<PAGE>

                                   Exhibit 13
                             Report to Stockholders

<PAGE>

To Our Shareholders:

The U.S. economy began a long awaited recovery in 2003. The turnaround, which
had been predicted for many months, was triggered by several key events; the
easing of major hostilities in Iraq, interest rates and inflation falling to
near record lows, and the economic stimulus created by one of the largest tax
cuts in history. Reaction by business, consumers, and the market to Congress'
passage of The Growth Tax Reconciliation Act of 2003 was immediate and positive.
Clear signs of economic recovery began to appear in the third and fourth
quarters. By yearend, GNP had risen significantly, there was a measurable
decline in unemployment, and the Dow Jones Industrial Average, reflecting
growing investor confidence, had rallied from 8,607 to 10,453.

For Jacksonville Savings 2003 was a busy and productive year. Among the bank's
noteworthy accomplishments: continued growth in most operating areas, the
introduction of an important new deposit service, a major expansion of bank
facilities, and the implementation of two far reaching federal policies.

Bank operating highlights included: growth in total assets of $9.3million to
$261.8 million and growth in total deposits of $9.6 million to $235.2 million,
both new highs. Loan originations, including residential, consumer, business and
agricultural loans, exceeded $160 million for the first time. A record $108
million of loans were sold to Freddie Mac in the secondary market which
increased loans serviced for others to a new high of $160 million. Assets under
management by both the Trust Department and Financial Resources Group Inc., the
bank's wholly owned investment center subsidiary, finished the year at record
levels. Membership in Prime Time, the bank's checking club for customers 50
years and older, surpassed 2000 and the number of online banking users reached a
record 2200.

In March the bank rolled out its Check Imaging program to overwhelming customer
approval. The conversion, which created cost and operating efficiencies for the
bank, was practically seamless thanks to the fine work of the staffs in the data
processing, bookkeeping, and marketing departments. The primary advantage of
imaged statements to the customer is that it provides the same sense of security
as traditional returned checks, but in a more convenient and organized format
and without the clutter of loose items. In addition, when combined with online
banking, Check Imaging enables the customer to view cleared checks 24 hours a
day.

In October, after three years of planning and twelve months of construction, the
bank celebrated the grand opening of a 13,500 square foot expansion of its 1211
W. Morton headquarters facility. The two story addition which features the same
contemporary design as the original building, houses the bank's new Lending
Center on the main floor, and a community room that will seat 200 on the lower
level.

Throughout the year, the bank's Compliance and Audit Committees, and the staff
in customer service, audit, and operations departments worked diligently to
implement two new federal policies. A Customer Identification Program, required
under The Patriot Act and intended to aid the government in identifying
terrorists or terrorist assets and support groups, and The Sarbanes Oxley Act,
which represents a comprehensive set of review and reporting rules designed to
protect against corporate and insider wrongdoing, were both successfully
initiated.

The hallmark of a community bank is investing in the community. At Jacksonville
Savings, we believe this responsibility goes beyond the decision of how
financial assets are deployed. Our directors, officers, and staff have a long
tradition of supporting with their time and talents, a wide range of area
volunteer and not-for-profit organizations. Whether it is the Regional Economic
Development Corp., The Chamber of Commerce, the United Way, The Cancer Society
Relay for Life, The American Heart Walk, our Business School Partnerships, the
4-H, or any one of many other worthwhile community events and activities, we are
proud of the leadership role played by so many of the Jacksonville Savings Bank
family, as we strive to make the communities we serve a better place to live.


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

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

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


                                                                                                                  PAGE

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                                                                                    22-27

Notes to Consolidated Financial Statements                                                                           28-51

Common Stock Information                                                                                              52

Directors and Officers                                                                                                53

Corporate Information                                                                                                 54

Annual Meeting                                                                                                        54
</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 an Illinois-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 have been federally insured
since 1945 by the Federal Deposit Insurance Corporation ("FDIC"). The Bank has
been a member of the Federal Home Loan Bank ("FHLB") System since 1932. At
December 31, 2003, the Company had consolidated total assets of $261.8 million,
total deposits of $235.2 million and stockholders' equity of $20.0 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. As of December 31, 2003, the MHC
owned 53.49% 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, Berthel Fisher and Company Financial 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. Selected quarterly
financial data for each of the last two fiscal years is set forth at Note 14 to
the Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                        AT DECEMBER 31,
                                          --------------------------------------------------------------------------
                                             2003            2002            2001             2000            1999
FINANCIAL CONDITION DATA                                                    (In thousands)
<S>                                       <C>             <C>             <C>              <C>             <C>
Total assets                              $ 261,816       $ 252,504       $ 241,301        $ 227,915       $ 169,232
Loans (1)                                   127,585         149,200         161,082          172,379         142,818
Investment securities (2)                   100,914          74,904          46,360           21,295           1,829
Mortgage-backed securities                    7,597           2,822           4,264            6,689           7,353
Cash and cash equivalents                     9,576          11,092          13,397            9,476           9,896
Deposits                                    235,173         225,602         216,899          197,799         139,190
Other borrowings                              2,889           2,875           1,395            5,786           8,000
Stockholders' equity                         20,032          20,252          19,164           20,637          19,173

                                                                     YEARS ENDED DECEMBER 31,
                                           -------------------------------------------------------------------------
                                             2003            2002            2001             2000            1999
OPERATING DATA                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)

Interest income                            $ 12,946        $ 15,065        $ 17,526         $ 15,599        $ 12,820
Interest expense                              5,765           7,351           9,569            8,176           6,269
                                           --------        --------        --------         --------        --------

Net interest income                           7,181           7,714           7,957            7,423           6,551
Provision for loan losses                     2,075           2,000           1,000              610             445
                                           --------        --------        --------         --------        --------

Net interest income after provision
  for loan losses                             5,106           5,714           6,957            6,813           6,106
Other income                                  3,532           2,490           2,010            1,424           1,284
Other expense (3)                             7,296           6,919          11,282            5,793           5,176
                                           --------        --------        --------         --------        --------

Income (loss) before income taxes             1,342           1,285          (2,315)           2,444           2,214
Income tax expense (benefit)                    501             467          (1,299)             826             854
                                           --------        --------        --------         --------        --------

Net income (loss)                          $    841        $    818        $ (1,016)        $  1,618        $  1,360
                                           ========        ========        ========         ========        ========

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

Earnings per common share - diluted        $   0.43        $   0.42        $  (0.53)        $   0.85        $   0.71
                                           ========        ========        ========         ========        ========
</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 $9,000 in 2003, $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                           2003          2002         2001          2000           1999
<S>                                            <C>           <C>         <C>            <C>            <C>
Return on average assets (net income
  (loss) divided by average assets)            0.33 %        0.34 %      (0.44)%        0.82 %         0.82 %

Return on average equity (net income
  (loss) divided by average equity)            4.18 %        4.19 %      (4.92)%        8.11 %         7.25 %

Average equity to average assets               7.82 %        8.04 %       8.98 %       10.15 %        11.27 %

Interest rate spread (difference between
  average yield on interest-earning assets
  and average cost of interest-bearing
  liabilities)                                 2.82 %        3.27 %       3.67 %       3.54 %          3.81 %

Net interest margin (net interest income
  as a percentage of average interest-
  earning assets)                              3.00 %        3.47 %       3.87 %       4.02 %          4.24 %

Dividend pay-out ratio (1)                    31.99 %       32.03 %     (25.69)%      30.59 %         42.13 %

Noninterest expense to average assets          2.84 %        2.85 %       4.91 %       2.95 %          3.06 %

Average interest-earning assets to
  average interest-bearing liabilities       107.58 %      106.04 %     104.40 %     110.87 %        110.55 %

Allowance for loan losses to gross loans
  at end of period                             1.69 %        1.43 %       0.70 %       0.70 %          0.58 %

Allowance for loan losses to
  nonperforming loans                         66.02 %       53.69 %      27.37 %      62.55 %         48.68 %

Net loan charge-offs to average
  loans during the period                      1.41 %        0.68 %       0.68 %       0.34 %          0.31 %

Nonperforming assets to total assets           1.46 %        1.72 %       2.09 %       1.10 %          1.27 %


                                                                    DECEMBER 31,
OTHER DATA                                   -----------------------------------------------------------------
                                               2003          2002         2001          2000           1999

Number of offices                              7             7            7             7              5
</TABLE>

(1) Excludes dividends waived by the mutual holding company during 2003, 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 - OVERVIEW

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,
like other financial institutions, 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.
During 2003, the Company hired an experienced senior loan administrator to
oversee all lending functions of the Company. 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>

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 reasonably 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 losses 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 as an expense on a straight-line basis
assuming a life of twenty years. Effective January 1, 2002, the Company ceased
amortizing goodwill 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 and 2003. No impairment of goodwill was
identified as 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.

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 prepayment 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.


                                       5
<PAGE>

FINANCIAL CONDITION

Total assets increased to $261.8 million at December 31, 2003, compared to
$252.5 million at December 31, 2002. The increase of $9.3 million, or 3.7%, is
primarily due to a $30.8 million, or 39.6%, increase in investment and
mortgage-backed securities and a $1.8 million increase in premises and
equipment, partially offset by a $1.5 million decrease in cash and cash
equivalents and a $21.6 million decrease in total loans receivable and loans
held for sale. The increase in premises is due to a $2.5 million expansion of
the main office, which was completed during the fourth quarter of 2003.

The growth in investment securities reflects the investment of funds provided by
loan sales and a $9.6 million, or 4.2%, increase in deposits. Declining market
rates of interest created an extraordinary volume of loan originations during
2003. The Company originated over $160 million in loans during 2003, of which
approximately $108 million were sold to Freddie Mac in the secondary market.
Consumer loans as part of our loan portfolio have declined as borrowers have
consolidated their debt into fixed-rate mortgages that the Bank has sold to the
secondary market. The Company's loan portfolio declined by approximately $15.8
million during the year ended December 31, 2003.

Total deposits increased $9.6 million, or 4.2%, to $235.2 million at December
31, 2003. Deposit growth was not limited to any particular segment or product,
but rather reflected a general growth in deposits. Management believes that
deposit growth was also affected by investors seeking stable investment
alternatives.

Stockholders' equity decreased $220,000 to $20.0 million at December 31, 2003.
The decrease reflects the payment of $269,000 in dividends and a decrease of
$817,000 in unrealized gains on available-for-sale securities, partially offset
by net income of $841,000 and $25,000 received from the exercise of stock
options. The $25,000 reflects the $367,000 received from the exercise of stock
options net of the $342,000 purchase and retirement of treasury stock related to
the options. The change in unrealized gains on securities is driven by market
conditions and, therefore, can fluctuate daily.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

GENERAL

The Company reported net income for the year ended December 31, 2003, of
$841,000, or $0.43 per common share, basic and diluted, compared to net income
of $818,000 or $0.43 per common share, basic, and $0.42 per common share,
diluted, for the year ended December 31, 2002. Net income increased $23,000 due
to an increase of $1.0 million in other income, partially offset by a decrease
of $533,000 in net interest income and increases of $377,000 in other expenses,
$75,000 in the provision for loan losses, and $35,000 in income taxes.

INTEREST INCOME

Interest income decreased to $12.9 million for the year ended December 31, 2003
from $15.1 million for the year ended December 31, 2002. The decrease in 2003 of
$2.2 million resulted from decreased income of $2.2 million on loans, $104,000
on mortgage-backed securities, and $83,000 on other interest-earning assets,
partially offset by an increase of $224,000 on income from investment
securities.

The decrease in interest income on loans was primarily due to a lower weighted
average yield of 6.93% for 2003 from 7.70% for 2002, as well as a decrease in
the average balance of loans outstanding to $138.8 million for 2003 compared to
$152.8 million for 2002. The decrease in the average yield is due to the low
interest rate environment during 2003, which also resulted in continued
refinancing activity. Fixed rate loans that were originated in 2003 were sold
into the secondary market resulting in a decrease in the average balance of
loans during 2003. The decrease in the average yield also reflects the
continuing decrease in market rates of interest during 2003.


                                       6
<PAGE>

The increase in interest income on investment securities is due to the higher
average balance of investments, which were $91.6 million for 2003 compared to
$56.5 million for 2002. The average balance of investment securities reflects
the investment of additional cash generated from loan sales during 2003. The
increase in the average balance was partially offset by a decrease in the
portfolio's average yield to 3.45% for 2003 from 5.20% for 2002. The decrease in
the average yield reflects the investment of these funds during the current low
interest rate environment. Investment purchases totalled $126.6 million during
2003, partially due to the reinvestment of funds from calls of investment
securities of $72.3 million and sales of investment securities of $26.4 million.
These investment securities, a portion of which was due to be called, were sold
to realize gains. Approximately 99% of the investment portfolio is classified as
available for sale. The average life of the investment portfolio is 3.24 years.

The decrease in income on mortgage-backed securities is due to the decline in
the average balance of mortgage-backed securities during 2003 to $2.6 million
from $3.4 million in 2002, and the decline in the weighted average yield to
3.88% for 2003 from 6.09% for 2002. The sale of $2.3 million in mortgage-backed
securities during 2003 contributed to the decline in the average balance and
average yield of these investments.

Other interest-earning assets consist of federal funds sold and interest-bearing
deposit accounts. The decrease in interest income is due to decreases in both
the weighted average yield to 1.05% for 2003 from 1.54% for 2002 and the average
balance to $6.2 million for 2003 from $9.6 million for 2002. The decrease in the
average balance of these investments is due to management's decision to reinvest
most of these funds into the investment portfolio at higher yields.

INTEREST EXPENSE

Interest expense decreased to $5.8 million for the year ended December 31, 2003
from $7.4 million for the year ended December 31, 2002. The decrease of $1.6
million in the cost of funds resulted from a $1.6 million decrease in interest
paid on deposits. Interest on short-term borrowings increased by $4,000.

The lower interest expense on deposits is attributable to a decrease in the
weighted average yield on deposits to 2.62% for 2003 from 3.52% for 2002. The
lower weighted average yield was offset by an increase in the average balance of
deposits to $218.6 million for 2003 from $207.6 million for 2002, due to normal
deposit growth. The decreased cost of funds reflects the lower market rates of
interest during 2003.

The increase in interest expense on short-term borrowings is due to an increase
in the average balance of borrowings to $3.8 million for 2003 from $2.1 million
during 2002, partially offset by the weighted average yield declining to 1.10%
for 2003 from 1.81% for 2002. The increase in the average balance is due to the
borrowing of $7.5 million from the Federal Home Loan Bank during September 2003.
Management has maintained lower cash balances in order to improve earnings, and
has used short-term advances to fund short-term cash needs. All advances were
repaid during December 2003. The remainder of borrowed funds, which averaged
$2.2 million for 2003, consist of securities sold under agreement to repurchase.

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.


                                       7
<PAGE>

The Company recorded an increase of $75,000 in provision for loan losses to
$2,075,000 for the year ended December 31, 2003. The allowance for loan losses
increased to $2.2 million at December 31, 2003 from $2.1 million at December 31,
2002. The increase is the result of the provision for loan losses exceeding the
net charge-offs. Net charge-offs increased during 2003 to $1.9 million from $1.0
million during 2002. The provisions in 2003 and 2002 were 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 in the local economy, which has resulted in increased
bankruptcies and foreclosures in the Company's market area and which have
further contributed to the recent increases in delinquencies and charge-offs.
Set forth below is a table regarding the Bank's nonperforming assets.

                                                      12/31/03        12/31/02
                                                      --------        --------
                                                       (Dollars in Thousands)
Non-accruing loans:
  One-to-four family residential                         1,022             769
  Commerical and agricultural real estate                  224             186
  Commercial and agricultural business                     613             301
  Home equity/Home improvement                           1,101           1,860
  Automobile                                               139             196
  Other consumer                                            22             198
                                                     ---------       ---------
     Total                                               3,121           3,510
                                                     =========       =========

Accruing loans delinquent more than 90 days:
  One-to-four family residential                           168              64
  Commerical and agricultural real estate                    -             259
  Automobile                                                15               -
  Other consumer                                             7              28
                                                     ---------       ---------
     Total                                                 190             351
                                                     =========       =========

Foreclosed assets:
  One-to-four family residential                           499             442
  Automobile                                                18              38
                                                     ---------       ---------
     Total                                                 517             480
                                                     =========       =========

Total nonperforming assets                           $   3,828       $   4,341
                                                     =========       =========

Total as a percentage of total assets                    1.46%           1.72%
                                                         ====            ====


                                       8
<PAGE>

The following table shows the aggregate principal amount of potential problem
credits on the Company's watch list at December 31, 2003 and December 31, 2002.
All nonaccrual loans are automatically placed on the watch list.

                                               12/31/03      12/31/02
                                               --------      --------
                                               (Dollars in thousands)
      Special Mention credits                 $   6,087      $  4,084
      Substandard credits                         7,555         4,298
                                              ---------      --------
      Total watch list credits                $  13,642      $  8,382
                                              =========      ========

During the fourth quarter of 2002, with the help of an outside consultant, the
Company revised its lending policies and procedures in order to strengthen
underwriting practices. The Company also hired an additional loan collector
during the first quarter of 2003 to help manage the level of delinquencies,
bankruptcies, and foreclosures. In order to address the rising trend in
delinquencies and loan losses and prevent any further deterioration in asset
quality, the Company hired an experienced senior loan administrator during the
third quarter of 2003. This individual oversees all lending functions of the
Company and is assisting in the collection and workout of problem credits, as
well as reviewing and further enhancing all lending policies and procedures. The
recent policy changes, including a more stringent review of outstanding credits,
has contributed to the increase in the volume of watch list credits.

The allowance for loan losses is a material estimate that is 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 balance of the allowance is based on ongoing, quarterly assessments
of the probable estimated losses in the loan portfolio. The evaluation includes
a review of all loans on which full collectibility may not be reasonably
assured. Management uses an internal asset classification system as a means of
reporting problem and potential problem assets. Management maintains a watch
list of problem credits, which are presented to the Board of Directors at least
quarterly. This list includes those loans rated as "special mention,"
"substandard," "doubtful," and "loss." Loans rated as "special mention" include
loans to borrowers displaying a weak and/or leveraged financial condition that
may also be having difficulty servicing the debt. Loans rated "substandard" are
assets inadequately protected by the net worth or paying capacity of the obligor
or of the pledged collateral. The Company does not have any loans graded as
"doubtful" and all loans rated as "loss" have been charged off.

The allowance is calculated by estimating the exposure on identified problem
loan and portfolio segments and applying loss factors to the remainder of the
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 five years, and may be adjusted for other significant
conditions that, in management's judgement, affect the collectibility of the
loan portfolio.


                                       9
<PAGE>

Since the allowance for loan losses is based upon estimates of probable losses,
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 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 losses in conformity
with accounting principles generally accepted in the United States, 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. 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 $1.0 million during the year ended December 31,
2003, compared to the year ended December 31, 2002. The increase is comprised of
a $563,000 insurance recovery received during the first quarter of 2003. This
amount represents the negotiated settlement with the Company's insurance carrier
regarding a loan defalcation discovered during 2001. The remainder of the
increase in non-interest income is primarily due to increased gains of $197,000
from the sale of loans to the secondary market and increased trust income of
$224,000 during 2003. During 2003, the Company sold $107.7 million in
fixed-rate, first lien mortgage loans in the secondary market compared to $86.1
million sold during 2002. The increased volume is the result of mortgage rates
decreasing to the lowest levels recorded in recent periods. The increase in
trust income results from additional trust work performed during 2003; this
level of trust fees is not expected to continue after 2003.

NON-INTEREST EXPENSE

Non-interest expense increased $377,000 during the year ended December 31, 2003
compared to the year ended December 31, 2002. The increase is mostly due to
increases of $257,000 in salaries and benefits, $193,000 in occupancy expense,
and $62,000 in data processing expense, partially offset by a decrease of
$175,000 in real estate owned expense. The increase in salaries and benefits is
primarily due to increased insurance costs and the hiring of additional
personnel in the lending department. The Company had full-time equivalent
employees of 118 and 109 at December 31, 2003 and 2002, respectively. The
increases in data processing and occupancy expense are mostly due to additional
costs related to the offering of check imaging services beginning in February
2003 and the $2.5 million expansion of the main office. In addition, $27,000 of
depreciation expense for the expansion was recorded during the fourth quarter of
2003, when construction was completed.

INCOME TAXES

The provision for income taxes increased $35,000 during 2003 compared to 2002,
due to the $57,000 increase in income before income taxes during this same time
frame. The marginal tax rate equals 37.3% and 36.3% for the years ended December
31, 2003 and 2002, respectively.


                                       10
<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-earning 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.


                                       11
<PAGE>

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.

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 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.

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.


                                       12
<PAGE>

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.


                                       13
<PAGE>
<TABLE>
<CAPTION>

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.

                                                                          YEARS ENDED DECEMBER 31,
                                          ----------------------------------------------------------------------------------------
                                                      2003                           2002                          2001
                                          ----------------------------  ----------------------------- ----------------------------
                                                    INTEREST                       INTEREST                      INTEREST
                                          AVERAGE      AND     YIELD/   AVERAGE      AND      YIELD/  AVERAGE      AND     YIELD/
                                          BALANCE   DIVIDENDS   COST    BALANCE   DIVIDENDS    COST   BALANCE   DIVIDENDS   COST
                                          ----------------------------------------------------------------------------------------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                        <C>        <C>        <C>     <C>        <C>         <C>    <C>        <C>        <C>
Interest-earning assets:
  Loans  (1)                               $138,792   $ 9,618    6.93%   $152,848   $ 11,773    7.70%  $162,230   $ 14,606   9.00%
  Investment securities                      91,643     3,161    3.45%     56,532      2,937    5.20%    28,326      2,169   7.66%
  Mortgage-backed securities                  2,637       102    3.88%      3,392        207    6.09%     5,356        382   7.12%
  Other                                       6,201        65    1.05%      9,612        148    1.54%     9,459        369   3.90%
                                           --------   -------            --------   --------           --------   --------
      Total interest-earning assets         239,273    12,946    5.41%    222,384     15,065    6.77%   205,371     17,526   8.53%
                                                      -------                       --------                      --------

Non-interest-earning assets                  18,040                        20,428                        24,587
                                           --------                      --------                      --------
      Total assets                         $257,313                      $242,812                      $229,958
                                           ========                      ========                      ========

Interest-bearing liabilities:
  Deposits                                 $218,622     5,724    2.62%   $207,629      7,313    3.52%  $194,704      9,490   4.87%
  Short-term borrowings                       3,801        41    1.10%      2,097         38    1.81%     2,014         79   3.91%
                                           --------   -------            --------    -------           --------   --------
      Total interest-bearing liabilities    222,423     5,765    2.59%    209,726      7,351    3.51%   196,718      9,569   4.86%
                                                      -------                       --------                      --------

Non-interest-bearing liabilities             14,771                        13,559                        12,592
Stockholders' equity                         20,119                        19,527                        20,648
                                           --------                       -------                      --------

      Total liabilities and
        stockholders' equity               $257,313                      $242,812                      $229,958
                                           ========                      ========                      ========

Net interest income                                   $ 7,181                       $  7,714                      $ 7,957
                                                      =======                       ========                      =======

Interest rate spread (2)                                         2.82%                          3.27%                        3.67%
                                                                 =====                          =====                        =====

Net interest margin (3)                                          3.00%                          3.47%                        3.87%
                                                                 =====                          =====                        =====

Ratio of average interest-earning
  assets to average interest-bearing
  liabilities                                                  107.58%                        104.40%                      110.87%
                                                               =======                        =======                      =======

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

(1)  Includes non-accrual loans and loans held for sale, and fees of $111,000 for 2003, $142,000 for 2002, and $151,000 for 2001.
(2)  Yield on interest-earning assets less cost of interest-bearing liabilities.
(3)  Net interest income divided by average interest-earning assets.
</TABLE>

                                                                 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>
                                                                                        2003 COMPARED TO 2002
                                                                                    INCREASE (DECREASE) DUE TO
                                                                             -----------------------------------------
                                                                                  RATE         VOLUME        NET
                                                                             -----------------------------------------
                                                                                           (IN THOUSANDS)
<S>                                                                             <C>            <C>           <C>
Interest-earning assets:
  Loans                                                                         $(1,124)       $(1,031)      $(2,155)
  Investment securities                                                          (1,202)         1,426           224
  Mortgage-backed securities                                                        (65)           (40)         (105)
  Other                                                                             (40)           (43)          (83)
                                                                                -------        -------       -------

           Total net change in income on interest-earning assets                 (2,431)           312        (2,119)
                                                                                -------        -------       -------

Interest-bearing liabilities:
  Deposits                                                                       (1,959)           370        (1,589)
  Other borrowings                                                                  (19)            22             3
                                                                                -------        -------       -------

           Total net change in expense on interest-bearing liabilities           (1,978)           392        (1,586)
                                                                                -------        -------       -------

Net change in net interest income                                               $  (453)       $   (80)      $  (533)
                                                                                =======        =======       =======

(CONTINUED)

                                                                                       2002 COMPARED TO 2001
                                                                                    INCREASE (DECREASE) DUE TO
                                                                             -----------------------------------------
                                                                                  RATE         VOLUME        NET
                                                                             -----------------------------------------
                                                                                           (IN THOUSANDS)

Interest-earning assets:
  Loans                                                                         $(2,023)       $  (810)      $(2,833)
  Investment securities                                                            (867)         1,635           768
  Mortgage-backed securities                                                        (50)          (125)         (175)
  Other                                                                            (227)             6          (221)
                                                                                -------        -------       -------

           Total net change in income on interest-earning assets                 (3,167)           706        (2,461)
                                                                                -------        -------       -------

Interest-bearing liabilities:
  Deposits                                                                       (2,774)           597        (2,177)
  Other borrowings                                                                  (44)             3           (41)
                                                                                -------        -------       -------

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

Net change in net interest income                                               $  (349)       $   106       $  (243)
                                                                                =======        =======       =======

</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
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, 2003 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               126          1.73%             >(20.00)%
    -------------------- --------------- -------------- ---------------------
    +200 basis points               240          3.30%             >(20.00)%
    -------------------- --------------- -------------- ---------------------
    +100 basis points               358          4.90%             >(12.50)%
    -------------------- --------------- -------------- ---------------------
    -100 basis points               529          7.25%             >(12.50)%
    -------------------- --------------- -------------- ---------------------
    -200 basis points               543          7.44%             >(20.00)%
    -------------------- --------------- -------------- ---------------------
    -300 basis points               543          7.44%             >(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.

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.


                                       16
<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, 2003 and 2002, cash and cash equivalents totaled
$9.6 million and $11.1 million, respectively. The Company's primary sources of
funds include customer deposits, proceeds from sales of loans, calls and sales
of investments, and principal repayments from loans and mortgage-backed
securities (both scheduled and prepayments). During the years ended December 31,
2003 and 2002, the most significant sources of funds have been deposit growth,
loan sales to the secondary market, and advances from FHLB. These funds have
been used to fund new loan originations and the purchase of investment
securities.

The Company's cash and cash equivalents decreased $1.5 million during the year
ended December 31, 2003, compared to a decrease of $2.3 million during the year
ended December 31, 2002. Net cash provided by operating activities before loan
originations and sales decreased $252,000 to $3.2 million during 2003. Net cash
provided by loan originations and sales to Freddie Mac increased to $6.5 million
during 2003 from the cash used of $963,000 during 2002. Net cash used in
investing activities increased to $20.5 million during 2003 from $14.9 million
during 2002. Cash used to purchase investment and mortgage-backed securities
increased to $134.7 million during 2003 from $99.8 million during 2002. The cash
used for investment purchases was partially funded by an increase in calls,
maturities, and sales of investment and mortgage-backed securities of $101.3
million during 2003 from $72.2 million during 2002. Net cash provided by
financing activities decreased to $9.3 million during 2003 from $10.0 million
during 2002. The decrease is primarily due to the net increases in deposits of
$9.6 million during 2003 compared to $8.7 million during 2002.

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, 2003, the Company had
borrowing capacity of approximately $27.6 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, 2003 and 2002 was 43.3% and 34.8%, respectively. This ratio
represents the volume of short-term liquid assets as a percentage of net
deposits and borrowings due within one year.


                                       17
<PAGE>

The Company must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments. The Company does not have any
outstanding borrowings. The only long-term obligation that could affect
liquidity is the maturity of time deposits, the detail of which can be found in
Note 7 to the Consolidated Financial Statements. 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. The following table summarizes the outstanding loan commitments
at December 31, 2003 and 2002.

                                                       12/31/03       12/31/02
                                                       --------       --------
                                                            (In thousands)
Commitments to fund loans - own portfolio              $ 15,695       $ 15,672
Commitments to fund loans for sale to Freddie Mac           369          6,155
Standby letters of credit                                   410            226

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, 2003, 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, 2003, the
Bank's core capital ratio was 6.54% of total adjusted average assets, which
exceeded the required amount.

As of December 31, 2003, 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 %       6.54 %
Tier 1 Capital to Risk-Weighted Assets                    4.00 %      11.88 %
Total Capital to Risk-Weighted Assets                     8.00 %      13.13 %

                                       18
<PAGE>

Future capital levels should benefit from the decision of Jacksonville Bancorp,
MHC, to waive its right to receive dividends on the class of Company stock it
holds, subject to regulatory non-objection.






                                       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>




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. and Subsidiary as of December 31, 2003 and 2002, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2003. 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. and Subsidiary as of December 31, 2003 and 2002, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.


                                                /s/ McGladrey & Pullen, LLP


Champaign, Illinois
January 23, 2004




                                       21
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>

ASSETS                                                                                    2003                2002
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                   <C>
Cash and cash equivalents                                                            $   9,575,977         $  11,091,626
Federal funds sold                                                                         500,000               800,000
Investment securities, available-for-sale                                               98,940,872            72,922,995
Mortgage-backed securities available-for-sale                                            7,597,265             2,822,119
Federal Home Loan Bank stock                                                             1,380,600             1,279,200
Other investments                                                                          592,355               701,765
Loans  - net of allowance for loan losses of 2003 $2,186,058; 2002 $2,073,095          127,079,036           142,928,599
Loans held for sale                                                                        506,300             6,271,435
Premises and equipment - net                                                             7,419,061             5,668,211
Accrued interest receivable                                                              1,445,140             1,719,477
Goodwill                                                                                 2,726,567             2,726,567
Core deposit intangible                                                                    358,756               438,480
Capitalized mortgage servicing rights                                                    1,168,246             1,077,318
Real estate owned                                                                          499,257               442,048
Income taxes receivable                                                                    386,509               222,241
Other assets                                                                             1,639,722             1,391,812
                                                                                    --------------------------------------

        TOTAL ASSETS                                                                 $ 261,815,663         $ 252,503,893
                                                                                    ======================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
  Deposits:
    Noninterest bearing                                                              $  12,850,729         $  13,528,850
    Interest bearing                                                                   222,322,003           212,073,647
  Short-term borrowings                                                                  2,888,954             2,874,707
  Advance payments by borrowers for taxes and insurance                                    397,941               442,439
  Accrued interest payable                                                                 775,966               995,263
  Deferred compensation                                                                  2,021,008             1,924,718
  Other liabilities                                                                        526,909               411,858
                                                                                    --------------------------------------
        TOTAL LIABILITIES                                                              241,783,510           232,251,482
                                                                                    ======================================

Commitments and Contingencies (Note 12)

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 1,942,004 shares and 1,921,304 shares at December 31, 2003
    and 2002, respectively                                                                  19,420                19,213
  Additional paid-in capital                                                             6,399,321             6,374,463
  Retained earnings - substantially restricted                                          13,866,849            13,294,959
  Accumulated other comprehensive income (loss)                                           (253,437)              563,776
                                                                                    --------------------------------------
        TOTAL STOCKHOLDERS' EQUITY                                                      20,032,153            20,252,411
                                                                                    --------------------------------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $ 261,815,663         $ 252,503,893
                                                                                    ======================================

See Notes to Consolidated Financial Statements.
</TABLE>

                                       22
<PAGE>
<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                                                          2003                2002                2001
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                 <C>                 <C>
Interest income:
  Loans                                                               $  9,618,443        $ 11,773,212        $ 14,606,530
  Mortgage-backed securities                                               102,272             206,663             381,629
  Investment securities:
    Taxable                                                              3,117,183           2,840,470           2,075,549
    Nontaxable                                                              43,514              96,638              93,733
  Other                                                                     64,887             148,344             369,158
                                                               ------------------------------------------------------------
        TOTAL INTEREST INCOME                                           12,946,299          15,065,327          17,526,599
                                                               ------------------------------------------------------------

Interest expense:
  Deposits                                                               5,723,776           7,313,183           9,490,440
  Short term borrowings                                                     41,669              37,982              78,692
                                                               ------------------------------------------------------------
        TOTAL INTEREST EXPENSE                                           5,765,445           7,351,165           9,569,132
                                                               ------------------------------------------------------------

        NET INTEREST INCOME                                              7,180,854           7,714,162           7,957,467

Provision for loan losses                                                2,075,000           2,000,000           1,000,000
                                                               ------------------------------------------------------------

        NET INTEREST INCOME AFTER PROVISION
          FOR LOAN LOSSES                                                5,105,854           5,714,162           6,957,467
                                                               ------------------------------------------------------------

Other income:
  Service charges on deposit accounts                                      668,750             714,390             676,865
  Loan servicing fees                                                      402,515             361,050             310,957
  Commission income                                                        410,145             394,760             308,542
  Net gains on sales of loans                                              829,362             632,301             531,059
  Gain on sale of securities                                               319,103             303,423              87,569
  Trust income                                                             259,021              34,925              31,515
  Recovery from insurance company                                          562,500                   -                   -
  Other                                                                     80,908              48,866              63,408
                                                               ------------------------------------------------------------
        TOTAL OTHER INCOME                                               3,532,304           2,489,715           2,009,915
                                                               ------------------------------------------------------------

Other expenses:
  Salaries and employee benefits                                         4,200,388           3,943,657           3,769,523
  Occupancy and equipment expense                                        1,256,706           1,063,791           1,130,622
  Data processing expense                                                  278,024             216,073             187,307
  Legal and accounting expense                                             120,613              94,769             100,046
  Real estate owned expense                                                 36,697             211,281             184,528
  Advertising expense                                                      129,536             151,108             137,399
  Amortization of intangible assets                                         79,724              79,723             227,106
  Loss due to loan defalcation                                               9,361              62,348           4,458,452
  Other                                                                  1,184,733           1,096,152           1,087,299
                                                               ------------------------------------------------------------
        TOTAL OTHER EXPENSES                                             7,295,782           6,918,902          11,282,282
                                                               ------------------------------------------------------------

        INCOME (LOSS) BEFORE INCOME
          TAX EXPENSE (BENEFIT)                                          1,342,376           1,284,975          (2,314,900)

Income tax expense (benefit)                                               501,346             466,652          (1,298,579)
                                                               ------------------------------------------------------------

        NET INCOME (LOSS)                                             $    841,030        $    818,323        $ (1,016,321)
                                                               ============================================================

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

See Notes to Consolidated Financial Statements.


                                       23
<PAGE>
<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

---------------------------------------------------------------------------------------------------------------------
                                                                                     Accumulated
                                                  Additional                            Other
                                   Common           Paid-In          Retained       Comprehensive
                                   Stock            Capital          Earnings       Income (Loss)        Total
                              ---------------------------------------------------------------------------------------
<S>                                   <C>            <C>             <C>                  <C>           <C>
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

  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>
                                                      (Continued)

                                                          24
<PAGE>
<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

---------------------------------------------------------------------------------------------------------------------
                                                                                     Accumulated
                                                  Additional                            Other
                                   Common           Paid-In          Retained       Comprehensive
                                   Stock            Capital          Earnings       Income (Loss)        Total
                              ---------------------------------------------------------------------------------------
<S>                                   <C>            <C>             <C>                  <C>           <C>
Balance, December 31, 2002            $ 19,213       $ 6,374,463     $ 13,294,959         $ 563,776     $ 20,252,411

  Comprehensive income
    Net income                               -                 -          841,030                 -          841,030
    Other comprehensive
      income (loss) - change in
      net unrealized gains
      (losses) on securities
      available-for-sale,
      net of income taxes
      of $(640,414)                          -                 -                -        (1,012,695)      (1,012,695)
    Less:  Reclassification
      adjustment for gains
      included in net
      income, net of tax
      of $123,621                            -                 -                -           195,482          195,482
                                                                                                    -----------------
    Comprehensive income                                                                                      23,817
                                                                                                    -----------------

  Exercise of stock options                410           366,170                -                 -          366,580
  Purchase and retirement of
    treasury stock                        (203)         (341,312)               -                 -         (341,515)
  Dividends on common
    stock ($0.30 per share)                  -                 -         (269,140)                -         (269,140)
                              ---------------------------------------------------------------------------------------

Balance, December 31, 2003            $ 19,420       $ 6,399,321     $ 13,866,849        $ (253,437)    $ 20,032,153
                              =======================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                                          25
<PAGE>
<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                                                      2003                2002                2001
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                 <C>                 <C>
Cash Flows from Operating Activities
  Net income (loss)                                                   $    841,030        $    818,323        $ (1,016,321)
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
    Depreciation, amortization and accretion:
      Premises and equipment                                               469,278             457,960             579,755
      Loan fees, security discounts and premiums - net                     628,665                 394            (463,358)
      Intangible assets                                                     79,724              79,723             227,106
    Provision for loan losses                                            2,075,000           2,000,000           1,000,000
    Deferred income taxes                                                  450,000            (500,000)           (192,850)
    FHLB stock dividend                                                   (101,400)            (64,100)            (80,100)
    Gain on sale of securities                                            (319,103)           (303,423)            (87,569)
    Net gains on sales of loans                                           (829,362)           (632,301)           (531,059)
    (Gain) loss on sale of real estate owned                               (77,055)             71,491              33,771
    Write down on real estate owned                                         81,749             125,804              76,537
    Loss due to loan defalcation                                             9,361              62,348           4,016,452
    Change in other assets and liabilities                                 (89,915)          1,354,214          (1,212,581)
                                                               ------------------------------------------------------------
        NET CASH PROVIDED BY OPERATIONS BEFORE
          LOAN ORIGINATIONS AND SALES                                    3,217,972           3,470,433           2,349,783
    Originations of loans held for sale                               (101,216,763)        (87,024,862)        (84,548,592)
    Proceeds from sales of loans held for sale                         107,720,332          86,061,502          80,295,237
                                                               ------------------------------------------------------------
        NET CASH PROVIDED BY (USED IN)
          OPERATING ACTIVITIES                                           9,721,541           2,507,073          (1,903,572)
                                                               ------------------------------------------------------------

Cash Flows from Investing Activities
  Change in federal funds sold, net                                        300,000             210,000           3,957,000
  Purchases of investment and mortgage-
    backed securities                                                 (134,699,165)        (99,755,746)        (56,071,030)
  Proceeds from calls and maturities of
    investment securities                                               72,275,175          52,090,200          21,637,568
  Proceeds from sales of investment and mortgage-
    backed securities                                                   28,986,883          20,130,901           9,274,500
  Principal payments received on mortgage-backed
    securities                                                             909,924           1,350,142           2,499,381
  Principal payments received on investment securities
    and other investments                                                  140,260              88,939             279,097
  Loan payments, net                                                    13,012,816          10,729,396           9,750,423
  Proceeds from sales of real estate owned                                 759,585             985,131             595,294
  Additions to premises and equipment                                   (2,220,128)           (683,496)           (527,113)
                                                               ------------------------------------------------------------
        NET CASH (USED IN) INVESTING ACTIVITIES                        (20,534,650)        (14,854,533)         (8,604,880)
                                                               ------------------------------------------------------------
</TABLE>
                                                         (Continued)

                                                             26
<PAGE>
<TABLE>
<CAPTION>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                                                          2003                2002                2001
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                 <C>                 <C>
Cash Flows from Financing Activities
  Net increase in deposits                                            $  9,570,235        $  8,703,726        $ 19,100,271
  Proceeds from other borrowings                                         7,514,247           1,479,252                   -
  Repayment of advances from Federal Home Loan
    Bank of Chicago and other borrowings                                (7,500,000)                  -          (4,390,645)
  Increase (decrease) in advance payments by
    borrowers for taxes and insurance                                      (44,498)             14,321             (18,970)
  Purchase and retirement of treasury stock                               (341,515)                  -                   -
  Exercise of stock options                                                366,580             105,960                   -
  Dividends paid                                                          (267,589)           (261,175)           (261,175)
                                                               ------------------------------------------------------------
        NET CASH PROVIDED BY
          FINANCING ACTIVITIES                                           9,297,460          10,042,084          14,429,481
                                                               ------------------------------------------------------------

        NET INCREASE (DECREASE) IN CASH
          AND CASH EQUIVALENTS                                          (1,515,649)         (2,305,376)          3,921,029

Cash and cash equivalents:
  Beginning of year                                                     11,091,626          13,397,002           9,475,973
                                                               ------------------------------------------------------------

  End of year                                                         $  9,575,977        $ 11,091,626        $ 13,397,002
                                                               ============================================================

Supplemental Disclosures of Cash Flow Information
  Cash paid during the year for:
    Interest on deposits                                              $  5,945,173        $  7,569,596        $  9,620,410
    Interest on other borrowings                                            39,569              37,982             108,745
    Income taxes (refunds)                                                 215,613            (361,510)            625,553

Supplemental Schedule of Noncash Investing and
  Financing Activities
    Real estate acquired in settlement of loans                          1,022,690             806,145           1,191,115
    Loans to facilitate sales of real estate owned                         201,202             127,035             429,491
    Dividends declared not paid                                             67,745              66,194              65,294
</TABLE>

See Notes to Consolidated Financial Statements.

                                                             27
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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 the
Bank's 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.

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, the valuation of mortgage servicing rights
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.

COMPREHENSIVE INCOME - Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes the net change in
unrealized gains and losses on securities available for sale, net of
reclassification adjustments and tax effect and is also recognized as a separate
component of stockholders' equity.

                                       28
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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.

Declines in the fair value of available-for-sale securities below their cost
that are deemed to be other than temporary are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses, management
consider (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to retain its investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.

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, 2003 and 2002 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. The unearned premium on loans purchased
relates to loans acquired from Chapin State Bank in 2000 and is being amortized
over the estimated lives of loans acquired.

                                       29
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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 those loans the Company has
committed to sell within 30 days. 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 loan losses. 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.

                                       30
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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, 2003 and 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, 2003 and 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.

The cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues.

                                       31
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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>
                                                                 2003               2002               2001
                                                          ---------------------------------------------------------
                                                                   (in thousands, except per share data)
<S>                                                                   <C>                <C>              <C>
Net income (loss), as reported                                        $  841             $  818           $ (1,016)

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

Pro forma net income (loss)                                           $  841             $  818           $ (1,145)
                                                          =========================================================

Earnings (loss) per share:
  Basic:
    As reported                                                       $ 0.43             $ 0.43           $  (0.53)
    Pro forma                                                           0.43               0.43              (0.60)

  Diluted:
    As reported                                                       $ 0.43             $ 0.42           $  (0.53)
    Pro forma                                                           0.43               0.42              (0.60)
</TABLE>

                                       32
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

EARNINGS PER SHARE - Basic earnings per share for the years ended December 31,
2003, 2002 and 2001 are determined by dividing net income for the year by the
weighted average number of common shares.

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

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

<TABLE>
<CAPTION>
                                                                December 31,
                                              ----------------------------------------------------
                                                  2003               2002               2001
                                              ----------------------------------------------------
<S>                                            <C>                <C>               <C>
Net income (loss) available to common
  shareholders                                 $   841,030        $   818,323       $ (1,016,321)
                                              ====================================================

Basic potential common shares:
  Weighted average shares outstanding            1,936,283          1,912,362          1,909,304

Diluted potential common shares:
  Stock option equivalents                          38,932             25,009             11,548
                                              ----------------------------------------------------

Diluted average shares outstanding               1,975,215          1,937,371          1,920,852
                                              ----------------------------------------------------

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

Diluted earnings (loss) per share              $      0.43        $      0.42       $      (0.53)
                                              ====================================================
</TABLE>

RECLASSIFICATIONS - Certain amounts included in the 2002 and 2001 consolidated
financial statements have been reclassified to conform to the 2003 presentation
with no effect on previously reported net income or stockholders' equity.

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.

                                       33
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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


                                                  As of December 31, 2003
                                             ----------------------------------
                                              Gross Carrying      Accumulated
                                                  Amount          Amortization
                                             ----------------------------------
AMORTIZED INTANGIBLE ASSETS:
  Core deposit intangibles                      $  637,789        $ (279,033)

AGGREGATE AMORTIZATION EXPENSE:
  For the year ended December 31, 2003          $   79,724

ESTIMATED AMORTIZATION EXPENSE:
  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


                                                      December 31,
                                         ---------------------------------------
                                            2003         2002           2001
                                         ---------------------------------------
Reported net income (loss)                $ 841,030    $ 818,323    $(1,016,321)
Add goodwill amortization, net of tax             -            -         90,286
                                         ---------------------------------------
Adjusted net income (loss)                $ 841,030    $ 818,323    $  (926,035)
                                         =======================================

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

Diluted earnings (loss) per share:
  Reported net income (loss)              $    0.43    $    0.42    $     (0.53)
  Goodwill amortization, net of tax               -            -           0.05
                                         ---------------------------------------
  Adjusted net income (loss)              $    0.43    $    0.42    $     (0.48)
                                         =======================================


                                       34
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 3.  INVESTMENT AND MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of investment and mortgage-backed securities
available for sale at December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>

                                                                          2003
                                         -----------------------------------------------------------------
                                                                Gross           Gross
                                            Amortized        Unrealized       Unrealized          Fair
                                               Cost             Gains           Losses           Value
                                         -----------------------------------------------------------------
<S>                                       <C>                 <C>             <C>           <C>
State and political organizations         $  1,356,674        $   7,551       $     977     $  1,363,248
U.S. government and agency securities       98,017,683          272,134         712,193       97,577,624
                                         -----------------------------------------------------------------

        TOTAL INVESTMENT SECURITIES         99,374,357          279,685         713,170       98,940,872

Mortgage-backed securities                   7,577,486           29,518           9,739        7,597,265
                                         -----------------------------------------------------------------

        TOTAL                              106,951,843        $ 309,203       $ 722,909     $106,538,137
                                         =================================================================


                                                                          2002
                                         -----------------------------------------------------------------

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
                                         =================================================================
</TABLE>

                                       35
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

Unrealized losses on investment securities have not been in a continuous loss
position for more than 12 consecutive months. The unrealized losses are
generally due to changes in interest rates and, as such, are considered to be
temporary, by the Company.

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, 2003, by contractual maturity, are shown
below.

                                               Amortized             Fair
                                                 Cost                Value
                                         --------------------------------------

One year or less                          $       1,258,193   $      1,260,278
One year through five years                      43,276,735         43,111,893
Five years through ten years                     52,582,391         52,340,359
More than ten years                               2,257,038          2,228,342
Mortgage-backed securities                        7,577,486          7,597,265
                                         --------------------------------------

                                          $     106,951,843   $    106,538,137
                                         ======================================

Investment and mortgage-backed securities with a carrying value of approximately
$40,269,000 and $35,113,000 were pledged to secure public deposits, trust
deposits, and repurchase agreements at December 31, 2003 and 2002, respectively.

For the years ended December 31, 2003, 2002 and 2001, proceeds from sales of
securities available for sale amounted to $28,986,883, $20,130,901 and
$9,274,500, respectively. Gross realized gains amounted to $333,821, $316,459
and $87,569, respectively. Gross realized losses amounted to $14,718 and $13,036
in 2003 and 2002, respectively. The tax provision applicable to these net
realized gains amounted to $123,621, $117,546 and $29,773, respectively.

                                       36
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 4.  LOANS

Loans at December 31, 2003 and 2002 are summarized as follows:

<TABLE>
<CAPTION>
                                                       2003               2002
                                                --------------------------------------
<S>                                              <C>                 <C>
Real estate loans:
  One-to-four family residential                 $      40,304,233   $     43,882,757
  Commercial and agricultural                           21,401,320         18,421,271
  Multifamily residential                                2,375,494          2,677,869
Commercial and agricultural business loans              29,762,807         31,502,420
Consumer loans:
  Home equity/home improvement                          23,614,392         31,181,077
  Automobile                                             6,477,377         10,490,944
  Other                                                  5,544,946          7,127,268
                                                --------------------------------------
        TOTAL                                          129,480,569        145,283,606
Less:
  Deferred loans fees - net                                 54,547             66,470
  Unearned premium on purchased loans                      160,928            215,442
  Allowance for loan losses                              2,186,058          2,073,095
                                                --------------------------------------

        TOTAL                                    $     127,079,036   $    142,928,599
                                                ======================================
</TABLE>

The Company has granted loans to officers and directors. At December 31, 2003,
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, 2003 are summarized as follows:

Balance beginning of year                                     $       803,084
Additions                                                             425,000
Repayments                                                           (692,086)
                                                             -----------------

Balance, end of year                                          $       535,998
                                                             =================

                                       37
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

Activity in the allowance for loan losses for the years ended December 31, 2003,
2002 and 2001 is as follows:

                                     2003             2002            2001
                                -----------------------------------------------

Balance, beginning of year        $ 2,073,095      $ 1,106,647     $ 1,205,567

  Provision charged to expense      2,075,000        2,000,000       1,000,000
  Charge-offs                      (2,053,861)      (1,120,632)     (1,143,499)
  Recoveries                           91,824           87,080          44,579
                                -----------------------------------------------

Balance, end of year              $ 2,186,058      $ 2,073,095     $ 1,106,647
                                ===============================================

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.

The balance of the allowance is based on ongoing, quarterly assessments of the
probable estimated losses in the loan portfolio. The evaluation includes a
review of all loans on which full collectibility may not be reasonably assured.
Management uses an internal asset classification system as a means of reporting
problem and potential problem assets. Monitored loans include loans to borrowers
displaying a weak and/or leveraged financial condition that may also be having
difficulty servicing the debt.

Information about impaired loans and non-accrual loans as of and for the years
ended December 31, 2003, 2002 and 2001 is as follows:

<TABLE>
<CAPTION>
                                                                 2003               2002               2001
                                                          -----------------------------------------------------
<S>                                                          <C>                <C>                <C>
Impaired loans with a valuation allowance                    $   987,000        $   503,000        $         -
Impaired loans without a valuation allowance                           -                  -          2,330,000
                                                          -----------------------------------------------------
        TOTAL IMPAIRED LOANS                                 $   987,000        $   503,000        $ 2,330,000
                                                          =====================================================

Related allowance for loan losses                            $    87,000        $   185,000        $         -
Non-accrual loans                                            $ 3,121,000        $ 3,510,000        $ 2,360,000
Loans past due ninety days or more and
  still accruing                                             $   190,000        $   351,000        $ 1,685,000
Average monthly balance of impaired loans
  (based on month-end balances)                              $   967,000        $ 1,755,000        $ 2,330,000
Interest income recognized on impaired loans                 $    39,000        $         -        $         -
Interest income recognized on a cash basis on
  impaired loans                                             $    20,000        $         -        $         -
Interest income that would have been recorded
  under the original terms of loans on non-accrual           $   167,000        $   193,000        $   129,000
Other loans being monitored by management                    $ 7,555,000        $ 4,298,000        $ 3,764,000
Allowance for loan losses associated with
  monitored loans                                            $ 1,515,000        $ 1,379,000        $         -
</TABLE>

                                       38
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 5.  LOAN SERVICING

Mortgage 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. Loans held for sale are those loans
originated with the intention to sell. 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. The unpaid principal balances
of these loans at December 31 are summarized as follows:

                                                         December 31,
                                              ----------------------------------
                                                   2003               2002
                                              ----------------------------------
Mortgage loans serviced for Freddie Mac        $ 159,542,000      $ 150,393,000
Loans held for sale                                  506,000          6,271,435

Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in deposits, were approximately $313,000 and $295,000 at
December 31, 2003 and 2002, respectively.

A summary of the changes in the balance of mortgage servicing rights in 2003 and
2002 is as follows:

                                                         December 31,
                                              ----------------------------------
                                                   2003               2002
                                              ----------------------------------
                                                        (in thousands)
Balance, beginning                             $   1,077,318      $     951,375
Servicing assets recognized during the year          808,000            645,000
Amortization of servicing assets                    (717,072)          (519,057)
                                              ----------------------------------

Balance, ending                                $   1,168,246      $   1,077,318
                                              ==================================

The Company also originates certain fixed rate loans for sale to correspondent
lenders on a servicing retained basis. Activity on sales of fixed rate mortgages
is as follows:

                                2003               2002               2001
                       ---------------------------------------------------------
Loans originated        $     101,216,763     $   87,024,862      $  84,548,592
                       =========================================================

Gross gains             $         990,637     $      753,496      $     651,910
Gross losses                     (161,275)          (121,195)          (120,851)
                       ---------------------------------------------------------
Net gain                $         829,362     $      632,301      $     531,059
                       =========================================================

                                       39
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 6.  PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2003 and 2002 are summarized as follows:

                                                    2003               2002
                                          --------------------------------------

Land                                             $   923,276        $   923,276
Construction in progress                           2,522,161            493,533
Office buildings and improvements                  5,284,132          5,340,520
Furniture and equipment                            3,767,053          3,550,454
                                          --------------------------------------

                                                  12,496,622         10,307,783
Less accumulated depreciation                     (5,077,561)        (4,639,572)
                                          --------------------------------------

        TOTAL                                    $ 7,419,061        $ 5,668,211
                                          ======================================

The Company completed the renovation of the main facility in December 2003.
However, they are awaiting the results of a formal study before allocating costs
to building or furniture and equipment.

NOTE 7.  DEPOSITS

The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $57,009,000 and $53,017,000 at
December 31, 2003 and 2002, respectively.

At December 31, 2003, the scheduled maturities of certificates of deposit were
as follows:

Maturing in:                                                   Amount
----------------------------------------------------------------------------
2004                                                      $     112,579,225
2005                                                             25,230,887
2006                                                              7,860,290
2007                                                              3,859,261
2008                                                              4,192,809
Thereafter                                                          147,818
                                                         -------------------

        TOTAL                                             $     153,870,290
                                                         ===================


                                       40
<PAGE>

NOTE 8.  SHORT-TERM BORROWINGS

Short-term borrowings consist of:

                                                             December 31,
                                                  ------------------------------
                                                        2003            2002
                                                  ------------------------------

Securities sold under agreements to repurchase     $  2,888,954    $  2,874,707
                                                  ==============================

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, 2003 and 2002 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, 2003 and 2002.

Income tax expense (benefit) for the years ended December 31, 2003, 2002 and
2001 are summarized as follows:

                                          Years Ended December 31,
                             --------------------------------------------------
                                 2003               2002               2001
                             --------------------------------------------------
Current:
  Federal                     $  80,129          $ 919,874        $  (852,179)
  State                         (28,783)            46,778           (253,550)
                             --------------------------------------------------
        TOTAL CURRENT            51,346            966,652         (1,105,729)

Deferred                        450,000           (500,000)          (192,850)
                             --------------------------------------------------

        TOTAL                 $ 501,346          $ 466,652        $(1,298,579)
                             ==================================================

                                       41
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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

<TABLE>
<CAPTION>
                                                                   Years Ended December 31,
                                                      --------------------------------------------------
                                                          2003               2002               2001
                                                      --------------------------------------------------
                                                         Amount             Amount             Amount
                                                      --------------------------------------------------
<S>                                                    <C>                <C>              <C>
Tax (benefit) at Federal tax rate                      $ 469,832          $ 449,741        $  (810,215)
Increase (decrease) resulting from:
  State tax (benefit), net of Federal tax benefit        (18,709)            30,405           (164,808)
  Income taxed at lower rates                            (13,424)           (12,850)            23,149
  Tax exempt interest, net                               (13,932)           (33,823)           (29,263)
  Other, net                                              77,579             33,179           (317,442)
                                                      --------------------------------------------------

        TOTAL                                          $ 501,346          $ 466,652        $(1,298,579)
                                                      ==================================================
</TABLE>

The components of the deferred tax assets and liabilities at December 31, 2003
and 2002, which are included in other assets on the balance sheet, are as
follows:

                                                        December 31,
                                             --------------------------------
                                                  2003               2002
                                             --------------------------------
Deferred tax assets:
  Allowance for loan losses                   $   723,205        $   677,990
  Deferred compensation                           784,515            745,636
  Loss due to loan defalcation                          -            470,691
  State net operating loss carryforward           277,564            207,253
  Securities available for sale                   160,269                  -
  Other                                            68,688             33,528
                                             --------------------------------
        TOTAL DEFERRED TAX ASSETS               2,014,241          2,135,098
                                             --------------------------------

Deferred tax liabilities:
  Premises and equipment                          462,075            387,012
  FHLB stock dividends                            142,225            102,563
  Securities available-for-sale                         -            356,524
  Mortgage servicing rights                       453,490            417,353
  Basis in acquired assets                        105,615             87,604
                                             --------------------------------
        TOTAL DEFERRED TAX LIABILITIES          1,163,405          1,351,056
                                             --------------------------------

        NET DEFERRED TAX ASSET                $   850,836        $   784,042
                                             ================================


                                       42
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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, 2003, 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, 2003, the
Bank's core capital ratio was 6.54% of total adjusted average assets, which
exceeded the required amount.

As of December 31, 2003, 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.

                                       43
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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, 2003:
  Total Capital (to Risk
    Weighted Assets)              $ 18,821       13.13%       $ 11,466         8.0%       $ 14,332       10.0%
  Tier I Capital (to Risk
    Weighted Assets)              $ 17,024       11.88%       $  5,733         4.0%       $  8,599        6.0%
  Tier I Capital (to
    Average Assets)               $ 17,024        6.54%       $ 10,420         4.0%       $ 13,025        5.0%

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%
</TABLE>

Regulations limit the amount of dividends and other capital distributions that
may be paid by a financial institution without prior approval of its primary
regulator. Accordingly, the Bank can make, without prior regulatory approval,
distributions during the calendar year up to 100% of their retained net income
for the calendar year to date plus retained net income for the previous two
calendar years (less any dividends previously paid).

Because of the net loss recorded during the year ended December 31, 2001, the
Bank does not have retained earnings available for dividends. However, they have
applied for, and been granted, permission to pay dividends through the third
quarter of 2004.

                                       44
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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:


Year ended December 31, 2000                              $          77,905
Year ended December 31, 2001                                        311,621
Year ended December 31, 2002                                        311,621
Year ended December 31, 2003                                        311,621
                                                         -------------------

                                                          $       1,012,768
                                                         ===================

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 $96,514, $122,641 and
$122,259 for the years ended December 31, 2003, 2002 and 2001, 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, 2003, 2002 and 2001.

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 $26,000,
$85,643 and $57,315 for the years ended December 31, 2003, 2002 and 2001,
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.

At December 31, 2003, all 57,681 shares held by the ESOP had been allocated.

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.

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.

                                       45
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

A summary of the status of the Company's Stock Option Plans for the three-year
period ended December 31, 2003 follows:

<TABLE>
<CAPTION>
                                           2003                        2002                        2001
                               ------------------------------------------------------------------------------------
                                               Weighted-                   Weighted-                   Weighted-
                                                Average                     Average                     Average
                                                Exercise                    Exercise                    Exercise
                                   Shares        Price         Shares        Price         Shares        Price
                               ------------------------------------------------------------------------------------
<S>                            <C>              <C>         <C>             <C>         <C>             <C>
Options:
  Outstanding at beginning
    of year                           151,863   $    9.50         163,863   $    9.45          76,763   $    8.83
  Granted                                   -           -               -           -          87,100       10.00
  Exercised                           (41,025)       8.94         (12,000)       8.83               -           -
  Forfeited                                 -           -               -           -               -           -
                               ---------------             ---------------             ---------------
  Outstanding at end of year          110,838        9.71         151,863        9.50         163,863        9.45
                               ===============             ===============             ===============

Options exercisable at
  year-end                            110,838                     151,863                     163,863
                               ===============             ===============             ===============

Weighted-average fair
  value of options granted
  during the year                                     N/A                         N/A                   $    2.24
                                              =============               =============               =============
</TABLE>

NOTE 12. COMMITMENTS AND 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.

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.

                                       46
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

At December 31, 2003 and 2002, the following financial instruments were
outstanding:

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                 --------------------------------
                                                                      2003              2002
                                                                 --------------------------------
<S>                                                               <C>               <C>
Commitment to originate loans:
          Fixed-rate                                              $ 15,803,000      $ 21,827,000
          Variable-rate                                           $    261,000      $          -
Range of rates:
          Fixed-rate                                                 4.0 - 9.5%       4.2 - 10.5%
          Variable-rate                                                    5.0%                -
Commitments to sell fixed rate loans, funded and unfunded
(included above)                                                  $    369,000      $  6,155,000

Standby letters of credit                                         $    410,000      $    225,500
</TABLE>

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, 2003 and 2002,
no amounts have been recorded as liabilities for the Bank's potential
obligations under these guarantees.

NOTE 13. 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.

                                       47
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

Approximate carrying values and estimated fair values at December 31, 2003 and
2002 is summarized as follows:

<TABLE>
<CAPTION>
                                                                 2003                            2002
                                                   --------------------------------------------------------------
                                                     Approximate      Estimated      Approximate      Estimated
                                                      Carrying           Fair         Carrying           Fair
                                                        Value           Value           Value           Value
                                                   --------------------------------------------------------------
<S>                                                 <C>             <C>             <C>             <C>
Assets:
  Cash and cash equivalents                         $  9,576,000    $  9,576,000    $ 11,092,000    $ 11,092,000
  Federal funds sold                                     500,000         500,000         800,000         800,000
  Investment securities, available for sale          100,914,000     100,914,000      74,904,000      74,904,000
  Mortgage-backed securities, available for sale       7,597,000       7,597,000       2,822,000       2,822,000
  Loans:
    Loans held for sale                                  506,000         506,000       6,271,000       6,271,000
    Loans receivable                                 127,079,000     128,189,000     142,929,000     143,470,000
  Accrued interest receivable                          1,445,000       1,445,000       1,719,000       1,719,000

Liabilities:
  Transaction accounts                                50,624,000      50,398,000      48,222,000      48,222,000
  Savings accounts                                    30,679,000      30,905,000      26,215,000      26,215,000
  Certificates of deposit                            153,870,000     157,815,000     151,164,000     155,633,000
  Short-tem borrowings                                 2,889,000       2,889,000       2,875,000       2,875,000
  Accrued interest payable                               776,000         776,000         995,000         995,000
</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 12, which are subject to fair value disclosure. The difference
between the fair value and the face value for the instruments disclosed in Note
12 was not considered material.

The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 2003 and 2002. 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.

                                       48
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  Year Ended December 31, 2003
                                               -------------------------------------------------------------------
                                                                       Three Months Ended
                                                    December 31     September 30       June 30         March 31
                                               -------------------------------------------------------------------
<S>                                                 <C>              <C>             <C>              <C>
Interest income                                     $ 3,148,892      $ 3,108,535     $ 3,240,723      $ 3,448,149
Interest expense                                      1,341,977        1,428,569       1,472,766        1,522,133
                                               -------------------------------------------------------------------
        NET INTEREST INCOME                           1,806,915        1,679,966       1,767,957        1,926,016
Provision for losses on loans                           250,000          300,000         825,000          700,000
                                               -------------------------------------------------------------------
        NET INTEREST INCOME AFTER
          PROVISION FOR LOAN LOSSES                   1,556,915        1,379,966         942,957        1,226,016
Other income                                            561,895          664,371       1,082,122        1,223,916
Other expense                                         1,929,295        1,819,959       1,772,608        1,773,920
                                               -------------------------------------------------------------------
        INCOME BEFORE
          INCOME TAXES                                  189,515          224,378         252,471          676,012
Income taxes                                             67,717           82,245          86,773          264,611
                                               -------------------------------------------------------------------

        NET INCOME                                  $   121,798      $   142,133     $   165,698      $   411,401
                                               ===================================================================

Basic earnings per share                            $      0.06      $      0.07     $      0.09      $      0.21
                                               ===================================================================

Diluted earnings per share                          $      0.06      $      0.07     $      0.08      $      0.21
                                               ===================================================================


                                                                  Year Ended December 31, 2002
                                               -------------------------------------------------------------------
                                                                       Three Months Ended
                                                    December 31     September 30       June 30         March 31
                                               -------------------------------------------------------------------

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
                                               ===================================================================
</TABLE>

                                       49
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 15. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                 ---------------------------------
STATEMENTS OF FINANCIAL CONDITION                                     2003               2002
                                                                 ---------------------------------
<S>                                                               <C>                <C>
Assets:
  Cash and cash equivalents                                       $    247,275       $    278,997
  Accrued dividend receivable                                           67,745                  -
  Equity in net assets of Jacksonville Savings Bank                 19,856,362         20,039,608
                                                                 ---------------------------------

                                                                  $ 20,171,382       $ 20,318,605
                                                                 =================================

Liabilities and stockholders' equity:
  Other liabilities                                               $    139,229       $     66,194
  Common stock                                                          19,420             19,213
  Additional paid-in capital                                         6,399,321          6,374,463
  Retained earnings                                                 13,866,849         13,294,959
  Accumulated other comprehensive income (loss)                       (253,437)           563,776
                                                                 ---------------------------------

                                                                  $ 20,171,382       $ 20,318,605
                                                                 =================================


                                                                             Years Ended
                                                                             December 31,
                                                                 ---------------------------------
STATEMENTS OF INCOME                                                  2003               2002
                                                                 ---------------------------------

Interest from subsidiary                                          $        759       $          -
Dividends from subsidiary                                              267,802            380,587
                                                                 ---------------------------------
        OPERATING INCOME                                               268,561            380,587
                                                                 ---------------------------------

Equity in undistributed earnings of Jacksonville Savings Bank          633,967            449,404
                                                                 ---------------------------------
        TOTAL OTHER INCOME                                             633,967            449,404
                                                                 ---------------------------------

Other expenses                                                          99,907             11,668
                                                                 ---------------------------------

        INCOME BEFORE INCOME TAX BENEFIT                               802,621            818,323

Income tax benefit                                                      38,409                  -
                                                                 ---------------------------------

        NET INCOME                                                $    841,030       $    818,323
                                                                 =================================
</TABLE>

                                       50
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

<TABLE>
<CAPTION>
                                                                Years Ended
                                                                December 31,
                                                     ---------------------------------
STATEMENTS OF CASH FLOWS                                  2003               2002
                                                     ---------------------------------
<S>                                                   <C>               <C>
Operating activities:
  Net income                                          $   841,030       $   818,323
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Equity in undistributed earnings of
        Jacksonville Savings Bank                        (633,967)         (449,404)
      Other                                                 3,739            65,293
                                                     ---------------------------------
          NET CASH PROVIDED BY
            OPERATING ACTIVITIES                          210,802           434,212
                                                     ---------------------------------

Financing activities:
  Dividends paid                                         (267,589)         (261,175)
  Purchase and retirement of treasury stock              (341,515)               --
  Exercise of stock options                               366,580           105,960
                                                     ---------------------------------
          NET CASH USED IN
            FINANCING ACTIVITIES                         (242,524)         (155,215)
                                                     ---------------------------------

Increase (decrease) in cash and cash equivalents          (31,722)          278,997

Cash and cash equivalents:
  Beginning of period                                     278,997              --
                                                     ---------------------------------

  End of period                                       $   247,275       $   278,997
                                                     =================================
</TABLE>

NOTE 16. 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 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 additional
losses related to the irregularities of $9,361 and $62,348 for the years ended
December 31, 2003 and 2002, respectively. During March 2003, the Company
received a $562,500 recovery, representing the negotiated settlement with the
Company's insurance carrier.

                                       51
<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, 2003 there were approximately
622 stockholders of record, including the Company's mutual holding company
parent and brokers, which held 1,942,004 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, 2003.


   FISCAL 2002              HIGH               LOW                DIVIDENDS

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

   FISCAL 2003

First Quarter              $ 13.00           $ 10.78          $.075/per share

Second Quarter             $ 16.95           $ 12.00          $.075/per share

Third Quarter              $ 16.75           $ 14.80          $.075/per share

Fourth Quarter             $ 17.00           $ 15.65          $.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.

The Company did not repurchase any Company stock during the fourth quarter of
2003.

                                       52
<PAGE>
<TABLE>
<CAPTION>
<S>                                             <C>

DIRECTORS AND OFFICERS


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

Richard A. Foss                                   Richard A. Foss
  President and Chief Executive Officer             President and Chief Executive Officer

John C. Williams                                  John C. Williams
  Senior Vice President and Trust Officer           Senior Vice President and Trust Officer

Roger D. Cannell                                  John D. Eilering
  Certified Public Accountant                       Vice President - Operations and Corporate Secretary
  Cannell & Sheehan, Ltd

Harmon B. Deal, III                               Diana S. Tone
  Investment Manager                                Chief Financial Officer and Compliance Officer
  Deal Partners, L.P.

Michael R. Goldasich                              Jess D. Karns
  Architect                                         Senior Loan Administrator
  Goldasich-Audo Architects

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

Emily J. Osburn                                   Thomas A. Luber
  Retired radio station manager                     Vice President - Mortgage Banking

Harvey D. Scott, III                              Susan L. Harpole
  Orthopedic Surgeon                                Vice President - Mortgage/Consumer Lending
  Orthapaedic Center of Illinois

                                                  Paul W. Miller
                                                    Vice President - Lending

                                                  Laura A. Marks
                                                    Vice President - Retail Banking
</TABLE>


                                       53
<PAGE>

CORPORATE INFORMATION

Corporate Headquarters                        Transfer Agent

1211 West Morton                              First Bankers Trust Company, N.A.
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 27, 2004 at 1:30 p.m.,
central time, at the Company's main office at 1211 West Morton, Jacksonville,
Illinois.

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. The Company's Code of Ethics, Nominating
and Corporate Governance Committee Charter, and Beneficial Ownership reports of
our directors and executive officers are also available on the Company's
website.

FDIC DISCLAIMER

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


                                       54