<PAGE>

                                   Exhibit 13
                             Report to Stockholders

<PAGE>

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

                                         JACKSONVILLE BANCORP, INC.

                                         2004 ANNUAL REPORT

<PAGE>


TO OUR SHAREHOLDERS:

TEN YEARS AGO, JACKSONVILLE SAVINGS BANK ENTERED A NEW ERA WHEN IT CONVERTED TO
THE MUTUAL HOLDING COMPANY FORM OF ORGANIZATION. IT WAS THE FIRST TIME IN OUR
EIGHTY-YEAR HISTORY THAT CUSTOMERS, EMPLOYEES, AND THE INVESTING PUBLIC HAD THE
OPPORTUNITY TO BECOME SHAREHOLDERS IN THE BANK. A LOT HAS HAPPENED SINCE THAT
MILESTONE. BECAUSE THIS IS A TENTH ANNIVERSARY SHAREHOLDER LETTER, WE THOUGHT IT
APPROPRIATE TO REFLECT BACK ON THE ACCOMPLISHMENTS OF THE LAST DECADE. CONSIDER
THE FOLLOWING:

ON DECEMBER 31, 1994, JACKSONVILLE SAVINGS HAD ASSETS OF $142.8 MILLION,
DEPOSITS OF $120.1 MILLION, AND CAPITAL OF $11.9 MILLION. THE BANK OPERATED FOUR
FACILITIES, A HEADQUARTERS BUILDING AND TWO BRANCHES IN JACKSONVILLE, AND THE
FIRST MIDWEST OFFICE IN VIRDEN. THE BANK OFFERED A BASIC LINE OF FINANCIAL
PRODUCTS WHICH INCLUDED CHECKING AND SAVINGS ACCOUNTS, AND HOME MORTGAGE,
CONSUMER, AND COMMERCIAL LOANS. WE WERE A TRADITIONAL MUTUAL SAVINGS BANK IN
EVERY SENSE OF THE WORD.

IN EARLY 1995, OUR BOARD OF DIRECTORS ADOPTED AN AGGRESSIVE NEW BUSINESS PLAN
THAT ENVISIONED CONTINUED GROWTH THROUGH EXPANSION AND ACQUISITION, AN MHC
CONVERSION AND STOCK OFFERING, AND THE IMPLEMENTATION OF A NUMBER OF NEW
COMMERCIAL BANK TYPE SERVICES. THE PLAN WAS APPROVED BY THE BANK'S
DEPOSITOR-MEMBERS ON APRIL 20, 1995. FOLLOWING A SUCCESSFUL IPO, THE BANK
ACQUIRED LITCHFIELD COMMUNITY SAVINGS IN 1997 AND CHAPIN STATE BANK IN 2000. IN
2001, WE EXPERIENCED OUR MOST DIFFICULT YEAR WHEN OUR INTERNAL AUDITORS
DISCOVERED A DEFALCATION AT THE VIRDEN FIRST MIDWEST BRANCH. IT WAS A PAINFUL
LEARNING EXPERIENCE, BUT WE REGROUPED AND MOVED FORWARD DETERMINED NOT TO LET IT
SLOW OUR POSITIVE MOMENTUM.

BY YEAR-END 2004, THE BANK'S ASSETS HAD INCREASED TO $253.3 MILLION AND DEPOSITS
HAD REACHED $225.7 MILLION. IN ADDITION TO THE JACKSONVILLE AND VIRDEN
FACILITIES, WE NOW OPERATE FULL-SERVICE BRANCHES IN CHAPIN AND LITCHFIELD AND A
TELLER FACILITY IN CONCORD. OUR PRODUCT OFFERINGS HAVE BEEN ENHANCED AND
EXPANDED TO INCLUDE AGRICULTURAL LENDING AND TRUST, CASH MANAGEMENT AND
BROKERAGE SERVICES. WE HAVE ADDED THE 24-HOUR BANKING CONVENIENCE OF DEBIT
CARDS, ATMS, TELEPHONE BANKING, INTERNET BANKING AND ELECTRONIC STATEMENTS. THE
BANK HAS PAID OUT TO ITS OWNERS MORE THAN $4.2 MILLION IN DIVIDENDS WHILE
INCREASING CAPITAL TO $20.7 MILLION. OUR CUSTOMER BASE CONTINUES TO GROW AND NOW
TAKES IN MANY OF THE SMALL RURAL COMMUNITIES IN MORGAN, SCOTT, MACOUPIN, AND
MONTGOMERY COUNTIES, AS WELL AS ONLINE CUSTOMERS THROUGHOUT THE STATE. IN ALL OF
OUR MARKETS, WE ARE PROUD TO SAY THAT THE BANK AND ITS OFFICERS AND STAFF, ARE
ACTIVELY INVOLVED AND ROUTINELY TAKE LEADERSHIP POSITIONS IN COMMUNITY PROJECTS
AND SERVICE ORGANIZATIONS.

IN THE TEN YEARS SINCE WE BECAME A MUTUAL HOLDING COMPANY, JACKSONVILLE SAVINGS
HAS ENJOYED MOSTLY SUCCESS, WITH A FEW BUMPS IN THE ROAD. WE HAVE BECOME THE
LARGEST BANK IN OUR PRIMARY MARKET BY REMAINING COMMITTED TO THE CONCEPT OF
COMMUNITY BANKING AND TO OUR ORIGINAL MISSION OF PROVIDING THE VERY BEST IN
FINANCIAL SERVICES TO OUR BORROWERS AND DEPOSITORS. WE ARE PROUD OF OUR PAST
ACCOMPLISHMENTS, AND LOOK FORWARD WITH ENTHUSIASM AND CONFIDENCE TO THE
CHALLENGES AND OPPORTUNITIES OF THE FUTURE.



ANDREW F. APPLEBEE                  RICHARD A. FOSS
CHAIRMAN                            PRESIDENT

<PAGE>

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

Consolidated Financial Statements                                      21-26

Notes to Consolidated Financial Statements                             27-50

Common Stock Information                                                  51

Directors and Officers                                                    52

Corporate Information                                                     53

Annual Meeting                                                            53


<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. 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, 2004, the MHC owned 52.83% of the
outstanding shares of the Company.

The Bank was founded in 1916 as an Illinois-chartered savings and loan
association and converted to an Illinois-chartered savings bank in 1992. The
Bank is headquartered in Jacksonville, Illinois and operates six branches in
addition to its main office. The Bank's deposits have been federally insured
since 1945 by the Federal Deposit Insurance Corporation ("FDIC"). The Bank has
been a member of the Federal Home Loan Bank ("FHLB") System since 1932. At
December 31, 2004, the Company had consolidated assets of $253.3 million,
deposits of $225.7 million and stockholders' equity of $20.7 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 fiscal years is set forth at Note 14 to
the Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                    AT DECEMBER 31,
                                              ----------------------------------------------------------
                                                 2004        2003        2002        2001        2000
FINANCIAL CONDITION DATA                                             (In thousands)
<S>                                            <C>         <C>         <C>         <C>         <C>
Total assets                                   $253,330    $261,816    $252,504    $241,301    $227,915
Loans  (1)                                      126,058     127,585     149,200     161,082     172,379
Investment securities (2)                        86,674     100,914      74,904      46,360      21,295
Mortgage-backed securities                       15,171       7,597       2,822       4,264       6,689
Cash and cash equivalents                        10,793       9,576      11,092      13,397       9,476
Deposits                                        225,734     235,173     225,602     216,899     197,799
Other borrowings                                  3,447       2,889       2,875       1,395       5,786
Stockholders' equity                             20,683      20,032      20,252      19,164      20,637


                                                                YEARS ENDED DECEMBER 31,
                                              ----------------------------------------------------------
                                                 2004        2003        2002        2001        2000
OPERATING DATA                                           (In thousands, except per share data)

Interest income                                $ 12,278    $ 12,946    $ 15,065    $ 17,526    $ 15,599
Interest expense                                  4,588       5,765       7,351       9,569       8,176
                                               --------    --------    --------    --------    --------

Net interest income                               7,690       7,181       7,714       7,957       7,423
Provision for loan losses                           550       2,075       2,000       1,000         610
                                               --------    --------    --------    --------    --------

Net interest income after provision
  for loan losses                                 7,140       5,106       5,714       6,957       6,813
Other income                                      2,038       3,532       2,490       2,010       1,424
Other expense (3)                                 7,781       7,296       6,919      11,282       5,793
                                               --------    --------    --------    --------    --------

Income (loss) before income taxes                 1,397       1,342       1,285      (2,315)      2,444
Income tax expense (benefit)                        521         501         467      (1,299)        826
                                               --------    --------    --------    --------    --------

Net income (loss)                              $    876    $    841    $    818    $ (1,016)   $  1,618
                                               ========    ========    ========    ========    ========

Earnings per common share - basic              $   0.45    $   0.43    $   0.43    $  (0.53)   $   0.85
                                               ========    ========    ========    ========    ========

Earnings per common share - diluted            $   0.44    $   0.43    $   0.42    $  (0.53)   $   0.85
                                               ========    ========    ========    ========    ========
</TABLE>
--------------------

(1)     Includes loans held for sale.

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

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

                                       2
<PAGE>
<TABLE>
<CAPTION>

                                                            AT OR FOR THE YEARS ENDED DECEMBER 31,
                                                 ----------------------------------------------------------
KEY OPERATING RATIOS                                2004        2003        2002        2001       2000

<S>                                                <C>         <C>         <C>        <C>         <C>
Return on average assets (net income
  (loss) divided by average assets)                 0.33 %      0.33 %      0.34 %     (0.44)%     0.82 %

Return on average equity (net income
  (loss) divided by average equity)                 4.31 %      4.18 %      4.19 %     (4.92)%     8.11 %

Average equity to average assets                    7.77 %      7.82 %      8.04 %      8.98 %    10.15 %

Interest rate spread (difference between
  average yield on interest-earning assets
  and average cost of interest-bearing
  liabilities)                                      3.04 %      2.82 %      3.27 %      3.67 %     3.54 %

Net interest margin (net interest income
  as a percentage of average interest-
  earning assets)                                   3.18 %      3.00 %      3.47 %      3.87 %     4.02 %

Dividend pay-out ratio  (1)                        31.39 %     31.99 %     32.03 %    (25.69)%    30.59 %

Noninterest expense to average assets               2.97 %      2.84 %      2.85 %      4.91 %     2.95 %

Average interest-earning assets to
  average interest-bearing liabilities            107.35 %    107.58 %    106.04 %    104.40 %   110.87 %

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

Allowance for loan losses to
  nonperforming loans                              95.02 %     66.02 %     53.69 %     27.37 %    62.55 %

Net loan charge-offs to average
  loans during the period                           0.66 %      1.41 %      0.68 %      0.68 %     0.34 %

Nonperforming assets to total assets                1.01 %      1.46 %      1.72 %      2.09 %     1.10 %


                                                                         DECEMBER 31,
                                                 ----------------------------------------------------------
OTHER DATA                                          2004        2003        2002        2001       2000

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

(1) Excludes dividends waived by the mutual holding company.

                                       3
<PAGE>

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

GENERAL

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

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

OPERATING STRATEGY - OVERVIEW

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

Management has implemented various strategies designed to enhance its
profitability while still maintaining the Company's safety and soundness. These
strategies include reducing its exposure to interest rate risk by selling
fixed-rate loans to Freddie Mac and providing other fee-based services to its
customers. The Company recognizes the need to establish and adhere to strict
loan underwriting criteria and guidelines. In this regard, the Company hired an
experienced senior loan administrator during 2003 to oversee all lending
functions of the Company and has undertaken a complete review and enhancement of
its lending policies and underwriting practices. The Company generally limits
its investment portfolio to investments in United States Government and Agency
securities, mortgage-backed securities collateralized by U.S. Government
Agencies, and local municipal issues.

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

                                       4
<PAGE>

CRITICAL ACCOUNTING POLICIES

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

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

GOODWILL - Costs in excess of the estimated fair value of identified net assets
acquired through purchase transactions are recorded as an asset by the Company.
This amount was originally amortized as an expense on a straight-line basis
assuming a life of twenty years. Effective January 1, 2002, the Company ceased
amortizing goodwill in accordance with newly adopted accounting standards
generally accepted in the United States of America. The Company performed an
initial impairment assessment as of January 1, 2002 and an annual impairment
assessment as of September 30, 2004 and 2003. No impairment of goodwill was
identified as a result of these tests. In making these impairment assessments,
management must make subjective assumptions regarding the fair value of the
Company's assets and liabilities. It is possible that these judgements may
change over time as market conditions or Company strategies change, and these
changes may cause the Company to record impairment charges to adjust the
goodwill to its estimated fair value.

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

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

                                       5
<PAGE>

FINANCIAL CONDITION

Total assets decreased $8.5 million, or 3.2%, to $253.3 million at December 31,
2004, compared to $261.8 million at December 31, 2003. The decrease in total
assets is primarily due to a $6.7 million, or 6.3%, decrease in investment and
mortgage-backed securities, a $1.5 million, or 1.2%, decrease in total loans
receivable and loans held for sale, and a $500,000 decrease in federal funds
sold, partially offset by a $1.2 million increase in cash and cash equivalents.

The decrease in total loans receivable and loans held for sale reflects the sale
of fixed-rate loans into the secondary market, increased competition in the
Company's market area, and continuing efforts to improve the quality of the
existing loan portfolio.

Deposits decreased $9.4 million, or 4.0%, and were partially offset by an
increase of $558,000 in other borrowings. The Company's decision to hold deposit
rates steady in an effort to manage interest costs contributed to the decrease
in deposits. Management also believes that deposit volumes were affected by
investors seeking other investment alternatives as general market conditions
have improved. The other borrowings consist of commercial cash management
accounts which are invested in overnight securities sold under agreement to
repurchase.

Stockholders' equity increased $651,000 to $20.7 million at December 31, 2004.
The increase reflects net income of $876,000, partially offset by the payment of
$275,000 in dividends and a decrease of $10,000 in unrealized gains on
available-for-sale securities. Stockholders' equity also benefited from the
$60,000 net effect of $440,000 received from the exercise of stock options and
the $380,000 purchase and retirement of treasury stock related to the options.
The change in unrealized gains on securities is driven by market conditions and,
therefore, can fluctuate daily.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 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 weighted 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.

                                       6
<PAGE>

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 weighted 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 weighted 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.

The lower interest expense on deposits is attributable to a decrease in the
weighted average yield on deposits to 2.05% for 2004 from 2.62% for 2003. The
lower weighted 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 weighted 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.

                                       7
<PAGE>

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. Set forth below is a
table regarding the Company's nonperforming assets.

                                                     12/31/04      12/31/03
                                                     --------      --------
                                                     (DOLLARS IN THOUSANDS)

      Non-accruing loans:
        One-to-four family residential                     711         1,022
        Commerical and agricultural real estate            181           224
        Commercial and agricultural business                57           613
        Home equity/Home improvement                       652         1,101
        Automobile                                          68           139
        Other consumer                                      20            22
                                                    ----------    ----------
           Total                                         1,689         3,121
                                                    ==========    ==========

      Accruing loans delinquent more than 90 days:
        One-to-four family residential                     270           168
        Commerical and agricultural business                23             -
        Automobile                                           4            15
        Other consumer                                       1             7
                                                    ----------    ----------
           Total                                          298            190
                                                    ==========    ==========

      Foreclosed assets:
        One-to-four family residential                     426           499
        Commercial and agricultural real estate            139             -
        Automobile                                          19            18
                                                    ----------    ----------
           Total                                           584           517
                                                    ==========    ==========

      Total nonperforming assets                    $    2,571    $    3,828
                                                    ==========    ==========

      Total as a percentage of total assets               1.01%         1.46%
                                                          ====          ====

                                       8
<PAGE>

The following table shows the aggregate principal amount of potential problem
credits on the Company's watch list at December 31, 2004 and December 31, 2003.
All nonaccrual loans are automatically placed on the watch list.


                                             12/31/04     12/31/03
                                            ---------    ---------
                                                (IN THOUSANDS)

         Special Mention credits            $   5,308    $   6,087
         Substandard credits                    3,484        7,555
                                            ---------    ---------

         Total watch list credits           $   8,792    $  13,642
                                            =========    =========

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 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.

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 $141,000 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 $141,000 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 marginal tax rate equals 37.3% for the years ended December 31, 2004
and 2003.

                                       10
<PAGE>

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

GENERAL

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

INTEREST INCOME

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

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

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

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

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

                                       11
<PAGE>

INTEREST EXPENSE

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

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

The increase in interest expense on short-term borrowings is due to an increase
in the average balance of borrowings to $3.8 million for 2003 from $2.1 million
during 2002, partially offset by the weighted average yield declining to 1.10%
for 2003 from 1.81% for 2002. The increase in the average balance is due to the
borrowing of $7.5 million from the Federal Home Loan Bank during September 2003.
Management has maintained lower cash balances in order to improve earnings, and
has used short-term advances to fund short-term cash needs. All advances were
repaid during December 2003. The remainder of borrowed funds, which averaged
$2.2 million for 2003, 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 an increase of $75,000 in provision for loan losses to
$2,075,000 for the year ended December 31, 2003. The allowance for loan losses
increased to $2.2 million at December 31, 2003 from $2.1 million at December 31,
2002. The increase is the result of the provision for loan losses exceeding the
net charge-offs. Net charge-offs increased during 2003 to $1.9 million from $1.0
million during 2002. The provisions in 2003 and 2002 were made to bring the
allowance for loan losses to a level deemed adequate following management's
evaluation of the repayment capacity and collateral protection afforded by each
problem credit identified by management. This review also considered the current
economic downturn in the local economy, which has resulted in increased
bankruptcies and foreclosures in the Company's market area and which has further
contributed to the recent increases in delinquencies and charge-offs.

NON-INTEREST INCOME

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

                                       12
<PAGE>

NON-INTEREST EXPENSE

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

INCOME TAXES

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





                                       13
<PAGE>

AVERAGE YIELDS EARNED AND RATES PAID

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

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                              ---------------------------------------------------------------
                                                           2004                             2003
                                              -------------------------------  ------------------------------
                                                         INTEREST                         INTEREST
                                                AVERAGE     AND     YIELD/      AVERAGE      AND     YIELD/
                                                BALANCE  DIVIDENDS   COST       BALANCE   DIVIDENDS   COST
                                              ---------------------------------------------------------------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                            <C>        <C>         <C>       <C>        <C>        <C>
Interest-earning assets:
  Loans  (1)                                   $128,279   $ 8,393     6.54 %    $138,792   $ 9,618    6.93 %
  Investment securities                          96,174     3,285     3.42 %      91,643     3,161    3.45 %
  Mortgage-backed securities                     14,694       569     3.87 %       2,637       102    3.88 %
  Other                                           2,808        31     1.09 %       6,201        65    1.05 %
                                               --------   -------               --------   -------
      Total interest-earning assets             241,955    12,278     5.07 %     239,273    12,946    5.41 %
                                                          -------                          -------

Non-interest-earning assets                      19,647                           18,040
                                               --------                         --------
      Total assets                             $261,602                         $257,313
                                               ========                         ========

Interest-bearing liabilities:
  Deposits                                     $220,213     4,507     2.05 %    $218,622     5,724    2.62 %
  Short-term borrowings                           5,178        81     1.57 %       3,801        41    1.10 %
                                               --------   -------               --------   -------
      Total interest-bearing liabilities        225,391     4,588     2.04 %     222,423     5,765    2.59 %
                                                          -------                          -------

Non-interest-bearing liabilities                 15,876                           14,771
Stockholders' equity                             20,335                           20,119
                                               --------                         --------

      Total liabilities and
          stockholders' equity                 $261,602                         $257,313
                                               ========                         ========

Net interest income                                       $ 7,690                          $ 7,181
                                                          =======                          =======

Interest rate spread (2)                                              3.04 %                          2.82 %
                                                                     =====                           =====

Net interest margin (3)                                               3.18 %                          3.00 %
                                                                     =====                           =====

Ratio of average interest-earning assets to
  average interest-bearing liabilities                              107.35 %                        107.58 %
                                                                   =======                         =======

(continued)

                                                      YEARS ENDED DECEMBER 31,
                                                  ------------------------------
                                                               2002
                                                  ------------------------------
                                                             INTEREST
                                                   AVERAGE      AND     YIELD/
                                                   BALANCE   DIVIDENDS   COST
                                                  ------------------------------
                                                     (DOLLARS IN THOUSANDS)

Interest-earning assets:
  Loans  (1)                                      $152,848   $ 11,773    7.70 %
  Investment securities                             56,532      2,937    5.20 %
  Mortgage-backed securities                         3,392        207    6.09 %
  Other                                              9,612        148    1.54 %
                                                  --------
      Total interest-earning assets                222,384     15,065    6.77 %


Non-interest-earning assets                         20,428
                                                  --------
      Total assets                                $242,812
                                                  ========

Interest-bearing liabilities:
  Deposits                                        $207,629      7,313    3.52 %
  Short-term borrowings                              2,097         38    1.81 %

      Total interest-bearing liabilities           209,726      7,351    3.51 %


Non-interest-bearing liabilities                    13,559
Stockholders' equity                                19,527
                                                  --------

      Total liabilities and
          stockholders' equity                    $242,812
                                                  ========

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

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

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

Ratio of average interest-earning assets to
  average interest-bearing liabilities                                 104.40 %
                                                                      =======
</TABLE>

-----------------------------------------
(1) Includes non-accrual loans and loans held for sale, and fees of $88,000 for
    2004, $111,000 for 2003, and $142,000 for 2002.
(2) Yield on interest-earning assets less cost of interest-bearing liabilities.
(3) Net interest income divided by average interest-earning assets.

                                       14
<PAGE>

RATE/VOLUME ANALYSIS

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>
                                                        2004 COMPARED TO 2003                 2003 COMPARED TO 2002
                                                      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                                          $   (520)   $   (705)     $(1,225)    $ (1,124)   $ (1,031)    $ (2,155)
  Investment securities                               (31)        155          124       (1,202)      1,426          224
  Mortgage-backed securities                                      467          467          (65)        (40)        (105)
  Other                                                 2         (36)         (34)         (40)        (43)         (83)
                                                 --------    --------     --------     --------    --------     --------

       Total net change in income
          on interest-earning assets                 (549)       (119)        (668)      (2,431)        312       (2,119)
                                                 --------    --------     --------     --------    --------     --------

Interest-bearing liabilities:
  Deposits                                         (1,258)         41       (1,217)      (1,959)        370       (1,589)
  Other borrowings                                     22          18           40          (19)         22            3
                                                 --------    --------     --------     --------    --------     --------

       Total net change in expense
          on interest-bearing liabilities          (1,236)         59       (1,177)      (1,978)        392       (1,586)
                                                 --------    --------     --------     --------    --------     --------

Net change in net interest income                $    687    $   (178)    $    509     $   (453)   $    (80)    $   (533)
                                                 ========    ========     ========     ========    ========     ========
</TABLE>

                                       15
<PAGE>

ASSET AND LIABILITY MANAGEMENT

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

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, 2004 and 2003, of
the impact on net interest income from an immediate change in interest rates, as
well as the benchmarks established by the ALCO. The results are shown as a
dollar and percentage change in net interest income over the next twelve months.

<TABLE>
<CAPTION>
------------------- ------------------------------------------------------------------
                                      CHANGE IN NET INTEREST INCOME
                                          (DOLLARS IN THOUSANDS)
                    -------------------------- ------------------------- -------------
                            12/31/04                    12/31/03            ALCO
Rate Shock           $ Change      % Change      $ Change     % Change    Benchmark
------------------- -------------------------- ------------------------- -------------
<S>                      <C>          <C>             <C>        <C>       <C>
+300 basis points        (149)       (1.97)%          126        1.73%    >(20.00)%
+200 basis points         (20)       (0.27)%          240        3.30%    >(20.00)%
+100 basis points         110         1.46%           358        4.90%    >(12.50)%
-100 basis points         304         4.02%           529        7.25%    >(12.50)%
-200 basis points         317         4.20%           543        7.44%    >(20.00)%
-300 basis points         315         4.18%           543        7.44%    >(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.

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

                                       16
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's most liquid assets are cash and cash equivalents. The levels of
these assets are dependent on the Company's operating, financing, and investing
activities. At December 31, 2004 and 2003, cash and cash equivalents totaled
$10.8 million and $9.6 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,
2004 and 2003, the most significant sources of funds have been deposit growth,
loan sales to the secondary market, and advances from FHLB. These funds have
been used to fund new loan originations and the purchase of investment and
mortgage-backed securities.

The Company's cash and cash equivalents increased $1.2 million during the year
ended December 31, 2004, compared to a decrease of $1.5 million during the year
ended December 31, 2003. Net cash provided by operating activities before loan
originations and sales decreased $401,000 to $2.8 million during 2004. Net cash
provided by loan originations and sales to Freddie Mac decreased to $360,000
during 2004 from the cash provided of $6.5 million during 2003. Net cash
provided by investing activities increased to $7.3 million during 2004 from the
$20.5 million cash used during 2003. Cash used to purchase investment and
mortgage-backed securities decreased to $42.8 million during 2004 from $134.7
million during 2003. The decreased cash used for investment purchases was
partially funded by a decrease in calls, maturities, and sales of investment and
mortgage-backed securities of $45.2 million during 2004 from $101.3 million
during 2003. Net cash used in financing activities increased to $9.2 million
during 2004 from the $9.3 million cash provided by financing activities during
2003. The increase is primarily due to the net decrease in deposits of $9.4
million during 2004 compared to the net increase of $9.6 million during 2003.

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

Liquidity management is both a short- and long-term responsibility of
management. The Company adjusts its investments in liquid assets based upon
management's assessment of expected loan demand, projected purchases of
investment and mortgage-backed securities, expected deposit flows, yields
available on interest-bearing deposits, and liquidity of its asset/liability
management program. Excess liquidity is generally invested in interest-earning
overnight deposits and other short-term U.S. agency obligations. If the Company
requires funds beyond its ability to generate them internally, it has the
ability to borrow funds from the FHLB. The Company may borrow from the FHLB
under a blanket agreement which assigns all investments in FHLB stock as well as
qualifying first mortgage loans equal to 150% of the outstanding balance as
collateral to secure the amounts borrowed. This borrowing arrangement is limited
to the lesser of 30% of the Company's total assets or twenty times the balance
of FHLB stock held by the Company. At December 31, 2004, the Company had
borrowing capacity of approximately $29.3 million and no outstanding advances.

The Company maintains levels of liquid assets as established by the Board of
Directors. The Company's liquidity ratio, adjusted for pledged assets, at
December 31, 2004 and 2003 was 42.4% and 43.3%, respectively. This ratio
represents the volume of short-term liquid assets as a percentage of net
deposits and borrowings due within one year.

                                       17
<PAGE>

The Company must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments. The Company does not have any
outstanding borrowings. The only long-term obligation that could affect
liquidity is the maturity of time deposits, the detail of which can be found in
Note 7 to the Consolidated Financial Statements. The Company anticipates that it
will have sufficient funds available to meet its current commitments principally
through the use of current liquid assets and through its borrowing capacity
discussed above. The following table summarizes the outstanding loan commitments
at December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                          12/31/04      12/31/03
                                                              (IN THOUSANDS)
<S>                                                      <C>           <C>
      Commitments to fund loans - own portfolio          $   22,742    $   15,695
      Commitments to fund loans for sale to Freddie Mac         576           369
      Standby letters of credit                                 473           410

</TABLE>

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and Tier I capital (as defined) to average
assets (as defined). Management believes, at December 31, 2004, that the Bank
meets all capital adequacy requirements to which it is subject.

Under Illinois law, Illinois-chartered savings banks are required to maintain a
minimum core capital to total assets ratio of 3%. The Illinois Commissioner of
Banks and Real Estate (the "Commissioner") is authorized to require a savings
bank to maintain a higher minimum capital level if the Commissioner determines
that the savings bank's financial condition or history, management or earnings
prospects are not adequate. If a savings bank's core capital ratio falls below
the required level, the Commissioner may direct the savings bank to adhere to a
specific written plan established by the Commissioner to correct the savings
bank's capital deficiency, as well as a number of other restrictions on the
savings bank's operations, including a prohibition on the declaration of
dividends by the savings bank's board of directors. At December 31, 2004, the
Bank's core capital ratio was 7.06% of total adjusted average assets, which
exceeded the required amount.

As of December 31, 2004, the Federal Deposit Insurance Corporation ("FDIC")
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as adequately capitalized, the Bank
must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the table below. The well-capitalized category requires
higher minimum ratios of 5% for the Tier 1 leverage, 6% for the Tier 1
risk-based, and 10% for the total risk-based capital ratios. There are no
conditions or events since that notification that management believes have
changed the Bank's category. The Bank's actual capital amounts and ratios are
also presented in the table below:

                                                      MINIMUM
                                                      REQUIRED     ACTUAL

      Tier 1 Capital to Average Assets                  4.00 %      7.06 %
      Tier 1 Capital to Risk-Weighted Assets            4.00 %     12.77 %
      Total Capital to Risk-Weighted Assets             8.00 %     14.02 %


                                       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] 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 three years in the period 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 each of the three years in the
period 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

                                       20
<PAGE>

<TABLE>
<CAPTION>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003


ASSETS                                                                               2004                 2003
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                  <C>
Cash and cash equivalents                                                         $  10,792,905        $   9,575,977
Federal funds sold                                                                            -              500,000
Investment securities, available-for-sale                                            84,625,323           98,940,872
Mortgage-backed securities available-for-sale                                        15,171,342            7,597,265
Federal Home Loan Bank stock                                                          1,466,300            1,380,600
Other investments                                                                       582,224              592,355
Loans  - net of allowance for loan losses of 2004 $1,888,073;  2003 $2,186,058      125,793,087          127,079,036
Loans held for sale                                                                     264,600              506,300
Premises and equipment - net                                                          7,146,087            7,419,061
Accrued interest receivable                                                           1,300,741            1,445,140
Goodwill                                                                              2,726,567            2,726,567
Core deposit intangible                                                                 279,033              358,756
Capitalized mortgage servicing rights                                                 1,094,261            1,168,246
Real estate owned                                                                       564,947              499,257
Income taxes receivable                                                                  25,468              386,509
Other assets                                                                          1,496,628            1,639,722
                                                                               --------------------------------------

     TOTAL ASSETS                                                                 $ 253,329,513        $ 261,815,663
                                                                               ======================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
 Deposits:
  Noninterest bearing                                                             $  14,224,204        $  12,850,729
  Interest bearing                                                                  211,510,304          222,322,003
                                                                               --------------------------------------
     TOTAL DEPOSITS                                                                 225,734,508          235,172,732
 Short-term borrowings                                                                3,446,706            2,888,954
 Advance payments by borrowers for taxes and insurance                                  328,444              397,941
 Accrued interest payable                                                               640,060              775,966
 Deferred compensation                                                                2,120,620            2,021,008
 Other liabilities                                                                      376,191              526,909
                                                                               --------------------------------------
     TOTAL LIABILITIES                                                              232,646,529          241,783,510
                                                                               --------------------------------------

Commitments and Contingencies (Note 12)

Stockholders' Equity
 Preferred stock, $0.01 par value, authorized 10,000,000 shares; none
  issued and outstanding                                                                      -                    -
 Common stock, $0.01 par value, authorized 20,000,000 shares; issued and
  outstanding 1,966,343 shares and 1,942,004 shares at December 31, 2004
  and 2003, respectively                                                                 19,663               19,420
Additional paid-in capital                                                            6,459,138            6,399,321
Retained earnings - substantially restricted                                         14,467,568           13,866,849
Accumulated other comprehensive (loss)                                                 (263,385)            (253,437)
                                                                               --------------------------------------
     TOTAL STOCKHOLDERS' EQUITY                                                      20,682,984           20,032,153
                                                                               --------------------------------------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $ 253,329,513        $ 261,815,663
                                                                               ======================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       21
<PAGE>

<TABLE>
<CAPTION>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                                                 2004           2003           2002
----------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>
Interest income:
 Loans                                       $ 8,393,339    $ 9,618,443    $ 11,773,212
 Mortgage-backed securities                      569,325        102,272         206,663
 Investment securities:
    Taxable                                    3,221,133      3,117,183       2,840,470
    Nontaxable                                    63,308         43,514          96,638
Other                                             30,547         64,887         148,344
                                            --------------------------------------------
      TOTAL INTEREST INCOME                   12,277,652     12,946,299      15,065,327
                                            --------------------------------------------

Interest expense:
 Deposits                                      4,506,529      5,723,776       7,313,183
 Short term borrowings                            81,066         41,669          37,982
                                            --------------------------------------------
      TOTAL INTEREST EXPENSE                   4,587,595      5,765,445       7,351,165
                                            --------------------------------------------

      NET INTEREST INCOME                      7,690,057      7,180,854       7,714,162

Provision for loan losses                        550,000      2,075,000       2,000,000
                                            --------------------------------------------

      NET INTEREST INCOME AFTER PROVISION
      FOR LOAN LOSSES                          7,140,057      5,105,854       5,714,162
                                            --------------------------------------------

Other income:
 Service charges on deposit accounts             814,896        668,750         714,390
 Loan servicing fees                             385,859        402,515         361,050
 Commission income                               640,074        410,145         394,760
 Net gains on sales of loans                      44,089        829,362         632,301
 Net gains on sale of securities                  28,020        319,103         303,423
 Trust income                                     82,085        259,021          34,925
 Recovery from insurance company                       -        562,500               -
 Other                                            43,214         80,908          48,866
                                            --------------------------------------------
      TOTAL OTHER INCOME                       2,038,237      3,532,304       2,489,715
                                            --------------------------------------------

Other expenses:
 Salaries and employee benefits                4,664,390      4,200,388       3,943,657
 Occupancy and equipment expense               1,383,875      1,256,706       1,063,791
 Data processing expense                         284,328        278,024         216,073
 Legal and accounting expense                    186,967        120,613          94,769
 Postage expense                                 143,238        147,863         154,908
 Stationary and supplies expense                 122,546        145,965         156,728
 Advertising expense                             120,394        129,536         151,108
 Other                                           875,960      1,016,687       1,137,868
                                            --------------------------------------------
      TOTAL OTHER EXPENSES                     7,781,698      7,295,782       6,918,902
                                            --------------------------------------------

      INCOME  BEFORE INCOME TAX EXPENSE        1,396,596      1,342,376       1,284,975

Income tax expense                               520,746        501,346         466,652
                                            --------------------------------------------

      NET INCOME                             $   875,850    $   841,030    $    818,323
                                            ============================================

Net income per common share - basic          $      0.45    $      0.43    $       0.43
                                            ============================================
Net income per common share - diluted        $      0.44    $      0.43    $       0.42
                                            ============================================

See Notes to Consolidated Financial Statements.

                                       22
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

----------------------------------------------------------------------------------------------
                                                                   Accumulated
                                         Additional                 Other
                                Common     Paid-In     Retained   Comprehensive
                                Stock      Capital     Earnings   Income (Loss)    Total
                           -------------------------------------------------------------------
<S>                             <C>        <C>         <C>              <C>       <C>
Balance, December 31, 2001    $ 19,093   $ 6,268,623 $ 12,738,711     $ 137,259 $ 19,163,686

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

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

Balance, December 31, 2002      19,213     6,374,463   13,294,959       563,776   20,252,411
                           -------------------------------------------------------------------

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

Exercise of stock options          410       366,170            -             -      366,580
Purchase and retirement of
    treasury stock
    (20,325 shares)               (203)     (341,312)           -             -     (341,515)
Dividends on common
    stock ($0.30 per share)          -             -     (269,140)            -     (269,140)
                           -----------------------------------------------------------------------

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

                                   (Continued)

                                       23
<PAGE>

<TABLE>
<CAPTION>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

----------------------------------------------------------------------------------------------------------
                                                                           Accumulated
                                              Additional                      Other
                                   Common      Paid-In       Retained      Comprehensive
                                   Stock       Capital       Earnings      Income (Loss)        Total
                              ----------------------------------------------------------------------------
<S>                               <C>         <C>           <C>               <C>           <C>
Balance, December 31, 2003       $ 19,420    $ 6,399,321   $ 13,866,849     $ (253,437)    $ 20,032,153

Comprehensive income
 Net income                             -              -        875,850              -          875,850
 Other comprehensive
    income (loss) - change in
    net unrealized gains
    (losses) on securities
    available-for-sale,
    net of income taxes
    of $4,581                           -              -              -          7,195            7,195
 Less:  Reclassification
   adjustment for gains
   included in net
   income, net of tax
   of $(10,877)                         -              -              -        (17,143)         (17,143)
                                                                                            --------------
 Comprehensive income                                                                           865,902
                                                                                            --------------

 Exercise of stock options            444        439,380              -              -          439,824
 Purchase and retirement of
    treasury stock
    (20,113 shares)                  (201)      (379,563)             -              -         (379,764)
 Dividends on common
    stock ($0.30 per share)             -              -       (275,131)             -         (275,131)
                              ----------------------------------------------------------------------------

Balance, December 31, 2004       $ 19,663    $ 6,459,138   $ 14,467,568     $ (263,385)    $ 20,682,984
                              ============================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       24
<PAGE>
<TABLE>
<CAPTION>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                                                                      2004               2003                 2002
-------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                 <C>                  <C>
Cash Flows from Operating Activities
  Net income                                                     $     875,850       $     841,030        $     818,323
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Depreciation, amortization and accretion:
      Premises and equipment                                           596,484             469,278              457,960
      Loan fees, security discounts and premiums - net                 419,762             628,665                  394
      Intangible assets                                                 79,723              79,724               79,723
    Provision for loan losses                                          550,000           2,075,000            2,000,000
    Deferred income taxes                                               55,423             450,000             (500,000)
    FHLB stock dividend                                                (85,700)           (101,400)             (64,100)
    Net gains on sale of securities                                    (28,020)           (319,103)            (303,423)
    Net gains on sales of loans                                        (44,089)           (829,362)            (632,301)
    (Gain) loss on sale of real estate owned                           (82,880)            (77,055)              71,491
    Write down on real estate owned                                          -              81,749              125,804
    Change in other assets and liabilities                             480,140             (80,554)           1,416,562
                                                              -----------------------------------------------------------
        NET CASH PROVIDED BY OPERATING ACTIVITIES
          BEFORE LOAN ORIGINATIONS AND SALES                         2,816,693           3,217,972            3,470,433
    Originations of loans held for sale                            (16,571,250)       (101,216,763)         (87,024,862)
    Proceeds from sales of loans held for sale                      16,931,024         107,720,332           86,061,502
                                                              -----------------------------------------------------------
        NET CASH PROVIDED BY
          OPERATING ACTIVITIES                                       3,176,467           9,721,541            2,507,073
                                                              -----------------------------------------------------------

Cash Flows from Investing Activities
  Change in federal funds sold, net                                    500,000             300,000              210,000
  Purchases of investment and mortgage-
     backed securities                                             (42,758,256)       (134,699,165)         (99,755,746)
  Proceeds from calls and maturities of
     investment securities                                          35,580,247          72,275,175           52,090,200
  Proceeds from sales of investment and mortgage-
     backed securities                                               9,646,349          28,986,883           20,130,901
  Principal payments received on mortgage-backed
     securities                                                      3,439,373             909,924            1,350,142
  Principal payments received on investment securities
     and other investments                                             376,564             140,260               88,939
  Loan payments, net                                                   266,217          13,012,816           10,729,396
  Proceeds from sales of real estate owned                             546,262             759,585              985,131
  Additions to premises and equipment                                 (323,510)         (2,220,128)            (683,496)
                                                              -----------------------------------------------------------
        NET CASH PROVIDED BY (USED IN)
          INVESTING ACTIVITIES                                       7,273,246         (20,534,650)         (14,854,533)
                                                              -----------------------------------------------------------

                                                       (Continued)

                                                           25
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
JACKSONVILLE BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                                                                      2004               2003                 2002
-------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                 <C>                  <C>

Cash Flows from Financing Activities
  Net increase (decrease) in deposits                            $  (9,438,224)      $   9,570,235        $   8,703,726
  Advances from Federal Home Loan Bank of Chicago
     and other borrowings                                           20,057,752           7,514,247            1,479,252
  Repayment of advances from Federal Home Loan
     Bank of Chicago and other borrowings                          (19,500,000)         (7,500,000)                   -
  Increase (decrease) in advance payments by
     borrowers for taxes and insurance                                 (69,497)            (44,498)              14,321
  Purchase and retirement of treasury stock                           (379,764)           (341,515)                   -
  Exercise of stock options                                            439,824             366,580              105,960
  Dividends paid                                                      (342,876)           (267,589)            (261,175)
                                                              -----------------------------------------------------------
        NET CASH PROVIDED BY (USED IN)
          FINANCING ACTIVITIES                                      (9,232,785)          9,297,460           10,042,084
                                                              -----------------------------------------------------------

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS                                                 1,216,928          (1,515,649)          (2,305,376)

Cash and cash equivalents:
  Beginning of year                                                  9,575,977          11,091,626           13,397,002
                                                              -----------------------------------------------------------

  End of year                                                    $  10,792,905       $   9,575,977        $  11,091,626
                                                              ===========================================================

Supplemental Disclosures of Cash Flow Information
  Cash paid during the year for:
     Interest on deposits                                        $   4,640,335       $   5,945,173        $   7,569,596
     Interest on other borrowings                                       83,166              39,569               37,982
     Income taxes (refunds)                                            104,282             215,613             (361,510)

Supplemental Schedule of Noncash Investing and
  Financing Activities
     Real estate acquired in settlement of loans                       998,708           1,022,690              806,145
     Loans to facilitate sales of real estate owned                    469,636             201,202              127,035
     Dividends declared not paid                                             -              67,745               66,194

 See Notes to Consolidated Financial Statements.



                                                           26
</TABLE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

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

                                       27
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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

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

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

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

OTHER INVESTMENTS - Other investments at December 31, 2004 and 2003 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.

LOANS - Loans are stated at the principal amounts outstanding less the allowance
for loan losses and net deferred loan origination fees and discounts. Discounts
on consumer loans are recognized over the lives of the loans using the interest
method. Loan origination fees, net of certain direct loan origination costs are
deferred and amortized to interest income over the contractual lives of the
loans using the level yield method. The unearned premium on loans purchased
relates to loans acquired from Chapin State Bank in 2000 and is being amortized
over the estimated lives of loans acquired.

                                       28
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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

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

LOANS HELD FOR SALE - Loans held for sale are those loans the Company has
committed to sell within 30 days. Loans held for sale are carried at the lower
of cost or fair value. All loans held for sale are fixed rate loans and
generally are sold with the servicing retained. The estimated fair value of
loans held for sale that are covered by investor commitments are based on
commitment prices. The estimated fair value of loans held for sale that are not
covered by investor commitments are based on quoted market prices. Gains or
losses on loan sales are recognized at the time of sale and are determined based
on the relative fair value of the loans sold and the servicing asset. Loan
origination fees, net of certain direct loan origination costs, are deferred
until the sale of the loan.

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

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

                                       29
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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

INCOME TAXES - Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Deferred tax assets are also
recognized for operating loss and tax credit carryforwards. Management
periodically evaluates whether it is more likely than not that the deferred tax
assets will be realized. At December 31, 2004 and 2003, the Company does not
believe a valuation allowance is necessary.

GOODWILL -Costs in excess of the estimated fair value of identifiable net assets
acquired for transactions accounted for as purchases are recorded as an asset by
the Company. This amount was originally amortized into expense on a
straight-line basis assuming a life of twenty years. Effective January 1, 2002,
the Company ceased amortization in accordance with newly adopted accounting
standards generally accepted in the United States of America. The Company
performed an initial impairment assessment as of January 1, 2002 and an annual
impairment assessment as of September 30, 2004 and 2003.

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

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

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

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

                                       30
<PAGE>


JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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

During the second quarter of 2004, the Company granted 5,600 options under its
1996 Stock Option Plan. The options vest 20% per year with credit given for
prior service, expire after ten years, and are exercisable at a price of $14.00
per share. The fair value of the options granted during 2004 was determined to
be $3.84 per share, using the Black-Scholes pricing model. The fair value
calculation was made with estimated values for the risk-free rate of 3.96%,
volatility rate of 32%, and average lives of 6.2 years.

<TABLE>
<CAPTION>
                                                           2004        2003       2002
                                                     -------------------------------------
                                                     (in thousands, except per share data)
<S>                                                     <C>         <C>         <C>
Net income, as reported                                 $    876    $     841   $     818

Deduct total stock-based compensation expense
 determined under the fair value method for all
 awards, net of related tax effects                           (4)           -           -
                                                     -------------------------------------

Pro forma net income                                    $    872    $     841   $     818
                                                     =====================================

Earnings  per share:
 Basic:
    As reported                                         $   0.45    $    0.43   $    0.43
    Pro forma                                               0.45         0.43        0.43

Diluted:
    As reported                                         $   0.44    $    0.43   $    0.42
    Pro forma                                               0.44         0.43        0.42
</TABLE>


                                       31
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

EARNINGS PER SHARE - Basic earnings per share for the years ended December 31,
2004, 2003 and 2002 are determined by dividing net income for the year by the
weighted average number of common shares outstanding.

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

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

<TABLE>
<CAPTION>
                                                            December 31,
                                           -------------------------------------------
                                                2004           2003           2002
                                           -------------------------------------------
<S>                                         <C>            <C>            <C>
Net income (loss) available to common
 shareholders                               $   875,850    $   841,030    $   818,323
                                           ===========================================

Basic potential common shares:
 Weighted average shares outstanding          1,954,084      1,936,283      1,912,362

Diluted potential common shares:
 Stock option equivalents                        25,840         38,932         25,009
                                           -------------------------------------------

Diluted average shares outstanding            1,979,924      1,975,215      1,937,371
                                           -------------------------------------------

Basic earnings per share                    $      0.45    $      0.43    $      0.43
                                           ===========================================

Diluted earnings per share                  $      0.44    $      0.43    $      0.42
                                           ===========================================
</TABLE>

RECLASSIFICATIONS - Certain amounts included in the 2003 and 2002 consolidated
financial statements have been reclassified to conform to the 2004 presentation
with no effect on previously reported net income or stockholders' equity.

PENDING ADOPTION - In December 2004, the Financial Accounting Standards Board
("FASB") published FASB Statement No. 123 (revised 2004), SHARE-BASED PAYMENT
("FAS 123(R)" or the "Statement"). FAS 123(R) requires that the compensation
cost relating to share-based payment transactions, including grants of employee
stock options, be recognized in financial statements. That cost will be measured
based on the fair value of the equity or liability instruments issued. FAS
123(R) permits entities to use any option-pricing model that meets the fair
value objective in the Statement. (Modifications of share-based payments will be
treated as replacement awards with the cost of the incremental value recorded in
the financial statements.)

                                       32
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

The Statement is effective at the beginning of the third quarter of 2005. As of
the effective date, the Company will apply the Statement using a modified
version of prospective application. Under that transition method, compensation
cost is recognized for (1) all awards granted after the required effective date
and to awards modified, cancelled, or repurchased after that date and (2) the
portion of prior awards for which the requisite service has not yet been
rendered, based on the grant-date fair value of those awards calculated for pro
forma disclosures under SFAS 123.

The impact of this Statement on the Company in 2005 and beyond will depend upon
various factors, among them being our future compensation strategy. The pro
forma compensation costs presented (in the table above) and in prior filings for
the Company have been calculated using a Black-Scholes option pricing model and
may not be indicative of amounts which should be expected in future periods.

On September 30, 2004, the Financial Accounting Standards Board ("FASB") issued
FASB Staff Position ("FSP") Emerging Issues Task Force ("EITF") Issue No. 03-1-1
delaying the effective date of paragraphs 10-20 of EITF 03-1, THE MEANING OF
OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS,
which provides guidance for determining the meaning of "other-than-temporarily
impaired" and its application to certain debt and equity securities within the
scope of SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, and investments accounted for under the cost method. The guidance
requires that investments which have declined in value due to credit concerns or
solely due to changes in interest rates must be recorded as
other-than-temporarily impaired unless the Company can assert and demonstrate
its intention to hold the security for a period of time sufficient to allow for
a recovery of fair value up to or beyond the cost of the investment which might
mean maturity. The delay of the effective date of EITF 03-1 will be superceded
concurrent with the final issuance of proposed FSP Issue 03-1-a. Proposed FSP
Issue 03-1-a is intended to provide implementation guidance with respect to all
securities analyzed for impairment under paragraphs 10-20 of EITF 03-1.
Management continues to closely monitor and evaluate how the provisions of EITF
03-1 and proposed FSP Issue 03-1-a will affect the Company.

In March 2004, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 105, APPLICATION OF ACCOUNTING PRINCIPLES TO
LOAN COMMITMENTS, which provides guidance regarding loan commitments that are
accounted for as derivative instruments. In this SAB, the SEC determined that an
interest rate lock commitment should generally be valued at zero at inception.
The rate locks will continue to be adjusted for changes in value resulting from
changes in market interest rates. This SAB did not have any effect on the
Company's financial position or results of operations.

NOTE 2.  ADOPTION OF STATEMENT 142

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

                                       33
<PAGE>


JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

Goodwill and intangible asset disclosures are as follows:

                                                  As of December 31, 2004
                                         --------------------------------------
                                           Gross Carrying      Accumulated
                                               Amount          Amortization
                                         --------------------------------------
AMORTIZED INTANGIBLE ASSETS:
 Core deposit intangibles                  $     637,789        $  (358,756)

AGGREGATE AMORTIZATION EXPENSE:
 For the year ended December 31, 2004      $      79,723

ESTIMATED AMORTIZATION EXPENSE:
 For the year ended December 31, 2005      $      79,724
 For the year ended December 31, 2006      $      79,724
 For the year ended December 31, 2007      $      79,724
 For the year ended December 31, 2008      $      39,861

GOODWILL:                                  $   2,726,567


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

The amortized cost and fair value of investment and mortgage-backed securities
available for sale at December 31, 2004 and 2003 are as follows:


<TABLE>
<CAPTION>
                                                                      2004
                                        --------------------------------------------------------------
                                                              Gross          Gross
                                            Amortized       Unrealized     Unrealized        Fair
                                              Cost            Gains         (Losses)         Value
                                        --------------------------------------------------------------
<S>                                       <C>              <C>             <C>           <C>
State and political organizations         $  1,415,320     $  21,037       $   (3,482)   $  1,432,875
U.S. government and agency securities       83,651,198        96,865         (555,615)     83,192,448
                                        --------------------------------------------------------------

      TOTAL INVESTMENT SECURITIES           85,066,518       117,902         (559,097)     84,625,323

Mortgage-backed securities                  15,160,093        56,801          (45,552)     15,171,342
                                        --------------------------------------------------------------

      TOTAL                               $100,226,611     $ 174,703       $ (604,649)   $ 99,796,665
                                        ==============================================================

                                                                      2003
                                        --------------------------------------------------------------
State and political organizations         $  1,356,674     $   7,551       $     (977)   $  1,363,248
U.S. government and agency securities       98,017,683       272,134         (712,193)     97,577,624
                                        --------------------------------------------------------------

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

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

      TOTAL                               $106,951,843     $ 309,203       $ (722,909)   $106,538,137
                                        ==============================================================
</TABLE>

                                       34
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

Maturities may differ from contractual maturities in mortgage-backed securities
because the mortgages underlying the securities may be called or repaid without
any penalties. Therefore, stated maturities are not disclosed. The amortized
cost and fair value at December 31, 2004, by contractual maturity, are shown
below.

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

One year or less                               $     621,781    $     617,735
One year through five years                       43,604,512       43,301,352
Five years through ten years                      39,591,086       39,465,011
More than ten years                                1,249,139        1,241,225
                                              --------------------------------
     TOTAL INVESTMENT SECURITIES                  85,066,518       84,625,323
Mortgage-backed securities                        15,160,093       15,171,342
                                              --------------------------------

     TOTAL                                     $ 100,226,611    $  99,796,665
                                              ================================

Investment and mortgage-backed securities with a carrying value of approximately
$41,950,000 and $40,269,000 were pledged to secure public deposits, trust
deposits, and repurchase agreements and for other purposes required or permitted
by law at December 31, 2004 and 2003, respectively.

For the years ended December 31, 2004, 2003 and 2002, proceeds from sales of
securities available for sale amounted to $9,646,349, $28,986,883 and
$20,130,901, respectively. Gross realized gains amounted to $35,095, $333,821
and $316,459, respectively. Gross realized losses amounted to $7,075 and $14,718
in 2004 and 2003, respectively. The tax provision applicable to these net
realized gains amounted to $10,877, $123,621 and $117,546, respectively.

                                       35
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

Unrealized losses and fair value, aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss
position, as of December 31, 2004 and 2003, are summarized as follows:

<TABLE>
<CAPTION>
                                                          December 31, 2004
                       ------------------------------ ------------------------- ---------------------------
                             Less than 12 Months           12 Months or More               Total
                       ------------------------------ ------------------------- ---------------------------
                            Fair        Unrealized       Fair        Unrealized    Fair        Unrealized
                           Value          Losses         Value         Losses      Value         Losses
                       ------------------------------------------------------------------------------------
<S>                     <C>            <C>            <C>           <C>          <C>           <C>
State and political
  organizations         $   494,176    $     3,482    $         -   $        -   $   494,176   $     3,482
U. S. government and
  agency securities      54,143,539        486,375      2,683,898       69,240    56,827,437       555,615
                       ------------------------------ ------------------------- ---------------------------
                         54,637,715        489,857      2,683,898       69,240    57,321,613       559,097
Mortgage-backed
  securities              5,922,635         45,552              -            -     5,922,635        45,552
                       ------------------------------ ------------------------- ---------------------------
                        $60,560,350    $   535,409    $ 2,683,898   $   69,240   $63,244,248   $   604,649
                       ============================== ========================== ==========================

                                                          December 31, 2003
                       ------------------------------ ------------------------- ---------------------------
                             Less than 12 Months           12 Months or More               Total
                       ------------------------------ ------------------------- ---------------------------
                            Fair        Unrealized       Fair        Unrealized    Fair        Unrealized
                           Value          Losses         Value         Losses      Value         Losses
                       ------------------------------ ------------------------- ---------------------------
State and political
  organizations         $   329,023    $       977    $         -   $        -   $   329,023   $       977
U. S. government and
  agency securities      49,800,208        712,193              -            -    49,800,208       712,193
                       ------------------------------ ------------------------- ---------------------------
                         50,129,231        713,170              -            -    50,129,231       713,170
Mortgage-backed
  securities              2,196,196          9,739              -            -     2,196,196         9,739
                       ------------------------------ ------------------------- ---------------------------
                        $52,325,427    $   722,909    $         -   $        -   $52,325,427   $   722,909
                       ============================== ========================= ===========================
</TABLE>

Management evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. In estimating other-than-temporary impairment losses,
management considers (1) the length of time and the extent to which the fair
value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Company to retain
its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.

The unrealized losses on investment securities that have been in a continuous
loss position for more than 12 consecutive months consist of eleven agency
securities with a fair market value of $2.7 million. The unrealized losses are
generally due to changes in interest rates and, as such, are considered to be
temporary, by the Company.

                                       36
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 4.  LOANS

Loans at December 31, 2004 and 2003 are summarized as follows:


                                                   2004             2003
                                             --------------------------------
Real estate loans:
  One-to-four family residential              $ 41,616,223     $ 40,304,233
  Commercial and agricultural                   24,587,593       21,401,320
  Multifamily residential                        2,206,918        2,375,494
Commercial and agricultural business loans      26,227,379       29,762,807
Consumer loans:
  Home equity/home improvement                  24,321,721       23,614,392
  Automobile                                     4,515,576        6,477,377
  Other                                          4,380,073        5,544,946
                                             --------------------------------
          TOTAL                                127,855,483      129,480,569
Less:
  Deferred loans fees, net                          75,426           54,547
  Unearned premium on purchased loans               98,897          160,928
  Allowance for loan losses                      1,888,073        2,186,058
                                             --------------------------------
          TOTAL                               $125,793,087     $127,079,036
                                             ================================


The Company has granted loans to executive officers and directors. At December
31, 2004, all loans to executive officers and directors were current with
respect to principal and interest. Changes in loans to executive officers and
directors for the year ended December 31, 2004 are summarized as follows:


Balance beginning of year                                      $        535,998
Additions                                                               207,437
Repayments                                                             (146,403)
                                                             -------------------

Balance, end of year                                           $        597,032
                                                             ===================


Activity in the allowance for loan losses for the years ended December 31, 2004,
2003 and 2002 is as follows:

                                    2004             2003             2002
                              --------------------------------------------------

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

  Provision charged to expense      550,000        2,075,000        2,000,000
  Charge-offs                    (1,073,148)      (2,053,861)      (1,120,632)
  Recoveries                        225,163           91,824           87,080
                              --------------------------------------------------

Balance, end of year            $ 1,888,073      $ 2,186,058      $ 2,073,095
                              ==================================================

                                       37
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

The accrual of interest on any loan is discontinued when in the opinion of
management there is reasonable doubt as to the collectibility of interest and
principal, but generally when the loan reaches 90 or 120 days past due.

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

Information about impaired loans and non-accrual loans as of and for the years
ended December 31, 2004, 2003 and 2002 is as follows:

<TABLE>
<CAPTION>
                                                     2004          2003          2002
                                                -----------------------------------------
<S>                                              <C>           <C>           <C>
Impaired loans with a valuation allowance        $   121,000   $   987,000   $   503,000
Impaired loans without a valuation allowance               -             -             -
                                                -----------------------------------------
        TOTAL IMPAIRED LOANS                     $   121,000   $   987,000   $   503,000
                                                =========================================

Related allowance for loan losses                $     3,000   $    87,000   $   185,000
Non-accrual loans                                $ 1,689,000   $ 3,121,000   $ 3,510,000
Loans past due ninety days or more and
  still accruing                                 $   298,000   $   190,000   $   351,000
Average monthly balance of impaired loans
  (based on month-end balances)                  $   565,000   $   967,000   $ 1,755,000
Interest income recognized on impaired loans     $    43,000   $    39,000   $         -
Interest income recognized on a cash basis on
  impaired loans                                 $         -   $    20,000   $         -
Interest income that would have been recorded
  under the original terms of non-accrual loans  $    79,000   $   167,000   $   193,000
Other loans being monitored by management        $ 3,484,000   $ 7,555,000   $ 4,298,000
Allowance for loan losses associated with
  monitored loans                                $   940,000   $ 1,515,000   $ 1,379,000
</TABLE>

                                       38
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 5.  LOAN SERVICING

Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. Servicing loans for others generally consists of
collecting mortgage payments, maintaining escrow accounts, disbursing payments
to investors and foreclosure processing. Loan servicing income is recorded on
the accrual basis and includes servicing fees from investors and certain charges
collected from borrowers, such as late payment fees. Loans held for sale are
those loans originated with the intention to sell. Investor commitments cover a
portion of these balances; however, the remaining portion of the balance of
loans held for sale is recorded at the lower of cost or market. The unpaid
principal balances of these loans at December 31 are summarized as follows:

                                                       December 31,
                                           -------------------------------------
                                                 2004               2003
                                           -------------------------------------

Mortgage loans serviced for Freddie Mac     $ 148,616,000      $ 159,542,000
Loans held for sale                               265,000            506,000

Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in advance payments by borrowers for taxes and
insurance, were approximately $266,000 and $313,000 at December 31, 2004 and
2003, respectively.

A summary of the changes in the balance of mortgage servicing rights in 2004 and
2003 is as follows:

                                                       December 31,
                                           -------------------------------------
                                                 2004               2003
                                           -------------------------------------
                                                      (in thousands)
Balance, beginning                            $ 1,168,246        $ 1,077,318
Servicing assets recognized during the year       127,000            808,000
Amortization of servicing assets                 (200,985)          (717,072)
                                           -------------------------------------
Balance, ending                               $ 1,094,261        $ 1,168,246
                                           =====================================

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

                                           2004          2003           2002
                                     -------------------------------------------
Loans originated                      $ 16,571,250  $ 101,216,763  $ 87,024,862
                                     ===========================================

Gross gains                           $    137,080  $     899,709  $    627,553
Gross losses                               (19,006)      (161,275)     (121,195)
Net capitalization (amortization)
  of mortgage-servicing rights             (73,985)        90,928       125,943
                                     -------------------------------------------
      Net gain                        $     44,089  $     829,362  $    632,301
                                     ===========================================

                                       39
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 6.  PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2004 and 2003 are summarized as follows:

                                                     2004            2003
                                                -----------------------------

Land                                             $   923,276    $   923,276
Construction in progress                                   -      2,522,161
Office buildings and improvements                  7,450,542      5,284,132
Furniture and equipment                            4,444,284      3,767,053
                                                -----------------------------

                                                  12,818,102     12,496,622
Less accumulated depreciation                     (5,672,015)    (5,077,561)
                                                -----------------------------

TOTAL                                            $ 7,146,087    $ 7,419,061
                                                =============================

NOTE 7.  DEPOSITS

The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $55,492,000 and $57,009,000 at December 31, 2004 and
2003, respectively.

At December 31, 2004, the scheduled maturities of certificates of deposit were
as follows:

Maturing in:                                                          Amount
--------------------------------------------------------------------------------
  2005                                                            $ 106,230,165
  2006                                                               20,763,906
  2007                                                                7,545,864
  2008                                                                5,881,169
  2009                                                                4,060,721
  Thereafter                                                            448,648
                                                              ------------------

         TOTAL                                                    $ 144,930,473
                                                              ==================

NOTE 8.  SHORT-TERM BORROWINGS

Short-term borrowings consist of securities sold under agreements to repurchase
of $3,446,706 and $2,888,954 at December 31, 2004 and 2003, respectively.

                                       40
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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

NOTE 9.  INCOME TAXES

Retained earnings at December 31, 2004 and 2003 include approximately $2,579,000
of the tax allowance for loan losses which accumulated prior to 1988, for which
no deferred income tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions for tax purposes only. Reduction of
amounts so allocated for purposes other than tax bad debt losses or adjustments
arising from carryback of net operating losses would create income for tax
purposes only, which would be subject to the then current corporate income tax
rate. The unrecorded deferred income tax liability on the above amount was
approximately $999,000, at December 31, 2004 and 2003.

Income tax expense for the years ended December 31, 2004, 2003 and 2002 are
summarized as follows:

                                            Years Ended December 31,
                                   ---------------------------------------------
                                        2004          2003           2002
                                   ---------------------------------------------
Current:
  Federal                           $  533,463     $   80,129     $  919,874
  State                                (68,140)       (28,783)        46,778
                                   ---------------------------------------------
        TOTAL CURRENT                  465,323         51,346        966,652

Deferred                                55,423        450,000       (500,000)
                                   ---------------------------------------------

        TOTAL                       $  520,746     $  501,346     $  466,652
                                   =============================================

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

                                                 Years Ended December 31,
                                      -----------------------------------------
                                           2004           2003          2002
                                      -----------------------------------------
                                          Amount         Amount        Amount
                                      -----------------------------------------

Tax at Federal tax rate                $   488,809    $   469,832   $   449,741
Increase (decrease) resulting from:
  State (tax) benefit, net                 (43,196)       (18,709)       30,405
  Income taxed at lower rates              (13,966)       (13,424)      (12,850)
  Tax exempt interest, net                 (19,489)       (13,932)      (33,823)
  Other, net                               108,588         77,579        33,179
                                      -----------------------------------------

TOTAL                                  $   520,746    $   501,346   $   466,652
                                      =========================================


                                       41
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

The components of the deferred tax assets and liabilities at December 31, 2004
and 2003, which are included in other assets on the balance sheet, are as
follows:

                                                           December 31,
                                                 ------------------------------
                                                       2004           2003
                                                 ------------------------------
Deferred tax assets:
Allowance for loan losses                          $   607,533     $   723,205
Deferred compensation                                  823,182         784,515
State net operating loss carryforward                  285,650         269,943
Securities available for sale                          166,561         160,265
Other                                                  147,932         155,780
                                                 ------------------------------
TOTAL DEFERRED TAX ASSETS                            2,030,858       2,093,708
                                                 ------------------------------

Deferred tax liabilities:
Premises and equipment                                 480,998         454,326
FHLB stock dividends                                   175,491         142,131
Prepaid expenses                                        78,346         115,668
Mortgage servicing rights                              424,770         453,490
Basis in acquired assets                                69,549          77,262
                                                 ------------------------------
TOTAL DEFERRED TAX LIABILITIES                       1,229,154       1,242,877
                                                 ------------------------------

NET DEFERRED TAX ASSET                             $   801,704     $   850,831
                                                 ==============================

NOTE 10. REGULATORY CAPITAL REQUIREMENTS

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and Tier I capital (as defined) to average
assets (as defined). Management believes, at December 31, 2004, that the Bank
meets all capital adequacy requirements to which it is subject.

                                       42
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

Under Illinois law, Illinois-chartered savings banks are required to maintain a
minimum core capital to total assets ratio of 3%. The Illinois Commissioner of
Banks and Real Estate (the "Commissioner") is authorized to require a savings
bank to maintain a higher minimum capital level if the Commissioner determines
that the savings bank's financial condition or history, management or earnings
prospects are not adequate. If a savings bank's core capital ratio falls below
the required level, the Commissioner may direct the savings bank to adhere to a
specific written plan established by the Commissioner to correct the savings
bank's capital deficiency, as well as a number of other restrictions on the
savings bank's operations, including a prohibition on the declaration of
dividends by the savings bank's board of directors. At December 31, 2004, the
Bank's core capital ratio was 7.06% of total adjusted average assets, which
exceeded the required amount.

As of December 31, 2004, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the Bank's category.

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

<TABLE>
<CAPTION>
                                                                                       To Be Well
                                                                                  Capitalized Under
                                                                For Capital       Prompt Corrective
                                          Actual            Adequacy Purposes:    Action Provisions:
                                ----------------------------------------------------------------------
                                    Amount     Ratio        Amount      Ratio     Amount      Ratio
                                ----------------------------------------------------------------------
<S>                              <C>           <C>       <C>             <C>     <C>           <C>
December 31, 2004:
  Total 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%

December 31, 2003:
  Total Capital (to Risk
    Weighted Assets)             $   18,821    13.13%    $   11,466      8.0%    $   14,332    10.0%
  Tier I Capital (to Risk
    Weighted Assets)             $   17,024    11.88%    $    5,733      4.0%    $    8,599     6.0%
  Tier I Capital (to
    Average Assets)              $   17,024     6.54%    $   10,420      4.0%    $   13,025     5.0%
</TABLE>

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

                                       43
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

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

Year ended December 31, 2000                                       $     77,905
Year ended December 31, 2001                                            311,621
Year ended December 31, 2002                                            311,622
Year ended December 31, 2003                                            311,621
Year ended December 31, 2004                                            311,622
                                                                ----------------

                                                                   $  1,324,391
                                                                ================

NOTE 11. EMPLOYEE BENEFITS

401(K) PLAN - The Company maintains a 401(k) savings plan for eligible
employees. The Company's contributions to this plan were $91,781, $96,514 and
$122,641 for the years ended December 31, 2004, 2003 and 2002, respectively. The
plan invests its assets in deposit accounts at the Company which earned interest
at a rate of 3.5% for the years ended December 31, 2004 and 2003 and 5.0% for
the year ended December 31, 2002.

DEFERRED COMPENSATION PLAN - The Company maintains a deferred compensation plan
for certain key officers and employees. Contributions are determined annually by
the Company's Board of Directors. Contributions to this plan were $26,000,
$26,000 and $85,643 for the years ended December 31, 2004, 2003 and 2002,
respectively. Effective in 1996, the Company changed the funding status of the
plan and accrued interest at a variable rate which fluctuates based on Moody's
Corporate Bond Average Index.

EMPLOYEE STOCK OWNERSHIP PLAN - The ESOP is a noncontributory defined
contribution plan which covers substantially all employees. The Company may
contribute to the Plan, at its discretion, an amount determined by the Board of
Directors. The Company has made no contributions in 2004, 2003 or 2002.

At December 31, 2004, all 50,903 shares held by the ESOP had been allocated.

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


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

A summary of the status of the Company's Stock Option Plans for the three-year
period ended December 31, 2004 follows:

<TABLE>
<CAPTION>
                                          2004                         2003                       2002
                               ------------------------------------------------------------------------------------
                                               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                       103,225       $ 9.78        144,250       $ 9.54        158,500       $ 9.47
  Granted                           5,600        14.00              -            -              -            -
  Exercised                       (44,452)        9.89        (41,025)        8.94        (12,000)        8.83
  Forfeited                        (1,100)       10.00              -            -         (2,250)        8.83
                               ---------------             ---------------             ---------------
Outstanding at end of year         63,273        10.06        103,225         9.78        144,250         9.54
                               ===============             ===============             ===============

Options exercisable at
  year-end                         60,313                     103,225                     144,250
                               ===============             ===============             ===============

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

NOTE 12. COMMITMENTS AND CONTINGENCIES

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

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

                                       45
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

At December 31, 2004 and 2003, the following financial instruments were
outstanding:

                                                         December 31,
                                              ---------------------------------
                                                    2004            2003
                                              ---------------------------------
Commitment to originate loans:
  Fixed-rate                                   $ 22,504,000     $ 15,803,000
Variable-rate                                  $    814,000     $    261,000
Range of rates:
  Fixed-rate                                     3.0 - 12.5%       4.0 - 9.5%
Variable-rate                                           6.3%             5.0%
Commitments to sell fixed rate loans,
  funded and unfunded (included above)         $    576,000     $    369,000

Standby letters of credit                      $    473,000     $    410,000


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

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

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

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements and,
generally, have terms of one year or less. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans to
customers. The Bank holds collateral, which may include accounts receivables,
inventory, property and equipment, income producing properties, supporting those
commitments if deemed necessary. In the event the customer does not perform in
accordance with the terms of the agreement with the third party, the Bank would
be required to fund the commitment. The maximum potential amount of future
payments the Bank could be required to make is represented by the contractual
amount shown in the summary above. If the commitment is funded, the Bank would
be entitled to seek recovery from the customer. At December 31, 2004 and 2003,
no amounts have been recorded as liabilities for the Bank's potential
obligations under these guarantees.

NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                       46
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

Approximate carrying values and estimated fair values at December 31, 2004 and
2003 is summarized as follows:

<TABLE>
<CAPTION>
                                                                 2004                             2003
                                                   ----------------------------------------------------------------
                                                     Approximate       Estimated       Approximate      Estimated
                                                      Carrying            Fair          Carrying           Fair
                                                        Value            Value            Value           Value
                                                   ----------------------------------------------------------------
<S>                                                 <C>              <C>             <C>              <C>
Assets:
  Cash and cash equivalents                         $ 10,793,000     $ 10,793,000    $  9,576,000     $  9,576,000
  Federal funds sold                                           -                -         500,000          500,000
  Investment securities, available for sale           84,625,000       84,625,000     100,914,000      100,914,000
  Mortgage-backed securities, available for sale      15,171,000       15,171,000       7,597,000        7,597,000
  Loans:
    Loans held for sale                                  265,000          265,000         506,000          506,000
    Loans receivable                                 125,793,000      126,251,000     127,079,000      128,189,000
  Accrued interest receivable                          1,301,000        1,301,000       1,445,000        1,445,000

Liabilities:
  Transaction accounts                                50,711,000       50,711,000      50,624,000       50,398,000
  Savings accounts                                    30,093,000       30,093,000      30,679,000       30,905,000
  Certificates of deposit                            144,931,000      147,941,000     153,870,000      157,815,000
  Short-tem borrowings                                 3,447,000        3,447,000       2,889,000        2,889,000
  Accrued interest payable                               640,000          640,000         776,000          776,000
</TABLE>

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

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

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

The Company does not have unrecognized financial instruments, other than those
discussed in Note 12, which are subject to fair value disclosure. The difference
between the fair value and the face value for the instruments disclosed in Note
12 was not considered material.

The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 2004 and 2003. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.

                                       47
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<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 expense                               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 losses on loans                    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 taxes                                     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
                                           ================================================================

                                                              Year Ended December 31, 2003
                                           ----------------------------------------------------------------
                                                                   Three Months Ended
                                             December 31     September 30        June 30        March 31
                                           ----------------------------------------------------------------

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

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

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

Diluted earnings per share                   $      0.06     $       0.07      $      0.08    $      0.21
                                           ================================================================
</TABLE>

                                       48
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

NOTE 15. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                       ---------------------------------
STATEMENTS OF FINANCIAL CONDITION                                            2004               2003
                                                                       ---------------------------------
<S>                                                                     <C>                <C>
Assets:
 Cash and cash equivalents                                              $    148,563       $   247,275
 Accrued dividend receivable                                                       -            67,745
 Income taxes receivable                                                      12,409                 -
 Equity in net assets of Jacksonville Savings Bank                        20,522,012        19,856,362
                                                                       ---------------------------------

                                                                        $ 20,682,984       $ 20,171,382
                                                                       =================================
Liabilities and stockholders' equity:
 Other liabilities                                                      $          -       $    139,229
 Common stock                                                                 19,663             19,420
 Additional paid-in capital                                                6,459,138          6,399,321
 Retained earnings                                                        14,467,568         13,866,849
 Accumulated other comprehensive income (loss)                              (263,385)          (253,437)
                                                                       ---------------------------------

                                                                        $ 20,682,984       $ 20,171,382
                                                                       =================================

                                                                    Years Ended December 31,
                                                     ---------------------------------------------------
STATEMENTS OF INCOME                                        2004               2003               2002
                                                     ---------------------------------------------------

Interest from subsidiary                              $      1,150      $        759       $         -
Dividends from subsidiary                                  275,041           267,802           380,587
                                                     ---------------------------------------------------
     OPERATING INCOME                                      276,191           268,561           380,587
                                                     ---------------------------------------------------

Equity in undistributed earnings of Jacksonville
 Savings Bank                                              675,583           633,967           449,404
                                                     ---------------------------------------------------
     TOTAL OTHER INCOME                                    675,583           633,967           449,404
                                                     ---------------------------------------------------

Other expenses                                             124,101            99,907            11,668
                                                     ---------------------------------------------------

INCOME BEFORE INCOME TAX BENEFIT                           827,673           802,621           818,323

     Income tax benefit                                     48,177            38,409                 -
                                                     ---------------------------------------------------

     NET INCOME                                       $    875,850         $ 841,030       $   818,323
                                                     ===================================================
</TABLE>

                                       49
<PAGE>

JACKSONVILLE BANCORP, INC. AND SUBSIDIARY


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

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                              -------------------------------------
STATEMENTS OF CASH FLOWS                         2004         2003         2002
                                              -------------------------------------
<S>                                           <C>          <C>          <C>
Operating activities:
 Net income                                   $  875,850   $  841,030   $  818,323
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Equity in undistributed earnings of
    Jacksonville Savings Bank                   (675,583)    (633,967)    (449,404)
   Other                                         (16,163)       3,739       65,293
                                              -------------------------------------
      NET CASH PROVIDED BY
       OPERATING ACTIVITIES                      184,104      210,802      434,212
                                              -------------------------------------

Financing activities:
 Dividends paid                                 (342,876)    (267,589)    (261,175)
 Purchase and retirement of treasury stock      (379,764)    (341,515)           -
 Exercise of stock options                       439,824      366,580      105,960
                                              -------------------------------------
      NET CASH USED IN
       FINANCING ACTIVITIES                     (282,816)    (242,524)    (155,215)
                                              -------------------------------------

(Decrease) increase in cash and cash
  equivalents                                    (98,712)     (31,722)     278,997
Cash and cash equivalents:
 Beginning of period                             247,275      278,997            -
                                              -------------------------------------

 End of period                                $  148,563   $  247,275   $  278,997
                                              =====================================
</TABLE>

NOTE 16. 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 as
previously reported.

                                       50
<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, 2004 there were approximately
618 stockholders of record, including the Company's mutual holding company
parent and brokers, which held 1,966,343 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, 2004.

    FISCAL 2003              HIGH            LOW               DIVIDENDS

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

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

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

   Fourth Quarter          $ 17.00         $ 15.65         $ .075/ per share

    FISCAL 2004

   First Quarter           $ 19.99         $ 16.61         $ .075/ per share

   Second Quarter          $ 19.75         $ 13.20         $ .075/ per share

   Third Quarter           $ 15.91         $ 13.50         $ .075/ per share

   Fourth Quarter          $ 19.25         $ 15.91         $ .075/ per share


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

The Company did not repurchase any Company stock during the fourth quarter of
2004.

                                       51
<PAGE>

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                 Vice President - Retail Banking
 Cannell & Sheehan, Ltd

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

Michael R. Goldasich                        Diana S. Tone
 Architect                                   Chief Financial Officer and
 Goldasich-Audo Architects                   Compliance Officer


Dean H. Hess                                Jess D. Karns
 Self-employed farmer                        Senior Loan Administrator

Emily J. Osburn                             Steven L. Waltrip
 Retired radio station manager               Vice President - Mortgage/Consumer
                                             Lending

Harvey D. Scott, III                        Thomas A. Luber
 Orthopedic Surgeon                          Vice President - Mortgage Banking
 Orthapaedic Center of Illinois

                                            Susan L. Harpole
                                             Vice President - Mortgage/Consumer
                                             Lending

                                            Paul W. Miller
                                             Vice President - Lending

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<PAGE>

CORPORATE INFORMATION

CORPORATE HEADQUARTERS                       TRANSFER AGENT

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


SPECIAL COUNSEL                              INDEPENDENT REGISTERED PUBLIC
                                             ACCOUNTING FIRM

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



ANNUAL MEETING

The Annual Meeting of the Stockholders will be held April 26, 2005 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.

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