<PAGE>






                                   Exhibit 13
                             Report to Stockholders
<PAGE>









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

                                    JACKSONVILLE BANCORP, INC.

                                    2005 ANNUAL REPORT

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

<PAGE>



To Our Shareholders:

2005 was a good year for Jacksonville Savings Bank. With exceptional loan
growth, dramatic improvement in asset quality, and the hard work of a dedicated
staff, the bank was able to achieve solid fiscal results while continuing to
provide a leadership role in the communities it serves.

A strong performance by the loan department highlighted the year's operating
results. Among the lending team's accomplishments: total loans increased $16.5
million from $125.8 to $142.3 million; $21.2 million of new loans were
originated and sold to others, and nonperforming assets and the provision for
loan loss were significantly reduced.

Part of our loan department's success in 2005 can be attributed to operating
changes implemented over the last three years. During 2003, management committed
to restructuring the loan department with a long-term plan designed to improve
the overall lending function and raise the level of asset quality. Personnel
were added and new policies and procedures were adopted for loan underwriting,
analysis, administration, and collection. We believe 2005's positive results are
confirmation that the restructuring effort has been effective.

At year-end, total deposits had declined to $218.4 million as the bank allowed
some high cost certificates of deposit to roll off and be replaced by less
expensive advances from the Federal Home Loan Bank. As a result of managing the
cost of funds and the improvement in asset quality, the bank was able to
increase earnings for the year to $900,000 or $.46 per share.

As a community bank, we're pleased to have a staff that believes in giving back
to the community. In 2005, many of our employees were making a difference
outside the workplace by being actively involved in municipal, not-for-profit,
and civic organizations. Some of the service and leadership positions held by
our staff included: Laura Marks, chairman of the Jacksonville Area Chamber of
Commerce, John Williams, Mayor of the Village of Chapin, Shawn McCombs,
president-elect of the Prairieland United Way, Steve Waltrip, member of the
South Jacksonville Board of Trustees, and Rich Foss, chairman of the Illinois
League of Financial Institutions. There are many other examples of our staff's
community involvement, but the one of which we are most proud occurred in
October when Jacksonville Savings Bank, its staff, and customers raised $17,000
for the American Red Cross Hurricane Katrina Relief Fund.

We would like to acknowledge the fine work of Roger Cannell who will retire at
our annual meeting on April 25, 2006 after twenty-seven years of service on
Jacksonville Savings Bank's board of directors. As a practicing CPA, his
knowledge and expertise enabled him to play a significant role in the bank's
success, especially in recent years when he has ably served as chairman of the
audit committee. Roger's enthusiasm and wise counsel will be missed.

Sincerely,



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           4-19

Report of Independent Registered Public Accounting Firm                                         20-21

Consolidated Financial Statements                                                               22-25

Notes to Consolidated Financial Statements                                                      26-56

Common Stock Information                                                                          57

Directors and Officers                                                                            58

Corporate Information                                                                             59

Annual Meeting                                                                                    59
</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.

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, 2005, the MHC
owned 52.72% of the outstanding shares of the Company. At December 31, 2005, the
Company had consolidated assets of $253.9 million, deposits of $218.4 million
and stockholders' equity of $20.1 million.

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 years is set forth at Note 22 to the
Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                At December 31,
                                         -----------------------------------------------------------
                                            2005         2004        2003        2002       2001
FINANCIAL CONDITION DATA                                       (In thousands)
<S>                                       <C>         <C>         <C>         <C>        <C>
Total assets                              $ 253,946   $ 253,330   $ 261,816   $ 252,504  $ 241,301
Loans  (1)                                  142,771     126,058     127,585     149,200    161,082
Investment securities (2)                    80,821      86,674     100,914      74,904     46,360
Mortgage-backed securities                    8,646      15,171       7,597       2,822      4,264
Cash and cash equivalents                     6,681      10,793       9,576      11,092     13,397
Deposits                                    218,370     225,734     235,173     225,602    216,899
Other borrowings                             11,350       3,447       2,889       2,875      1,395
Stockholders' equity                         20,103      20,683      20,032      20,252     19,164

                                                            Years Ended December 31,
                                         -----------------------------------------------------------
                                            2005         2004        2003        2002       2001
OPERATING DATA                                      (In thousands, except per share data)

Interest income                           $  12,423   $  12,278   $  12,946   $  15,065   $  17,526
Interest expense                              4,986       4,588       5,765       7,351       9,569
                                          ---------   ---------   ---------   ---------   ---------

Net interest income                           7,437       7,690       7,181       7,714       7,957
Provision for loan losses                       245         550       2,075       2,000       1,000
                                          ---------   ---------   ---------   ---------   ---------

Net interest income after provision
  for loan losses                             7,192       7,140       5,106       5,714       6,957
Other income                                  2,174       2,038       3,532       2,490       2,010
Other expense (3)                             8,054       7,781       7,296       6,919      11,282
                                          ---------   ---------   ---------   ---------   ---------

Income (loss) before income taxes             1,312       1,397       1,342       1,285      (2,315)
Income tax expense (benefit)                    412         521         501         467      (1,299)
                                          ---------   ---------   ---------   ---------   ---------

Net income (loss)                         $     900   $     876   $     841   $     818   $  (1,016)
                                          =========   =========   =========   =========   =========

Earnings (loss) per share - basic         $    0.46   $    0.45   $    0.43   $    0.43   $   (0.53)
                                          =========   =========   =========   =========   =========

Earnings (loss) per share - diluted       $    0.45   $    0.44   $    0.43   $    0.42   $   (0.53)
                                          =========   =========   =========   =========   =========
</TABLE>
------------

(1)     Includes loans held for sale.

(2)     Includes investment securities, FHLB stock, and other investments.

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

                                                                     (Continued)

                                       2
<PAGE>
<TABLE>
<CAPTION>
                                                          At or for the Years Ended December 31,
                                               -----------------------------------------------------------
KEY OPERATING RATIOS                             2005       2004         2003        2002        2001
<S>                                              <C>         <C>          <C>         <C>        <C>
Return on average assets (net income
  (loss) divided by average assets)               0.36 %      0.33 %       0.33 %      0.34 %     (0.44)%

Return on average equity (net income
  (loss) divided by average equity)               4.44 %      4.31 %       4.18 %      4.19 %     (4.92)%

Average equity to average assets                  8.03 %      7.77 %       7.82 %      8.04 %      8.98 %

Interest rate spread (difference between
  average yield on interest-earning assets
  and average cost of interest-bearing
  liabilities)                                    2.99 %      3.04 %       2.82 %      3.27 %      3.67 %

Net interest margin (net interest income
  as a percentage of average interest-
  earning assets)                                 3.18 %      3.18 %       3.00 %      3.47 %      3.87 %

Dividend pay-out ratio  (1)                      30.98 %     31.39 %      31.99 %     32.03 %    (25.69)%

Noninterest expense to average assets             3.19 %      2.97 %       2.84 %      2.85 %      4.91 %

Average interest-earning assets to
  average interest-bearing liabilities          109.07 %    107.35 %     107.58 %    106.04 %    104.40 %

Allowance for loan losses to gross loans
  at end of period (2)                            1.28 %      1.48 %       1.69 %      1.43 %      0.70 %

Allowance for loan losses to
  nonperforming loans                           156.75 %     95.02 %      66.02 %     53.69 %     27.37 %

Net loan charge-offs to average
  loans during the period                         0.21 %      0.66 %       1.41 %      0.68 %      0.68 %

Nonperforming assets to total assets              0.65 %      1.01 %       1.46 %      1.72 %      2.09 %


                                                                        December 31,
                                               -----------------------------------------------------------
OTHER DATA                                       2005       2003         2002        2001        2000

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


(1) Reflects dividends waived by the mutual holding company.
(2) Gross loans includes loans held for sale

                                       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 and short-term borrowings.
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 the secondary market 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. The Company generally limits
its investment portfolio to investments in United States Government and
government sponsored entities securities, mortgage-backed securities
collateralized by U.S. government sponsored entities, 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 uses the available information 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, 2005 and 2004. 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.

                                       5
<PAGE>

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

FINANCIAL CONDITION

Total assets increased $616,000 to $253.9 million at December 31, 2005, compared
to $253.3 million at December 31, 2004. Net loans increased $16.5 million, or
13.1%, during 2005. Loan growth was funded by a $4.1 million decrease in cash
and cash equivalents and a $12.3 million, or 12.3%, decrease in the
mortgage-backed and investment securities portfolios, which reflects calls,
sales, and principal payments. Loan growth has predominantly been in commercial
real estate loan originations, which increased $13.1 million, or 48.8%.

Total deposits decreased $7.4 million, or 3.3%, during 2005, which was offset by
an increase of $7.9 million in other borrowings. The increase in borrowed funds
consisted of advances from the Federal Home Loan Bank, which totaled $8.0
million at December 31, 2005, compared to no outstanding advances at December
31, 2004. The Company determined that in the flat interest rate environment of
2005, the cost of borrowings was a stable, lower-cost source of funding than
time deposits. This resulted in a change in composition of our liabilities to
emphasize borrowings as a source of funds. Other liabilities increased $527,000
due to higher balances on overnight settlement arrangements with vendors and
additional expense accruals.

Stockholders' equity decreased $580,000 to $20.1 million at December 31, 2005.
The decrease resulted primarily from net income of $900,000, offset by the
payment of $279,000 in dividends and a $1.2 million increase in unrealized
losses, net of tax, on available-for-sale securities. The change in unrealized
gains or losses on securities classified as available-for-sale is affected by
market conditions and, therefore, can fluctuate daily. Stockholders' equity also
was affected by the receipt of $15,000 from the exercise of stock options during
2005. The $15,000 reflects the $76,000 received from the exercise of stock
options net of the $57,000 cost to acquire the shares underlying the options in
open market purchases and net of the $4,000 related tax benefit.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

GENERAL

The Company reported net income for the year ended December 31, 2005, of
$900,000, or $0.46 per common share, basic, and $0.45 per common share, diluted,
compared to net income of $876,000 or $0.45 per common share, basic, and $0.44
per share, diluted, for the year ended December 31, 2004. The $24,000 increase
in net income reflects decreases of $305,000 in the provision for loan losses
and $108,000 in income taxes and an increase of $136,000 in other income,
partially offset by a decrease of $253,000 in net interest income and an
increase of $272,000 in other expense.

INTEREST INCOME

Interest income increased to $12.4 million for the year ended December 31, 2005
from $12.3 million for the year ended December 31, 2004. The $145,000 increase
in 2005 resulted from increased income of $537,000 on loans and $26,000 on other
interest-earning assets, partially offset by decreased income of $262,000 on
investment securities and $156,000 on mortgage-backed securities.

                                       6
<PAGE>

The increase in interest income on loans reflects an increase in the average
balance of loans outstanding to $137.7 million for 2005 compared to $128.3
million for 2004, partially offset by a lower average yield of 6.48% for 2005
from 6.54% for 2004. The $9.4 million increase in the average balance of loans
during 2005 is primarily due to an increased emphasis on commercial lending and
an increase in participations with other institutions. The lower average yield
was affected by the competitive environment for commercial loan originations
during 2005, which were higher than comparable rates on investment securities.
In the current low and flat yield curve environment, the origination of
commercial loans provides the Company greater interest income than would be
obtained from 1-4 family residential loans.

The decrease in interest income on investment securities is due to the lower
average balance of investments, which were $84.0 million for 2005 compared to
$96.2 million for 2004. The $12.2 million decrease in the average balance of
investment securities reflects proceeds from investment calls, sales, and
principal payments being reinvested into loan originations during 2005. The
investment securities portfolio's average yield increased to 3.60% for 2005 from
3.42% for 2004.

The decrease in income on mortgage-backed securities reflects a lower average
balance of mortgage-backed securities to $10.5 million for 2005 from $14.7
million for 2004, primarily due to sales and principal payments. The weighted
average yield of mortgage-backed securities increased to 3.93% for 2005 from
3.87% for 2004.

Other interest-earning assets consist of federal funds sold and interest-earning
deposit accounts. The increase in interest income to $57,000 from $31,000 is
primarily due to an increase in the average yield to 3.03% for 2005 from 1.09%
for 2004, partially offset by a decrease in the average balance to $1.9 million
for 2005 from $2.8 million for 2004. The decrease in the average balance
reflects the reinvestment of these funds in loan originations.

INTEREST EXPENSE

Interest expense increased to $5.0 million for the year ended December 31, 2005
from $4.6 million for the year ended December 31, 2004. The increase of $398,000
in the cost of funds reflects increases of $97,000 in interest paid on deposits
and $301,000 in interest paid on borrowings.

The higher interest expense on deposits is the net effect of an increase in the
average cost to 2.25% for 2005 from 2.05% for 2004 and a decrease in the average
balance to $204.5 million for 2005 from $220.2 million for 2004. The average
cost of deposits has been affected by the increase in market rates. The decrease
of $15.7 million in the average balance of deposits reflects withdrawals as
management has undertaken efforts to control interest costs.

The increase in interest expense on short-term borrowings is due to an increase
in the average cost to 3.77% for 2005 from 1.57% for 2004 and an increase in the
average balance of borrowings to $10.1 million for 2005 from $5.2 million during
2004. Management has used advances from the Federal Home Loan Bank (FHLB) to
fund loan growth as deposit volumes have decreased. The average cost of the FHLB
advances was less than the rates required to maintain time deposits of
comparable periods. The average balance of these advances equaled $8.0 million
during 2005, compared to $3.0 million during 2004. The remainder of borrowed
funds consists of securities sold under agreement to repurchase.

                                       7
<PAGE>

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 a provision for loan losses of $245,000 for the year ended
December 31, 2005, compared to $550,000 during 2004. The decrease in the
provision during 2005 reflects the decrease in nonperforming loans and watch
list credits. The allowance for loan losses decreased $42,000 to $1.8 million at
December 31, 2005. The decrease in the level of the allowance reflects net
charge-offs exceeding the provision for loan losses. Net charge-offs decreased
during 2005 to $287,000 from $848,000 during 2004. The provisions in 2005 and
2004 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 local economy and the level of bankruptcies and foreclosures
in the Company's market area. Set forth below is a table regarding the Company's
nonperforming assets.

<TABLE>
<CAPTION>
                                                               12/31/05    12/31/04
                                                               --------    --------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                           <C>         <C>
        Non-accruing loans:
          One-to-four family residential                      $      624  $      711
          Commerical and agricultural real estate                      -         181
          Commercial and agricultural business                       290          57
          Home equity/Home improvement                               222         652
          Automobile                                                   1          68
          Other consumer                                              20          20
                                                              ----------  ----------
             Total                                                 1,157       1,689
                                                              ----------  ----------

        Accruing loans delinquent more than 90 days:
          One-to-four family residential                               2         270
          Commerical and agricultural business                         -          23
          Automobile                                                  17           4
          Other consumer                                               2           1
                                                              ----------  ----------
             Total                                                    21         298
                                                              ----------  ----------

        Foreclosed assets:
          One-to-four family residential                             276         426
          Commercial and agricultural real estate                    180         139
          Automobile                                                  15          19
                                                              ----------  ----------
             Total                                                   471         584
                                                              ----------  ----------

        Total nonperforming assets                            $    1,649  $    2,571
                                                              ==========  ==========

        Total as a percentage of total assets                       0.65%       1.01%
                                                                    ====        ====
</TABLE>


                                       8
<PAGE>

The following table shows the principal amount of potential problem credits on
the Company's watch list at December 31, 2005 and December 31, 2004. All
nonaccrual loans are automatically placed on the watch list. [GRAPHIC

                                              12/31/05    12/31/04
                                              --------    --------
                                                  (IN THOUSANDS)

        Special Mention credits              $    3,065  $    5,308
        Substandard credits                       1,930       3,484
                                             ----------  ----------

        Total watch list credits             $    4,995  $    8,792
                                             ==========  ==========

The decrease in the level of nonperforming assets and watch list credits
reflects the actions taken by management over the past several years. During
2003, the Company hired an experienced senior loan administrator and increased
staffing in the collections and loan review departments, in order to address
problems in the loan portfolio and prevent any further deterioration of asset
quality. The Company, under the guidance of the senior loan administrator,
continues to review and refine lending policies and underwriting and collection
procedures.

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 $135,000 during the year ended December 31, 2005,
compared to the year ended December 31, 2004. The increase in non-interest
income is primarily due to increases of $54,000 in gains on the sale of loans,
$48,000 in service charges on deposits, and $44,000 in commission income,
partially offset by a $22,000 decrease in loan servicing fees. The increase in
gains on the sale of loans is primarily due to a decrease in the net
amortization of mortgage servicing rights during 2005, and the Company entering
the Federal Home Loan Bank Mortgage Partnership Finance program during March
2005, which provides the bank an additional venue to sell fixed-rate residential
loan products. The increase in service charges on deposits reflects a fee
structure implemented during the second quarter of 2004. Brokerage commissions
increased due to a continued growth in accounts. Loan servicing fees decreased
as the volume of loans serviced for the secondary market declined $5.0 million
during 2005, primarily due to principal repayments.

NON-INTEREST EXPENSE

Non-interest expense increased $272,000 during the year ended December 31, 2005
compared to the year ended December 31, 2004. The increase primarily reflects
increases of $115,000 in other real estate expense (which is included in other
expense), $59,000 in data processing expense, $39,000 in salaries and benefits,
and $34,000 in professional fees, partially offset by a decrease of $45,000 in
occupancy expense. The increase in real estate owned expense primarily consists
of a $97,000 decrease in gains on the sale of real estate owned during 2005 as
compared to 2004. The increase in data processing expense is due to a software
conversion requiring the upgrading of telecommunication lines and an increase in
internet banking fees. Salaries and benefits expense has been impacted by
increased brokerage commissions. The increase in professional fees includes
$78,000 in additional expenses related to Sarbanes-Oxley compliance efforts,
which were partially offset by reduced audit fees. Occupancy expense benefited
from reduced maintenance costs and service contracts during 2005, as compared to
2004.

INCOME TAXES

The provision for income taxes decreased $108,000 during 2005 compared to 2004,
due to the $85,000 decrease in taxable income and the effect of state income
taxes during this same time frame. The effective tax rate equals 31.4% and 37.3%
for the years ended December 31, 2005 and 2004, respectively.

                                       10
<PAGE>

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

GENERAL

The Company reported net income for the year ended December 31, 2004, of
$876,000, or $0.45 per common share, basic, and $0.44 per common share, diluted,
compared to net income of $841,000 or $0.43 per common share, basic and diluted,
for the year ended December 31, 2003. Net income increased $35,000 due to a
$509,000 increase in net interest income and a $1.5 million decrease in
provision for loan losses, partially offset by a $1.5 million decrease in other
income and increases in other expenses of $486,000 and income taxes of $19,000.

INTEREST INCOME

Interest income decreased to $12.3 million for the year ended December 31, 2004
from $12.9 million for the year ended December 31, 2003. The $669,000 decrease
in 2004 resulted from decreased income of $1.2 million on loans and $34,000 on
other interest-earning assets, partially offset by increases in income from
mortgage-backed securities of $467,000 and investment securities of $124,000.

The decrease in interest income on loans reflects a decrease in the average
balance of loans outstanding to $128.3 million for 2004 compared to $138.8
million for 2003, as well as a lower average yield of 6.54% for 2004 from 6.93%
for 2003. The decrease in the average yield is due to the low interest rate
environment during 2004. The $10.5 million decrease in the average balance of
loans during 2004 is mostly due to the large volume of loans sold to the
secondary market during 2003, as the actual balance of total loans, including
loans held for sale, decreased by $1.5 million during 2004.

The increase in interest income on investment securities is due to the higher
average balance of investments, which were $96.2 million for 2004 compared to
$91.6 million for 2003. 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 3.42% for 2004 from 3.45% for 2003.

The increase in income on mortgage-backed securities is due to the increase in
the average balance of mortgage-backed securities during 2004 to $14.7 million
from $2.6 million in 2003. The average yield decreased to 3.87% for 2004 from
3.88% for 2003. The increase in the average balance reflects the decision to
diversify and improve the cash flow of the investment portfolio through the
increased investment in mortgage-backed securities, as well as decreased loan
demand.

Other interest-earning assets consist of federal funds sold and interest-earning
deposit accounts. The decrease in interest income is primarily due to a decrease
in the average balance to $2.8 million for 2004 from $6.2 million for 2003, only
partially offset by an increase in the average yield to 1.09% for 2004 from
1.05% for 2003. The decrease in the average balance of these investments is due
to management's decision to reinvest most of these funds into higher yielding
investment and mortgage-backed securities.

INTEREST EXPENSE

Interest expense decreased to $4.6 million for the year ended December 31, 2004
from $5.8 million for the year ended December 31, 2003. The decrease of $1.2
million in the cost of funds reflects a $1.2 million decrease in interest paid
on deposits. Interest on short-term borrowings increased $40,000 during 2004.

                                       11
<PAGE>

The lower interest expense on deposits is attributable to a decrease in the
average yield on deposits to 2.05% for 2004 from 2.62% for 2003. The lower
average yield was partially offset by an increase in the average balance of
deposits to $220.2 million for 2004 from $218.6 for 2003. The decreased cost of
funds reflects the repricing of renewing time deposits at the lower market rates
of interest during 2004.

The increase in interest expense on short-term borrowings is due to an increase
in the average balance of borrowings to $5.2 million for 2004 from $3.8 million
during 2003 and an increase in the average yield to 1.57% for 2004 from 1.10%
for 2003. Management has maintained lower cash balances in order to improve
earnings, and has used short-term advances from the Federal Home Loan Bank
(FHLB) to fund short-term cash needs. The increase in the average balance is due
to the higher average balance of FHLB borrowings, all of which were repaid
during November 2004. The remainder of borrowed funds consists 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.

The Company recorded a provision for loan losses of $550,000 for the year ended
December 31, 2004, a $1.5 million decrease from the provision made during 2003.
The allowance for loan losses decreased to $1.9 million at December 31, 2004
from $2.2 million at December 31, 2003. The decrease in the level of the
allowance reflects net charge-offs exceeding the provision for loan losses. Net
charge-offs decreased during 2004 to $848,000 from $1.9 million during 2003. The
provisions in 2004 and 2003 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. The decrease in the provision during 2004 reflects the decrease in
nonperforming loans and watch list credits, as well as reduced loan
originations. This review also considered the local economy and the level of
bankruptcies and foreclosures in the Company's market area.

NON-INTEREST INCOME

Non-interest income decreased $1.5 million during the year ended December 31,
2004, compared to the year ended December 31, 2003. The decrease is partially
due to the $563,000 settlement that the Company received during the first
quarter of 2003 from its insurance carrier related to the loan defalcation
discovered during 2001. The remainder of the decrease in non-interest income is
primarily due to decreased gains of $785,000 from the sale of loans and $291,000
from the sale of securities, and decreased trust income of $177,000, partially
offset by increases of $230,000 in brokerage commissions and $146,000 in service
charges on deposits. The increased market interest rates during 2004 have
resulted in fewer opportunities for the sale of loans and securities at a gain.
The volume of loans originated for sale decreased to $16.6 million during 2004
from $101.2 million during 2003. As disclosed in previous filings, the higher
level of trust fees during 2003 was not expected to continue into 2004. The
increase in service charges on deposits is primarily due to a new fee structure
implemented on April 1, 2004. Brokerage commissions increased due to a continued
growth in accounts.

                                       12
<PAGE>

NON-INTEREST EXPENSE

Non-interest expense increased $486,000 during the year ended December 31, 2004
compared to the year ended December 31, 2003. The increase is mostly due to
increases of $464,000 in salaries and benefits and $127,000 in occupancy
expense, partially offset by a decrease of $140,000 in other expense. Salaries
and benefits expense has been impacted by a decrease in the deferral of salaries
capitalized as loan costs, due to decreased loan originations, and the hiring of
additional personnel in the loan department during 2003. Salaries expense has
also been impacted by increased brokerage commissions. Occupancy expense has
been affected by the increased depreciation and related expenses of the $2.5
million expansion of the main office facility completed during 2003. The
majority of the $140,000 decrease in other expense is comprised of a decrease in
service charges due to the reversal of prior period accruals as the result of a
third party vendor's waiver of charges.

INCOME TAXES

The provision for income taxes increased $19,000 during 2004 compared to 2003,
due to the $54,000 increase in income before income taxes during this same time
frame. The effective tax rate equals 37.3% for the years ended December 31, 2004
and 2003.





                                       13
<PAGE>

AVERAGE YIELDS EARNED AND RATES PAID

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

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                              ------------------------------------------------------------------------
                                                              2005                                 2004
                                              -----------------------------------  -----------------------------------
                                                 AVERAGE    INTEREST/    YIELD/       AVERAGE    INTEREST/    YIELD/
                                                 BALANCE    DIVIDENDS     COST        BALANCE    DIVIDENDS     COST
                                              ------------------------------------------------------------------------
                                                                         (Dollars in thousands)
<S>                                             <C>          <C>          <C>        <C>          <C>          <C>
Interest-earning assets:
  Loans  (1)                                    $137,740     $ 8,930      6.48 %     $128,279     $ 8,393      6.54 %
  Investment securities (2)                       84,001       3,023      3.60 %       96,174       3,285      3.42 %
  Mortgage-backed securities                      10,514         413      3.93 %       14,694         569      3.87 %
  Other                                            1,900          57      3.03 %        2,808          31      1.09 %
                                                --------     -------                 --------     -------
        Total interest-earning
          assets                                 234,155      12,423      5.31 %      241,955      12,278      5.07 %
                                                             -------                              -------

Non-interest-earning assets                       18,175                               19,647
                                                --------                             --------
        Total assets                            $252,330                             $261,602
                                                ========                             ========

Interest-bearing liabilities:
  Deposits                                      $204,548       4,604      2.25 %     $220,213       4,507      2.05 %
  Short-term borrowings                           10,142         382      3.77 %        5,178          81      1.57 %
                                                --------     -------                 --------     -------
        Total interest-bearing
          liabilities                            214,690       4,986      2.32 %      225,391       4,588      2.04 %
                                                             -------                              -------

Non-interest-bearing liabilities                  17,374                               15,876
Stockholders' equity                              20,266                               20,335
                                                --------                             --------

        Total liabilities and
          stockholders' equity                  $252,330                             $261,602
                                                ========                             ========

Net interest income                                          $ 7,437                              $ 7,690
                                                             =======                              =======

Interest rate spread (3)                                                  2.99 %                              3.04 %
                                                                          ====                                ====

Net interest margin (4)                                                   3.18 %                              3.18 %
                                                                          ====                                ====

Ratio of average interest-earning
  assets to average interest-bearing
  liabilities                                                           109.07 %                            107.35 %
                                                                        ======                              ======

(Continued)

                                                     YEARS ENDED DECEMBER 31,
                                              -----------------------------------
                                                              2003
                                              -----------------------------------
                                                 AVERAGE    INTEREST/    YIELD/
                                                 BALANCE    DIVIDENDS     COST
                                              -----------------------------------
                                                     (Dollars in thousands)
Interest-earning assets:
  Loans  (1)                                    $138,792     $ 9,618      6.93 %
  Investment securities (2)                       91,643       3,161      3.45 %
  Mortgage-backed securities                       2,637         102      3.88 %
  Other                                            6,201          65      1.05 %
                                                --------     -------
        Total interest-earning
          assets                                 239,273      12,946      5.41 %
                                                             -------

Non-interest-earning assets                       18,040
                                                --------
        Total assets                            $257,313
                                                ========

Interest-bearing liabilities:
  Deposits                                      $218,622       5,724      2.62 %
  Short-term borrowings                            3,801          41      1.10 %
                                                --------     -------
        Total interest-bearing
          liabilities                            222,423       5,765      2.59 %
                                                             -------

Non-interest-bearing liabilities                  14,771
Stockholders' equity                              20,119
                                                --------

        Total liabilities and
          stockholders' equity                  $257,313
                                                ========

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

Interest rate spread (3)                                                  2.82 %
                                                                          ====

Net interest margin (4)                                                   3.00 %
                                                                          ====

Ratio of average interest-earning
  assets to average interest-bearing
  liabilities                                                           107.58 %
                                                                        ======
</TABLE>
------------------------------------------------
(1)     Includes non-accrual loans and loans held for sale, and fees of $101,000
        for 2005, $88,000 for 2004, and $111,000 for 2003.
(2)     Includes FHLB stock and other investments.
(3)     Yield on interest-earning assets less cost of interest-bearing
        liabilities.
(4)     Net interest income divided by average interest-earning assets.

                                       14
<PAGE>

RATE/VOLUME ANALYSIS

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

<TABLE>
<CAPTION>
                                                        2005 COMPARED TO 2004                 2004 COMPARED TO 2003
                                                      Increase (Decrease) Due to           Increase (Decrease) Due to
                                                 ----------------------------------  ------------------------------------
                                                   Rate       Volume         Net         Rate        Volume       Net
                                                 ------------------------------------------------------------------------
                                                                             (IN THOUSANDS)
<S>                                              <C>         <C>           <C>         <C>         <C>          <C>
Interest-earning assets:
  Loans                                          $    (77)   $    614      $   537     $   (520)   $   (705)    $ (1,225)
  Investment securities                               169        (431)        (262)         (31)        155          124
  Mortgage-backed securities                            8        (164)        (156)                     467          467
  Other                                                40         (14)          26            2         (36)         (34)
                                                 --------    --------     --------     --------    --------     --------

       Total net change in income
         on interest-earning assets                   140           5          145         (549)       (119)        (668)
                                                 --------    --------     --------     --------    --------     --------

Interest-bearing liabilities:
  Deposits                                            432        (335)          97       (1,258)         41       (1,217)
  Other borrowings                                    179         122          301           22          18           40
                                                 --------    --------     --------     --------    --------     --------

       Total net change in expense
         on interest-bearing liabilities              611        (213)         398       (1,236)         59       (1,177)
                                                 --------    --------     --------     --------    --------     --------

Net change in net interest income                $   (471)   $    218     $   (253)    $    687    $   (178)    $    509
                                                 ========    ========     ========     ========    ========     ========
</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 the secondary market, 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.

The Company uses 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, 2005 and 2004, 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.

<TABLE>
<CAPTION>
------------------- ------------------------------------------------------------------
                                      CHANGE IN NET INTEREST INCOME
                                          (DOLLARS IN THOUSANDS)
                    -------------------------- ------------------------- -------------
                            12/31/05                    12/31/04            ALCO
RATE SHOCK           $ CHANGE      % CHANGE      $ CHANGE     % CHANGE    BENCHMARK
------------------- -------------------------- ------------------------- -------------
<S>                      <C>          <C>             <C>        <C>       <C>
+300 basis points        (679)       (8.97)%         (149)      (1.97)%   >(20.00)%
+200 basis points        (468)       (6.18)%          (20)      (0.27)%   >(20.00)%
+100 basis points        (282)       (3.73)%          110        1.46%    >(12.50)%
-100 basis points          31         0.42%           304        4.02%    >(12.50)%
-200 basis points         294         3.89%           317        4.20%    >(20.00)%
-300 basis points         429         5.67%           315        4.18%    >(20.00)%
------------------- -------------------------- ------------------------- -------------
</TABLE>

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

                                       16
<PAGE>

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

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, 2005 and 2004, cash and cash equivalents totaled
$6.7 million and $10.8 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,
2005 and 2004, the most significant sources of funds have been investment calls
and principal payments, advances from the FHLB, and loan sales to the secondary
market. These funds have been used for new loan originations.

The Company's cash and cash equivalents decreased $4.1 million during the year
ended December 31, 2005, compared to an increase of $1.2 million during the year
ended December 31, 2004. Net cash provided by operating activities decreased
$1.1 million to $2.1 million during 2005. Net cash used by investing activities
increased to $6.5 million during 2005 from the $7.3 million cash provided during
2004. Cash used to fund net loan originations increased to $17.2 million from
the net cash provided of $266,000 during 2004. The increased cash used for loan
originations was partially funded by proceeds from calls, maturities, and sales
of investment and mortgage-backed securities of $16.3 million during 2005. Cash
provided by financing activities increased to $321,000 during 2005 from the cash
used by financing activities of $9.2 million during 2004. The increase is
primarily due to the net increase in advances from the FHLB of $8.0 million
during 2005, compared to no change during 2004.

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, 75% of the balance of
qualifying 1-4 family residential loans, or twenty times the balance of FHLB
stock held by the Company. At December 31, 2005, the Company had $8.0 million in
outstanding advances and additional borrowing capacity of approximately $21.8
million.

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, 2005 and 2004 was 34.7% and 42.4%, 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 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, 2005 and 2004.

                                                      12/31/05       12/31/04
                                                      --------       --------
                                                            (IN THOUSANDS)
       Commitments to fund loans                     $   21,576     $    23,318
       Standby letters of credit                             31             473

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). At December 31, 2005, 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 Director of the Illinois
Department of Financial and Professional Regulation (the "Director") is
authorized to require a savings bank to maintain a higher minimum capital level
if the Director 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 Director may direct the
savings bank to adhere to a specific written plan established by the Director 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, 2005, the Bank's core capital ratio was 7.31% of total adjusted average
assets, which exceeded the required amount.

As of December 31, 2005, 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:

<TABLE>
<CAPTION>
                                                   MINIMUM     12/31/05    12/31/04
                                                   REQUIRED     ACTUAL      ACTUAL
<S>                                                  <C>         <C>         <C>
    Tier 1 Capital to Average Assets                 4.00 %      7.31 %      7.06 %
    Tier 1 Capital to Risk-Weighted Assets           4.00 %     11.66 %     12.77 %
    Total Capital to Risk-Weighted Assets            8.00 %     12.83 %     14.02 %
</TABLE>


                                       18
<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.

                                   * * * * * *




                                       19
<PAGE>

[LOGO] BKD LLP



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Audit Committee, Board of Directors, and Stockholders
Jacksonville Bancorp, Inc.
Jacksonville, Illinois


We have audited the accompanying consolidated balance sheet of Jacksonville
Bancorp, Inc. as of December 31, 2005, and the related consolidated statements
of income, stockholders' equity and cash flows for the year then ended. 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 audit. The financial statements of Jacksonville Bancorp, Inc. as of and for
the years ended December 31, 2004 and 2003 were audited by other accountants
whose report dated January 21, 2005, expressed an unqualified opinion on those
statements.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 audit provide a reasonable
basis for our opinion.

In our opinion, the 2005 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jacksonville
Bancorp, Inc. as of December 31, 2005, and the results of its operations and its
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.

/s/ BKD, LLP

Decatur, Illinois
January 31, 2006

                                       20
<PAGE>

[LOGO] McGladrey & Pullen
       Certified Public Accountants




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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, 2004 and 2003, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the two years ended December 31, 2004. 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 standards of the Public Company
Accounting Oversight Board (United States). 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, 2004 and 2003, and the results
of their operations and their cash flows for the two years ended December 31,
2004, in conformity with accounting principles generally accepted in the United
States of America.


                                              /s/ McGladrey & Pullen, LLP


Champaign, Illinois
January 21, 2005


McGladrey & Pullen, LLP is a member firm of RSM International -
an affiliation of separate and independent legal entities.


                                       21
<PAGE>
<TABLE>
<CAPTION>
                                         JACKSONVILLE BANCORP, INC.
                                         CONSOLIDATED BALANCE SHEETS
                                         DECEMBER 31, 2005 AND 2004

ASSETS

                                                                          2005                2004
                                                                   ----------------------------------------
<S>                                                                  <C>                <C>
    Cash and due from banks                                          $      5,236,825   $      5,999,459
    Interest-earning demand deposits                                        1,444,382          4,793,446
                                                                      ---------------    ---------------

           Cash and cash equivalents                                        6,681,207         10,792,905
                                                                      ---------------    ---------------


    Available-for-sale securities:
       Investment securities                                               78,888,107         84,625,323
       Mortgage-backed securities                                           8,646,407         15,171,342
    Other investments                                                         393,654            582,224
    Loans held for sale                                                       499,445            264,600
    Loans, net of allowance for loan losses of $1,846,150 and
      $1,888,073 at December 31, 2005 and 2004                            142,272,144        125,793,087
    Premises and equipment                                                  6,846,122          7,146,087
    Federal Home Loan Bank stock                                            1,539,328          1,466,300
    Foreclosed assets held for sale, net                                      456,017            564,947
    Interest receivable                                                     1,489,749          1,300,741
    Deferred income taxes                                                   1,490,950            801,704
    Mortgage servicing rights                                               1,059,610          1,094,261
    Goodwill                                                                2,726,567          2,726,567
    Core deposit intangibles                                                  199,309            279,033
    Other assets                                                              757,175            720,392
                                                                      ---------------    ---------------



           Total assets                                              $    253,945,791   $    253,329,513
                                                                      ===============    ===============


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                    2005                2004
                                                                           ----------------------------------------
<S>                                                                           <C>                <C>
    LIABILITIES
        Deposits
           Demand                                                             $     14,514,278   $     14,224,204
           Savings, NOW and money market                                            65,042,300         66,579,831
           Time                                                                    138,813,196        144,930,473
                                                                               ---------------    ---------------

               Total deposits                                                      218,369,774        225,734,508
                                                                               ---------------    ---------------

        Short-term borrowings                                                        3,350,068          3,446,706
        Federal Home Loan Bank advances                                              8,000,000                 --
        Deferred compensation                                                        2,204,095          2,120,620
        Advances from borrowers for taxes and insurance                                374,676            328,444
        Interest payable                                                               800,446            640,060
        Other liabilities                                                              744,128            376,191
                                                                               ---------------    ---------------

               Total liabilities                                                   233,843,187        232,646,529
                                                                               ---------------    ---------------

    STOCKHOLDERS' EQUITY
        Preferred stock, $.01 par value, authorized 10,000,000 shares;
          none issued and outstanding                                                       --                 --
        Common stock, $.01 par value; authorized 20,000,000 shares; issued
          and outstanding 2005 - 1,970,216 shares, 2004 - 1,966,343 shares              19,702             19,663
        Additional paid-in capital                                                   6,474,513          6,459,138
        Retained earnings - substantially restricted                                15,088,742         14,467,568
        Accumulated other comprehensive loss                                        (1,480,353)          (263,385)
                                                                               ---------------    ---------------

               Total stockholders' equity                                           20,102,604         20,682,984
                                                                               ---------------    ---------------

               Total liabilities and stockholders' equity                     $    253,945,791   $    253,329,513
                                                                               ===============    ===============

                                                        22
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                            JACKSONVILLE BANCORP, INC.
                                        CONSOLIDATED STATEMENTS OF INCOME
                                   YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

                                                             2005               2004               2003
                                                      ----------------------------------------------------------
<S>                                                    <C>                <C>                <C>
INTEREST AND DIVIDEND INCOME
    Loans                                              $      8,930,243   $      8,393,339   $      9,618,443
    Securities
       Taxable                                                2,968,151          3,221,133          3,117,183
       Tax-exempt                                                54,174             63,308             43,514
    Mortgage-backed securities                                  413,275            569,325            102,272
    Other                                                        57,480             30,547             64,887
                                                        ---------------    ---------------    ---------------

           Total interest and dividend income                12,423,323         12,277,652         12,946,299
                                                        ---------------    ---------------    ---------------

INTEREST EXPENSE
    Deposits                                                  4,604,190          4,506,529          5,723,776
    Short-term borrowings                                        66,444             30,640             25,480
    Federal Home Loan Bank advances                             315,902             50,426             16,189
                                                        ---------------    ---------------    ---------------

           Total interest expense                             4,986,536          4,587,595          5,765,445
                                                        ---------------    ---------------    ---------------

NET INTEREST INCOME                                           7,436,787          7,690,057          7,180,854

PROVISION FOR LOAN LOSSES                                       245,000            550,000          2,075,000
                                                        ---------------    ---------------    ---------------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES           7,191,787          7,140,057          5,105,854
                                                        ---------------    ---------------    ---------------

NONINTEREST INCOME
    Fiduciary activities                                         74,694             82,085            259,021
    Commission income                                           683,592            640,074            410,145
    Service charges on deposit accounts                         862,558            814,896            668,750
    Net gains on loan sales                                      98,317             44,089            829,362
    Net realized gains on sales of
      available-for-sale securities                              16,708             28,020            319,103
    Loan servicing fees                                         363,838            385,859            402,515
    Recovery from insurance company                                   --                  --            562,500
    Other                                                        73,979             43,214             80,908
                                                        ---------------    ---------------    ---------------

           Total noninterest income                           2,173,686          2,038,237          3,532,304
                                                        ---------------    ---------------    ---------------

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                             2005               2004               2003
                                                      ----------------------------------------------------------
<S>                                                    <C>                <C>                <C>
NONINTEREST EXPENSE
    Salaries and employee benefits                     $      4,702,992   $      4,664,390   $      4,200,388
    Net occupancy and equipment expense                       1,339,069          1,383,875          1,256,706
    Data processing fees                                        343,124            284,328            278,024
    Professional fees                                           221,286            186,967            120,613
    Marketing expense                                           116,948            120,394            129,536
    Postage and office supplies                                 292,407            265,784            293,828
    Deposit insurance premium                                    30,416             35,282             35,897
    Other                                                     1,007,316            840,678            980,790
                                                        ---------------    ---------------    ---------------

           Total noninterest expense                          8,053,558          7,781,698          7,295,782
                                                        ---------------    ---------------    ---------------

INCOME BEFORE INCOME TAX                                      1,311,915          1,396,596          1,342,376

PROVISION FOR INCOME TAXES                                      411,948            520,746            501,346
                                                        ---------------    ---------------    ---------------

NET INCOME                                             $        899,967   $        875,850   $        841,030
                                                        ===============    ===============    ===============

BASIC EARNINGS PER SHARE                               $            .46   $            .45   $            .43
                                                        ===============    ===============    ===============

DILUTED EARNINGS PER SHARE                             $            .45   $            .44   $            .43
                                                        ===============    ===============    ===============



                                                       23
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                            JACKSONVILLE BANCORP, INC.
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                   YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003


                                                                  COMMON STOCK                   ADDITIONAL
                                                       ------------------------------------       PAID-IN
                                                            SHARES             AMOUNT             CAPITAL
                                                       -------------------------------------------------------
<S>                                                           <C>         <C>                <C>
BALANCE, JANUARY 1, 2003                                      1,921,304   $         19,213   $      6,374,463

  Comprehensive income
    Net income                                                       --                 --                 --
    Change in unrealized depreciation on
      available-for-sale securities, net of taxes                    --                 --                 --

       Total comprehensive income

  Dividends on common stock, $.30 per share                          --                 --                 --
  Purchase and retirement of stock                              (20,325)              (203)          (341,312)
  Stock options exercised                                        41,025                410            366,170
                                                        ---------------    ---------------   ----------------

BALANCE, DECEMBER 31, 2003                                    1,942,004             19,420          6,399,321

  Comprehensive income
    Net income                                                       --                 --                 --
    Change in unrealized depreciation on
      available-for-sale securities, net of taxes                    --                 --                 --

       Total comprehensive income

  Dividends on common stock, $.30 per share                          --                 --                 --
  Purchase and retirement of stock                              (20,113)              (201)          (379,563)
  Stock options exercised                                        44,452                444            439,380
                                                        ---------------    ---------------   ----------------

BALANCE, DECEMBER 31, 2004                                    1,966,343             19,663          6,459,138

  Comprehensive income
    Net income                                                       --                 --                 --
    Change in unrealized depreciation on
      available-for-sale securities, net of taxes                    --                 --                 --

       Total comprehensive income (loss)

  Dividends on common stock, $.30 per share                          --                 --                 --
  Purchase and retirement of stock                               (3,660)               (37)           (57,282)
  Stock options exercised                                         7,533                 76             76,291
  Tax benefit related to stock options exercised                     --                 --             (3,634)
                                                        ---------------    ---------------   ----------------

BALANCE, DECEMBER 31, 2005                                    1,970,216   $         19,702   $      6,474,513
                                                        ===============    ===============    ===============

(CONTINUED ON NEXT PAGE)
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                           JACKSONVILLE BANCORP, INC.
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003


                                                                             ACCUMULATED
                                                                                OTHER
                                                           RETAINED         COMPREHENSIVE
                                                           EARNINGS         INCOME (LOSS)          TOTAL
                                                     ----------------------------------------------------------
<S>                                                    <C>                 <C>                <C>
BALANCE, JANUARY 1, 2003                               $     13,294,959    $       563,776    $    20,252,411

  Comprehensive income
    Net income                                                  841,030                 --            841,030
    Change in unrealized depreciation on
      available-for-sale securities, net of taxes                    --           (817,213)          (817,213)
                                                                                             ----------------

       Total comprehensive income                                                                      23,817

  Dividends on common stock, $.30 per share                    (269,140)                --           (269,140)
  Purchase and retirement of stock                                   --                 --           (341,515)
  Stock options exercised                                            --                 --            366,580
                                                        ---------------    ---------------   ----------------

BALANCE, DECEMBER 31, 2003                                   13,866,849           (253,437)        20,032,153

  Comprehensive income
    Net income                                                  875,850                 --            875,850
    Change in unrealized depreciation on
      available-for-sale securities, net of taxes                    --             (9,948)            (9,948)
                                                                                             ----------------

       Total comprehensive income                                                                     865,902
  Dividends on common stock, $.30 per share                    (275,131)                --           (275,131)
  Purchase and retirement of stock                                   --                 --           (379,764)
  Stock options exercised                                            --                 --            439,824
                                                        ---------------    ---------------   ----------------

BALANCE, DECEMBER 31, 2004                                   14,467,568           (263,385)        20,682,984

  Comprehensive income
    Net income                                                  899,967                 --            899,967
    Change in unrealized depreciation on
      available-for-sale securities, net of taxes                    --         (1,216,968)        (1,216,968)
                                                                                             ----------------

       Total comprehensive income (loss)                                                             (317,001)

  Dividends on common stock, $.30 per share                    (278,793)                --           (278,793)
  Purchase and retirement of stock                                   --                 --            (57,319)
  Stock options exercised                                            --                 --             76,367
  Tax benefit related to stock options exercised                     --                 --             (3,634)
                                                        ---------------    ---------------   ----------------

BALANCE, DECEMBER 31, 2005                              $    15,088,742    $    (1,480,353)  $     20,102,604
                                                        ===============    ===============   ================


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                       24

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                           JACKSONVILLE BANCORP, INC.
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003


                                                           2005               2004                2003
                                                   -----------------------------------------------------------
<S>                                                   <C>                <C>                <C>
OPERATING ACTIVITIES
  Net income                                          $       899,967    $       875,850    $       841,030
  Items not requiring (providing) cash
     Depreciation and amortization                            567,612            596,484            469,278
     Provision for loan losses                                245,000            550,000          2,075,000
     Amortization of premiums and discounts on
        securities                                            148,389            479,102            688,406
     Amortization of loan purchased premium                   (59,340)           (59,340)           (59,741)
     Amortization of intangibles                               79,724             79,723             79,724
     Deferred income taxes                                     80,348             55,423            450,000
     Net realized gains on available-for-sale
        securities                                            (16,708)           (28,020)          (319,103)
     Net realized gains on sale of loans                      (98,317)           (44,089)          (829,362)
     Federal Home Loan Bank stock dividend                    (73,028)           (85,700)          (101,400)
     (Gain) loss on sale of foreclosed assets                  15,683            (82,880)           (77,055)
     Write-down on foreclosed assets                               --                 --             81,749
  Changes in
     Origination of loans held for sale                   (21,370,056)       (16,571,250)      (101,216,763)
     Proceeds from sales of loans held for sale            21,268,179         16,931,024        107,720,332
     Interest receivable                                     (189,008)           144,399            274,337
     Other assets                                             (36,783)           161,712            116,213
     Interest payable                                         160,386           (135,906)          (219,297)
     Other liabilities                                        451,412            309,935           (251,807)
                                                      ---------------    ---------------    ---------------

         Net cash provided by operating
            activities                                      2,073,460          3,176,467          9,721,541
                                                      ---------------    ---------------    ---------------

INVESTING ACTIVITIES
  Net change in federal funds sold                                 --            500,000            300,000
  Purchases of available-for-sale securities               (5,943,592)       (42,758,256)      (134,699,165)
  Proceeds from maturities of
    available-for-sale securities                           9,979,084         39,396,184         73,325,359
  Proceeds from the sales of
    available-for-sale and other securities                 6,296,986          9,646,349         28,986,883
  Net change in loans                                     (17,195,370)           266,217         13,012,816
  Purchase of premises and equipment                         (269,747)          (323,510)        (2,220,128)
  Proceeds from sales of premises and equipment                 2,100                 --                 --
  Proceeds from the sale of foreclosed assets                 623,900            546,262            759,585
                                                      ---------------    ---------------    ---------------

         Net cash provided by (used in)
            investing activities                           (6,506,639)         7,273,246        (20,534,650)
                                                      ---------------    ---------------    ---------------


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                           2005               2004                2003
                                                   -----------------------------------------------------------
<S>                                                   <C>                <C>                <C>
FINANCING ACTIVITIES
  Net increase (decrease) in demand deposits,
    money market, NOW and savings accounts            $    (1,247,457)   $      (498,405)   $     6,863,606
  Net increase (decrease) in certificates of
    deposit                                                (6,117,277)        (8,939,819)         2,706,629
  Net increase (decrease) in short-term
    borrowings                                                (96,638)           557,752             14,247
  Proceeds from Federal Home Loan Bank advances             8,000,000                 --                 --
  Proceeds from stock options exercised                        72,733            439,824            366,580
  Purchase of common stock                                    (57,319)          (379,764)          (341,515)
  Dividends paid                                             (278,793)          (342,876)          (267,589)
  Net increase (decrease) in advances from
    borrowers for taxes and insurance                          46,232            (69,497)           (44,498)
                                                      ---------------    ---------------    ---------------

         Net cash provided by (used in)
            financing activities                              321,481         (9,232,785)         9,297,460
                                                      ---------------    ---------------    ---------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS           (4,111,698)         1,216,928         (1,515,649)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR               10,792,905          9,575,977         11,091,626
                                                      ---------------    ---------------    ---------------

CASH AND CASH EQUIVALENTS, END OF YEAR                $     6,681,207    $    10,792,905    $     9,575,977
                                                      ===============    ===============    ===============

SUPPLEMENTAL CASH FLOWS INFORMATION

  Interest paid                                       $     4,826,150    $     4,723,501    $     5,984,742

  Income taxes paid (net of refunds)                  $       206,900    $       104,282    $       215,613

  Sale and financing of foreclosed assets             $       402,530    $       469,636    $       201,202

  Real estate acquired in settlement of loans         $       933,183    $       998,708    $     1,022,690

  Dividends declared not paid                         $            --    $            --    $        67,745


                                                      25
</TABLE>

<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004

NOTE 1:    NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF OPERATIONS

        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.

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

        The 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.

        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:

                                       26
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


     PRINCIPLES 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.

     USE OF ESTIMATES

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

        Material estimates that are particularly susceptible to significant
        change relate to the determination of the allowance for loan losses. In
        connection with the determination of the allowance for loan losses,
        management obtains independent appraisals for significant properties.

     CASH EQUIVALENTS

        The Company considers all liquid investments with original maturities of
        three months or less to be cash equivalents.

     SECURITIES

        Available-for-sale securities, which include any security for which the
        Company has no immediate plan to sell but which may be sold in the
        future, are carried at fair value. Unrealized gains and losses are
        recorded, net of related income tax effects, in other comprehensive
        income.

        Amortization of premiums and accretion of discounts are recorded as
        interest income from securities. Realized gains and losses are recorded
        as net security gains (losses). Gains and losses on sales of securities
        are determined on the specific-identification method.

     OTHER INVESTMENTS

        Other investments at December 31, 2005 and 2004 include local municipal
        bonds and equity investments in local community development
        organizations. The municipal bonds mature ratably through the year 2014.
        These securities have no readily ascertainable market value and are
        carried at cost.

                                       27
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


     LOANS HELD FOR SALE

        Mortgage loans originated and intended for sale in the secondary market
        are carried at the lower of cost or fair value in the aggregate. Net
        unrealized losses, if any, are recognized through a valuation allowance
        by charges to income.

     LOANS

        Loans that management has the intent and ability to hold for the
        foreseeable future or until maturity or payoffs are reported at their
        outstanding principal balances adjusted for any charge-offs, the
        allowance for loan losses, any deferred fees or costs on originated
        loans and unamortized premiums or discounts on purchased loans. Interest
        income is reported on the interest method and includes amortization of
        net deferred loan fees and costs over the loan term. Generally, loans
        are placed on non-accrual status at ninety days past due and interest is
        considered a loss, unless the loan is well-secured and in the process of
        collection.

        Discounts and premiums on purchased residential real estate loans are
        amortized to income using the interest method over the remaining period
        to contractual maturity, adjusted for anticipated prepayments. Discounts
        and premiums on purchased consumer loans are recognized over the
        expected lives of the loans using methods that approximate the interest
        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 loan acquired.

     ALLOWANCE FOR LOAN LOSSES

        The allowance for loan losses is established as losses are estimated to
        have occurred through a provision for loan losses charged to income.
        Loan losses are charged against the allowance when management believes
        collectibility of the principal is unlikely. Subsequent recoveries, if
        any, are credited to the allowance.

        The allowance for loan losses is evaluated on a regular basis by
        management and is based upon management's periodic review of the
        collectibility of the loans in light of historical experience, the
        nature and volume of the loan portfolio, adverse situations that may
        affect the borrower's ability to repay, estimated value of any
        underlying collateral and prevailing economic conditions. This
        evaluation is inherently subjective as it requires estimates that are
        susceptible to significant revision as more information becomes
        available.

                                       28
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        A loan is considered impaired when, based on current information and
        events, it is probable that the Company will be unable to collect the
        scheduled payments of principal or interest when due according to the
        contractual terms of the loan agreement. Factors considered by
        management in determining impairment include payment status, collateral
        value and the probability of collecting scheduled principal and interest
        payments when due. Loans that experience insignificant payment delays
        and payment shortfalls generally are not classified as impaired.
        Management determines the significance of payment delays and payment
        shortfalls on a case-by-case basis, taking into consideration all of the
        circumstances surrounding the loan and the borrower, including the
        length of the delay, the reasons for the delay, the borrower's prior
        payment record and the amount of the shortfall in relation to the
        principal and interest owed. Impairment is measured on a loan-by-loan
        basis for commercial and construction loans by either the present value
        of expected future cash flows discounted at the loan's effective
        interest rate, the loan's obtainable market price or the fair value of
        the collateral if the loan is collateral dependent.

        Large groups of smaller balance homogenous loans are collectively
        evaluated for impairment. Accordingly, the Company does not separately
        identify individual consumer and residential loans or smaller balance
        commercial and agricultural loans for impairment measurements.

     PREMISES AND EQUIPMENT

        Depreciable assets are stated at cost less accumulated depreciation.
        Depreciation is charged to expense using the straight-line method over
        the estimated useful lives of the assets.

     FEDERAL HOME LOAN BANK STOCK

        Federal Home Loan Bank stock is a required investment for institutions
        that are members of the Federal Home Loan Bank system. The required
        investment in the common stock is based on a predetermined formula. No
        ready market exists for Federal Home Loan Bank stock and it has no
        quoted market value. Effective in 2005, the Federal Home Loan Bank
        announced that they have, for the time being, ceased repurchasing from
        member banks any stock in excess of the required investment in Federal
        Home Loan Bank stock held by member banks. As of December 31, 2005, the
        Bank has approximately $705,000 in excess Federal Home Loan Bank stock.

     FORECLOSED ASSETS HELD FOR SALE

        Assets acquired through, or in lieu of, loan foreclosure are held for
        sale and are initially recorded at fair value at the date of
        foreclosure, establishing a new cost basis. Subsequent to foreclosure,
        valuations are periodically performed by management and the assets are
        carried at the lower of carrying amount or fair value less cost to sell.
        Revenue and expenses from operations and changes in the valuation
        allowance are included in income or expense from foreclosed assets.

                                       29
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


     GOODWILL

        Goodwill is tested annually for impairment. If the implied fair value of
        goodwill is lower than its carrying amount, a goodwill impairment is
        indicated and goodwill is written down to its implied fair value.
        Subsequent increases in goodwill value are not recognized in the
        financial statements.

     INTANGIBLE ASSETS

        Intangible assets are being amortized on the straight-line basis over
        periods up to eight years. Such assets are periodically evaluated as to
        the recoverability of their carrying value.

     MORTGAGE SERVICING RIGHTS

        Mortgage servicing rights on originated loans that have been sold are
        capitalized by allocating the total cost of the mortgage loans between
        the mortgage servicing rights and the loans based on their relative fair
        values. Capitalized servicing rights are amortized in proportion to and
        over the period of estimated servicing revenues. Impairment of
        mortgage-servicing rights is assessed based on the fair value of those
        rights. Fair values are estimated using discounted cash flows based on a
        current market interest rate. For purposes of measuring impairment, the
        rights are stratified based on the predominant risk characteristics of
        the underlying loans. The predominant characteristic currently used for
        stratification is type of loan. The amount of impairment recognized is
        the amount, if any, by which the capitalized mortgage servicing rights
        for a stratum exceed their fair value.

     STOCK OPTIONS

        The Company has a stock-based employee compensation plan, which is
        described more fully in Note 16. The Company accounts for this plan
        under the recognition and measurement principles of APB Opinion No. 25,
        ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related Interpretations.
        No stock-based employee compensation cost is reflected in net income, as
        all options granted under this plan had an exercise price equal to the
        market value of the underlying common stock on the grant date. The
        following table illustrates the effect on net income and earnings per
        share if the Company had applied the fair value provisions of Statement
        of Financial Accounting Standards No. 123R, SHARE-BASED PAYMENT, which
        is a revision to Statement No. 123, ACCOUNTING FOR STOCK-BASED
        COMPENSATION, to stock-based employee compensation. See Note 21 in
        regard to a future change in accounting principle.

                                       30
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31
                                                                               (IN THOUSANDS)
                                                            -----------------------------------------------------
                                                                   2005             2004             2003
                                                            -----------------------------------------------------
<S>                                                           <C>               <C>              <C>
         Net income, as reported                              $          900    $          876   $          841
         Less:  Total stock-based employee compensation
            cost determined under the fair value based
            method, net of income taxes                                   (4)               (4)              --
                                                              --------------    --------------   --------------

         Pro forma net income                                 $          896    $          872              841
                                                              ==============    ==============   --------------

         Earnings per share:
             Basic - as reported                              $          .46    $          .45              .43
                                                              ==============    ==============   ==============
             Basic - pro forma                                $          .46    $          .45              .43
                                                              ==============    ==============   ==============
             Diluted - as reported                            $          .45    $          .44              .43
                                                              ==============    ==============   ==============
             Diluted - pro forma                              $          .45    $          .44              .43
                                                              ==============    ==============   ==============
</TABLE>

     INCOME TAXES

        Deferred tax assets and liabilities are recognized for the tax effects
        of differences between the financial statement and tax bases of assets
        and liabilities. A valuation allowance is established to reduce deferred
        tax assets if it is more likely than not that a deferred tax asset will
        not be realized. The Company files consolidated income tax returns with
        its subsidiary.

     EARNINGS PER SHARE

        Earnings per share have been computed based upon the weighted-average
        common shares outstanding during each year.

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

                                       31
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


     TRUST ASSETS

        Assets held in fiduciary or agency capacities are not included in the
        consolidated balance sheets since such items are not assets of the
        Company. Fees from trust activities are recorded as revenue over the
        period in which the service is provided. Fees are a function of the
        market value of assets managed and administered, the volume of
        transactions, and fees for other services rendered, as set forth in the
        underlying client agreement with the Trust Department. This revenue
        recognition involves the use of estimates and assumptions, including
        components that are calculated based on estimated asset valuations and
        transaction volumes. Generally, the actual trust fee is charged to each
        account on a quarterly basis. Any out of pocket expenses or services not
        typically covered by the fee schedule for trust activities are charged
        directly to the trust account on a gross basis as trust revenue is
        incurred. The Company manages or administers 81 trust accounts with
        assets totaling approximately $25.1 million at December 31, 2005.

     RECLASSIFICATIONS

        Certain reclassifications have been made to the 2004 and 2003 financial
        statements to conform to the 2005 financial statement presentation.
        These reclassifications had no effect on net income.

NOTE 2:    RESTRICTION ON CASH AND DUE FROM BANKS

        The Company is required to maintain reserve funds in cash and/or on
        deposit with the Federal Reserve Bank. The reserve required at December
        31, 2005, was $886,000.


                                       32
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


NOTE 3:    SECURITIES

        The amortized cost and approximate fair values of securities, all of
        which are classified as available for sale, are as follows:

<TABLE>
<CAPTION>
                                                              GROSS          GROSS
                                            AMORTIZED       UNREALIZED     UNREALIZED      APPROXIMATE
                                              COST            GAINS         (LOSSES)        FAIR VALUE
                                        -----------------------------------------------------------------
<S>                                       <C>             <C>             <C>             <C>
          December 31, 2005:
             U.S. Treasury                $     499,589   $          --   $      (6,542)  $     493,047
             U.S. government agencies        79,759,220              --      (2,169,198)     77,590,022
             Mortgage-backed securities       8,873,093              --        (226,686)      8,646,407
             State and political
                subdivisions                    819,120             376         (14,458)        805,038
                                          -------------   -------------   -------------   -------------

                                          $  89,951,022   $         376   $  (2,416,884)  $  87,534,514
                                          =============   =============   =============   =============

          December 31, 2004:
             U.S. government agencies    $   83,651,198   $      96,865   $    (555,615)  $  83,192,448
             Mortgage-backed securities      15,160,093          56,801         (45,552)     15,171,342
             State and political
                subdivisions                  1,415,320          21,037          (3,482)      1,432,875
                                          -------------   -------------   -------------   -------------

                                          $ 100,226,611   $     174,703   $    (604,649)  $  99,796,665
                                          =============   =============   =============   =============
</TABLE>


                                       33
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        The amortized cost and fair value of available-for-sale securities at
        December 31, 2005, by contractual maturity, are shown below. Expected
        maturities will differ from contractual maturities because issuers may
        have the right to call or prepay obligations with or without call or
        prepayment penalties.

                                                    AVAILABLE-FOR-SALE
                                               AMORTIZED           FAIR
                                                  COST             VALUE
                                           -----------------------------------

              Within one year                $    3,699,700   $    3,641,580
              One to five years                  59,989,673       58,324,061
              Five to ten years                  16,889,104       16,445,291
              After ten years                       499,452          477,175
              Mortgage-backed securities          8,873,093        8,646,407
                                             --------------   --------------

                     Totals                  $   89,951,022   $   87,534,514
                                             ==============   ==============

        The carrying value of securities pledged as collateral, to secure public
        deposits and for other purposes, was $42,800,863 at December 31, 2005,
        and $41,950,327 at December 31, 2004.

        The book value of securities sold under agreements to repurchase
        amounted to $3,350,068 and $3,446,706 at December 31, 2005 and 2004,
        respectively.

        Gross gains of $38,901, $35,095 and $333,821 and gross losses of
        $22,193, $7,075 and $14,718 resulting from sales of available-for-sale
        securities were realized for 2005, 2004 and 2003, respectively. The tax
        provision applicable to these net realized gains amounted to $6,473,
        $10,877 and $123,621, respectively.

        Certain investments in debt securities are reported in the financial
        statements at an amount less than their historical cost. Total fair
        value of these investments at December 31, 2005 and 2004, was
        $86,697,071 and $63,244,248, which is approximately 99% and 63%,
        respectively, of the Company's available-for-sale investment portfolio.
        These declines primarily resulted from recent increases in market
        interest rates and failure of certain investments to maintain consistent
        credit quality ratings.

        Based on evaluation of available evidence, including recent changes in
        market interest rates, credit rating information and information
        obtained from regulatory filings, management believes the declines in
        fair value for these securities are temporary.

        Should the impairment of any of these securities become other than
        temporary, the cost basis of the investment will be reduced and the
        resulting loss recognized in net income in the period the
        other-than-temporary impairment is identified.

                                       34
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        The following table shows the Company's investments' gross unrealized
        losses and fair value, aggregated by investment category and length of
        time that individual securities have been in a continuous unrealized
        loss position at December 31, 2005 and 2004:

<TABLE>
<CAPTION>
                               LESS THAN 12 MONTHS           12 MONTHS OR MORE                  TOTAL
   DESCRIPTION OF                          UNREALIZED                   UNREALIZED                    UNREALIZED
     SECURITIES            FAIR VALUE        LOSSES      FAIR VALUE       LOSSES       FAIR VALUE       LOSSES
-------------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>            <C>            <C>            <C>            <C>
DECEMBER 31, 2005

U.S. Treasury             $    493,047   $     (6,542)  $         --   $         --   $    493,047   $     (6,542)
U.S. government
   agencies                 24,161,653       (505,467)    53,428,370     (1,663,731)    77,590,023     (2,169,198)
Mortgage-backed
   securities                4,625,879       (130,039)     3,203,860        (96,647)     7,829,739       (226,686)
State and political
   subdivisions                400,051         (6,902)       384,211         (7,556)       784,262        (14,458)
                          ------------   ------------   ------------   ------------   ------------   ------------

    Total temporarily
       impaired
       securities         $ 29,680,630   $   (648,950)  $ 57,016,441   $ (1,767,934)  $ 86,697,071   $ (2,416,884)
                          ============   ============   ============   ============   ============   ============

DECEMBER 31, 2004

U.S. government
   agencies               $ 54,143,539   $   (486,375)  $  2,683,898   $    (69,240)  $ 56,827,437   $   (555,615)
Mortgage-backed
   securities                5,922,635        (45,552)            --             --      5,922,635        (45,552)
State and political
   subdivisions                494,176         (3,482)            --             --        494,176         (3,482)
                          ------------   ------------   ------------   ------------   ------------   ------------

    Total temporarily
       impaired
       securities         $ 60,560,350   $   (535,409)  $  2,683,898   $    (69,240)  $ 63,244,248   $   (604,649)
                          ============   ============   ============   ============   ============   ============
</TABLE>


                                       35
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


NOTE 4:    LOANS AND ALLOWANCE FOR LOAN LOSSES

        Categories of loans at December 31, include:

<TABLE>
<CAPTION>
                                                                             2005                2004
                                                                     ---------------------------------------
<S>                                                                    <C>                <C>
           Commercial and agricultural                                 $     28,678,748   $     26,227,379
           Commercial and agricultural real estate                           39,869,420         26,794,511
           Residential real estate                                           40,125,714         41,616,223
           Consumer                                                          30,961,843         28,837,297
           Other                                                              4,657,431          4,380,073
                                                                       ----------------   ----------------
                  Total loans                                               144,293,156        127,855,483

           Less
               Net deferred loan fees, premiums and discounts                   135,304             75,426
               Unearned premium on purchased loans                               39,559             98,897
               Allowance for loan losses                                      1,846,150          1,888,073
                                                                       ----------------   ----------------

                  Net loans                                            $    142,272,144   $    125,793,087
                                                                       ================   ================
</TABLE>

        Activity in the allowance for loan losses was as follows:

<TABLE>
<CAPTION>
                                                                     2005              2004             2003
                                                              -----------------------------------------------------
<S>                                                             <C>               <C>              <C>
           Balance, beginning of year                           $    1,888,073    $    2,186,058   $    2,073,095
           Provision charged to expense                                245,000           550,000        2,075,000
           Losses charged off, net of recoveries of
              $145,655 for 2005, $225,163 for 2004 and
              $91,824 for 2003                                        (286,923)         (847,985)      (1,962,037)
                                                                --------------    --------------   --------------

           Balance, end of year                                 $    1,846,150    $    1,888,073   $    2,186,058
                                                                ==============    ==============   ==============
</TABLE>

        Impaired loans totaled $233,453, $120,964 and $987,023 at December 31,
        2005, 2004 and 2003, respectively. An allowance for loan losses of
        $34,350, $3,200 and $87,317 relates to impaired loans of $233,453,
        $120,964 and $987,023, at December 31, 2005, 2004 and 2003,
        respectively.

        Interest of approximately $22,000, $41,000 and $64,600 was recognized on
        average impaired loans of $465,236, $565,000 and $967,000 for 2005, 2004
        and 2003, respectively. Interest of $3,452, $43,038 and $58,934 was
        recognized on impaired loans on a cash basis during 2005, 2004 and 2003,
        respectively.

                                       36
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        At December 31, 2005, 2004 and 2003, accruing loans delinquent 90 days
        or more totaled $21,236, $297,688 and $190,415, respectively.
        Non-accruing loans at December 31, 2005, 2004 and 2003 were $1,156,527,
        $1,689,303 and $3,121,234, respectively.

NOTE 5:    PREMISES AND EQUIPMENT

        Major classifications of premises and equipment, stated at cost, are as
        follows:

<TABLE>
<CAPTION>
                                                             2005               2004
                                                     ---------------------------------------
<S>                                                    <C>                <C>
           Land                                        $        923,276   $        923,276
           Buildings and improvements                         7,467,356          7,450,542
           Equipment                                          4,686,186          4,444,284
                                                       ----------------   ----------------
                                                             13,076,818         12,818,102
           Less accumulated depreciation                     (6,230,696)        (5,672,015)
                                                       ----------------   ----------------

                  Net premises and equipment           $      6,846,122   $      7,146,087
                                                       ================   ================
</TABLE>

NOTE 6:    INTANGIBLE ASSETS

        The carrying basis and accumulated amortization of recognized intangible
        assets at December 31, 2005 and 2004, were:

<TABLE>
<CAPTION>
                                               2005                               2004
                                     GROSS                              GROSS
                                    CARRYING         ACCUMULATED       CARRYING         ACCUMULATED
                                     AMOUNT         AMORTIZATION        AMOUNT         AMORTIZATION
                                -----------------------------------------------------------------------
<S>                               <C>              <C>               <C>              <C>
           Core deposits          $     637,789    $      (438,480)  $     637,789    $      (358,756)
</TABLE>

        Amortization expense for the years ended December 31, 2005, 2004 and
        2003, was $79,724, $79,723 and $79,724, respectively. Estimated
        amortization expense for each of the following three years is:

                    2006                               $   79,724
                    2007                                   79,724
                    2008                                   39,861

                                       37
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


NOTE 7:    LOAN SERVICING

        Mortgage loans serviced for others are not included in the accompanying
        consolidated balance sheets. The unpaid principal balances of mortgage
        loans serviced for others was $143,665,406 and $148,616,467 at December
        31, 2005 and 2004, respectively.

        Custodial escrow balances maintained in connection with the foregoing
        loan servicing, and included in demand deposits on the general ledger,
        were approximately $306,400 and $266,300 at December 31, 2005 and 2004,
        respectively.

        The aggregate fair value of capitalized mortgage servicing rights at
        December 31, 2005 and 2004 totaled $1,144,828 and $1,793,135,
        respectively. Comparable market values and a valuation model that
        calculates the present value of future cash flows were used to estimate
        fair value. For purposes of measuring impairment, risk characteristics
        including product type, investor type, and interest rates, were used to
        stratify the originated mortgage servicing rights.

<TABLE>
<CAPTION>
                                                                   2005              2004
                                                            -------------------------------------
<S>                                                          <C>                <C>
           Mortgage servicing rights
               Balance, beginning of year                    $      1,094,261   $      1,168,246
               Servicing rights capitalized                           159,511            127,000
               Amortization of servicing rights                      (194,162)          (200,985)
                                                             ----------------   ----------------

               Balance, end of year                          $      1,059,610   $      1,094,261
                                                             ================   ================
</TABLE>

NOTE 8:    INTEREST-BEARING DEPOSITS

        Interest-bearing deposits in denominations of $100,000 or more were
        $77,188,303 on December 31, 2005, and $75,928,523 on December 31, 2004.

        At December 31, 2005, the scheduled maturities of time deposits are as
        follows:

                  2006                                     $   99,868,267
                  2007                                         19,600,768
                  2008                                          8,131,012
                  2009                                          4,987,102
                  2010                                          6,082,762
                  Thereafter                                      143,285
                                                           --------------

                                                           $  138,813,196
                                                           ==============

                                       38
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


NOTE 9:    SHORT-TERM BORROWINGS

        Short-term borrowings consist of securities sold under agreements to
        repurchase totaling $3,350,068 and $3,446,706 at December 31, 2005 and
        2004, respectively.

        Securities sold under agreements to repurchase consist of obligations of
        the Company to other parties. The obligations are secured by investments
        and such collateral is held by the Company. The maximum amount of
        outstanding agreements at any month end during 2005 and 2004 totaled
        $3,350,068 and $3,446,706, respectively, and the monthly average of such
        agreements totaled $2,115,575 and $2,186,399 for 2005 and 2004,
        respectively. The agreements at December 31, 2005, are all overnight
        agreements.


NOTE 10:   FEDERAL HOME LOAN BANK ADVANCES

        The Federal Home Loan Bank advances are secured by mortgage loans
        totaling $10,666,667 at December 31, 2005. Advances, at interest rates
        from 4.18% to 4.47% are subject to restrictions or penalties in the
        event of prepayment.

        Aggregate annual maturities of the advances at December 31, 2005, are:

                     2006                                  $    4,000,000
                     2007                                       2,000,000
                     2008                                       2,000,000
                                                           --------------

                                                           $    8,000,000
                                                           ==============

NOTE 11:   INCOME TAXES

        The provision for income taxes includes these components:

<TABLE>
<CAPTION>
                                                           2005             2004              2003
                                                    --------------------------------------------------
<S>                                                   <C>              <C>             <C>
           Taxes currently payable
               Federal                                $     331,600    $     533,463   $      80,129
               State                                             --          (68,140)        (28,783)
           Deferred income taxes                             80,348           55,423         450,000
                                                      -------------    -------------   -------------

                  Income tax expense                  $     411,948    $     520,746   $     501,346
                                                      =============    =============   =============
</TABLE>


                                       39
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        A reconciliation of income tax expense at the statutory rate to the
        Company's actual income tax expense is shown below:

<TABLE>
<CAPTION>
                                                              2005              2004             2003
                                                       -----------------------------------------------------
<S>                                                      <C>               <C>              <C>
           Computed at the statutory rate (34%)          $      446,051    $      474,843   $      456,408
           Increase (decrease) resulting from
               Tax exempt interest                              (18,419)          (19,489)         (13,932)
               Graduated tax rates                              (13,119)          (13,966)         (13,424)
               State income taxes, net                          (28,810)          (43,196)         (18,709)
               Other                                             26,245           122,554           91,003
                                                         --------------    --------------   --------------

                  Actual tax expense                     $      411,948    $      520,746   $      501,346
                                                         ==============    ==============   ==============
</TABLE>

        The tax effects of temporary differences related to deferred taxes shown
        on the balance sheets were:

<TABLE>
<CAPTION>
                                                                             2005                2004
                                                                     ---------------------------------------
<S>                                                                    <C>                <C>
           Deferred tax assets
               Allowance for loan losses                               $        580,252   $        607,533
               Deferred compensation                                            839,657            823,182
               State net operating loss carryforward                            309,515            285,650
               Unrealized losses on available-for-sale securities               936,155            166,561
               Other                                                              7,517            147,932
                                                                       ----------------   ----------------
                                                                              2,673,096          2,030,858
                                                                       ----------------   ----------------

           Deferred tax liabilities
               Depreciation                                                     451,677            480,998
               Federal Home Loan Bank stock dividends                           200,251            175,491
               Prepaid expenses                                                  65,871             78,346
               Mortgage servicing rights                                        403,662            424,770
               Basis in acquired assets                                          60,685             69,549
                                                                       ----------------   ----------------
                                                                              1,182,146          1,229,154
                                                                       ----------------   ----------------

                  Net deferred tax asset                               $      1,490,950   $        801,704
                                                                       ================   ================
</TABLE>

        Retained earnings at December 31, 2005 and 2004, include approximately
        $2,600,000, for which no deferred federal income tax liability has been
        recognized. These amounts represent 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 deferred income tax liabilities on the preceding amounts that
        would have been recorded if they were expected to reverse into taxable
        income in the foreseeable future were approximately $1,000,000 at
        December 31, 2005 and 2004.

                                       40
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


NOTE 12:   OTHER COMPREHENSIVE LOSS

        Other comprehensive loss components and related taxes were as follows:

<TABLE>
<CAPTION>
                                                                 2005               2004              2003
                                                        ----------------------------------------------------------
<S>                                                        <C>                <C>                <C>
           Unrealized depreciation on
              available-for-sale securities:
               Unrealized appreciation
                 (depreciation) on
                 available-for-sale securities, net
                 of tax expense (benefit) of
                 $(763,121) for 2005, $4,581 for
                 2004 and $(393,174) for 2003              $     (1,206,733)  $          7,195   $       (621,731)
               Less reclassification adjustment for
                 realized gains, net of tax expense
                 of $6,473 for 2005, $10,877 for
                 2004 and $123,621 for 2003                          10,235             17,143            195,482
                                                           ----------------   ----------------   ----------------
                  Net change in unrealized
                     depreciation on
                     available-for-sale securities,
                     net of tax benefit of
                     $(769,594) for 2005, $(6,296)
                     for 2004 and $(516,793) for 2003      $     (1,216,968)  $         (9,948)  $       (817,213)
                                                           ================   ================   ================
</TABLE>

NOTE 13:   REGULATORY MATTERS

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

        Quantitative measures established by regulation to ensure capital
        adequacy require the Bank to maintain minimum amounts and ratios (set
        forth in the table below). As of December 31, 2005 and 2004, that the
        Bank meets all capital adequacy requirements to which it is subject.

                                       41
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        As of December 31, 2005, the most recent notification from the FDIC
        categorized the Bank as well capitalized under the regulatory framework
        for prompt corrective action. To be categorized as well capitalized, the
        Bank must maintain minimum total risk-based, Tier I risk-based and Tier
        I leverage ratios as set forth in the table. There are no conditions or
        events since that notification that management believes have changed the
        Bank's category.

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

<TABLE>
<CAPTION>
                                                                                        TO BE WELL CAPITALIZED
                                                                FOR CAPITAL ADEQUACY    UNDER PROMPT CORRECTIVE
                                             ACTUAL                   PURPOSES             ACTION PROVISIONS
                                      AMOUNT        RATIO      AMOUNT          RATIO      AMOUNT        RATIO
                                  -------------------------------------------------------------------------------
<S>                                <C>              <C>      <C>                <C>     <C>              <C>
As of December 31, 2005
  Total risk-based capital
    (to risk-weighted assets)      $   20,214       12.83%   $   12,600         8.0%    $   15,750       10.0%

  Tier I capital
    (to risk-weighted assets)          18,368       11.66         6,300         4.0          9,450        6.0

  Tier I capital
    (to average assets)                18,368        7.31        10,053         4.0         12,566        5.0

  Tangible capital
    (to adjusted tangible
    assets)                            18,368        7.31         3,770         1.5                       N/A

As of December 31, 2004
  Total risk-based capital
    (to risk-weighted assets)      $   19,522       14.02%   $   11,139         8.0%    $   13,923       10.0%

  Tier I capital
    (to risk-weighted assets)          17,780       12.77         5,569         4.0          8,354        6.0

  Tier I capital
    (to average assets)                17,780        7.06        10,071         4.0         12,589        5.0

  Tangible capital
    (to adjusted tangible
    assets)                            17,780        7.06         3,777         1.5                       N/A
</TABLE>

        The Bank is subject to certain restrictions on the amount of dividends
        that it may declare without prior regulatory approval.

                                       42
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        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                              311,622
           Year ended December 31, 2003                              311,621
           Year ended December 31, 2004                              311,622
           Year ended December 31, 2005                              311,621
                                                              --------------

                                                              $    1,636,012
                                                              ==============

NOTE 14:   RELATED PARTY TRANSACTIONS

        At December 31, 2005 and 2004, the Company had loans outstanding to
        executive officers, directors, significant shareholders and their
        affiliates (related parties). Changes in loans to executive officers and
        directors for the year ended December 31, 2005 are summarized as
        follows:

           Balance beginning of year                          $      597,032
           Additions                                               1,403,237
           Repayments                                             (1,462,316)
                                                              --------------

           Balance, end of year                               $      537,953
                                                              ==============

        In management's opinion, such loans and other extensions of credit and
        deposits were made in the ordinary course of business and were made on
        substantially the same terms (including interest rates and collateral)
        as those prevailing at the time for comparable transactions with other
        persons. Further, in management's opinion, these loans did not involve
        more than normal risk of collectibility or present other unfavorable
        features.

NOTE 15:   EMPLOYEE BENEFITS

        401(K) PLAN -- The Company maintain a 401(k) savings plan for eligible
        employees. The Company's contributions to this plan were $97,823,
        $91,781 and $96,514 for the years ended December 31, 2005, 2004 and
        2003, respectively. The plan invests its assets in deposit accounts at
        the Company which earned interest at a rate of 4.25% for the year ended
        December 31, 2005 and 3.5% for the years ended December 31, 2004 and
        2003.

                                       43
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        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. No
        contributions to this plan were made for the year ended December 31,
        2005 and contributions of $26,000 and $26,000 were made for the years
        ended December 31, 2004 and 2003, 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. Effective in 2005, the Company froze this plan and no future
        contributions will be made.

        EMPLOYEE STOCK OWNERSHIP PLAN -- The ESOP is a noncontributory defined
        contribution plan which covers substantially all employees. The Company
        may contribute to the Plan, at its discretion, an amount determined by
        the Board of Directors. The Company has made no contributions in 2005,
        2004 or 2003.

        At December 31, 2005, all 45,319 shares held by the ESOP had been
        allocated.

NOTE 16:   STOCK OPTIONS PLAN

        The Jacksonville Savings Bank and Jacksonville Bancorp, MHC 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. On June 15, 2004, the
        Company granted 5,600 option shares under its 1996 Stock Option Plan.
        The awards vest over five years with credit given for prior service,
        expire after ten years, and are exercisable at a price of $14.00 per
        share.

                                       44
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        A summary of the status of the Company's Stock Option Plans for the
        three-year period ended December 31, 2005 follows:

<TABLE>
<CAPTION>
                                                2005                        2004                       2003
                                    ------------------------------------------------------------------------------------
                                                     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                         63,273  $   10.06          103,225   $    9.78         144,250   $    9.54
         Granted                                --         --            5,600       14.00              --          --
         Exercised                          (7,533)      9.66          (44,452)       9.89         (41,025)       8.94
         Forfeited                          (1,100)     10.00           (1,100)      10.00              --          --
                                      ------------                ------------               ------------

           Outstanding at end of
              year                          54,640      10.12           63,273       10.06         103,225        9.78
                                      ============                ============               ============

        Options exercisable at
          year-end                          52,361                      60,313                    103,225
                                      ============                ============               ============
</TABLE>

        The fair value of options granted is estimated on the date of the grant
        using an option-pricing model with the following weighted-average
        assumptions:

<TABLE>
<CAPTION>
                                                                                        2004
                                                                                 --------------------
<S>                                                                                 <C>
           Dividend yields                                                                3.00%
           Volatility factors of expected market price of common stock                   32.00%
           Risk-free interest rates                                                       3.96%
           Expected life of options                                                    6.2 years

           Weighted-average fair value of options granted during the year           $     3.84
</TABLE>


                                       45
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        The following table summarizes information about stock options under the
        plan outstanding at December 31, 2005:

<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                                         WEIGHTED-AVERAGE
   RANGE OF EXERCISE       NUMBER      REMAINING CONTRACTUAL   WEIGHTED-AVERAGE       NUMBER      WEIGHTED-AVERAGE
        PRICES          OUTSTANDING            LIFE             EXERCISE PRICE     EXERCISABLE     EXERCISE PRICE
---------------------------------------------------------------------------------------------------------------------
<S>      <C>              <C>                <C>                      <C>              <C>               <C>
         $8.83            13,596             0.3 years                $8.83            13,596            $8.83
         10.00            35,445             5.3 years                10.00            35,445            10.00
         14.00             5,600             5.2 years                14.00             3,320            14.00
</TABLE>

NOTE 17:   EARNINGS PER SHARE

        Earnings per share (EPS) were computed as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31, 2005
                                                                         WEIGHTED-
                                                                          AVERAGE           PER SHARE
                                                          INCOME           SHARES             AMOUNT
                                                  --------------------------------------------------------
<S>                                                 <C>                       <C>         <C>
           Net income                               $        899,967

           Basic earnings per share                                           1,967,575
               Income available to common
                 stockholders                                                             $           .46
                                                                                          ===============

           Effect of dilutive securities
               Stock options                                      --             14,595
                                                    ----------------   ----------------

           Diluted earnings per share
               Income available to common
                 stockholders                       $        899,967          1,982,170   $           .45
                                                    ================   ================   ===============
</TABLE>

                                       46
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31, 2004
                                                                         WEIGHTED-
                                                                          AVERAGE           PER SHARE
                                                          INCOME           SHARES             AMOUNT
                                                  --------------------------------------------------------
<S>                                                 <C>                       <C>         <C>
           Net income                               $        875,850

           Basic earnings per share                                           1,954,084
               Income available to common
                 stockholders                                                             $           .45
                                                                                          ===============

           Effect of dilutive securities
               Stock options                                      --            25,840
                                                    ----------------   ---------------

           Diluted earnings per share
               Income available to common
                 stockholders                       $        875,850          1,979,924   $           .44
                                                    ================   ================   ===============

<CAPTION>

                                                               YEAR ENDED DECEMBER 31, 2003
                                                                         WEIGHTED-
                                                                          AVERAGE           PER SHARE
                                                          INCOME           SHARES             AMOUNT
                                                  --------------------------------------------------------
<S>                                                 <C>                       <C>         <C>
           Net income                               $        841,030

           Basic earnings per share
               Income available to common
                 stockholders                                                1,936,283    $           .43
                                                                                          ===============

           Effect of dilutive securities
               Stock options                                      --            38,932
                                                    ----------------   ---------------

           Diluted earnings per share
               Income available to common
                 stockholders                       $        841,030          1,975,215   $           .43
                                                    ================   ================   ===============
</TABLE>


                                       47
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


NOTE 18:   DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

        The following table presents estimated fair values of the Company's
        financial instruments. The fair values of certain of these instruments
        were calculated by discounting expected cash flows, which involves
        significant judgments by management and uncertainties. Fair value is the
        estimated amount at which financial assets or liabilities could be
        exchanged in a current transaction between willing parties, other than
        in a forced or liquidation sale. Because no market exists for certain of
        these financial instruments and because management does not intend to
        sell these financial instruments, the Company does not know whether the
        fair values shown below represent values at which the respective
        financial instruments could be sold individually or in the aggregate.

<TABLE>
<CAPTION>

                                                 DECEMBER 31, 2005                 DECEMBER 31, 2004
                                          CARRYING                            CARRYING
                                           AMOUNT           FAIR VALUE          AMOUNT         FAIR VALUE
                                     -------------------------------------------------------------------------
<S>                                   <C>                <C>               <C>               <C>
           Financial assets
              Cash and cash
                equivalents           $     6,681,207    $     6,681,207   $    10,792,905   $    10,792,905
              Available-for-sale
                securities                 87,534,514         87,534,514        99,796,665        99,796,665
              Other investments               393,654            393,654           582,224           582,224
              Loans held for sale             499,445            499,445           264,600           264,600
              Loans, net of
                allowance for loan
                losses                    142,272,144        141,691,606       125,793,087       126,251,185
              Federal Home Loan
                Bank stock                  1,539,328          1,539,328         1,466,300         1,466,300
              Interest receivable           1,489,749          1,489,749         1,300,741         1,300,741

           Financial liabilities
              Deposits                    218,369,774        220,503,988       225,734,508       228,745,219
              Short-term borrowings         3,350,068          3,350,068         3,446,706         3,446,706
              Federal Home Loan
                Bank advances               8,000,000          7,973,716                --                --
              Advances from
                borrowers for taxes
                and insurance                 374,676            374,676           328,444           328,444
              Interest payable                800,446            800,446           640,060           640,060

           Unrecognized financial
             instruments (net of
             contract amount)
              Commitments to
                originate loans                     0                  0                 0                 0
              Letters of credit                     0                  0                 0                 0
              Lines of credit                       0                  0                 0                 0
</TABLE>

                                       48
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        The following methods and assumptions were used to estimate the fair
        value of each class of financial instruments.

    CASH AND CASH EQUIVALENTS AND FEDERAL HOME LOAN BANK STOCK

        The carrying amount approximates fair value.

    SECURITIES

        Fair values equal quoted market prices, if available. If quoted market
        prices are not available, fair value is estimated based on quoted market
        prices of similar securities.

    OTHER INVESTMENTS

        The carrying amount approximates fair value.

    LOANS HELD FOR SALE

        For homogeneous categories of loans, such as mortgage loans held for
        sale, fair value is estimated using the quoted market prices for
        securities backed by similar loans, adjusted for differences in loan
        characteristics.

    LOANS

        The fair value of loans is estimated by discounting the future cash
        flows using the current rates at which similar loans would be made to
        borrowers with similar credit ratings and for the same remaining
        maturities. Loans with similar characteristics were aggregated for
        purposes of the calculations. The carrying amount of accrued interest
        approximates its fair value.

    DEPOSITS

        Deposits include demand deposits, savings accounts, NOW accounts and
        certain money market deposits. The carrying amount approximates fair
        value. The fair value of fixed-maturity time deposits is estimated using
        a discounted cash flow calculation that applies the rates currently
        offered for deposits of similar remaining maturities.

    SHORT-TERM BORROWINGS, FEDERAL HOME LOAN BANK ADVANCES, INTEREST PAYABLE
    AND ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE

        The carrying amount approximates fair value.


                                       49
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


    COMMITMENTS TO ORIGINATE LOANS, LETTERS OF CREDIT AND LINES OF CREDIT

        The fair value of commitments to originate loans is estimated using the
        fees currently charged to enter into similar agreements, taking into
        account the remaining terms of the agreements and the present
        creditworthiness of the counterparties. For fixed-rate loan commitments,
        fair value also considers the difference between current levels of
        interest rates and the committed rates. The fair values of letters of
        credit and lines of credit are based on fees currently charged for
        similar agreements or on the estimated cost to terminate or otherwise
        settle the obligations with the counterparties at the reporting date.

NOTE 19:   SIGNIFICANT ESTIMATES AND CONCENTRATIONS

        Accounting principles generally accepted in the United States of America
        require disclosure of certain significant estimates and current
        vulnerabilities due to certain concentrations. Estimates related to the
        allowance for loan losses are reflected in the footnote regarding loans.
        Current vulnerabilities due to certain concentrations of credit risk are
        discussed in the footnote on commitments and credit risk.

NOTE 20:   COMMITMENTS AND CREDIT RISK

        The Company grants agribusiness, commercial and residential loans to
        customers in Cass, Morgan, Macoupin, Montgomery and surrounding counties
        in Illinois. The Company's loans are generally secured by specific items
        of collateral including real property, consumer assets and business
        assets. Although the Company has a diversified loan portfolio, a
        substantial portion of its debtors' ability to honor their contracts is
        dependent upon economic conditions and the agricultural economy in the
        counties.

    COMMITMENTS TO ORIGINATE LOANS

        Commitments to originate loans 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 a portion of
        the commitments may expire without being drawn upon, the total
        commitment amounts do not necessarily represent future cash
        requirements. Each customer's creditworthiness is evaluated on a
        case-by-case basis. The amount of collateral obtained, if deemed
        necessary, is based on management's credit evaluation of the
        counterparty. Collateral held varies, but may include accounts
        receivable, inventory, property, plant and equipment, commercial real
        estate and residential real estate.

                                       50
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


        At December 31, 2005 and 2004, the Company had outstanding commitments
        to originate loans aggregating approximately $2,273,200 and $6,144,500,
        respectively. The commitments extended over varying periods of time with
        the majority being disbursed within a one-year period. Loan commitments
        at fixed rates of interest amounted to $1,394,210 and $2,904,500 at
        December 31, 2005 and 2004, respectively, with the remainder at floating
        market rates.

    STANDBY LETTERS OF CREDIT

        Standby letters of credit are irrevocable conditional commitments issued
        by the Company to guarantee the performance of a customer to a third
        party. Financial standby letters of credit are primarily issued to
        support public and private borrowing arrangements, including commercial
        paper, bond financing and similar transactions. Performance standby
        letters of credit are issued to guarantee performance of certain
        customers under non-financial contractual obligations. The credit risk
        involved in issuing standby letters of credit is essentially the same as
        that involved in extending loans to customers. Should the Company be
        obliged to perform under the standby letters of credit, the Company may
        seek recourse from the customer for reimbursement of amounts paid.

        The Company had total outstanding standby letters of credit amounting to
        $30,994 and $473,000, at December 31, 2005 and 2004, respectively, with
        terms ranging from 1 to 5 years. At December 31, 2005 and 2004, the
        Company's deferred revenue under standby letters of credit agreements
        was nominal.

    LINES OF CREDIT

        Lines of credit are agreements to lend to a customer as long as there is
        no violation of any condition established in the contract. Lines of
        credit generally have fixed expiration dates. Since a portion of the
        line may expire without being drawn upon, the total unused lines do not
        necessarily represent future cash requirements. Each customer's
        creditworthiness is evaluated on a case-by-case basis. The amount of
        collateral obtained, if deemed necessary, is based on management's
        credit evaluation of the counterparty. Collateral held varies but may
        include accounts receivable, inventory, property, plant and equipment,
        commercial real estate and residential real estate. Management uses the
        same credit policies in granting lines of credit as it does for
        on-balance-sheet instruments.

        At December 31, 2005, the Company had granted unused lines of credit to
        borrowers aggregating approximately $12,618,377 and $6,684,123 for
        commercial lines and open-end consumer lines, respectively. At December
        31, 2004, unused lines of credit to borrowers aggregated approximately
        $10,532,350 for commercial lines and $5,641,465 for open-end consumer
        lines.

                                       51
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


NOTE 21:   FUTURE CHANGE IN ACCOUNTING PRINCIPLES

        In December 2004, the Financial Accounting Standards Board ("FASB")
        issued Statement of Financial Accounting Standard ("SFAS") No. 123R,
        SHARE-BASED PAYMENT, which is a revision of SFAS No. 123, ACCOUNTING FOR
        STOCK-BASED COMPENSATION, that sets accounting requirements for
        "share-based" compensation to employees. This statement will require the
        Company to recognize in the income statement the grant-date fair value
        of the stock options and other equity-based compensation issued to
        employees, but expresses no preference for a type of valuation model.
        This Statement is effective for first period ending after December 31,
        2005. The effect of the adoption of this statement on the Company cannot
        be currently determined.

NOTE 22:   QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31, 2005
                                                                   THREE MONTHS ENDED
                                            DECEMBER 31       SEPTEMBER 30        JUNE 30         MARCH 31
                                        ------------------------------------------------------------------------
<S>                                       <C>                <C>               <C>              <C>
        Interest income                   $    3,243,142     $    3,146,515    $    3,093,355   $    2,940,311
        Interest income                        1,394,906          1,309,089         1,191,947        1,090,594
                                          --------------     --------------    --------------   --------------
               Net interest income             1,848,236          1,837,426         1,901,408        1,849,717
        Provision for loan losses                     --             35,000           105,000          105,000
                                          --------------     --------------    --------------   --------------
               Net interest income
                  after provision
                  for loan losses              1,848,236          1,802,426         1,796,408        1,744,717
        Other income                             541,146            573,433           544,742          514,365
        Other expense                          2,117,538          1,998,717         1,972,856        1,964,447
                                          --------------     --------------    --------------   --------------
               Income before income
                  taxes                          271,844            377,142           368,294          294,635
        Income tax expense                        14,365            142,330           147,273          107,980
                                          --------------     --------------    --------------   --------------
               Net income                 $      257,479     $      234,812    $      221,021   $      186,655
                                          ==============     ==============    ==============   ==============

        Basic earnings per share          $         0.14     $         0.12    $         0.11   $         0.09
                                          ==============     ==============    ==============   ==============
        Diluted earnings per share        $         0.13     $         0.12    $         0.11   $         0.09
                                          ==============     ==============    ==============   ==============
</TABLE>

                                       52
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31, 2004
                                                                   THREE MONTHS ENDED
                                            DECEMBER 31       SEPTEMBER 30        JUNE 30         MARCH 31
                                        ------------------------------------------------------------------------
<S>                                       <C>                <C>               <C>              <C>
        Interest income                   $    2,985,040     $    3,124,600    $    3,085,723   $    3,082,289
        Interest income                        1,115,484          1,150,614         1,169,057        1,152,440
                                          --------------     --------------    --------------   --------------
               Net interest income             1,869,556          1,973,986         1,916,666        1,929,849
        Provision for loan losses                100,000            150,000           150,000          150,000
                                          --------------     --------------    --------------   --------------
               Net interest income
                  after provision
                  for loan losses              1,769,556          1,823,986         1,766,666        1,779,849
        Other income                             464,115            493,286           557,440          523,396
        Other expense                          1,912,090          1,917,543         1,942,969        2,009,096
                                          --------------     --------------    --------------   --------------
               Income before income
                  taxes                          321,581            399,729           381,137          294,149
        Income tax expense                       119,336            149,402           143,171          108,837
                                          --------------     --------------    --------------   --------------
               Net income                 $      202,245   $        250,327    $      237,966   $      185,312
                                          ==============   ================    ==============   ==============

        Basic earnings per share          $         0.10   $          0.13     $         0.12   $         0.10
                                          ==============   ================    ==============   ==============
        Diluted earnings per share        $         0.10   $          0.13     $         0.12   $         0.09
                                          ==============   ================    ==============   ==============
</TABLE>



                                       53
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004


NOTE 23:   CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)

        Presented below is condensed financial information as to financial
        position, results of operations and cash flows of the Company:

<TABLE>
<CAPTION>
                                               CONDENSED BALANCE SHEETS

                                                                                       DECEMBER 31,
                                                                                 2005               2004
                                                                         ---------------------------------------
<S>                                                                         <C>                <C>
        ASSETS
            Cash and due from banks                                         $       222,580    $       148,563
            Investment in common stock of subsidiary                             19,813,089         20,522,012
            Other assets                                                             83,235             12,409
                                                                            ---------------    ---------------

               Total assets                                                 $    20,118,904    $    20,682,984
                                                                            ===============    ===============

        LIABILITIES
            Other liabilities                                               $        16,300    $            --
                                                                            ---------------    ---------------

               Total liabilities                                                     16,300                 --

        STOCKHOLDERS' EQUITY                                                     20,102,604         20,682,984
                                                                            ---------------    ---------------

               Total liabilities and stockholders' equity                   $    20,118,904    $    20,682,984
                                                                            ===============    ===============
</TABLE>


                                       54
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>

                                          CONDENSED STATEMENTS OF INCOME


                                                                       YEAR ENDING DECEMBER 31,
                                                              2005               2004               2003
                                                      ----------------------------------------------------------
<S>                                                      <C>                <C>                <C>
        INCOME
            Dividends from subsidiary                    $       528,790    $       275,041    $       267,802
            Other income                                             582              1,150                759
                                                         ---------------    ---------------    ---------------

               Total income                                      529,372            276,191            268,561
                                                         ---------------    ---------------    ---------------

        EXPENSES
            Other expenses                                       224,976            124,101             99,907
                                                         ---------------    ---------------    ---------------

               Total expenses                                    224,976            124,101             99,907
                                                         ---------------    ---------------    ---------------

        INCOME BEFORE INCOME TAX AND EQUITY IN
           UNDISTRIBUTED INCOME OF SUBSIDIARY                    304,396            152,090            168,653

        INCOME TAX BENEFIT                                       (87,527)           (48,177)           (38,409)
                                                         ---------------    ----------------   ----------------

        INCOME BEFORE EQUITY IN UNDISTRIBUTED
           INCOME OF SUBSIDIARY                                  391,923            200,267            207,063

        EQUITY IN UNDISTRIBUTED INCOME OF
           SUBSIDIARY                                            508,044            675,583            633,967
                                                         ---------------    ---------------    ---------------

        NET INCOME                                       $       899,967    $       875,850    $       841,030
                                                         ===============    ===============    ===============
</TABLE>


                                       55
<PAGE>

                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>

                                           CONDENSED STATEMENTS OF CASH FLOWS


                                                                      YEAR ENDING DECEMBER 31,
                                                              2005                2004              2003
                                                      -----------------------------------------------------------
<S>                                                      <C>                <C>                <C>
        OPERATING ACTIVITIES
            Net income                                   $       899,967    $       875,850    $       841,030
            Items not providing cash                            (429,580)          (843,384)          (557,193)
            Change in other assets and
              liabilities                                       (132,991)           151,638            (73,035)
                                                         ---------------    ---------------    ---------------

               Net cash provided by operating
                  activities                                     337,396            184,104            210,802
                                                         ---------------    ---------------    ---------------

        FINANCING ACTIVITIES
            Dividends paid                                      (278,793)          (342,876)          (267,589)
            Purchase and retirement of treasury
              stock                                              (57,319)          (379,764)          (341,515)
            Exercise of stock options                             72,733            439,824            366,580
                                                         ---------------    ---------------    ---------------

               Net cash used in financing
                  activities                                    (263,379)          (282,816)          (242,524)
                                                         ---------------    ---------------    ---------------

        NET CHANGE IN CASH AND CASH EQUIVALENTS                   74,017            (98,712)           (31,722)

        CASH AND CASH EQUIVALENTS AT BEGINNING OF
           YEAR                                                  148,563            247,275            278,997
                                                         ---------------    ---------------    ---------------

        CASH AND CASH EQUIVALENTS AT END OF YEAR         $       222,580    $       148,563    $       247,275
                                                         ===============    ===============    ===============
</TABLE>

NOTE 24:   RECOVERY FROM INSURANCE COMPANY

During March 2003, the Company received a $562,500 recovery, representing a
negotiated settlement with its insurance company. The recovery relates to the
loss suffered by the Company from a loan defalcation discovered during 2001.

                                       56
<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, 2005 there were approximately
602 stockholders of record, including the Company's mutual holding company
parent and brokers, which held 1,970,216 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, 2005.

     FISCAL 2004              HIGH                  LOW              DIVIDENDS

  First Quarter              $ 19.80              $ 16.26        $.075/per share

  Second Quarter             $ 19.04              $ 11.95        $.075/per share

  Third Quarter              $ 16.00              $ 12.00        $.075/per share

  Fourth Quarter             $ 18.50              $ 15.40        $.075/per share

     FISCAL 2005

  First Quarter              $ 17.00              $ 14.75        $.075/per share

  Second Quarter             $ 15.26              $ 11.60        $.075/per share

  Third Quarter              $ 13.75              $ 12.00        $.075/per share

  Fourth Quarter             $ 15.39              $ 12.00        $.075/per share




For a discussion of the restrictions on the Company's ability to pay dividends,
see Note 13 to the Consolidated Financial Statements.

The Company did not repurchase any Company stock during the fourth quarter of
2005.


                                       57
<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                                       Laura A. Marks
  Certified Public Accountant                            Senior Vice President - Retail Banking
  Cannell & Sheehan, Ltd.

Harmon B. Deal, III                                    John D. Eilering
  Investment Manager                                     Vice President - Operations / Corporate Secretary
  Deal Partners, L.P.

John L. Eyth                                           Diana S. Tone
  Certified Public Accountant                            Chief Financial Officer and Compliance Officer
  Zumbahlen Eyth Surratt Foote & Flynn, Ltd.

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. Wood
  Orthopedic Surgeon                                     Vice President - Mortgage/Consumer Lending
  Orthapaedic Center of Illinois

                                                       Paul W. Miller
                                                         Vice President - Lending

                                                       Ronald D. Norris
                                                         Vice President and Branch Manager
</TABLE>

                                       58
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                           <C>
CORPORATE INFORMATION

CORPORATE HEADQUARTERS                             TRANSFER AGENT

  1211 West Morton                                   First Bankers Trust Services, Inc.
  Jacksonville, Illinois  62650                      2321 Kochs Lane
  (217) 245-4111                                     Quincy, Illinois  62301
  Website:  www.jacksonvillesavings.com              (217) 228-8060
  E-mail:  info@jacksonvillesavings.com


SPECIAL COUNSEL                                    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  Luse Gorman Pomerenk & Schick, P.C.                BKD, LLP
  5335 Wisconsin Ave., N.W., Suite 400               225 North Water Street, Suite 400
  Washington, D.C.  20015                            Decatur, Illinois  62525-1580
  (202) 274-2000                                     (217) 429-2411
</TABLE>


ANNUAL MEETING

The Annual Meeting of the Stockholders will be held April 25, 2006 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.


                                       59