                          =========                          =========
Interest-bearing liabilities:
 Deposits                                                 $ 207,629      7,313     3.52 %    $ 194,704      9,490      4.87 %
 Short-term borrowings                                        2,097         38     1.81 %        2,014         79      3.91 %
                                                          ---------   --------               ---------   --------

      Total interest-bearing liabilities                    209,726      7,351     3.51 %      196,718      9,569      4.86 %
                                                                      --------                           --------

Non-interest-bearing liabilities                             13,559                             12,592
Stockholders' equity                                         19,527                             20,648
                                                          ---------                          ---------

      Total liabilities and stockholders' equity          $ 242,812                          $ 229,958
                                                          =========                          =========
Net interest income                                                   $  7,714                           $  7,957
                                                                      ========                           ========
Interest rate spread (2)                                                           3.27 %                              3.67 %
                                                                                   ====                                ====

Net interest margin (3)                                                            3.47 %                              3.87 %
                                                                                   ====                                ====
Ratio of average interest-earning assets to
 average interest-bearing liabilities                                            106.04 %                            104.40 %
                                                                                 ======                              ======
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                          ---------------------------------
                                                                         2000
                                                          ---------------------------------
                                                                       INTEREST
                                                            AVERAGE       AND       YIELD/
                                                            BALANCE    DIVIDENDS     COST
                                                          ---------------------------------
<S>                                                       <C>         <C>         <C>
Interest-earning assets:
 Loans (1)                                                $ 161,915   $ 14,041     8.67 %
 Investment securities                                       11,191        787     7.04 %
 Mortgage-backed securities                                   7,047        485     6.88 %
 Other                                                        4,658        286     6.12 %
                                                          ---------   --------
      Total interest-earning assets                         184,811     15,599     8.44 %

Non-interest-earning assets                                  11,759
                                                          ---------
      Total assets                                        $ 196,570
                                                          =========
Interest-bearing liabilities:
 Deposits                                                 $ 158,472      7,662     4.83 %
 Short-term borrowings                                        8,222        514     6.25 %
                                                          ---------   --------
      Total interest-bearing liabilities                    166,694      8,176     4.90 %

Non-interest-bearing liabilities                              9,924
Stockholders' equity                                         19,952
                                                          ---------

      Total liabilities and stockholders' equity          $ 196,570
                                                          =========

Net interest income                                                   $  7,423
                                                                      ========
Interest rate spread (2)                                                           3.54 %
                                                                                   ====
Net interest margin (3)                                                            4.02 %
                                                                                   ====
Ratio of average interest-earning assets to
 average interest-bearing liabilities                                            110.87 %
                                                                                 ======
</TABLE>
----------------------------------------------------
(1)  Includes non-accrual loans and loans held for sale, and fees of $142,000
     for 2002, $151,000 for 2001, and $192,000 for 2000.
(2)  Yield on interest-earning assets less cost of interest-bearing liabilities.
(3)  Net interest income divided by average interest-earning assets.

                                       14

<PAGE>

RATE/VOLUME ANALYSIS

The following table sets forth the effects of changing rates and volumes on net
interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in rate (changes in rate
multiplied by prior volume), (ii) effects on interest income attributable to
changes in volume (changes in volume multiplied by prior rate), and (iii) the
net change. For purposes of the table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately to the
change due to volume and the change due to rate.

<TABLE>
<CAPTION>
                                                                       2002 COMPARED TO 2001          2002 COMPARED TO 2001
                                                                     INCREASE (DECREASE) DUE TO     INCREASE (DECREASE) DUE TO
                                                                    ----------------------------   ---------------------------
                                                                      RATE      VOLUME     NET       RATE      VOLUME      NET
                                                                    ----------------------------------------------------------
                                                                                           (IN THOUSANDS)
<S>                                                                 <C>        <C>       <C>        <C>        <C>       <C>
Interest-earning assets:
 Loans                                                              $(2,023)   $  (810)  $(2,833)   $  538     $   27    $  565
 Investment securities                                                 (867)     1,635       768        76      1,306     1,382
 Mortgage-backed securities                                             (50)      (125)     (175)       16       (119)     (103)
 Other                                                                 (227)         6      (221)     (131)       214        83
                                                                    -------    -------   -------    ------     ------    ------

     Total net change in income on interest-earning assets           (3,167)       706    (2,461)      499      1,428     1,927
                                                                    -------    -------   -------    ------     ------    ------
Interest-bearing liabilities:
 Deposits                                                            (2,774)       597    (2,177)       63      1,765     1,828
 Other borrowings                                                       (44)         3       (41)     (145)      (290)     (435)
                                                                    -------    -------   -------    ------     ------    ------

     Total net change in expense on interest-bearing liabilities     (2,818)       600    (2,218)      (82)     1,475     1,393
                                                                    -------    -------   -------    ------     ------    ------

Net change in net interest income                                   $  (349)   $   106   $  (243)   $  581     $  (47)   $  534
                                                                    =======    =======   =======    ======     ======    ======
</TABLE>



                                       15

<PAGE>

ASSET AND LIABILITY MANAGEMENT

The Company's policy in recent years has been to reduce its interest rate risk
by better matching the maturities of its interest rate sensitive assets and
liabilities, selling its long-term fixed-rate residential mortgage loans with
terms of 15 years or more to Freddie Mac, originating adjustable rate loans,
balloon loans with terms ranging from three to five years and originating
consumer and commercial business loans, which typically are for a shorter
duration and at higher rates of interest than one-to-four family loans. The
Company also maintains a portfolio of mortgage-backed securities, virtually all
of which have adjustable interest rates. The remaining investment portfolio has
been laddered to better match the interest-bearing liabilities. With respect to
liabilities, the Company has attempted to increase its savings and transaction
deposit accounts, which management believes are more resistant to changes in
interest rates than certificate accounts. The Board of Directors appoints the
Asset-Liability Management Committee (ALCO), which is responsible for reviewing
the Company's asset and liability policies. The ALCO meets quarterly to review
interest rate risk and trends, as well as liquidity and capital ratio
requirements.

During 2002, the Company began using a comprehensive asset/liability software
package provided by a third-party vendor to perform interest rate sensitivity
analysis for all product categories. The primary focus of the Company's analysis
is on the effect of interest rate increases and decreases on net interest
income. Management believes that this analysis reflects the potential effects on
current earnings of interest rate changes. Call criteria and prepayment
assumptions are taken into consideration for investment securities and loans.
All of the Company's interest sensitive assets and liabilities are analyzed by
product type and repriced based upon current offering rates. The software
performs interest rate sensitivity analysis by performing rate shocks of plus or
minus 300 basis points in 100 basis point increments.

The following table shows projected results at December 31, 2002 of the impact
on net interest income from an immediate change in interest rates, as well as
the benchmarks established by the ALCO. The results are shown as a dollar and
percentage change in net interest income over the next twelve months.

                              CHANGE IN NET INTEREST INCOME
                                     (000's omitted)

        RATE SHOCK         $ CHANGE       % CHANGE    ALCO BENCHMARK
        +300 basis points       197          2.53%         >(20.00)%
        +200 basis points       202          2.60%         >(20.00)%
        +100 basis points       211          2.71%         >(12.50)%
        -100 basis points       222          2.86%         >(12.50)%
        -200 basis points       227          2.92%         >(20.00)%
        -300 basis points       235          3.03%         >(20.00)%

The foregoing computations are based upon numerous assumptions, including
relative levels of market interest rates, prepayments, and deposit mix. The
computed estimates should not be relied upon as a projection of actual results.
Despite the limitations on precision inherent in these computations, management
believes that the information provided is reasonably indicative of the effect of
changes in interest rate levels on the net earning capacity of the Company's
current mix of interest earning assets and interest bearing liabilities.
Management continues to use the results of these computations, along with the
results of its computer model projections, in order to maximize current earnings
while positioning the Company to minimize the effect of a prolonged shift in
interest rates that would adversely affect future results of operations.

                                       16

<PAGE>

At the present time, the most significant market risk affecting the Company is
interest rate risk. Other market risks such as foreign currency exchange risk
and commodity price risk do not occur in the normal business of the Company. The
Company also is not currently using trading activities or derivative instruments
to control interest rate risk.




















                                       17

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's most liquid assets are cash and cash equivalents. The levels of
these assets are dependent on the Company's operating, financing, and investing
activities. At December 31, 2002 and 2001, cash and cash equivalents totaled
$11.1 million and $13.4 million, respectively. The Company's primary sources of
funds include proceeds from sales of loans, maturities and sales of investments,
and principal repayments from loans and mortgage-backed securities (both
scheduled and prepayments). During the years ended December 31, 2002 and 2001,
the most significant sources of funds were deposit growth and loan sales to the
secondary market. These funds have been used to fund new loan originations and
purchase of investment securities.

The Company's cash and cash equivalents decreased $2.3 million during the year
ended December 31, 2002, compared to an increase of $3.9 million during the year
ended December 31, 2001. Net cash provided by operating activities before loan
originations and sales increased $1.1 million to $3.5 million during 2002. The
most significant change in operating activities was the $1.0 million increase in
the provision for loan losses during 2002. Net cash used by loan originations
and sales to Freddie Mac decreased to $963,000 during 2002 from $4.3 million
during 2001. Net cash used in investing activities increased to $14.9 million
during 2002 from $8.6 million during 2001. Cash used to purchase investment
securities increased to $99.8 million during 2002 from $56.1 million during
2001. The cash used for investment purchases was partially funded by an increase
in calls, maturities, and sales of investments of $72.2 million during 2002 from
$30.9 million during 2001. Net cash provided by financing activities decreased
to $10.0 million during 2002 from $14.4 million during 2001. The decrease is
primarily due to the net increases in deposits of $8.7 million during 2002
compared to $19.1 million during 2001.

While loan sales and principal repayments on mortgage-backed securities are
relatively predictable, deposit flows and early prepayments are more influenced
by interest rates, general economic conditions, and competition. The Company
attempts to price its deposits to meet asset/liability objectives and stay
competitive with local market conditions.

Liquidity management is both a short- and long-term responsibility of
management. The Company adjusts its investments in liquid assets based upon
management's assessment of expected loan demand, projected purchases of
investment and mortgage-backed securities, expected deposit flows, yields
available on interest-bearing deposits, and liquidity of its asset/liability
management program. Excess liquidity is generally invested in interest-earning
overnight deposits and other short-term U.S. agency obligations. If the Company
requires funds beyond its ability to generate them internally, it has the
ability to borrow funds from the FHLB. The Company may borrow from the FHLB
under a blanket agreement which assigns all investments in FHLB stock as well as
qualifying first mortgage loans equal to 150% of the outstanding balance as
collateral to secure the amounts borrowed. This borrowing arrangement is limited
to the lesser of 30% of the Company's total assets or twenty times the balance
of FHLB stock held by the Company. At December 31, 2002, the Company had
borrowing capacity of approximately $25.6 million and no outstanding advances.

The Company maintains levels of liquid assets as established by the Board of
Directors. The Company's liquidity ratio, adjusted for pledged assets, at
December 31, 2002 and 2001 was 34.8% and 23.8%, respectively.

The Company must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments. At December 31, 2002, the
Company had outstanding commitments, including letters of credit, to originate
loans of $22.1 million. The Company anticipates that it will have sufficient
funds available to meet its current commitments principally through the use of
current liquid assets and through its borrowing capacity discussed above.

                                       18

<PAGE>

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992. In
addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting and operations.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and Tier I capital (as defined) to average
assets (as defined). Management believes, at December 31, 2002, that the Bank
meets all capital adequacy requirements to which it is subject.

Under Illinois law, Illinois-chartered savings banks are required to maintain a
minimum core capital to total assets ratio of 3%. The Illinois Commissioner of
Banks and Real Estate (the "Commissioner") is authorized to require a savings
bank to maintain a higher minimum capital level if the Commissioner determines
that the savings bank's financial condition or history, management or earnings
prospects are not adequate. If a savings bank's core capital ratio falls below
the required level, the Commissioner may direct the savings bank to adhere to a
specific written plan established by the Commissioner to correct the savings
bank's capital deficiency, as well as a number of other restrictions on the
savings bank's operations, including a prohibition on the declaration of
dividends by the savings bank's board of directors. At December 31, 2002, the
Bank's core capital ratio was 6.66% of total adjusted average assets, which
exceeded the required amount.

As of December 31, 2002, the Federal Deposit Insurance Corporation ("FDIC")
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as adequately capitalized, the Bank
must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the table below. The well-capitalized category requires
higher minimum ratios of 5% for the Tier 1 leverage, 6% for the Tier 1
risk-based, and 10% for the total risk-based capital ratios. There are no
conditions or events since that notification that management believes have
changed the Bank's category.

The Bank's actual capital amounts and ratios are also presented in the table
below:

                                                              MINIMUM
                                                              REQUIRED  ACTUAL

   Tier 1 Capital to Average Assets                             4.00 %   6.66 %
   Tier 1 Capital to Risk-Weighted Assets                       4.00 %  10.42 %
   Total Capital to Risk-Weighted Assets                        8.00 %  11.67 %

                                       19

<PAGE>

EFFECT OF INFLATION AND CHANGING PRICES

The consolidated financial statements and related financial data presented
herein have been prepared in accordance with accounting principles generally
accepted in the United States of America, which require the measurement of
financial position and operating results in terms of historical dollars, without
considering the change in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Company's operations. Unlike most industrial companies, virtually all the assets
and liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.
                                   * * * * * *

















                                       20

<PAGE>

[LOGO] MCGLADREY & PULLEN
Certified Public Accountants



INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Jacksonville Bancorp, Inc.
Jacksonville, Illinois

We have audited the accompanying consolidated balance sheets of Jacksonville
Bancorp, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jacksonville
Bancorp, Inc. as of December 31, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.


                                              /s/ McGladrey & Pullen, LLP


Champaign, Illinois
January 16, 2003



McGladrey & Pullen, LLP is an independent
member firm of RSM International, an
affiliation of independent accounting
and consulting firms.

                                       21

<PAGE>

<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

ASSETS                                                                      2002                2001
---------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>
Cash and cash equivalents                                               $  11,091,626     $  13,397,002
Federal funds sold                                                            800,000         1,010,000
Investment securities, available-for-sale                                  72,922,995        44,433,726
Mortgage-backed securities available-for-sale                               2,822,119         4,264,448
Federal Home Loan Bank stock                                                1,279,200         1,215,100
Other investments                                                             701,765           710,804
Loans - net of allowance for loan losses of
  2002 $2,073,095; 2001 $1,106,647                                        142,928,599       156,280,173
Loans held for sale                                                         6,271,435         4,801,717
Premises and equipment - net                                                5,668,211         5,442,675
Accrued interest receivable                                                 1,719,477         1,845,536
Goodwill                                                                    2,726,567         2,726,567
Core deposit intangible                                                       438,480           518,203
Capitalized mortgage servicing rights                                       1,077,318           951,375
Real estate owned                                                             442,048           945,364
Income taxes receivable                                                       222,241         1,550,403
Other assets                                                                1,391,812         1,208,034
                                                                        -------------------------------

           TOTAL ASSETS                                                 $ 252,503,893     $ 241,301,127
                                                                        ===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
  Deposits:
    Noninterest bearing                                                 $  13,528,850     $  11,063,226
    Interest bearing                                                      212,073,647       205,835,545
  Short-term borrowings                                                     2,874,707         1,395,455
  Advance payments by borrowers for taxes and insurance                       143,559           129,238
  Accrued interest payable                                                    995,263         1,251,676
  Deferred compensation                                                     1,924,718         1,736,726
  Other liabilities                                                           710,738           725,575
                                                                        -------------------------------
           TOTAL LIABILITIES                                              232,251,482       222,137,441
                                                                        -------------------------------
Commitments and Contingencies (Notes 12 and 13)

Stockholders' Equity
  Preferred stock, $0.01 par value, authorized 10,000,000 shares;
    none issued and outstanding                                                     -                 -
  Common stock, $0.01 par value, authorized 20,000,000 shares;
    issued and outstanding 1,921,304 shares and 1,909,304 shares at                                   -
    December 31, 2002 and 2001, respectively                                   19,213            19,093
  Additional paid-in capital                                                6,374,463         6,268,623
  Retained earnings - substantially restricted                             13,294,959        12,738,711
  Accumulated other comprehensive income                                      563,776           137,259
                                                                        -------------------------------
           TOTAL STOCKHOLDERS' EQUITY                                      20,252,411        19,163,686
                                                                        -------------------------------

           TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 252,503,893     $ 241,301,127
                                                                        ===============================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       22
<PAGE>

<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                                                                2002              2001             2000
-------------------------------------------------------------------------------------------------------------
<S>                                                       <C>               <C>               <C>
Interest income:
  Loans                                                   $  11,773,212     $  14,606,530     $  14,041,244
  Mortgage-backed securities                                    206,663           381,629           485,118
  Investment securities:
    Taxable                                                   2,840,470         2,075,549           739,794
    Nontaxable                                                   96,638            93,733            47,478
  Other                                                         148,344           369,158           285,078
                                                          -------------------------------------------------
          TOTAL INTEREST INCOME                              15,065,327        17,526,599        15,598,712
                                                          -------------------------------------------------
Interest expense:
  Deposits                                                     7,313,183        9,490,440         7,661,710
  Short term borrowings                                           37,982           78,692           514,287
                                                          -------------------------------------------------
          TOTAL INTEREST EXPENSE                               7,351,165        9,569,132         8,175,997
                                                          -------------------------------------------------

          NET INTEREST INCOME                                  7,714,162        7,957,467         7,422,715

Provision for loan losses                                      2,000,000        1,000,000           610,000
                                                          -------------------------------------------------
          NET INTEREST INCOME AFTER PROVISION
            FOR LOAN LOSSES                                    5,714,162        6,957,467         6,812,715
                                                          -------------------------------------------------
Other income:
  Service charges on deposit accounts                            714,390          676,865           666,458
  Loan servicing fees                                            361,050          310,957           301,021
  Commission income                                              394,760          308,542           286,900
  Net gains on sales of loans                                    632,301          531,059            88,127
  Gain on sale of securities                                     303,423           87,569                 -
  Other                                                           83,791           94,923            81,299
                                                          -------------------------------------------------
          TOTAL OTHER INCOME                                   2,489,715        2,009,915         1,423,805
                                                          -------------------------------------------------
Other expenses:
  Salaries and employee benefits                               3,943,657        3,769,523         3,482,258
  Occupancy and equipment expense                              1,063,791        1,130,622           963,076
  Federal insurance premiums                                      37,153           37,597            33,544
  Data processing expense                                        216,073          187,307           156,241
  Real estate owned expense                                      211,281          184,528            76,319
  Advertising expense                                            151,108          137,399           139,544
  Amortization of intangible assets                               79,723          227,106           113,553
  Loss due to loan defalcation                                    62,348        4,458,452                 -
  Other                                                        1,153,768        1,149,748           828,167
                                                          -------------------------------------------------
          TOTAL OTHER EXPENSES                                 6,918,902       11,282,282         5,792,702
                                                          -------------------------------------------------
          INCOME (LOSS) BEFORE INCOME
            TAX EXPENSE (BENEFIT)                              1,284,975       (2,314,900)        2,443,818

Income tax expense (benefit)                                     466,652       (1,298,579)          826,120
                                                          -------------------------------------------------

          NET INCOME (LOSS)                               $      818,323    $  (1,016,321)    $   1,617,698
                                                          =================================================

Net income (loss) per common share - basic                $         0.43    $       (0.53)    $        0.85
                                                          =================================================
Net income (loss) per common share - diluted              $         0.42    $       (0.53)    $        0.85
                                                          =================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       23

<PAGE>

<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
-----------------------------------------------------------------------------------------------------------------------------
                                                                             Accumulated      Unearned
                                               Additional                       Other           Stock
                                  Common         Paid-In       Retained     Comprehensive    Recognition
                                  Stock          Capital       Earnings        Income        Plan Shares         Total
                             ------------------------------------------------------------------------------------------------

<S>                              <C>           <C>          <C>              <C>             <C>             <C>
Balance, December 31, 1999       $ 19,093      $ 6,268,623  $  12,893,401    $    11,207     $   (19,522)    $  19,172,802

  Comprehensive income:
    Net income                          -                -      1,617,698              -               -         1,617,698
    Other comprehensive
      income - change in net
      unrealized gains on
      securities available-
      for-sale, net of income
      taxes of $202,915                 -                -              -        322,072               -           322,072
                                                                                                              ---------------
    Comprehensive income                                                                                         1,939,770
                                                                                                              ---------------
  Amortization of Stock
    Recognition Plan awards             -                -              -              -          19,522            19,522
  Dividends on common
    stock ($.30 per share)              -                -       (494,890)             -               -          (494,890)
                             ------------------------------------------------------------------------------------------------

Balance, December 31, 2000         19,093        6,268,623     14,016,209        333,279               -        20,637,204

  Comprehensive income
    (loss):
    Net (loss)                          -                -     (1,016,321)             -               -        (1,016,321)
    Other comprehensive
      income - change in net
      unrealized gains on
      securities available-
      for-sale, net of income
      taxes of $(153,734)               -                -              -       (253,816)              -          (253,816)
    Less: Reclassification
      adjustment for gains
      included in net
      income, net of tax
      of $29,773                        -                -              -         57,796               -            57,796
                                                                                                              ---------------
    Comprehensive income
      (loss)                                                                                                    (1,212,341)
                                                                                                              ---------------
  Dividends on common
    stock ($.30 per share)              -                -       (261,177)             -               -          (261,177)
                             ------------------------------------------------------------------------------------------------

Balance, December 31, 2001         19,093        6,268,623     12,738,711        137,259               -        19,163,686
                             ------------------------------------------------------------------------------------------------

                                                            (Continued)
</TABLE>

                                       24

<PAGE>

<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

-----------------------------------------------------------------------------------------------------------------------------
                                                                             Accumulated      Unearned
                                               Additional                       Other           Stock
                                  Common         Paid-In       Retained     Comprehensive    Recognition
                                  Stock          Capital       Earnings        Income        Plan Shares         Total
                             ------------------------------------------------------------------------------------------------

<S>                              <C>           <C>          <C>                <C>           <C>             <C>
Balance, December 31, 2001       $ 19,093      $ 6,268,623  $  12,738,711      $ 137,259     $         -     $  19,163,686

  Comprehensive income
    Net income                          -                -        818,323              -               -           818,323
    Other comprehensive
      income - change in net
      unrealized gains on
      securities available-
      for-sale, net of income
      taxes of $387,269                 -                -              -        612,394               -           612,394
    Less: Reclassification
      adjustment for gains
      included in net
      income, net of tax
      of $(117,546)                     -                -              -       (185,877)              -          (185,877)
                                                                                                              ---------------
    Comprehensive income                                                                                         1,244,840
                                                                                                              ---------------

  Exercise of stock options           120          105,840              -              -               -           105,960
  Dividends on common
    stock ($.30 per share)              -                -       (262,075)             -               -          (262,075)
                             ------------------------------------------------------------------------------------------------

Balance, December 31, 2002       $ 19,213      $ 6,374,463    $ 13,294,959    $  563,776      $        -     $  20,252,411
                             ================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.






                                       25
<PAGE>

<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                                                                          2002             2001             2000
----------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>               <C>
Cash Flows from Operating Activities
  Net income (loss)                                                   $    818,323     $ (1,016,321)     $ 1,617,698
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
    Depreciation, amortization and accretion:
      Premises and equipment                                               457,960          579,755          489,599
      Loan fees, security discounts and premiums - net                         394         (463,358)        (97,878)
      Intangible assets                                                     79,723          227,106          113,553
      Amortization of Stock Recognition Plan awards                              -                -           19,522
    Provision for loan losses                                            2,000,000        1,000,000          610,000
    Deferred income taxes                                                 (500,000)        (192,850)        (329,268)
    FHLB stock dividend                                                    (64,100)         (80,100)         (56,900)
    Gain on sale of securities                                            (303,423)         (87,569)               -
    Net gains on sales of loans                                           (632,301)        (531,059)         (88,127)
    Loss on sale of real estate owned                                       71,491           33,771           27,590
    Write down on real estate owned                                        125,804           76,537                -
    Loss due to loan defalcation                                            62,348        4,016,452                -
    Change in other assets and liabilities                               1,354,214       (1,212,581)         (26,797)
                                                                    --------------------------------------------------
        NET CASH PROVIDED BY OPERATIONS BEFORE
          LOAN ORIGINATIONS AND SALES                                    3,470,433        2,349,783        2,278,992
    Originations of loans held for sale                                (87,024,862)     (84,548,592)     (14,171,813)
    Proceeds from sales of loans held for sale                          86,061,502       80,295,237       14,268,731
                                                                    --------------------------------------------------
        NET CASH PROVIDED BY (USED IN)
          OPERATING ACTIVITIES                                           2,507,073       (1,903,572)       2,375,910
                                                                    --------------------------------------------------
Cash Flows from Investing Activities
  Purchase of Chapin State Bank, net of cash acquired                            -                -       (5,618,135)
  Change in federal funds sold, net                                        210,000        3,957,000       (4,688,000)
  Purchases of investment securities                                   (99,755,746)     (56,071,030)      (2,082,666)
  Proceeds from calls and maturities of
    investment securities                                               52,090,200       21,637,568         2,124,250
  Proceeds from sales of investment and mortgage-
    backed securities                                                   20,130,901        9,274,500                -
  Principal payments received on mortgage-backed
    securities                                                           1,350,142        2,499,381        1,471,256
  Principal payments received on investment securities
    and other investments                                                   88,939          279,097           71,361
  Loan (originations) payments, net                                     10,729,396        9,750,423       (3,243,530)
  Proceeds from sales of real estate owned                                 985,131          595,294          467,838
  Additions to premises and equipment                                     (683,496)        (527,113)        (150,900)
                                                                    --------------------------------------------------
        NET CASH (USED IN) INVESTING ACTIVITIES                        (14,854,533)      (8,604,880)     (11,648,526)
                                                                    --------------------------------------------------

                                                        (Continued)
</TABLE>

                                       26
<PAGE>

<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                                                                          2002             2001              2000
----------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>               <C>
Cash Flows from Financing Activities
  Net increase in deposits                                            $  8,703,726     $ 19,100,271      $  12,861,146
  Proceeds from other borrowings                                         1,479,252                -         15,786,100
  Repayment of advances from Federal Home Loan
    Bank of Chicago and other borrowings                                         -       (4,390,645)       (19,250,000)
  Increase (decrease) in advance payments by
    borrowers for taxes and insurance                                       14,321          (18,970)            27,835
  Exercise of stock options                                                105,960             -                     -
  Dividends paid                                                          (261,175)        (261,175)          (572,797)
                                                                    --------------------------------------------------
        NET CASH PROVIDED BY
          FINANCING ACTIVITIES                                          10,042,084       14,429,481          8,852,284
                                                                    --------------------------------------------------
        NET INCREASE (DECREASE) IN CASH
          AND CASH EQUIVALENTS                                          (2,305,376)       3,921,029           (420,332)

Cash and cash equivalents:
  Beginning of year                                                     13,397,002        9,475,973          9,896,305
                                                                    --------------------------------------------------

  End of year                                                         $ 11,091,626     $ 13,397,002      $   9,475,973
                                                                    ==================================================

Supplemental Disclosures of Cash Flow Information
  Cash paid during the year for:
    Interest on deposits                                              $  7,569,596     $  9,620,410      $   7,300,427
    Interest on other borrowings                                            37,982          108,745            510,178
    Income taxes (refunds)                                                (361,510)         625,553          1,036,185

Supplemental Schedule of Noncash Investing and
  Financing Activities
    Real estate acquired in settlement of loans                            806,145        1,191,115            659,167
    Loans to facilitate sales of real estate owned                         127,035          429,491             68,840
    Dividends declared not paid                                             66,194           65,294             65,292
    Loans originated for sale and transferred
      to portfolio                                                               -                -            914,103

                                                       (Continued)
</TABLE>

                                       27
<PAGE>

<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                                                                          2002             2001              2000
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>               <C>
ACQUISITION OF CHAPIN STATE BANK:
  Cash paid                                                           $          -     $          -      $   6,953,401
                                                                     ==================================================
  Assets acquired, net of purchase adjustments:
    Cash                                                              $          -     $          -      $   1,335,266
    Federal funds sold                                                           -                -            279,000
    Investment securities and MBS                                                -                -         19,733,824
    Net loans                                                                    -                -         27,475,283
    Premises and equipment                                                       -                -            914,958
    Intangible assets                                                            -                -          3,585,429
    Other assets                                                                 -                -          1,083,816
  Liabilities acquired, net of purchase adjustments:
    Deposits                                                                     -                -        (45,747,273)
    Other borrowings                                                             -                -         (1,250,000)
    Other liabilities                                                            -                -           (456,902)
                                                                     --------------------------------------------------
                                                                      $          -     $          -      $   6,953,401
                                                                     ==================================================
</TABLE>

See Notes to Consolidated Financial Statements.







                                       28

<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


NATURE OF OPERATIONS - On April 20, 1995, the Bank reorganized into the mutual
holding company form of ownership, and accordingly the Bank reorganized by
amending its charter from a mutual savings bank into a mutual holding company
("MHC"). The MHC is named Jacksonville Bancorp, MHC. A principal part of the
reorganization into the MHC ("Reorganization") was the incorporation of an
Illinois-chartered capital stock savings bank ("Jacksonville Savings Bank"),
which is a majority-owned subsidiary of the MHC at all times so long as the MHC
remains in existence.

On May 3, 2002, Jacksonville Savings Bank and Jacksonville Bancorp, M.H.C., the
mutual holding company parent, reorganized into the two-tier mutual holding
company form of ownership by establishing a mid-tier, federally-chartered stock
holding company, Jacksonville Bancorp, Inc. (the "Company"). All outstanding
shares of Jacksonville Savings Bank common stock were converted on a one for one
basis into shares of Jacksonville Bancorp, Inc. common stock in the
reorganization. Jacksonville Bancorp, Inc. now owns 100% of the outstanding
shares of Jacksonville Savings Bank.

Jacksonville Savings Bank and subsidiary (the "Bank") is a community-oriented
savings bank that provides traditional financial services through the operation
of six branches within Morgan, Macoupin and Montgomery Counties, Illinois.

The Company is subject to competition from other financial institutions and
nonfinancial institutions providing financial products. Additionally, the
Company is subject to the regulations of certain regulatory agencies and
undergoes periodic examinations by those regulatory agencies.

The significant accounting and reporting policies of the Company and its
subsidiary follow:

BASIS OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION - The consolidated
financial statements include the accounts of the Company, the Bank and its
wholly owned subsidiary, Financial Resources Group, Inc. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Based on the Company's approach to decision making, it has decided that its
business is comprised of a single segment.

The consolidated financial statements of the Company have been prepared in
conformity with accounting principles generally accepted in the United States of
America and conform to predominate practice within the banking industry.




                                       29
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

In preparing the consolidated financial statements, Company management is
required to make estimates and assumptions which significantly affect the
amounts reported in the consolidated financial statements. Significant estimates
which are particularly susceptible to change in a short period of time include
the market value of investment and mortgage-backed securities, the determination
of the allowance for losses on loans and valuation of real estate and other
properties acquired in connection with foreclosures or in satisfaction of
amounts due from borrowers on loans. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash
equivalents include cash and amounts due from depository institutions and
interest-bearing deposits in other depository institutions. Cash flows from
loans, deposits and advance payments by borrowers for taxes and insurance are
reported net.

INVESTMENT AND MORTGAGE-BACKED SECURITIES - The Company classifies investment
securities and mortgage-backed securities as "available for sale" at the time of
purchase. Securities classified as available-for-sale are those debt securities
that the Company intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available-for-sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Company's assets
and liabilities, liquidity needs, regulatory capital considerations and other
similar factors. Securities available-for-sale are carried at fair value. The
difference between fair value and cost, adjusted for amortization of premium and
accretion of discounts, results in an unrealized gain or loss. Unrealized gains
or losses are reported as accumulated other comprehensive income, net of the
related deferred tax effect. Gains or losses on the sale of securities are
determined on the basis of the specific security sold and are included in
earnings. Premiums and discounts are recognized in interest income using the
interest method over their contractual lives.

FEDERAL HOME LOAN BANK STOCK - The Bank, as a member of the Federal Home Loan
Bank of Chicago (the "FHLB"), is required to maintain an investment in common
stock of the FHLB in an amount equal to 1% of its outstanding home loans. No
ready market exists for the FHLB stock, and it has no quoted market value. For
disclosure purposes, such stock is assumed to have a market value which is equal
to cost. Dividends received on such stock are reflected as interest income in
the consolidated statements of income.

OTHER INVESTMENTS - Other investments at December 31, 2002 and 2001 include
local municipal bonds and equity investments in local community development
organizations. The municipal bonds mature ratably through the year 2005. These
securities have no readily ascertainable market value and are carried at cost.

LOANS - Loans are stated at the principal amounts outstanding less the allowance
for loan losses and net deferred loan origination fees and discounts. Discounts
on consumer loans are recognized over the lives of the loans using the interest
method. Loan origination fees, net of certain direct loan origination costs are
deferred and amortized to interest income over the contractual lives of the
loans using the level yield method.


                                       30
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Interest on loans is accrued based upon the principal amounts outstanding. The
Company's policy is to discontinue the accrual of interest income on any loan
when, in the opinion of management, there is reasonable doubt as to the timely
collectibility of interest or principal or generally when a loan becomes
contractually past due ninety days or more with respect to principal or
interest. Accrued interest on nonaccrual loans is reversed and offset against
interest income in the period the loan is deemed uncollectible. Nonaccrual loans
are returned to accrual status when, in the opinion of management, the financial
position of the borrower indicates there is no longer any reasonable doubt as to
the timely collectibility of interest or principal.

The Company considers a loan to be impaired when management believes it is
probable that it will be unable to collect all principal and interest due
according to the contractual terms of the loan. If a loan is impaired, the
Company records a loss valuation equal to the excess of the loan's carrying
value over the present value of the estimated future cash flows discounted at
the loan's effective rate, based on the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent. One-to-four
family residential loans and consumer loans are collectively evaluated for
impairment. Loans on residential properties with greater than four units and
loans on construction and development and commercial properties are evaluated
for impairment on a loan-by-loan basis.

LOANS HELD FOR SALE - Loans held for sale are carried at the lower of cost or
fair value. All loans held for sale are fixed rate loans and generally are sold
with the servicing retained. The estimated fair value of loans held for sale
that are covered by investor commitments are based on commitment prices. The
estimated fair value of loans held for sale that are not covered by investor
commitments are based on quoted market prices. Gains or losses on loan sales are
recognized at the time of sale and are determined based on the relative fair
value of the loans sold and the servicing asset. Loan origination fees, net of
certain direct loan origination costs, are deferred until the sale of the loan.

ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established through
a provision for loan losses charged to operating expenses. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb losses on existing loans that may
become uncollectible, based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into consideration such factors
as changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans and current economic conditions that
may affect the borrowers' ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions. In addition, various regulatory agencies periodically review the
allowance for loan losses. These agencies may require the Company to make
additions to the allowance for loan losses based on their judgments of
collectibility based on information available to them at the time of their
examination.

REAL ESTATE OWNED - Real estate acquired through foreclosure or deed in lieu of
foreclosure represents specific assets to which the Company has acquired legal
title in satisfaction of indebtedness. Such real estate is recorded at the
property's fair value at the date of foreclosure (cost). Initial valuation
adjustments, if any, are charged against the allowance for losses on loans.
Property is evaluated regularly to ensure the recorded amount is supported by
its current fair value. Subsequent declines in estimated fair value are charged
to expense when incurred. Revenues and expenses related to holding and operating
these properties are included in operations.

                                       31
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation charged to operations is primarily
computed utilizing the straight-line method over the estimated useful lives of
the related assets. Estimated lives are 39 years for buildings and improvements,
5 years for office equipment/computers and 7 years for furniture and fixtures.
Management periodically reviews the carrying value of its long-lived assets to
determine if an impairment has occurred or whether changes in circumstances have
occurred that would require a revision to the remaining useful life. In making
such determination, management evaluates the performance, on an undiscounted
basis, of the underlying operations or assets which give rise to such amount.

INCOME TAXES - Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Deferred tax assets are also
recognized for operating loss and tax credit carryforwards. Management
periodically evaluates whether it is more likely than not that the deferred tax
assets will be realized. At December 31, 2002, the Company does not believe a
valuation allowance is necessary.

GOODWILL - Costs in excess of the estimated fair value of identifiable net
assets acquired for transactions accounted for as purchases are recorded as an
asset by the Company. This amount was originally amortized into expense on a
straight-line basis assuming a life of twenty years. Effective January 1, 2002,
the Company ceased amortization in accordance with newly adopted accounting
standards generally accepted in the United States of America. The Company
performed an initial impairment assessment as of January 1, 2002 and an annual
impairment assessment as of September 30, 2002.

CORE DEPOSIT INTANGIBLE - The core deposit intangible was established in the
allocation of purchase price to the fair value of identifiable net assets
acquired. The core deposit intangible is amortized on a straight-line basis over
the estimated period benefited up to eight years. In addition, the core deposit
intangible is reviewed for possible impairment when events or changed
circumstances may effect the underlying basis of the net assets.

MORTGAGE SERVICING RIGHTS - The Company generally retains the right to service
mortgage loans sold to others. The cost allocated to the mortgage servicing
rights retained has been recognized as a separate asset and is being amortized
in proportion to and over the period of estimated net servicing income.

Mortgage servicing rights are periodically evaluated for impairment based on the
fair value of those rights. Fair values are estimated using discounted cash
flows based on current market rates of interest. For purposes of measuring
impairment, the rights must be stratified by one or more predominant risk
characteristics of the underlying loans. The Company stratifies its capitalized
mortgage servicing rights based on the interest rate and loan type, date of
origination and term of the underlying loans. The amount of impairment
recognized is the amount, if any, by which the amortized cost of the rights for
each stratum exceed their fair value.

                                       32
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Mortgage servicing rights of approximately $645,000, $602,000 and $101,000 were
capitalized for the years ended December 31, 2002, 2001 and 2000, respectively.
The cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues. Amortization of mortgage
servicing rights was approximately $519,000, $422,000 and $91,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.

STOCK-BASED EMPLOYEE COMPENSATION - The Company has two stock-based employee
compensation plans which have been in existence for all periods presented, and
which are more fully described in Note 11. As permitted under accounting
principles generally accepted in the United States of America, grants of options
under the plans are accounted for under the recognition and measurement
principles of APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
related Interpretations. Because options granted under the plans had an exercise
price equal to market value of the underlying common stock on the date of grant,
no stock-based employee compensation cost is included in determining net income.
The following table illustrates the effect on the net income (loss) (in
thousands) and earnings (loss) per share if the Company had applied the fair
value recognition provisions of FASB Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, to stock-based employee compensation.

The options vested 20% upon adoption of the Plan with the remaining shares
vesting over a four-year period beginning on the adoption date. The fair value
of the options granted under the 1996 Plan was determined to be $4.43 per share,
using the Black Scholes pricing model. The fair value calculation was made with
estimated values for the risk free rate of 6.4%, volatility rate of 22.5% and
average lives of 9.3 years. Management elected to allow all options granted in
2001 to vest immediately at grant date. The fair value of the options granted
under the 2001 Plan was determined to be $2.24 per share, using the Black
Scholes pricing model. The fair value calculation was made with estimated values
for the risk free rate of 5.7%, volatility rate of 15% and average lives of 10
years.

<TABLE>
<CAPTION>
                                                                 2002            2001           2000
                                                             -------------------------------------------
                                                                (in thousands, except per share data)

<S>                                                           <C>             <C>             <C>
Net income (loss), as reported                                $      818      $   (1,016)     $   1,618

Deduct total stock-based compensation expense
  determined under the fair value method for all
  awards, net of related tax effects                                   -            (129)           (42)
                                                             -------------------------------------------

Pro forma net income (loss)                                   $      818      $   (1,145)     $   1,576
                                                             ===========================================
Earnings (loss) per share:
  Basic:
    As reported                                               $     0.43      $    (0.53)     $    0.85
    Pro forma                                                       0.43           (0.60)          0.79

  Diluted:
    As reported                                               $     0.42      $    (0.53)     $    0.85
    Pro forma                                                       0.42           (0.60)          0.79

</TABLE>

                                       33
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

EARNINGS PER SHARE - Basic earnings per share for the years ended December 31,
2002, 2001 and 2000 are determined by dividing net income for the year by the
weighted average number of common shares. Shares acquired by the MRRP are held
in trust but were not considered in the weighted average shares outstanding
until the shares were committed for allocation or vested to an employee's
individual account.

Diluted earnings per share considers the potential dilutive effects of the
exercise of the outstanding stock options under the Company's stock option plan
as well as unvested MRRP shares.

The following reflects earnings per share calculations for basic and diluted
methods:

<TABLE>
<CAPTION>

                                                                                   December 31,
                                                             ----------------------------------------------------
                                                                   2002                2001             2000
                                                             ----------------------------------------------------
<S>                                                           <C>                 <C>               <C>
Net income (loss) available to common
  shareholders                                                $     818,323       $  (1,016,321)    $  1,617,698

Basic potential common shares:
  Weighted average shares outstanding                             1,912,362           1,909,304        1,909,304
  Stock recognition plan shares not vested                                -                   -           (2,065)
                                                             ----------------------------------------------------

Basic average shares outstanding                                  1,912,362           1,909,304        1,907,239
                                                             ----------------------------------------------------
Diluted potential common shares:
  Stock recognition plan shares granted,
    but not vested                                                        -                   -            2,065
  Stock option equivalents                                           25,009              11,548                -
                                                             ----------------------------------------------------

Diluted average shares outstanding                                1,937,371           1,920,852        1,909,304
                                                             ----------------------------------------------------

Basic earnings (loss) per share                               $        0.43       $       (0.53)     $      0.85
                                                             ====================================================

Diluted earnings (loss) per share                             $        0.42       $       (0.53)     $      0.85
                                                             ====================================================
</TABLE>

                                       34
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

     In June 2001, Statement on Financial Accounting Standards No. 143,
     ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, was issued to address
     financial reporting and obligations associated with the retirement of
     tangible long-lived assets and the associated asset retirement costs. This
     Statement applies to all entities and to legal obligations associated with
     the retirement of long-lived assets that result from the acquisition,
     construction, development or normal operations of a long-lived asset,
     except for certain obligations of lessees. Statement No. 143 is effective
     for financial statements issued for fiscal years beginning after June 15,
     2002. The Company does not believe the adoption of this Statement will have
     a material effect on the consolidated financial statements.

     In October 2002, Statement on Financial Accounting Standards No. 147,
     ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS - AN AMENDMENT OF FASB
     STATEMENTS NO. 72 AND 144 AND FASB INTERPRETATION NO. 9, was issued. FASB
     Statement No. 72, ACCOUNTING FOR CERTAIN ACQUISITIONS OF BANKING OR THRIFT
     INSTITUTIONS, and FASB Interpretation No. 9, APPLYING APB OPINIONS NO. 16
     AND 17 WHEN A SAVINGS AND LOAN ASSOCIATION OR A SIMILAR INSTITUTION IS
     ACQUIRED IN A BUSINESS COMBINATION ACCOUNTED FOR BY THE PURCHASE METHOD,
     provided interpretive guidance on the application of the purchase method to
     acquisitions of financial institutions. Except for transactions between two
     or more mutual enterprises, this Statement removes acquisitions of
     financial institutions from the scope of both Statement 72 and
     Interpretation 9 and requires that those transactions be accounted for in
     accordance with FASB Statements No. 141, BUSINESS COMBINATIONS, and No.
     142, GOODWILL AND OTHER INTANGIBLE ASSETS. Thus, the requirement in
     paragraph 5 of Statement 72 to recognize (and subsequently 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. In addition, this Statement amends FASB Statement No. 144,
     ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, to include
     in its scope long-term customer-relationship intangible assets of financial
     institutions such as depositor- and borrower-relationship intangible assets
     and credit cardholder intangible assets. Consequently, those intangible
     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. Paragraph
     5 of this Statement, which relates to the application of the purchase
     method of accounting, is effective for acquisitions for which the date of
     acquisition is on or after October 1, 2002. The provisions in paragraph 6
     related to accounting for the impairment or disposal of certain long-term
     customer-relationship intangible assets are effective on October 1, 2002.
     Transition provisions for previously recognized unidentifiable intangible
     assets in paragraphs 8-14 are effective on October 1, 2002, with earlier
     application permitted. The Company does not anticipate this statement
     having a significant impact upon the operations of the Company or the Bank.

RECLASSIFICATIONS - Certain amounts included in the 2001 and 2000 consolidated
financial statements have been reclassified to conform to the 2002 presentation
with no effect on previously reported net income or stockholders' equity.

                                       35
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2.   ADOPTION OF STATEMENT 142


On January 1, 2002, the Company implemented Statement of Financial Accounting
Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Under the provisions of
SFAS 142, goodwill is no longer subject to amortization over its estimated
useful life, but instead will be subject to at least annual assessments for
impairment by applying a fair value based test. SFAS 142 also requires that an
acquired intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the asset can be sold, transferred, licensed, rented or exchanged, regardless of
the acquirer's intent to do so. The Company determined that no transitional
impairment loss was required at January 1, 2002.

Goodwill and intangible asset disclosures are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  As of December 31, 2002
                                                            ------------------------------------
                                                             Gross Carrying       Accumulated
                                                                 Amount           Amortization
                                                            ------------------------------------
<S>                                                          <C>                  <C>
AMORTIZED INTANGIBLE ASSETS:
 Core deposit intangibles                                    $     637,789        $  (199,309)

AGGREGATE AMORTIZATION EXPENSE:
 For the year ended December 31, 2002                        $      79,723

ESTIMATED AMORTIZATION EXPENSE:
 For the year ended December 31, 2003                        $      79,724
 For the year ended December 31, 2004                        $      79,724
 For the year ended December 31, 2005                        $      79,724
 For the year ended December 31, 2006                        $      79,724
 For the year ended December 31, 2007                        $      79,724
 For the year ended December 31, 2008                        $      39,860

GOODWILL:                                                    $   2,726,567
</TABLE>


                                       36
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                         December 31,
                                                      --------------------------------------------------
                                                           2002               2001              2000
                                                      --------------------------------------------------
<S>                                                    <C>               <C>                <C>
Reported net income (loss)                             $    818,323      $  (1,016,321)     $  1,617,698
Add goodwill amortization, net of tax                             -             90,286            45,143
                                                      --------------------------------------------------
Adjusted net income (loss)                             $    818,323      $    (926,035)     $  1,662,841
                                                      ==================================================

Basic earnings (loss) per share:
 Reported net income (loss)                            $       0.43      $       (0.53)     $       0.85
 Goodwill amortization, net of tax                                -               0.05              0.02
                                                      --------------------------------------------------
 Adjusted net income (loss)                            $       0.43      $       (0.48)     $       0.87
                                                      ==================================================

Diluted earnings (loss) per share:
 Reported net income (loss)                            $       0.42      $       (0.53)     $       0.85
 Goodwill amortization, net of tax                                -               0.05              0.02
                                                      --------------------------------------------------
 Adjusted net income (loss)                            $       0.42      $       (0.48)     $       0.87
                                                      ==================================================
</TABLE>

NOTE 3.   ACQUISITION OF CHAPIN STATE BANK

On July 3, 2000, the Company acquired for cash all of the outstanding shares of
Chapin State Bank for $6,800,000 plus approximately $153,000 in related
expenses. The acquisition has been accounted for using the purchase method of
accounting. As such, the results of operations of the acquired entity are
excluded from the consolidated financial statements of income for the periods
prior to the acquisition date. The purchase price has been allocated based on
the fair values at the date of acquisition. This allocation resulted in
intangible assets of $2,947,000 in goodwill and $638,000 in core deposit
intangible. At closing, Chapin State Bank had a carrying value for assets,
deposits and stockholders' equity, before purchase accounting adjustments, of
$51,204,000, $45,802,000 and $3,807,000, respectively.

The following information presents a summary of consolidated operations for
unaudited pro forma results of operations for the year ended December 31, 2000
as though Chapin State Bank had been acquired as of January 1, 2000:

                                                                     2000
                                                               -----------------
                                                                 (in thousands)

Interest income                                                   $  17,368
Interest expense                                                      9,284
Net income                                                            1,647
Basic earnings per share                                               0.86
Diluted earnings per share                                             0.86

                                       37
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense as
a result of goodwill and additional depreciation expense on the revaluation of
purchased assets. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred on
January 1, 2000 or of future results of operations of the consolidated entities.

NOTE 4.   INVESTMENT AND MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of investment securities available for sale at
December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                             2002
                                                -----------------------------------------------------------------
                                                                     Gross           Gross
                                                   Amortized       Unrealized      Unrealized         Fair
                                                      Cost            Gains          Losses           Value
                                                -----------------------------------------------------------------
<S>                                              <C>              <C>              <C>            <C>
State and political organizations                $      73,400    $     3,571      $        -     $       76,971
U.S. government and agency securities               72,011,963        844,884          10,823         72,846,024
                                                -----------------------------------------------------------------

      TOTAL INVESTMENT SECURITIES                   72,085,363        848,455          10,823         72,922,995

Mortgage-backed securities                           2,739,451         83,425             757          2,822,119
                                                -----------------------------------------------------------------

      TOTAL                                      $  74,824,814    $   931,880      $   11,580     $   75,745,114
                                                =================================================================
<CAPTION>

                                                                             2001
                                                -----------------------------------------------------------------
<S>                                              <C>              <C>              <C>            <C>
State and political organizations                $   1,432,757    $    31,829      $    14,944    $    1,449,642
U.S. government and agency securities               42,892,049        490,560          398,525        42,984,084
                                                -----------------------------------------------------------------

      TOTAL INVESTMENT SECURITIES                   44,324,806        522,389          413,469        44,433,726

Mortgage-backed securities                           4,149,308        116,304            1,164         4,264,448
                                                -----------------------------------------------------------------

      TOTAL                                      $  48,474,114    $   638,693      $   414,633    $   48,698,174
                                                =================================================================
</TABLE>


                                       38
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Maturities may differ from contractual maturities in mortgage-backed securities
because the mortgages underlying the securities may be called or repaid without
any penalties. Therefore, stated maturities are not disclosed. The amortized
cost and fair value at December 31, 2002, by contractual maturity, are shown
below.

<TABLE>
<CAPTION>
                                                             Amortized         Fair
                                                                Cost           Value
                                                           -----------------------------
<S>                                                         <C>            <C>
One year or less                                            $  7,999,959   $  8,002,996
One year through five years                                   18,967,623     19,177,005
Five years through ten years                                  43,368,757     43,995,244
More than ten years                                            1,749,024      1,747,750
Mortgage-backed securities                                     2,739,451      2,822,119
                                                           -----------------------------

                                                            $ 74,824,814   $ 75,745,114
                                                           =============================
</TABLE>

Investment and mortgage-backed securities with a carrying value of approximately
$35,113,000 and $27,675,000 were pledged to secure public deposits, trust
deposits, and repurchase agreements at December 31, 2002 and 2001, respectively.

For the years ended December 31, 2002 and 2001, proceeds from sales of
securities available for sale amounted to $20,130,901 and $9,274,500,
respectively. Gross realized gains amounted to $316,459 and $87,569,
respectively. Gross realized losses amounted to $13,036 in 2002. The tax
provision applicable to these net realized gains amounted to $117,546 and
$33,924, respectively. The Company did not sell investment securities during the
year ended December 31, 2000.




                                       39
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 5.   LOANS

Loans at December 31, 2002 and 2001 are summarized as follows:

<TABLE>
<CAPTION>
                                                                          2002             2001
                                                                    --------------------------------
<S>                                                                  <C>              <C>
Real estate loans:
 One-to-four family residential                                      $  43,882,757    $  46,472,635
 Commercial and agricultural                                            18,421,271       18,296,601
 Multifamily residential                                                 2,677,869        2,565,702
Commercial and agricultural business loans                              31,502,420       30,582,560
Consumer loans:
 Home equity/home improvement                                           31,181,077       38,590,192
 Automobile                                                             10,490,944       12,966,109
 Other                                                                   7,127,268        8,254,830
                                                                    --------------------------------
         TOTAL                                                         145,283,606      157,728,629
Less:
 Deferred loans fees - net                                                  66,470           64,643
 Unearned discounts                                                        215,442          277,166
 Allowance for loan losses                                               2,073,095        1,106,647
                                                                    --------------------------------

         TOTAL                                                       $ 142,928,599    $ 156,280,173
                                                                    ================================
</TABLE>

The Company has granted loans to officers and directors. At December 31, 2002,
all loans to officers and directors were current with respect to principal and
interest. Changes in loans to officers and directors for the year ended December
31, 2002 are summarized as follows:

Balance beginning of year                                        $     738,881
Additions                                                              166,519
Repayments                                                            (102,316)
                                                                ---------------

Balance, end of year                                             $     803,084
                                                                ===============

                                       40
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Activity in the allowance for loan losses for the years ended December 31, 2002,
2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                        2002               2001             2000
                                                   --------------------------------------------------
<S>                                                 <C>               <C>               <C>
Balance, beginning of year                          $  1,106,647      $  1,205,567      $    826,608

 Acquisition of Chapin branch                                  -                 -           310,511
 Provision charged to expense                          2,000,000         1,000,000           610,000
 Charge-offs                                          (1,120,632)       (1,143,499)         (615,712)
 Recoveries                                               87,080            44,579            74,160
                                                   --------------------------------------------------

Balance, end of year                                $  2,073,095      $  1,106,647      $  1,205,567
                                                   ==================================================
</TABLE>

The Banks utilize their data processing system to identify loan payments not
made by their contractual due date and calculate the number of days each loan
exceeds the contractual due date. The accrual of interest on any loan is
discontinued when in the opinion of management there is reasonable doubt as to
the collectibility of interest and principal, but generally when the loan
reaches 90 or 120 days past due.

Information about impaired loans and non-accrual loans as of and for the years
ended December 31, 2002, 2001 and 2000 is as follows:

<TABLE>
<CAPTION>
                                                        2002               2001             2000
                                                   --------------------------------------------------
<S>                                                 <C>               <C>               <C>
Impaired loans with a valuation allowance           $    503,000      $          -      $          -
Impaired loans without a valuation allowance                   -         2,330,000                 -
                                                   --------------------------------------------------
      TOTAL IMPAIRED LOANS                          $    503,000      $  2,330,000      $          -
                                                   ==================================================

Related allowance for loan losses                   $    185,000      $          -      $          -
Non-accrual loans                                   $  3,510,000      $  2,360,000      $  1,928,000
Loans past due ninety days or more and
 still accruing                                     $    351,000      $  1,685,000      $     23,000
Average monthly balance of impaired
loans (based on month-end balances)                 $  1,755,000      $  2,330,000      $          -
Interest income recognized on impaired loans        $          -      $          -      $          -
Interest income recognized on a cash basis
 on impaired loans                                  $          -      $          -      $          -
Interest income that would have been
 recorded under the original terms of loans
 on non-accrual                                     $    193,000      $    129,000      $    131,000
Other loans being monitored by management           $  4,298,000      $  3,764,000      $  3,145,000
Allowance for loan losses associated with
 monitored loans                                    $  1,379,000      $          -      $          -
</TABLE>

                                       41
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

At December 31, 2002, 2001 and 2000, the Company was servicing loans for others
amounting to approximately $150,393,000, $138,548,000 and $120,735,000,
respectively. Loans serviced for others are not included in the accompanying
consolidated balance sheets. Servicing loans for others generally consists of
collecting mortgage payments, maintaining escrow accounts, disbursing payments
to investors and foreclosure processing. Loan servicing income is recorded on
the accrual basis and includes servicing fees from investors and certain charges
collected from borrowers, such as late payment fees and is net of amortization
of capitalized mortgage servicing rights. In connection with these loans
serviced for others, the Company holds borrowers' escrow balances of
approximately $295,000, $267,000 and $202,000 at December 31, 2002, 2001 and
2000, respectively. These escrow balances are held in a noninterest bearing
deposit account.

The Company originates certain fixed rate loans for resale to correspondent
lenders on a servicing released basis. During 2000, the Company originated whole
loans for sale to correspondent lenders totaling $491,000. No whole loans were
originated for sale in 2002 and 2001. Gross gains of approximately $10,300 were
realized on these sales in 2000. At December 31, 2002, 2001 and 2000, the
Company had no such loans held for sale to correspondent lenders.

The Company also originates certain fixed rate loans for sale to correspondent
lenders on a servicing retained basis. During 2002, 2001 and 2000, the Company
originated such fixed rate mortgage loans totaling approximately $87,025,000,
$84,549,000 and $13,681,000, respectively. Gross gains of approximately
$753,000, $654,000 and $99,000 were realized on these sales in 2002, 2001 and
2000, respectively. Gross losses on these sales totaled approximately $121,000,
$123,000 and $21,000 in 2002, 2001 and 2000, respectively. At December 31, 2002
and 2001, loans held for sale under this program totaled $6,271,000 and
$4,802,000, respectively. Investor commitments cover a portion of these
balances; however, the remaining portion of the balance of loans held for sale
is recorded at the lower of cost or market.

NOTE 6.   PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2002 and 2001 are summarized as follows:

                                                         2002           2001
                                                    ----------------------------
Land                                                 $    923,276  $    923,276
Construction in progress                                  493,533             -
Office buildings and improvements                       5,340,520     5,333,338
Furniture and equipment                                 3,550,454     3,387,560
                                                    ----------------------------

                                                       10,307,783     9,644,174
Less accumulated depreciation                          (4,639,572)   (4,201,499)
                                                    ----------------------------

      TOTAL                                          $  5,668,211  $  5,442,675
                                                    ============================

The Company has entered into a construction contract for the renovation of the
main facility. Cost of the project is estimated at $1.8 to $2.2 million with
completion expected in the fourth quarter of 2003.

                                       42
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 7.   DEPOSITS

The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $53,017,000 and $47,894,000 at
December 31, 2002 and 2001, respectively.

At December 31, 2002, the scheduled maturities of certificates of deposit were
as follows:

Maturing in:                                                        Amount
--------------------------------------------------------------------------------
  2003                                                          $ 109,672,369
  2004                                                             26,008,739
  2005                                                             10,409,177
  2006                                                              2,206,761
  2007                                                              2,550,097
  Thereafter                                                          316,517
                                                              ------------------

          TOTAL                                                 $ 151,163,660
                                                              ==================

NOTE 8.   SHORT-TERM BORROWINGS

Short-term borrowings consist of:

<TABLE>
<CAPTION>
                                                                    December 31,
                                                          ------------------------------
                                                               2002            2001
                                                          ------------------------------
<S>                                                        <C>              <C>
Securities sold under agreements to repurchase             $ 2,874,707      $ 1,395,455
                                                          ==============================
</TABLE>

Securities sold under agreements to repurchase, which are classified as secured
borrowings, generally mature within one to four days from the transaction date.
Securities sold under agreements to repurchase are reflected at the amount of
cash received in connection with the transaction. The Company may be required to
provide additional collateral based on the fair value of the underlying
securities.

NOTE 9.   INCOME TAXES

Retained earnings at December 31, 2002 and 2001 include approximately $2,579,000
of the tax allowance for loan losses which accumulated prior to 1988, for which
no deferred income tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions for tax purposes only. Reduction of
amounts so allocated for purposes other than tax bad debt losses or adjustments
arising from carryback of net operating losses would create income for tax
purposes only, which would be subject to the then current corporate income tax
rate. The unrecorded deferred income tax liability on the above amount was
approximately $999,000, at December 31, 2002 and 2001.

                                       43
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Income tax expense (benefit) for the years ended December 31, 2002, 2001 and
2000 are summarized as follows:

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                   --------------------------------------------------
                                                        2002               2001             2000
                                                   --------------------------------------------------
<S>                                                 <C>               <C>               <C>
Current:
 Federal                                            $    919,874      $   (852,179)     $  1,005,956
 State                                                    46,778          (253,550)          149,432
                                                   --------------------------------------------------
        TOTAL CURRENT                                    966,652        (1,105,729)        1,155,388

Deferred                                                (500,000)         (192,850)         (329,268)
                                                   --------------------------------------------------

        TOTAL                                       $    466,652      $ (1,298,579)     $    826,120
                                                   ==================================================
</TABLE>

Income tax expense (benefit) differs from that computed at the maximum Federal
statutory rate of 35% as follows:

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                   --------------------------------------------------
                                                        2002               2001             2000
                                                   --------------------------------------------------
                                                       Amount             Amount           Amount
                                                   --------------------------------------------------
<S>                                                 <C>               <C>               <C>
Tax (benefit) at Federal tax rate                   $    449,741      $   (810,215)     $    855,336
Increase (decrease) resulting from:
 State tax (benefit), net of Federal tax benefit          30,405          (164,808)           98,625
 Income taxed at lower rates                             (12,850)           23,149           (24,438)
 Other, net                                                 (644)         (346,705)         (103,403)
                                                   --------------------------------------------------

        TOTAL                                       $    466,652      $ (1,298,579)     $    826,120
                                                   ==================================================
</TABLE>


                                       44
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

The components of the deferred tax assets and liabilities at December 31, 2002
and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                     December 31,
                                                           --------------------------------
                                                                2002              2001
                                                           --------------------------------
<S>                                                         <C>               <C>
Deferred tax assets:
 Allowance for loan losses                                  $   677,990       $   303,579
 Deferred compensation                                          745,636           672,787
 Loss due to loan defalcation                                   470,691           470,676
 State net operating loss carryforward                          207,253           231,141
 Other                                                           33,528                 -
                                                           --------------------------------
        TOTAL DEFERRED TAX ASSETS                             2,135,098         1,678,183
                                                           --------------------------------

Deferred tax liabilities:
 Premises and equipment                                         387,012           264,475
 FHLB stock dividends                                           102,563            77,728
 Securities available-for-sale                                  356,524            86,800
 Mortgage servicing rights                                      417,353           368,551
 Basis in acquired assets                                        87,604            53,776
 Other                                                                -           273,087
                                                           --------------------------------
       TOTAL DEFERRED TAX LIABILITIES                         1,351,056         1,124,417
                                                           --------------------------------

       NET DEFERRED TAX ASSET                               $   784,042       $   553,766
                                                           ================================
</TABLE>

NOTE 10.  REGULATORY CAPITAL REQUIREMENTS

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and Tier I capital (as defined) to average
assets (as defined). Management believes, at December 31, 2002, that the Bank
meets all capital adequacy requirements to which it is subject.

                                       45
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Under Illinois law, Illinois-chartered savings banks are required to maintain a
minimum core capital to total assets ratio of 3%. The Illinois Commissioner of
Banks and Real Estate (the "Commissioner") is authorized to require a savings
bank to maintain a higher minimum capital level if the Commissioner determines
that the savings bank's financial condition or history, management or earnings
prospects are not adequate. If a savings bank's core capital ratio falls below
the required level, the Commissioner may direct the savings bank to adhere to a
specific written plan established by the Commissioner to correct the savings
bank's capital deficiency, as well as a number of other restrictions on the
savings bank's operations, including a prohibition on the declaration of
dividends by the savings bank's board of directors. At December 31, 2002, the
Bank's core capital ratio was 6.66% of total adjusted average assets, which
exceeded the required amount.

As of December 31, 2002, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the Bank's category.

The Bank's actual capital amounts and ratios are also presented in the table:

<TABLE>
<CAPTION>
                                                                                              To Be Well
                                                                                          Capitalized Under
                                                                 For Capital              Prompt Corrective
                                          Actual              Adequacy Purposes:          Action Provisions:
                                -----------------------------------------------------------------------------
                                   Amount        Ratio        Amount       Ratio         Amount        Ratio
                                -----------------------------------------------------------------------------
<S>                              <C>             <C>        <C>             <C>         <C>            <C>
December 31, 2002:
  Total Capital (to Risk
    Weighted Assets)             $  18,268       11.67%     $  12,528       8.0%        $ 15,660       10.0%
  Tier I Capital (to Risk
    Weighted Assets)             $  16,310       10.42%     $   6,264       4.0%        $  9,396        6.0%
  Tier I Capital (to
    Average Assets)              $  16,310        6.66%     $   9,789       4.0%        $ 12,237        5.0%

December 31, 2001:
  Total Capital (to Risk
    Weighted Assets)             $  16,889       10.17%     $  13,283       8.0%        $ 16,603       10.0%
  Tier I Capital (to Risk
    Weighted Assets)             $  15,782        9.51%     $   6,641       4.0%        $  9,962        6.0%
  Tier I Capital (to
    Average Assets)              $  15,782        6.81%     $   9,264       4.0%        $ 11,580        5.0%
</TABLE>

The Board of Directors of a savings bank may declare dividends on its capital
stock based upon the Bank's annualized net profits except (1) dividends may not
be declared if the Bank fails to meet its capital requirements, (2) dividends
are limited to 100% of net income in that year and (3) if total capital is less
than 6% of total assets, dividends are limited to 50% of net income without
prior approval of the Commissioner.

                                       46
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Although the Company's regulators approved the mutual holding company's waiver
of dividends, the amounts declared but not paid on the shares owned by the
mutual holding company are considered a restriction on the Company's retained
earnings. The Company's mutual holding company waived its share of dividends
declared by the Company as follows:

Fourth quarter of 2000                                               $  77,905
Year ended December 31, 2001                                           311,621
Year ended December 31, 2002                                           311,621
                                                                    -----------
                                                                     $ 701,147
                                                                    ===========

NOTE 11.  EMPLOYEE BENEFITS

401(k) PLAN - The Company maintains a 401(k) savings plan for eligible
employees. The Company's contributions to this plan were $122,641, $122,259 and
$81,029 for the years ended December 31, 2002, 2001 and 2000, respectively. The
plan invests its assets in deposit accounts at the Company which earned interest
at a rate of 6.5% for the years ended December 31, 2002, 2001 and 2000.

DEFERRED COMPENSATION PLAN - The Company maintains a deferred compensation plan
for certain key officers and employees. Contributions are determined annually by
the Company's Board of Directors. Contributions to this plan were $85,643,
$57,315 and $53,400 for the years ended December 31, 2002, 2001 and 2000,
respectively. Effective in 1996, the Company changed the funding status of the
plan and accrued interest at a variable rate which fluctuates based on Moody's
Corporate Bond Average Index.

EMPLOYEE STOCK OWNERSHIP PLAN - The ESOP is a noncontributory defined
contribution plan which covers substantially all employees. The Company may
contribute to the Plan, at its discretion, an amount determined by the Board of
Directors. The ESOP was initially funded by a $446,010 loan from a third party
lender in 1995 and matured December 31, 1999. The proceeds from the loan were
used to purchase 66,901 shares of common stock from the Company at $6.67 per
share.

As the debt was repaid, shares were released and allocated to qualified
employees based on the proportion of debt service paid in the year. As shares
were released, the Company reported compensation expense equal to the current
market price of the shares, and the shares became outstanding for earnings per
share computations. Dividends on allocated ESOP shares are paid to ESOP
participants and are recorded as a reduction of retained earnings.

At December 31, 2002, all 57,681 shares held by the ESOP had been allocated.

                                       47
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

MANAGEMENT RECOGNITION AND RETENTION PLAN - The Management Recognition and
Retention Plan ("MRRP") was adopted on April 23, 1996. The MRRP is administered
by the Board of Directors of the Company. Collectively, the Board reserved
33,450 shares of the Company's common stock for award pursuant to the MRRP, all
of which have been awarded as of the adoption date at the stock's market value
($8.83 per share). The shares vested 20% upon adoption of the plan with the
remaining shares vesting over a four-year period beginning on the adoption date.
The value of the common stock contributed to the MRRP was being amortized to
compensation expense over the vesting period. The remaining compensation expense
amounted to $19,522 during the year ended December 31, 2000.

STOCK OPTION PLAN - The Jacksonville Savings Bank and Jacksonville Bancorp,
M.H.C. 1996 Stock Option Plan was adopted on April 23, 1996 and is administered
by the Board of Directors. A total of 83,625 shares of common stock were
reserved and awarded under the Plan. Awards expire ten years after the grant
date and are exercisable at a price of $8.83 per share. The Jacksonville Savings
Bank 2001 Stock Option Plan was adopted on April 30, 2001 and is administered by
the Stock Benefits Committee. A total of 87,100 shares of common stock were
reserved and awarded under the Plan during 2001. Awards expire ten years after
the grant date and are exercisable at a price of $10.00 per share.

A summary of the status of the Company's Stock Option Plan for the three-year
period ended December 31, 2002 follows:

<TABLE>
<CAPTION>
                                           2002                      2001                      2000
                                  ----------------------------------------------------------------------------
                                               Weighted-                  Weighted-                  Weighted-
                                               Average                    Average                    Average
                                               Exercise                   Exercise                   Exercise
Fixed Options                      Shares       Price         Shares       Price        Shares        Price
-------------                     ----------------------------------------------------------------------------
<S>                                <C>         <C>          <C>           <C>           <C>         <C>
Outstanding at beginning
  of year                          164,726     $  9.45        77,626      $  8.83       77,626      $   8.83
Granted                                  -                    87,100        10.00            -             -
Exercised                          (12,000)       8.83             -            -            -             -
Forfeited                                                          -            -            -             -
                                  ---------                 ---------                  --------
Outstanding at end of year         152,726        9.50       164,726         9.45       77,626          8.83
                                  =========                 =========                  ========

Options exercisable at
  year-end                         152,726                   164,726                    77,626
                                  =========                 =========                  ========
Weighted-average fair
  value of options granted
  during the year                                 N/A                     $  2.24                      N/A
                                               =========                 =========                 ==========
</TABLE>

                                       48
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 12.  CONTINGENCIES

The Company is a defendant in legal actions arising from normal business
activities. Management, after consultation with legal counsel, believes that the
resolution of these actions will not have any material adverse effect on the
Company's consolidated financial statements.

NOTE 13.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
          OF CREDIT RISK

The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers in
the way of commitments to extend credit. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis.

At December 31, 2002 and 2001, the following financial instruments were
outstanding:

<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                              ----------------------------------
                                                                                    2002               2001
                                                                              ----------------------------------
<S>                                                                            <C>               <C>
Commitment to originate loans                                                  $  21,827,000     $  24,008,000

Range of rates                                                                   4.2 - 10.5%         4.5 - 12%

Commitments to sell fixed rate loans, funded and unfunded
(included above)                                                               $   6,155,000     $   6,114,000

Letters of credit                                                              $     225,500     $     765,000
</TABLE>

Substantially all of these loans are at fixed rates as noted above.

                                       49
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Substantially all of the Company's loans are to borrowers located in Cass,
Morgan, Macoupin, Montgomery, and surrounding counties in Illinois.

The Company does not engage in the use of interest rate swaps, futures or option
contracts.

The Bank's exposure to credit loss, in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and letters
of credit, is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements and,
generally, have terms of one year or less. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans to
customers. The Bank holds collateral, which may include accounts receivables,
inventory, property and equipment, income producing properties, supporting those
commitments if deemed necessary. In the event the customer does not perform in
accordance with the terms of the agreement with the third party, the Bank would
be required to fund the commitment. The maximum potential amount of future
payments the Bank could be required to make is represented by the contractual
amount shown in the summary above. If the commitment is funded, the Bank would
be entitled to seek recovery from the customer. At December 31, 2002 and 2001,
no amounts have been recorded as liabilities for the Bank's potential
obligations under these guarantees.

NOTE 14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.


                                       50
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Approximate carrying values and estimated fair values at December 31, 2002 and
2001 is summarized as follows:

<TABLE>
<CAPTION>
                                                           2002                              2001
                                            -------------------------------------------------------------------
                                               Approximate       Estimated      Approximate         Estimated
                                                Carrying           Fair           Carrying             Fair
                                                  Value            Value           Value               Value
                                            -------------------------------------------------------------------
<S>                                          <C>              <C>              <C>               <C>
Assets:
  Cash and cash equivalents                  $  11,092,000    $  11,092,000    $  13,397,000     $  13,397,000
  Federal funds sold                               800,000          800,000        1,010,000         1,010,000
  Investment securities                         74,904,000       74,904,000       46,360,000        46,360,000
  Mortgage-backed securities                     2,822,000        2,822,000        4,264,000         4,264,000
  Loans:
   Loans held for sale                           6,271,000        6,271,000        4,802,000         4,802,000
   Loans receivable                            142,929,000      143,470,000      156,280,000       157,983,000
  Accrued interest receivable                    1,719,000        1,719,000        1,846,000         1,846,000

Liabilities:
  Transaction accounts                          48,222,000       48,222,000       42,302,000        42,302,000
  Savings accounts                              26,215,000       26,215,000       25,377,000        25,377,000
  Certificates of deposit                      151,164,000      155,633,000      149,220,000       154,360,884
  Other borrowings                               2,875,000        2,875,000        1,395,000         1,395,000
  Accrued interest payable                         995,000          995,000        1,252,000         1,252,000
</TABLE>

The carrying value of cash and cash equivalents, federal funds sold, accrued
interest receivable and accrued interest payable, transaction accounts, savings
and other borrowings are considered reasonable estimates of those instruments'
fair values.

The fair value of investment securities and mortgage-backed securities is based
on quoted market prices and prices obtained from independent pricing services.
FHLB stock and other investments, included in investment securities, for which
current market values are not readily available are believed to have carrying
values which approximate market values. The fair value of loans and certificates
of deposit, are estimated based on present values using published rates
currently available that are applicable to each category of such financial
instrument.

No adjustment was made to the interest rates for changes in credit of performing
loans for there are no known credit concerns. Management segregates loans in
appropriate risk categories. Management believes that the risk factor embedded
in the interest rates along with the general reserves applicable to the
performing loan portfolio results in a fair valuation of such loans.

The Company does not have unrecognized financial instruments, other than those
discussed in Note 13, which are subject to fair value disclosure. The difference
between the fair value and the face value for the instruments disclosed in Note
13 was not considered material.

The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 2002 and 2001. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.

                                       51
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 15.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Year Ended December 31, 2002
                                            --------------------------------------------------------------------
                                                                     Three Months Ended
                                              December 31       September 30        June 30         March 31
                                            --------------------------------------------------------------------
<S>                                          <C>               <C>               <C>              <C>
Interest income                              $   3,585,378     $   3,779,448     $   3,869,165    $   3,831,336
Interest expense                                 1,692,347         1,819,651         1,866,197        1,972,970
                                            --------------------------------------------------------------------
          NET INTEREST INCOME                    1,893,031         1,959,797         2,002,968        1,858,366
Provision for losses on loans                      325,000         1,300,000           225,000          150,000
                                            --------------------------------------------------------------------
          NET INTEREST INCOME AFTER
           PROVISION FOR LOAN LOSSES             1,568,031           659,797         1,777,968        1,708,366
Other income                                       704,354           761,073           527,065          497,223
Other expense                                    1,708,631         1,767,170         1,749,737        1,693,364
                                            --------------------------------------------------------------------
          INCOME (LOSS) BEFORE
           INCOME TAXES                            563,754          (346,300)          555,296          512,225
Income taxes                                       216,944          (138,487)          199,278          188,917
                                            --------------------------------------------------------------------

          NET INCOME (LOSS)                  $     346,810     $    (207,813)    $     356,018    $     323,308
                                            ====================================================================

Basic earnings (loss) per share              $        0.18     $       (0.11)    $        0.19    $        0.17
                                            ====================================================================

Diluted earnings (loss) per share            $        0.18     $       (0.11)    $        0.18    $        0.17
                                            ====================================================================

<CAPTION>
                                                               Year Ended December 31, 2001
                                            --------------------------------------------------------------------
                                                                     Three Months Ended
                                              December 31       September 30        June 30         March 31
                                            --------------------------------------------------------------------
<S>                                          <C>               <C>               <C>              <C>
Interest income                              $   4,149,345     $   4,343,637     $   4,437,448    $   4,596,170
Interest expense                                 2,224,282         2,377,045         2,463,386        2,504,419
                                            --------------------------------------------------------------------
          NET INTEREST INCOME                    1,925,063         1,966,592         1,974,062        2,091,751
Provision for losses on loans                      495,000           220,000           180,000          105,000
                                            --------------------------------------------------------------------
          NET INTEREST INCOME AFTER
           PROVISION FOR LOAN LOSSES             1,430,063         1,746,592         1,794,062        1,986,751
Other income                                       594,977           510,431           470,840          433,668
Other expense                                    3,019,769         3,275,186         3,293,797        1,693,531
                                            --------------------------------------------------------------------
          INCOME (LOSS) BEFORE
           INCOME TAXES                           (994,729)       (1,018,163)       (1,028,895)         726,888
Income taxes                                      (396,736)         (765,722)         (407,194)         271,074
                                            --------------------------------------------------------------------

          NET INCOME (LOSS)                  $    (597,993)    $    (252,441)    $    (621,701)   $     455,814
                                            ====================================================================

Basic earnings (loss) per share              $       (0.31)    $       (0.13)    $       (0.33)   $        0.24
                                            ====================================================================

Diluted earnings (loss) per share            $       (0.31)    $       (0.13)    $       (0.33)   $        0.24
                                            ====================================================================
</TABLE>

                                       52
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 16.  CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            December 31,
STATEMENTS OF FINANCIAL CONDITION                                               2002
                                                                           ---------------
<S>                                                                         <C>
Assets:
 Cash and cash equivalents                                                  $     278,997
 Equity in net assets of Jacksonville Savings Bank                             20,039,608
                                                                           ---------------

                                                                            $  20,318,605
                                                                           ===============
Liabilities and stockholders' equity:
 Other liabilities                                                          $      66,194
 Common stock                                                                      19,213
 Additional paid-in capital                                                     6,374,463
 Retained earnings                                                             13,294,959
 Accumulated comprehensive income                                                 563,776
                                                                           ---------------

                                                                            $  20,318,605
                                                                           ===============
<CAPTION>

                                                                              Year Ended
                                                                             December 31,
STATEMENTS OF INCOME                                                             2002
                                                                           ---------------
<S>                                                                         <C>
Dividends from subsidiary                                                   $     380,587
                                                                           ---------------
          OPERATING INCOME                                                        380,587
                                                                           ---------------

Equity in undistributed earnings of Jacksonville Savings Bank                     449,404
                                                                           ---------------
          TOTAL OTHER INCOME                                                      449,404
                                                                           ---------------

Other expenses                                                                     11,668
                                                                           ---------------

          INCOME BEFORE INCOME TAX BENEFIT                                        818,323

Income tax benefit                                                                      -
                                                                           ---------------

          NET INCOME                                                        $     818,323
                                                                           ===============
</TABLE>

                                       53
<PAGE>

JACKSONVILLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                                                                    Year Ended
                                                                   December 31,
STATEMENTS OF CASH FLOWS                                               2002
                                                                 ---------------
Operating activities:
 Net income                                                        $    818,323
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Equity in undistributed earnings of
     Jacksonville Savings Bank                                         (449,404)
   Other                                                                 65,293
                                                                 ---------------
       NET CASH PROVIDED BY
        OPERATING ACTIVITIES                                            434,212
                                                                 ---------------

Financing activities:
 Dividends paid                                                        (261,175)
 Exercise of stock options                                              105,960
                                                                 ---------------
      NET CASH USED IN
       FINANCING ACTIVITIES                                            (155,215)
                                                                 ---------------

Increase in cash and cash equivalents                                   278,997

Cash and cash equivalents:
 Beginning of period                                                          -
                                                                 ---------------

End of period                                                     $     278,997
                                                                 ===============

NOTE 17.  LOSS DUE TO LOAN DEFALCATION

During an internal audit of loan operations, the Company uncovered loan
irregularities at its branch in Virden, Illinois. The irregularities, which
included recording fictitious loans, making unauthorized advances on loans,
diversion of loan proceeds and payoff checks, and misapplication of funds, are
limited to loans originated and serviced at the Company's Virden branch. The
investigation has been substantially completed and the identified losses have
been recorded on the Company's financial statements. While management believes
that all significant losses have been identified, there can be no assurance that
additional losses will not be recognized; however, management does not believe
that any such amount would be material. As of December 31, 2001, the Company
recognized a nonrecurring expense associated with the loan irregularities of
approximately $4,458,000, consisting of identified losses of $4,016,000 and
$442,000 in related legal and audit expenses. The Company incurred an expense of
$62,348 for the year ended December 31, 2002. Since the losses are due to
irregularities, rather than credit quality, the losses have been directly
expensed and not recognized in the allowance for loan losses. This expense is
exclusive of any tax effect or potential recovery from the Company's insurance
carrier. The Company has taken all steps required to date to process its claim
for recovery under its insurance policies, including filing its proof of loss
claim with its insurance carrier on October 11, 2001. However, there can be no
assurance of the amount that the Company will obtain from its insurance carrier.

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<PAGE>

COMMON STOCK INFORMATION

The Common Stock of Jacksonville Bancorp, Inc. is traded on the Nasdaq Small Cap
Market under the symbol "JXSB". As of December 31, 2002 there were approximately
639 stockholders of record, including the Company's mutual holding company
parent and brokers, who held 1,921,304 shares of the Company's outstanding
shares of Common Stock. The Company's Mutual Holding Company Parent owns
1,038,738 shares.

The following table sets forth market price and dividend information for the
Company's Common Stock for the two years in the period ending December 31, 2002.

 FISCAL 2001                HIGH              LOW               DIVIDENDS

First Quarter              $ 10.25          $   8.06         $.075/per share

Second Quarter             $ 11.30          $   8.52         $.075/per share

Third Quarter              $ 11.65          $   9.50         $.075/per share

Fourth Quarter             $ 11.00          $   9.85         $.075/per share

 FISCAL 2002

First Quarter              $ 11.50          $  10.27         $.075/per share

Second Quarter             $ 14.26          $  11.00         $.075/per share

Third Quarter              $ 13.00          $  10.25         $.075/per share

Fourth Quarter             $ 10.86          $  10.20         $.075/per share






For a discussion of the restrictions on the Company's ability to pay dividends,
see Note 10 to the Consolidated Financial Statements.

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<PAGE>

<TABLE>
<CAPTION>
<S>                                      <C>

DIRECTORS AND OFFICERS


DIRECTORS                                OFFICERS

Andrew F. Applebee                       Andrew F. Applebee
Chairman of the Board                      Chairman of the Board

Roger D. Cannell                         Richard A. Foss
                                           President and Chief Executive Officer

Richard A. Foss                          John C. Williams
                                           Senior Vice President and Trust Officer

Michael R. Goldasich                     John D. Eilering
                                           Vice President - Operations and Corporate
                                           Secretary

Dean H. Hess                             Steven L. Waltrip
                                           Vice President - Mortgage/Consumer Lending

Emily J. Osburn                          Thomas A. Luber
                                           Vice President - Mortgage Banking

Harvey D. Scott, III                     Susan L. Harpole
                                           Vice President - Mortgage/Consumer Lending

John C. Williams                         Paul W. Miller
                                           Vice President - Lending

                                         Laura A. Marks
                                           Vice President - Retail Banking

                                         Diana S. Tone
                                           Chief Financial Officer and Compliance Officer
</TABLE>



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<PAGE>

CORPORATE INFORMATION

CORPORATE HEADQUARTERS                            TRANSFER AGENT

  1211 West Morton                                  First Bankers Trust Company
  Jacksonville, Illinois  62650                     2321 Kochs Lane
  (217) 245-4111                                    Quincy, Illinois  62301
  Website:  www.jacksonvillesavings.com             (217) 228-8000
  E-mail:  info@jacksonvillesavings.com


SPECIAL COUNSEL                                   INDEPENDENT AUDITORS

  Luse Gorman Pomerenk & Schick, P.C.               McGladrey & Pullen, LLP
  5335 Wisconsin Ave., N.W.                         1806 Fox Drive
  Suite 400                                         Champaign, Illinois  61820
  Washington, D.C.  20015                           (217) 352-9100
  (202) 274-2000


ANNUAL MEETING

The Annual Meeting of the Stockholders will be held April 22, 2003 at 1:30 p.m.,
central time, at the Company's main office at 1211 West Morton.

GENERAL INQUIRIES

A copy of the Company's Annual Report to the SEC on Form 10-K may be obtained
without charge by written request of stockholders to Diana Tone or by calling
the Company at (217) 245-4111. The Form 10-K is also available on the Company's
website at www.jacksonvillesavings.com.

FDIC DISCLAIMER

This Annual Report has not been reviewed or confirmed for accuracy or relevance
by the FDIC.



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