JACKSONVILLE BANCORP INC
10-K, 1996-12-30
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED
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<PAGE>   1
- -------------------------------------------------------------------------------

                          OFFICE OF THRIFT SUPERVISION
                             WASHINGTON, D.C. 20552

                                    FORM 10-K

                                       
       /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996

                                       OR


          /X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

          For the transition period from __________ to _______________


                           JACKSONVILLE BANCORP, INC.
                 --------------------------------------------
             (Exact name of registrant as specified in its charter)

             TEXAS                                          75-2632781
             -----                                          ----------
  (State or other jurisdiction                           (I.R.S. Employer
of incorporation or organization)                     Identification Number)

   COMMERCE AND NECHES STREETS
      JACKSONVILLE, TEXAS                                     75766
      -------------------                                     -----
            (Address)                                       (Zip Code)

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

               Securities registered pursuant to Section 12(b) of
                                    the Act:
                                 NOT APPLICABLE

           Securities registered pursuant to Section 12(g) of the Act

                     COMMON STOCK (PAR VALUE $.01 PER SHARE)
                     ---------------------------------------
                                 Title of Class

Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X  No
                     ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

As of December 23, 1996, the aggregate value of the 2,263,603 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
172,614 shares held by all directors and officers of the Registrant as a group
and 202,048 shares held by Jacksonville Bancorp, Inc. Employee stock Ownership
Plan, was approximately $33,105,193. This figure is based on the last known
trade price of $14.625 per share of the Registrant's Common Stock.

Number of shares of Common Stock outstanding as of December 23, 1996: 2,638,265

                       DOCUMENTS INCORPORATED BY REFERENCE

         List hereunder the following documents incorporated by reference and
the Part of the Form 10-K into which the document is incorporated.

(1) Portions of the Annual Report to Stockholders for the year ended September
30, 1996 are incorporated into Part II, Items 5 through 8 of this Form 10-K.

(2) Portions of the definitive proxy statement for the 1996 Annual Meeting of
Stockholders are incorporated into Part III, Items 10 through 13 of this Form
10-K.


<PAGE>   2



PART I

ITEM 1.           BUSINESS.
- -------           ---------

GENERAL

         Jacksonville Bancorp, Inc.'s (the "Company") primary asset is
Jacksonville Savings and Loan Association. The business of Jacksonville
consists primarily of attracting deposits from the general public and using
those and other available sources of funds to originate loans secured by
single-family residences located in Cherokee County and surrounding counties in
East Texas. To a lesser extent, Jacksonville also originates construction
loans, land loans and consumer loans. With limited exceptions, Jacksonville has
limited commercial real estate lending activity since 1989 to loans secured by
real estate acquired in satisfaction of debts previously contracted or by
improvements thereon. In 1994 Jacksonville established a consumer loan
department to promote development of this type of lending. In addition,
Jacksonville invests in United States government and federal agency securities
and government-guaranteed mortgage-backed securities.

MARKET AREA

         Jacksonville's market area consists of Cherokee County and surrounding
counties in East Texas. The labor force of Cherokee County has evolved from
agriculture to manufacturing and service industries. The components of the
area's economic base have consisted of manufacturing, mining, agriculture,
retail and tourism. Jacksonville is the largest city in Cherokee County and its
principle activity is manufacturing. There are 75 manufacturing concerns in
Jacksonville. Industries represented are plastic manufacturing and plastic
injected molding, oil (reflecting the heritage of East Texas as the center of
the Texas oil country), timber, cattle and bedding plant. Slowdowns in the
petroleum industry had a material negative impact on the area's economy in the
early 1980s which was compounded by defense-related cutbacks. However, the
area's economy has improved in recent years due to further entrance of business
in the market area and especially in Tyler and Longview. In addition, the area's
economic base has diversified into such fields as health services, research and
technology.

         Major companies in Jacksonville's market area include Baxter
Pharmaseal, Astro Air, Zimmerman & Sons, Trane Corporation, Kelly-Springfield,
Carrier Air Conditioning, Tyler Pipe Industries, Marathon Le Tourneau, Eastman
Kodak, Powell Plant Farm, Texas Department of Corrections, Western Lithography
and Wal-Mart (a distribution center). The market area is also served by the
University of Texas Hospital, Mother Frances Hospital, Medical Center Hospital
and Nan Travis Hospital. These hospitals are also a major source of employment
for the market area. Colleges and universities include the University of Texas
at Tyler, Stephen F. Austin University, Tyler Junior College, Texas College, Lon
Morris College, Jacksonville College, and Trinity Valley Junior College.
According to reports from the Bureau of Labor Statistics, as of September 30,
1995, the unemployment rate in Cherokee County and surrounding counties in East
Texas was estimated to be 5.8% as compared to 6.2% and the estimated
unemployment rate for the United States during these periods was 5.3% and 5.6%,
respectively.


<PAGE>   3



LENDING ACTIVITIES

         GENERAL. At September 30, 1996, Jacksonville's net loan portfolio
totaled $158.0 million representing approximately 72.5 Jacksonville's $217.9
million of total assets at that date. The principal lending activity of
Jacksonville is the origination of single-family residential loans. At September
30, 1996, approximately 99% of Jacksonville's single-family residential loan
portfolio consisted of conventional loans with the remaining single-family
residential loans either insured by the Federal Housing Administration ("FHA")
or partially guaranteed by the Department of Veterans Affairs ("VA"). At
September 30, 1996, Jacksonville's single-family residential loan portfolio
totaled $132.6 million, representing approximately 81.4% of Jacksonville's total
loans, before net items, at that date. Jacksonville held $8.6 million in
commercial real estate loans at that date, representing 5.3% of total loans,
before net items. Of the commercial real estate loans, $3.7 million, or 43.0%,
were secured by real estate acquired in satisfaction of debts previously
contracted or by improvements on such properties. Other than these commercial
real estate loans, Jacksonville has not actively pursued the business of making
commercial real estate loans since 1989. The only other significant areas of
lending activity by Jacksonville are construction loans, land loans and consumer
loans which, as of September 30, 1996, represented $7.0 million, or 4.3%, $4.4
million, or 2.7% and $8.9 million, or 5.4% of Jacksonville's total loan
portfolio, before net items.

         As a Texas-chartered savings association, Jacksonville has general
authority to originate and purchase loans secured by real estate located
throughout the United States. Notwithstanding this nationwide lending authority,
approximately 99% of all of the mortgage loans in Jacksonville's portfolio are
secured by properties located in Cherokee County and surrounding counties in
East Texas, reflecting Jacksonville's emphasis on local lending.

         Although Jacksonville historically originated loans with lesser dollar
balances than were permitted by regulation, current loans-to-one borrower
limitations may restrict its ability to do business with certain customers.
Since the enactment of FIRREA in 1989, a savings association generally may not
make loans to one borrower and related entities in an amount which exceeds 15%
of its unimpaired capital and surplus, although loans in an amount equal to an
additional 10% of unimpaired capital and surplus may be made to a borrower if
the loans are fully secured by readily marketable securities. See "Regulation -
Federal Regulation of Savings Associations." At September 30, 1996,
Jacksonville's limit on loans-to-one borrower was $5.3 million, and its five
largest loans or groups of loans-to-one borrower, including related entities,
aggregated $1.7 million. $919,000, $844,000, $654,000 and $578,000. The loan for
$1.7 million is to a church. The group of loans totaling $919,000 consists of
three loans secured by commercial real estate acquired in satisfaction; the
group of loans totaling $844,000 consists of two loans secured by commercial
real estate acquired in satisfaction of debts previously contracted; the group
of loans totaling $654,000 consists of four construction loans; and the group of
loans totalling $578,000 consists of loans secured by commercial and rental
properties. All of these loans or groups of loans are secured primarily by
residential and nonresidential real estate located in Cherokee County and
surrounding counties in East Texas and were performing in accordance with their
terms at September 30, 1996.

                                        2

<PAGE>   4



         LOAN PORTFOLIO COMPOSITION.  The following table sets forth the 
composition of Jacksonville's loan portfolio by type of loan at the dates 
indicated.

<TABLE>
<CAPTION>
                                                                          SEPTEMBER 30,
                                         --------------------------------------------------------------------------------
                                                    1996                       1995                         1994         
                                                    ----                       ----                         ----         
                                             Amount        %           Amount          %            Amount          %    
                                           ----------  ----------   ----------    ----------      ----------   ----------
                                                                      (Dollars in Thousands)
MORTGAGE LOANS:
<S>                                        <C>         <C>           <C>          <C>             <C>           <C>        
  Single-family residential(1)               $132,599        81.4%    $117,853          84.1%       $109,221(2)      86.7%   
  Multi-family residential                      1,268          .8        1,183            .8             735           .6    
  Commercial                                    8,604         5.3        8,167           5.8           8,115          6.4    
  Construction                                  6,996         4.3        4,312           3.1           1,668          1.3    
  Land                                          4,395         2.7        3,754           2.7           3,156          2.5    
                                           ----------  ----------   ----------    ----------      ----------   ----------
     Total mortgage loans                    $153,862        94.5%    $135,269          96.5%       $122,895         97.5%  
                                           ----------  ----------   ----------    ----------      ----------   ----------

BUSINESS AND CONSUMER LOANS:

  Commercial business                             219          .1     $    232            .2        $    198           .2    
  Consumer loans:                                                                                  
    Secured by deposits                         2,290         1.4        1,922           1.4           1,972          1.6    
    Secured by vehicles                         2,961         1.4          960            .6             332           .2    
    Personal real estate loans                  2,686         1.6        1,253            .9             514           .4    
    Other                                         922          .6          526            .4             137           .1    
                                           ----------  ----------   ----------    ----------      ----------   ----------
    Total consumer loans                        8,859         5.4        4,661           3.3           2,955          2.3    
                                           ----------  ----------   ----------    ----------      ----------   ----------
      Total business and consumer loans      $  9,078         5.5       $4,893           3.5        $  3,153          2.5    
                                           ----------  ----------   ----------    ----------      ----------   ----------

    Total loans                               162,940       100.0%    $140,162         100.0%       $126,048        100.0%   
                                           ----------  ==========   ----------    ==========      ----------   ==========

Less:
  Undisbursed portion of loans in
   process                                      2,956                 $  2,230                      $    799              
  Unearned discounts                               89                      106                           121              
  Net deferred loan origination fees              761                      893                           937              
  Unrealized losses on loans held for
    sale                                           --                       --                            58              
  Allowance for loan losses                     1,100                    1,000                         1,000              
                                           ----------                ---------                     ---------              

     Net loans                               $158,034                 $135,933                      $123,133              
                                           ==========                =========                     =========              
</TABLE>

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,
                                         ---------------------------------------------------
                                                    1993                       1992
                                                    ----                       ----
                                             Amount         %            Amount        %
                                           -----------  ----------    ----------  ----------
                                                            (Dollars in Thousands)
MORTGAGE LOANS:
<S>                                        <C>         <C>           <C>          <C>        
  Single-family residential(1)              $112,063      86.7%         $112,976        86.3%
  Multi-family residential                       532       0.4               116          .1
  Commercial                                   9,556       7.4            10,671         8.2
  Construction                                 1,367       1.1               930          .7
  Land                                         2,972       2.3             2,904         2.2
                                           ---------    ------        ----------  ----------
     Total mortgage loans                   $126,490      97.9%         $127,597        97.5%
                                           ---------    ------        ----------  ----------

BUSINESS AND CONSUMER LOANS:

  Commercial business                       $    234        .2          $    273          .2%
  Consumer loans:
    Secured by deposits                        1,840       1.4             2,125         1.6
    Secured by vehicles                           93        .1               173          .2
    Personal real estate loans                   568        .4               677          .5
    Other                                         81       --                 83         --
                                           ---------    ------         ---------   ---------
    Total consumer loans                       2,582       1.9             3,058         2.3
                                           ---------    ------         ---------   ---------
      Total business and consumer loans     $  2,816       2.1          $  3,331         2.5
                                           ---------    ------         ---------   ---------
                                                                  
    Total loans                             $129,306     100.0%          130,928       100.0%
                                           ---------    ======         ---------   =========

Less:
  Undisbursed portion of loans in
   process                                  $  1,052                    $    620
  Unearned discounts                             169                         237
  Net deferred loan origination fees           1,059                       1,154
  Unrealized losses on loans held for
    sale                                          --                          --
  Allowance for loan losses                      996                         810
                                           ---------                   ---------               

     Net loans                              $126,030                    $128,117
                                           =========                   =========               
</TABLE>

- ------------------------------------
(1)      Includes first and second liens on single-family residences.

(2)      Includes $1.2 million of loans held for sale.

                                        3

<PAGE>   5



         CONTRACTUAL PRINCIPAL REPAYMENTS. The following table sets forth
certain information at September 30, 1996 regarding the dollar amount of loans
maturing in Jacksonville's portfolio, based on the contractual terms to
maturity, before giving effect to net items. Demand loans, loans having no
stated schedule of repayments and no stated maturity and overdrafts are reported
as due in one year.

<TABLE>
<CAPTION>
                                                                                                DUE 3-5          DUE 5-10
                                                                                                 YEARS            YEARS
                                       DUE BEFORE         DUE BEFORE        DUE BEFORE           AFTER            AFTER        
                                        9/30/97            9/30/98            9/30/99           9/30/96          9/30/96       
                                    --------------     --------------     ------------      ------------     -------------     
                                                                         (In Thousands)
<S>                                     <C>                 <C>                <C>             <C>              <C>            
Single-family residential(1)               $127                $435               $619            $1,993           $11,564     
Multi-family residential                     --                  --                 --                --               116     
Commercial                                  259                  --                 64               200             1,100     
Construction                              6,996                  --                 --                --                --     
Land                                         54                  80                 88                73               904     
Commercial business                          --                  --                219                --                --     
Consumer                                  2,392                 349                776             2,696             1,377     
                                          -----                 ---              -----             -----            ------     
    Total                                $9,828                $864             $1,766            $4,962           $15,061     
                                          =====                 ===              =====             =====            ======     
</TABLE>
<TABLE>
<CAPTION>
                                                         DUE MORE
                                      DUE 10-15           THAN 15
                                         YEARS             YEARS
                                         AFTER             AFTER
                                        9/30/96          [3/31/96]            TOTAL
                                    -------------     ------------      --------------
                                                       (In Thousands)
<S>                                    <C>               <C>               <C>     
Single-family residential(1)              $65,783           $52,078           $132,599
Multi-family residential                    1,010               142              1,268
Commercial                                  5,921             1,060              8,604
Construction                                   --                --              6,996
Land                                        3,078               118              4,395
Commercial business                            --                --                219
Consumer                                    1,138               131              8,859
                                           ------            ------            -------
    Total                                 $76,930           $53,529           $162,940
                                           ======            ======            =======
</TABLE>
- ------------------------------------

(1)      Includes first and second liens on single-family residences.

                                        4

<PAGE>   6



         The following table sets forth the dollar amount of all loans, before
net items, due after one year from September 30, 1996 which have fixed interest
rates or which have floating or adjustable interest rates.
<TABLE>
<CAPTION>
                                                             FLOATING OR
                                   FIXED RATES            ADJUSTABLE-RATES                 TOTAL
                             ---------------------     ---------------------     -----------------------
                                                            (In Thousands)

<S>                                  <C>                        <C>                       <C>     
Single-family residential(1)            $48,763                    $83,709                   $132,472
Multi-family residential                    596                        672                      1,268
Commercial real estate                    1,763                      6,582                      8,345
Construction                                 --                         --                         --
Land                                      1,396                      2,945                      4,341
Commercial business                         169                         50                        219
Consumer                                 $6,467                         --                      6,467
                                          -----                     ------                      -----
  Total                                 $59,154                    $93,958                   $153,112
                                         ======                     ======                    =======
</TABLE>


- ------------------------------------
(1)      Includes first and second liens on single-family residences.

         Scheduled contractual amortization of loans does not reflect the actual
term of Jacksonville's loan portfolio. The average life of loans is
substantially less than their contractual terms because of prepayments and
due-on-sale clauses, which give Jacksonville the right to declare a conventional
loan immediately due and payable in the event, among other things, that the
borrower sells the real property subject to the mortgage and the loan is not
repaid.

         ORIGINATIONS, PURCHASES AND SALES OF LOANS. The lending activities of
Jacksonville are subject to the written, non-discriminatory, loan underwriting
and administration guidelines established by Jacksonville's Board of Directors
and management. Loan originations are obtained from a variety of sources,
including referrals from real estate brokers, developers, builders, existing
customers, newspaper, radio, periodical advertising and walk-in customers. Loan
applications are taken by lending personnel, and the loan department supervises
the obtaining of credit reports, appraisals and other documentation involved
with a loan. Property valuations are generally performed by independent outside
appraisers approved by Jacksonville's Board of Directors. Except for certain
small second mortgage loans of a minimal amount and personal real estate loans,
Jacksonville requires title insurance. Hazard insurance is also required on all
improved secured property and flood insurance is required on property located in
a flood plain.

         Jacksonville's loan approval process is intended to assess the
borrower's ability to repay the loan, the viability of the loan and the adequacy
of the value of the property that will secure the loan. A loan application file
is first reviewed by Jacksonville's loan department and, except for loans of
$50,000 or less, then is submitted for approval to the Loan and Executive
Committee or Jacksonville's Board of Directors. With the exception of home
improvement, consumer and land loans, the Loan and Executive Committee is

                                        5

<PAGE>   7



responsible for approving all loans in excess of $50,000. Loans under $50,000
may be approved by two loan officers or by a branch manager and one loan
officer. Home improvement, consumer and personal real estate loans over $50,000
must be approved by two officers. Certain loans, because of their amount or
because they do not meet one or more specified guidelines, must receive direct
approval of the Board of Directors.

         Jacksonville originates both fixed- and adjustable-rate residential
real estate loans as market conditions dictate. In the current interest rate
environment, it follows a policy of selling approximately 95% of its loans
secured by first mortgage liens on single-family residences ("residential first
mortgage loans") with fixed rates and terms greater than 15 years to third
parties while retaining all of its variable-rate loans. When loans are sold to
others, except to Federal Home Loan Mortgage Corporation ("FHLMC"), servicing of
the loans is usually released to the buyers. At September 30, 1996, $47.2
million in loans were being serviced for others, primarily the FHLMC. See Note 5
to the Consolidated Financial Statements. While Jacksonville has utilized
various indices to adjust its adjustable-rate mortgages ("ARMs") portfolio, each
index would qualify such loans for securitization under FHLMC guidelines.
Adjustable-rate loans are currently indexed to an index of U.S. Treasury
obligations whose maturity matches the interest adjustment period for the
corresponding loan and have their interest rates readjusted every one to five
years. At September 30, 1996, $48.0 million or 36.2% of Jacksonville's total
loans, before net items, were fixed-rate single-family residential loans, and
$84.6 million or 63.8% of such loans were adjustable-rate single-family
residential mortgage loans. Of these adjustable mortgages, $48.4 million, or
57.2%, have interest rates adjustable in one year, and the remainder adjust at
periods greater than one year up to five years.



                                        6

<PAGE>   8



         The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
                                                        YEAR ENDED SEPTEMBER 30,
                                     ------------------------------------------------------------


                                            1996                 1995                  1994
                                     ----------------     ----------------     ------------------
<S>                                       <C>                  <C>                    <C>    
LOAN ORIGINATIONS:
  Single-family residential                  $45,113              $32,307                $36,983
  Multi-family residential                       658                  200                     --
  Land                                         1,159                  969                    132
  Commercial                                     697                  795                    551
  Construction                                11,707                6,730                  1,771
  Commercial business                             --                   71                     --
  Consumer                                     8,862                4,197                  1,983
                                              ------                -----                  -----
    Total loans originated                    68,196               45,269                 41,420
  Purchases                                       --                   --                     --
    Total loans originated                          
      and purchased                           68,196               45,269                 41,420
                                              ------               ------                 ------

SALES AND LOAN PRINCIPAL
  REDUCTIONS:
  Loans sold                                  21,848               13,817                 23,694
  Loan principal
    repayments                                23,955               19,374                 24,083
                                              ------               ------                 ------
    Total loans sold and
      principal reductions                    45,803               33,191                 47,777


Increase (decrease) due
  to other items, net(1)                        (292)                 722                  3,460
                                              ------               ------                 ------


Net increase (decrease)
  in loan portfolio                          $22,101              $12,800                $(2,897)
                                              ======               ======                 ======
</TABLE>

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

(1)      Consists of loan foreclosures, extensions and changes in net items.

                                        7

<PAGE>   9



         SINGLE-FAMILY RESIDENTIAL LOANS. The primary lending activity of
Jacksonville is the origination of loans secured by first mortgage liens on
single-family residences. Jacksonville also offers second mortgage loans on such
properties. At September 30, 1996, $132.6 million or 81.4% of Jacksonville's
total loan portfolio, before net items, consisted of single-family residential
loans.

         The loan-to-value ratio, maturity and other provisions of the
residential first mortgage loans made by Jacksonville generally have reflected
the policy of making less than the maximum loan permissible under applicable
regulations, in accordance with sound lending practices, market conditions and
underwriting standards established by Jacksonville. All residential first
mortgage loans, except those made to facilitate the sale of such dwellings held
as real estate owned, are generally underwritten in conformance with current
guidelines of the FHLMC. Jacksonville's lending policies on residential first
mortgage loans generally limit the maximum loan-to-value ratio to 95% of the
lesser of the appraised value or purchase price of the property and generally
all residential first mortgage loans in excess of an 80% loan-to-value ratio
require private mortgage insurance.

         Jacksonville offers fixed-rate residential first mortgage loans with
terms of 15 to 30 years. Such loans are amortized on a monthly basis with
principal and interest due each month and customarily include "due-on-sale"
clauses, which are provisions giving Jacksonville the right to declare a loan
immediately due and payable in the event the borrower sells or otherwise
disposes of the real property subject to the mortgage and the loan is not
repaid. Jacksonville enforces due-on-sale clauses to the extent permitted under
applicable laws. Approximately 99% of Jacksonville's residential first mortgage
loan portfolio consists of conventional loans, with the remaining loans either
insured by the FHA or partially guaranteed by the VA.

         Jacksonville is aware that there are inherent risks in originating
fixed-rate residential first mortgage loans for its portfolio, especially during
periods of historically low interest rates, but recognizes the need to respond
to market demand for fixed-rate loans and to generate income from origination
fees for such loans. To address these concerns, in October 1987 Jacksonville
began a policy of selling substantially all of the fixed-rate residential first
mortgage loans that it originates to a large mortgage banking company with
operations throughout the United States. While Jacksonville continues to
maintain its loan sales relationship with the mortgage banking company, a
substantial majority of its loan sales since July 1993 have been to FHLMC with
servicing retained by Jacksonville. Since July 1993, Jacksonville has sold $52.1
million of loans to FHLMC and has retained the servicing on all of these loans.
Since that same date, Jacksonville has sold only $22.1 million of loans to the
mortgage banking company. During fiscal 1996, Jacksonville sold $21.4 million of
loans to FHLMC and $400,000 to the mortgage banking company.

         During the year ended September 30, 1996, Jacksonville originated $45.1
million of single-family residential loans of which $34.7 million, or 77.0%,
were fixed rate and $10.4 million, or 23.0%, were adjustable rate. Of the
fixed-rate single-family residential loans

                                        8

<PAGE>   10



originated during the period, Jacksonville sold $21.4 million, or 47.5%, to
FHLMC. The volume of single-family residential loans originated increased by
39.6% from $32.3 million during fiscal 1995 as compared to $45.1 million during
fiscal 1996 and the percentage of sales of such originations increased from
47.1% in fiscal 1995 to 48.3% in fiscal 1996. Jacksonville anticipates that it
will continue its policy of selling all or substantially all of its fixed-rate
residential first mortgage loan originations with terms of more than 15 years as
long as interest rates remain at current levels or lower and will reevaluate
this policy if there is a material and prolonged rise in interest rates.

         Since November 1980, Jacksonville has been offering adjustable-rate
loans in order to decrease the vulnerability of its operations to changes in
interest rates. Interest rate adjustment periods range from one to five years.
The demand for adjustable-rate loans in Jacksonville's primary market area has
been a function of several factors, including the level of interest rates, the
expectations of changes in the level of interest rates and the difference
between the interest rates offered for fixed-rate loans and adjustable-rate
loans. The relative amount of fixed-rate and adjustable-rate residential loans
that can be originated at any time is largely determined by the demand for each
in a competitive environment. As interest rates have fluctuated since November
1981, the demand for fixed- and adjustable-rate loans has changed as
Jacksonville's customers have preferred adjustable rates in a high interest rate
environment and fixed-rate loans as interest rates lowered. In order to continue
to increase and then to maintain a high percentage of adjustable-rate
residential first mortgage loans, Jacksonville has offered various forms of
adjustable-rate loans combined with a policy of selling fixed-rate loans from
its portfolio. As a result, at September 30, 1996, $84.6 million, or 63.8%, of
the single-family residential loans in Jacksonville's loan portfolio, before net
items, consisted of adjustable-rate loans.

         Jacksonville's residential first mortgage adjustable-rate loans are
fully amortizing loans with contractual maturities of up to 30 years. These
loans have interest rates which are scheduled to adjust every one, three or five
years in accordance with a designated index based upon U.S. Government
securities. Jacksonville currently offers a one, three and five-year adjustable
mortgage with a 2% cap on the rate adjustment per period and a 4% to 6% cap rate
adjustment over the life of the loan, depending on its term. Jacksonville's
adjustable-rate residential first mortgage loans are not convertible by their
terms into fixed-rate loans, are not assumable, do not contain prepayment
penalties and do not produce negative amortization.

         Due to the generally lower rates of interest prevailing in recent
periods, Jacksonville's ability to originate adjustable-rate residential first
mortgage loans has decreased as consumer preference for fixed-rate loans has
increased. However, Jacksonville has continued to originate adjustable-rate
residential first mortgage loans during this period by offering existing
customers the opportunity to refinance fixed-rate loans by modifying such loans
into a three or five-year adjustable rate loan with the payment of two points
and by originating new five-year adjustable loans without charging points. As a
result, even as interest rates have fluctuated in recent years, adjustable rate
loans represented 23.0%,

                                        9

<PAGE>   11



13.6% and 10.6% of Jacksonville's total originations of single-family
residential loans during the year ended September 30, 1996, 1995 and 1994,
respectively.

         Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms of
the loan, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates. Jacksonville believes that these risks, which have not had a
material adverse effect on Jacksonville to date, generally are less than the
risks associated with holding fixed-rate loans in an increasing interest rate
environment.

         The Association also makes home improvement loans which amounted to
$2.4 million as of September 30, 1996. These loans are secured by either first
or second liens on single-family residences. Second mortgage loans on
single-family residences made by Jacksonville are generally secured by
properties on which Jacksonville holds the first mortgage lien. Under Texas law,
the proceeds of a second mortgage loan must be used for home improvement
purposes and the payment of real estate taxes.

         COMMERCIAL MORTGAGE LOANS. At September 30, 1996, $8.6 million, or
5.3%, of Jacksonville's total loan portfolio, before net items, consisted of
loans secured by existing commercial real estate. Of these commercial mortgage
loans, $3.7 million, or 43.0%, represented loans secured by real estate acquired
in satisfaction of debts previously contracted or by improvements on such
properties. Jacksonville currently originates few commercial mortgage loans.
Commercial mortgage loan originations for the years ended September 30, 1996,
1995 and 1994 were, respectively, $697,000, $795,000 and $551,000.

         As of September 30, 1996, the commercial mortgage loans in
Jacksonville's portfolio not secured by real estate acquired in satisfaction of
debts previously contracted or improvements thereon totaled $4.9 million. These
loans have terms up to 30 years and have both fixed and adjustable rates. At
September 30, 1996, $2.6 million, or 53.1%, of the commercial mortgage loan
portfolio not secured by real estate acquired in satisfaction of debts
previously contracted consisted of adjustable-rate loans.

         The commercial mortgage loans originated since 1989 generally have
interest rates that adjust on a periodic basis in accordance with changes in a
designated index and have terms that range up to 30 years. Because substantially
all commercial mortgage loans originated since 1989 are secured by properties
that were formerly real estate owned and by improvements on such properties,
Jacksonville's REO Disposition Committee has reviewed each loan with senior
management prior to Board of Director approval rather than establishing general
guidelines for its staff. Pursuant to a written Classified Assets Reduction Plan
adopted by the Board of Directors, individual asset disposition plans are
established for each parcel of real estate owned. In order to help establish
asking prices for real estate owned, a valuation for each parcel is generally
established on an annual basis. The valuation may take the form of an appraisal,
brokers opinion, letter appraisal, or similar

                                       10

<PAGE>   12



document. Where appraisals are obtained, they generally are performed by an
independent appraiser designated by Jacksonville and are reviewed by management.
In originating commercial mortgage loans, Jacksonville considers the quality of
the property, the credit of the borrower, cash flow of the project, location of
the real estate and the quality of management involved with the property.

         As of September 30, 1996, there were two commercial mortgage loans
secured by former real estate owned properties with principal balances,
including funds utilized for improvements by the borrower on such properties, in
excess of $400,000. These loans were performing in accordance with their terms
at September 30, 1996.

         Commercial mortgage lending is generally considered to involve a higher
degree of risk than single-family residential lending. Such lending typically
involves large loan balances concentrated in a single borrower or groups of
related borrowers. In addition, the payment experience on loans secured by
income-producing properties is typically dependent on the successful operation
of the related real estate project and thus may be subject to a greater extent
to adverse conditions in the real estate market or in the economy generally.

         CONSTRUCTION LOAN.  At September 30, 1996, construction loans totaled
$7.0 million or 4.3% of the total loan portfolio, before net items.

         Jacksonville makes construction loans to individuals for the
construction of their residences. Recently, it expanded its construction lending
activities to include lending to developers for the construction of
single-family residences. Because Jacksonville views construction loans as
involving greater risk than permanent single-family residential loans, it
applies stricter underwriting standards to them. Primarily as a result of
increased lending to developers, construction loan originations increased during
the year ended September 30, 1996 to $11.7 million from $6.7 million during
fiscal 1995. This increase also reflects increased construction activity in
Jacksonville's market area.

         Construction lending is generally limited to Jacksonville's primary
lending area, within 100 miles of Jacksonville's home office or within 25 miles
of each branch office. Construction loans are generally only made to existing
customers and to developers who have a sound financial and operational
reputation in the market area. The loans to individuals are structured to be
converted to permanent loans at the end of the construction phase, which
typically is six months but may be extended for 30- or 60-day periods for good
reason. Construction loans have rates and terms which generally match the
non-construction loans then offered by Jacksonville except that during the
construction phase the borrower normally only pays interest on the loan. Funds
are released periodically pursuant to a construction-completion schedule and
only after an on-site inspection by an employee of Jacksonville. Jacksonville
generally attempts to mitigate the risks associated with construction lending
by, among other things, lending primarily in its market area and using low
loan-to-value ratios in the underwriting process. The maximum loan to value
ratio is 80%. Construction financing also is generally considered to involve a
higher degree of risk

                                       11

<PAGE>   13



of loss than long-term financing on improved, owner-occupied real estate because
of the uncertainties of construction, including the possibility of costs
exceeding the initial estimates.

         LAND LOANS. As of September 30, 1996, land loans totaled $4.4 million
or 2.7% of the total loan portfolio, before net items. As of that date,
Jacksonville had 153 land loans in its loan portfolio, over 90% of which were
utilized for ranching, agricultural or residential purposes. Jacksonville does
not make land loans for speculative purposes. With limited exceptions,
Jacksonville's underwriting guidelines require land loans to have a loan-to-land
value ratio of 80% and a term of 20 years or less. The average balance of
Jacksonville's land loans, as of September 30, 1996, was approximately $29,000.

         CONSUMER LOANS. At September 30, 1996, consumer loans totaled $8.9
million or 5.4% of the total loan portfolio, before net items, and consisted
primarily of loans secured by deposits, loans secured by vehicles and personal
real estate loans. Loans secured by deposits total $2.3 million at September 30,
1996. A loan secured by a deposit at Jacksonville is structured to have a term
that ends on the same date as the maturity date of the certificate securing it
or if secured by a statement savings account has a one-year term with a hold on
withdrawals that would result in the balance being lower than the loan balance.
Typically these loans require quarterly payments of interest only. Jacksonville
also makes loans to individuals for future homesites and for additional property
adjacent to their existing residence. Although under Texas law such loans may
have a term of up to 20 years, the average term of Jacksonville's personal real
estate loans was was substantially less than 20 years as of September 30, 1996.
All of these loans are secured by the purchased land, but because these loans
are typically for $10,000 or less they are not underwritten in the same manner
as the Association's other mortgage loans. Jacksonville relies on the general
creditworthiness of the borrower rather than the value of the collateral and as
such does not require a property appraisal or title policy. At September 30,
1996, the Association had 220 personal real estate loans with an average balance
of $12,000. Jacksonville's vehicle loan portfolio totalled $3.0 million at
September 30, 1996. A substantial majority of Jacksonville's vehicle loans are
for new vehicles but it also offers loans for vehicles up to four years old. The
Association does not purchase vehicle loans from dealers. The term for vehicle
loans is typically six months to five years with monthly payments of principal
and interest. These loans are typically made to Jacksonville customers of long
standing.

         MULTI-FAMILY AND COMMERCIAL BUSINESS LOANS. At September 30, 1996, $1.3
million, or 0.8%, and $219,000, or 0.1%, of Jacksonville's total loan portfolio,
before net items, consisted of multi-family loans and commercial business loans,
respectively. While Jacksonville has the authority, up to applicable
limitations, to engage in the business of making both multi-family and
commercial business loans, its policy has been to confine its primary lending
activities to other types of lending. Of the ten multi-family loans in
Jacksonville's loan portfolio as of September 30, 1996, the largest loan had a
principal amount of $391,000 which represented 30.1% of the multi-family loan
portfolio. As of September 30, 1996, the commercial business loan portfolio
consisted of two loans, the larger of which was a $122,000 loan to a retail
grocery store secured by its inventory.

                                       12

<PAGE>   14




         LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on
loans, Jacksonville receives loan origination fees or "points" for originating
loans. Loan points are a percentage of the principal amount of the mortgage loan
and are charged to the borrower in connection with the origination of the loan.

         In accordance with SFAS No. 91, which deals with the accounting for
non-refundable fees and costs associated with originating or acquiring loans,
Jacksonville's loan origination fees and certain related direct loan origination
costs are offset, and the resulting net amount is deferred and amortized as
interest income over the contractual life of the related loans as an adjustment
to the yield of such loans, adjusted for estimated prepayments based on
Jacksonville's historical prepayment experience. At September 30, 1996,
Jacksonville had $760,000 of loan fees which had been deferred and are being
recognized as income over the estimated maturities of the related loans. See
Note 5 to the Consolidated Financial Statements.

         Loan fees received are accounted for substantially in accordance with
FASB Statement No. 91, "Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases." Loan
fees and certain direct loan origination costs are deferred, and the net fee is
recognized as an adjustment to interest income over the contractual life of the
loans. Jacksonville has not deferred direct costs related to short-term loans
for which no origination fees are charged. Management considers this departure
to be immaterial considering the short-term nature of these loans. Commitment
fees and costs relating to commitments whose likelihood of exercise is remote
are recognized over the commitment period on a straight-line basis. If the
commitments subsequently exercised during the commitment period, the remaining
unamortized commitment fee at the time of exercise is recognized over the life
of the loan as an adjustment of yield. See Note 2 to the Consolidated Financial
Statements.



                                       13

<PAGE>   15



ASSET QUALITY

         DELINQUENT LOANS. The following table sets forth information concerning
delinquent loans at September 30, 1996, in dollar amount and as a percentage of
Jacksonville's total loan portfolio, before net items. The amounts presented
represent the total outstanding principal balances of the related loans, rather
than the actual payment amounts which are past due.
<TABLE>
<CAPTION>
                                 SINGLE-FAMILY                    MULTI-FAMILY
                                  RESIDENTIAL                     RESIDENTIAL                     COMMERCIAL            
                            -------------------------        -----------------------        ------------------------    
                            AMOUNT         PERCENTAGE        AMOUNT       PERCENTAGE        AMOUNT        PERCENTAGE    
                            ------         ----------        ------       ----------        ------        ----------    
Loans delinquent for:
<S>                           <C>             <C>             <C>           <C>             <C>             <C>       
  30-59 days                  $2,464          1.5%            $  --            --%          $ 468             .29%      
  60-89 days                     709          .43                --            --              13             .01      
  90 days and over               465          .29                --            --              --              --      
                               -----        -----             -----         -----           -----           -----      
    Total delinquent loans    $3,638         2.23%            $  --            --%          $ 481             .30%      
                               =====        =====             =====         =====           =====           =====       
</TABLE>
<TABLE>
<CAPTION>
                           
                                 CONSTRUCTION                   LAND                    CONSUMER                   TOTAL
                            ---------------------      --------------------      --------------------      -----------------------
                            AMOUNT     PERCENTAGE      AMOUNT    PERCENTAGE      AMOUNT    PERCENTAGE      AMOUNT       PERCENTAGE
                            ------     ----------      ------    ----------      ------    ----------      ------       ----------
Loans delinquent for:
<S>                          <C>         <C>          <C>         <C>            <C>        <C>            <C>          <C>  
  30-59 days                  $  --         --%        $  --          --%         $  40        .02%          $2,972       1.82%
  60-89 days                     --         --            --          --              9        ---              731        .44
  90 days and over               --         --           320         .20             29        .02              814        .51
                              -----      -----         -----       -----          -----      -----           ------      -----
    Total delinquent loans    $  --         --%        $ 320         .20%         $  78        .04%          $4,517       2.77%
                              =====      =====         =====       =====          =====      =====           ======      =====
</TABLE>





                                       14

<PAGE>   16



         NON-PERFORMING ASSETS. All loans are reviewed on a regular basis and
are placed on a non-accrual status when, in the opinion of management, the
collection of additional interest is deemed insufficient to warrant further
accrual. Jacksonville does not accrue interest on loans past due 90 days or more
except when the estimated value of the collateral and collection efforts were
deemed sufficient to ensure full recovery. Uncollectible interest on loans that
are contractually past due is charged off or an allowance is established based
on management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments is restored or until management accepts a payment that
results in a cure of the 90-day delinquency. In such cases, the loan is returned
to accrual status.

         REAL ESTATE OWNED. REO is real property acquired by Jacksonville
through foreclosure, deed in lieu of foreclosure, or through an exchange of
foreclosed real estate. It is typically a poor or nonearning asset, and its
acquisition in limited amounts is generally regarded as an unavoidable result of
normal business operations. However, the holding of abnormally large amounts of
REO for extensive periods of time can adversely affect earnings. As a result of
adverse economic conditions that existed in Jacksonville's market area during
the 1980s, Jacksonville, like most financial institutions in its market area,
acquired an inordinately large amount of REO consisting primarily of commercial
real estate and, to a lesser degree, single-family residential property.

         As the economy has improved in its market area in recent years,
Jacksonville has attempted to reduce gradually its outstanding REO each year by
following a policy of prudent management and market monitoring. The details of
this policy are embodied in Jacksonville's Real Estate Owned Policy adopted by
the Board of Directors in September 1990. The primary objectives of the REO
Policy are to: (1) establish procedures for the handling and disposition of REO;
(2) ensure that REO has been properly accounted for on the institution's books;
(3) set forth Jacksonville's philosophy for the management of repossessed
property; (4) provide for the periodic revaluation of real estate owned; and (5)
provide guidelines for the accounting of the sale of REO. These objectives are
monitored by the REO Disposition Committee. See "Management - Board Meetings and
Committees of the Board of Directors."

         REO is recorded at the lower of unpaid principal balance of the loan
plus acquisition costs or fair value, as determined by an appraisal of the
property obtained at acquisition. Costs relating to development and improvement
of property are capitalized, whereas costs relating to holding the property are
expensed. Valuations are periodically performed by management and an allowance
for losses is established by a charge to operations if the carrying value of a
property exceeds its estimated net realizable value. Jacksonville develops an
asset plan for each parcel of REO that it holds for more than six months. The
plan includes specific marketing strategies, a consideration of necessary
improvements and an estimate of the expected holding period and asking price. As
a result of the general

                                       15

<PAGE>   17



improvement in economic conditions in Jacksonville's market area and through the
implementation of the REO Policy, Jacksonville's REO amounted to $2.5 million,
$2.1 million and $1.1 million as of September 30, 1994, 1995 and 1996
respectively.

         Generally, a transfer of REO is recognized by Jacksonville as a sale
for accounting purposes upon consummation of the transaction unless Jacksonville
retains some type of continuing involvement in the property without a transfer
of the risks and rewards of ownership to the buyer or, under some circumstances,
if it has financed the sale of the REO. In the latter case, in order for a sale
to be recognized, a buyer must, among other things, demonstrate his commitment
to the property by making adequate initial and continuing investments. The
percentage of sales price viewed as an adequate initial investment level varies
with the type of loan, but a generally acceptable percentage of the sales price
is between 10% to 25% for commercial real estate and 5% for a single-family
primary residence. REO sales financed by Jacksonville in which a buyer's initial
investment is less than what is considered an adequate initial investment level
under the REO Policy are carried on Jacksonville's books as REO sold by the
deposit method until the buyer has an adequate level of equity. As of September
30, 1996, Jacksonville has $941,000 of REO sold by the deposit method.


                                       16

<PAGE>   18



         The following table sets forth the amounts and categories of
Jacksonville's non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,
                                         -----------------------------------------------------------------------
                                             1996            1995           1994           1993           1992
                                         ----------      ----------     ----------     ----------     ----------
                                                                   (Dollars in Thousands)
<S>                                           <C>            <C>            <C>            <C>             <C>   
Non-accruing loans:
  Single-family residential(1)                $  465         $  534         $  163         $  399          $  976
  Multi-family residential                        --             --             --             --              --
  Commercial                                      --              3             10              4              33
  Construction                                    --             --             --             --              --
  Land                                           321             26            420            388              --
  Commercial business                             --             --             --             --              --
  Consumer                                        29             --              8              6              43
                                               -----         ------         ------          -----           -----
    Total non-accruing loans                     815            563            601            797           1,052

Accruing loans 90 days or more
  delinquent                                      --             --             --             --              --
                                               -----         ------         ------          -----           -----
  Total non-performing loans                     815            563            601            797           1,052
                                               -----         ------         ------          -----           -----

Real estate owned(2)                           1,051          2,052          2,549          4,623           7,227
                                               -----         ------          -----          -----           -----
  Total non-performing assets                 $1,866         $2,615         $3,150         $5,420          $8,279
                                               =====          =====          =====          =====           =====

Troubled debt restructurings                  $  387         $  391         $  395         $  406          $  419
                                               =====          =====          =====          =====           =====

Total non-performing loans and
  troubled debt restructurings
  as a percentage of total net loans             .76%           .70%           .81%           .95%           1.15%
                                               =====          =====          =====          =====           =====

Total non-performing assets and
  troubled debt restructurings as
  a percentage of total assets                  1.03%          1.51%          1.90%          3.07%           4.53%
                                               =====          =====          =====          =====           =====
</TABLE>
- ------------------------------------

(1)      Includes first and second liens on single-family residences.

(2)      Includes real estate acquired by foreclosure, by deed in lieu of
         foreclosure and deemed in-substance foreclosure net of specified
         reserves.


                                       17

<PAGE>   19



         At September 30, 1996, management was not aware of any additional loans
with possible credit problems which caused it to have doubts as to the ability
of the borrowers to comply with present loan repayment terms and which in
management's view may result in the future inclusion of such items in the
non-performing asset categories.

         The interest income that would have been recorded during fiscal 1996,
1995 and 1994 if Jacksonville's non-accruing loans at the end of such periods
had been current in accordance with their terms during such periods were
approximately $52,000, $89,000 and $63,000, respectively. Jacksonville has not
committed to lend additional funds to debtors whose loans have been modified.
See Note 5 to the Consolidated Financial Statements. During the year ended
September 30, 1996, no interest income was actually recorded on any loans after
they were placed on non-accrual status.

         CLASSIFIED ASSETS. Federal regulations require that each insured
savings association classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted. Another category designated "special mention" also must be
established and maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss. Assets classified as substandard or doubtful
require the institution to establish general allowances for loan losses. If an
asset or portion thereof is classified loss, the insured institution must either
establish specific allowances for loan losses in the amount of 100% of the
portion of the asset classified loss, or charge-off such amount. General loss
allowances established to cover possible losses related to assets classified
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses do not
qualify as regulatory capital. Federal examiners may disagree with an insured
institution's classifications and amounts reserved.

         Jacksonville's classified assets at September 30, 1996 consisted of
$20,000 of assets classified as special mention, $3.2 million of assets
classified as substandard, and $0 classified as loss. All of the assets
classified special mention were single-family residential loans. Of assets
classified substandard, $900,000, or 27.7%, were non residential real estate
parcels acquired as real estate owned, $1.6 million, or 51.1%, were
single-family residential loans, $400,000, or 13.6%, were commercial real estate
and land loans, and $200,000 or 6.5%, were single-family residences acquired as
real estate owned.

                                       18

<PAGE>   20



         The following table sets forth the Association's classified assets at
the dates indicated.

<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30,
                                             --------------------------------------------------------
                                                    1996                1995                 1994
                                             ---------------      ---------------     ---------------
                                                                   (In thousands)
<S>                                              <C>                 <C>                  <C>  
Classification:                            
  Special mention                                 $   20                $   41             $   38
  Substandard                                      3,213                 3,333              4,152
  Doubtful                                            --                    --                 --
  Loss(1)                                             --                    --                 --
                                                  ------                ------             ------
    Total classified assets                       $3,233                $3,374             $4,190
                                                  ======                ======             ======
                                           
</TABLE>

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

(1)      Excludes foreclosed real estate that has been fully reserved.

         Allowance for Loan Losses. It is management's policy to maintain an
allowance for estimated losses on loans based upon an assessment of past loan
loss experience, known and inherent risks in the portfolio adverse situations
that may affect the borrower's ability to repay and current economic conditions.
Although management believes that it uses the best information available to make
such determinations, future adjustments to allowances may be necessary, and net
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making the initial determinations. Currently, the
allowance for loan losses is formally reevaluated on a quarterly basis.

         At September 30, 1996, Jacksonville's allowance for loan losses
amounted to $1.1 million compared to $1.0 million at September 30, 1995.

                                       19

<PAGE>   21



         The following table sets forth an analysis of Jacksonville's allowance
for loan losses during the periods indicated.
<TABLE>
<CAPTION>
                                                                     YEAR ENDED SEPTEMBER 30,
                                     ------------------------------------------------------------------------------------
                                     1996                 1995               1994                1993              1992
                                     ----                 ----               ----                ----              ----
<S>                                <C>                  <C>                <C>                 <C>               <C>     
Total net loans outstanding        $158,034             $135,933           $123,133            $126,030          $128,107
                                   ========             ========           ========            ========          ========
Average loans outstanding          $145,021             $128,623           $122,051            $127,845          $129,968
                                   ========             ========           ========            ========          ========
Balance at beginning of
  period                           $  1,000             $  1,000           $    996            $    810         $     724
Charge-offs(1)                           --                  (57)               (24)               (155)             (311)
Recoveries(1)                            --                   32                 10                  16                13
                                   --------             --------           --------            --------         ---------
Net charge-offs                       1,000                  (25)               (14)               (139)             (298)
Provision for losses on loans           100                   25                 18                 325               384
                                   --------             --------           --------            --------         ---------
Balance at end of period           $  1,100            $   1,000           $  1,000            $    996        $      810
                                   ========             ========           ========            ========          ========
Allowance for loan losses
  as a percent of total net
  loans outstanding                     .70%                 .74%               .81%                .79%              .63%
                                   ========             ========           ========            ========          ========
Ratio of net charge-offs to
  average loans outstanding              --%                 .02%               .01%                .11%              .23%
                                   ========             ========           ========            ========          ========
</TABLE>

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

(1)      Charge-offs and recoveries for all periods presented consist 
         principally of single-family residential loans.

                                       20

<PAGE>   22



         The following table presents the allocation of the allowance for loan
losses to the total amount of loans in each category listed at the dates
indicated.
<TABLE>
<CAPTION>
                                                                              SEPTEMBER 30,
                                     ----------------------------------------------------------------------------------------------
                                               1996                              1995                              1994            
                                     --------------------------     -----------------------------     -----------------------------
                                                     % OF LOANS                        % OF LOANS                        % OF LOANS
                                                      IN EACH                           IN EACH                           IN EACH  
                                                    CATEGORY TO                       CATEGORY TO                       CATEGORY TO
                                      AMOUNT        TOTAL LOANS         AMOUNT        TOTAL LOANS         AMOUNT        TOTAL LOANS
                                     ---------     ------------     ------------     ------------     ------------     ------------
                                                                         (Dollars in Thousands)
<S>                                    <C>              <C>             <C>              <C>             <C>             <C>       
Mortgage loans                         $1,025           93.18%          $  894            96.5%          $  900            97.5%   
Commercial business loans                  20            1.82               30              .2               42              .2    
Consumer loans                             55            5.00               76             3.3               58             2.3    
                                       ------          ------           ------          ------           ------          ------    
    Total allowance for loan losses    $1,100           100.0%          $1,000           100.0%          $1,000           100.0%   
                                       ======          ======           ======          ======           ======          ======    
</TABLE>
<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,
                                    ----------------------------------------------------------------
                                                 1993                              1992
                                    -----------------------------     -----------------------------
                                                       % OF LOANS                        % OF LOANS
                                                        IN EACH                           IN EACH
                                                      CATEGORY TO                       CATEGORY TO
                                        AMOUNT        TOTAL LOANS         AMOUNT        TOTAL LOANS
                                    ------------     ------------     ------------     ------------
                                                          (Dollars in Thousands)
<S>                                  <C>               <C>             <C>               <C>  
Mortgage loans                        $  927             97.9%          $  750             97.5%
Commercial business loans                 --               .2               --               .2
Consumer loans                            69              1.9               60              2.3
                                      ------           ------           ------            -----
    Total allowance for loan losses   $  996            100.0%          $  810            100.0%
                                      ======           ======           ======            =====
</TABLE>



                                       21

<PAGE>   23



MORTGAGE-BACKED SECURITIES

         Jacksonville has invested in a portfolio of mortgage-backed securities
which are insured or guaranteed by the FHLMC or the GNMA. Mortgage-backed
securities increase the quality of Jacksonville's assets by virtue of the
guarantees that back them, are more liquid than individual mortgage loans and
may be used to collateralize borrowings or other obligations of Jacksonville. In
addition, at September 30, 1996, $5.7 million of Jacksonville's mortgage-backed
securities consist of pools of adjustable-rate mortgages. Mortgage-backed
securities of this type serve to reduce the interest rate risk associated with
changes in interest rates.

         The following table sets forth the activity in Jacksonville's
mortgage-backed securities portfolio during the periods indicated.
<TABLE>
<CAPTION>
                                                            1996                  1995                  1994
                                                     -----------------     -----------------     -----------------
                                                                     (Dollars in Thousands)
<S>                                                        <C>                   <C>                   <C>    
Mortgage-backed securities at
  beginning of period                                      $ 3,442                $2,995                $4,214
Purchases                                                   10,927                 1,002                    --
Sales                                                           --                    --                    --
Repayments                                                  (2,262)                 (555)               (1,219)
                                                           -------               -------               -------
Mortgage-backed securities at end
  of period                                                $12,107               $ 3,442               $ 2,995
                                                           =======               =======               =======
Weighted average yield
  at end of period                                            7.06%                 7.33%                 7.69%
                                                           =======               =======               =======
</TABLE>

         At September 30, 1996, Jacksonville's mortgage-backed securities had a
book value and estimated market value of $12.1 million and $12.1 million,
respectively. Of the $12.1 million portfolio, $2.0 million was scheduled to
mature in five years or less and $7.1 million was scheduled to mature after ten
years. Due prepayments of the underlying loans, the actual maturities of
mortgage-backed securities generally are substantially less than the scheduled
maturities.

         The $2.0 million of mortgage-backed securities which were scheduled to
mature in five years or less at September 30, 1996 qualify for regulatory
liquidity and have fixed interest rates. The remaining $10.1 million of
mortgage-backed securities at such date consisted of $4.4 million of fixed-rate
and $5.7 million of adjustable-rate securities. Of Jacksonville's total
investment in mortgage-backed securities at September 30, 1996, $7.3 million
consisted of FNMA certificates, $1.3 million consisted of GNMA certificates and
$3.5 million consisted of FHLMC certificates. See Note 4 to the Consolidated
Financial Statements for additional information.


                                       22

<PAGE>   24



INVESTMENT ACTIVITIES

         Jacksonville's investment securities portfolio is managed in accordance
with a written Investment Policy adopted by the Board of Directors and
administered by the Investment Committee which consists of one outside Director,
the President and the Senior Vice President. The members of the Investment
Committee are: Dr. Joe Tollett, Charles Broadway and Bill W. Taylor. There is no
investment limit for investments in U.S. Treasury obligations and FHLB
obligations having maturities of ten years or less and in other U.S. federal
agency or federally sponsored agency obligations, including, but not limited to
FHLMC, FNMA, GNMA and the Student Loan Marketing Association, municipal
obligations rated AAA, A, A or BBB or issued by a public housing agency and
backed by the full faith and credit of the U.S. government having maturities of
30 years or less. In addition, there are no investment limits on bankers
acceptances of 12 months or less and federal funds of 360 days or less. Up to
$100,000 per bank may be invested in commercial bank certificates of deposit
with maturities up to one year. Other investments must be approved by the Board
of Directors. At September 30, 1996, Jacksonville had U.S. Treasury notes and
U.S. Government agency held-to-maturity securities with an amortized cost of
$26.4 million and an estimated market value of $26.4 million. See note 3 to the
Consolidated Financial Statement for further information. At September 30, 1996,
Jacksonville held U.S. government securities as available-for-sale with an
amortized cost of $7.5 million and an estimated market value of $7.4 million.


                                       23

<PAGE>   25



         The following table sets forth Jacksonville's investment securities at
the dates indicated.
<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,
                                     -------------------------------------------------------------
                                            1996                  1995                  1994
                                     -----------------     -----------------     -----------------
                                                             (In thousands)
<S>                                          <C>                   <C>                <C>    
Available for sale(1):

  U.S. agency securities                     $ 7,359               $ 6,408             $ 4,206
                                              ------                ------              ------
      Total available for sale                 7,359                 6,408               4,206
                                              ------                ------              ------

Held to maturity(1):
  Mortgage-backed securities:
    FNMA Certificates                          7,270                    --                  --
    FHLMC certificates                         3,553                 1,921               1,193
    GNMA certificates                          1,284                 1,521               1,802
  U.S. Treasury notes                          8,980                12,492              17,204
  U.S. agency securities                      17,467                24,008              23,482
                                              ------                ------              ------

     Total held to maturity                   38,554                39,942              43,681
                                              ------                ------              ------

        Total investment securities          $45,913               $46,350             $47,887
                                              ======                ======              ======

</TABLE>
- -----------------------------------


(1)      Securities classified as available for sale were carried at fair value
         at September 30, 1996, 1995 and 1994. Securities classified as
         held-to-maturity were carried at historical cost at all respective
         dates.

         At September 30, 1996, $9.0 million or 19.6% of investment securities
held by Jacksonville were scheduled to mature in one year or less and had a
weighted average yield of 6.61%. Of the remaining investment securities, $16.9
million was scheduled to mature after one year through five years.


                                       24

<PAGE>   26



         The following table sets forth certain information regarding the
maturities of Jacksonville's investment securities at September 30, 1996.
<TABLE>
<CAPTION>

                                                                       CONTRACTUALLY MATURING                                     
                          ------------------------------------------------------------------------------------------------------
                                          WEIGHTED                 WEIGHTED                  WEIGHTED                   WEIGHTED
                            UNDER 1       AVERAGE        1-5       AVERAGE        6-10       AVERAGE         OVER 10     AVERAGE
                              YEAR          RATE        YEARS        RATE        YEARS         RATE           YEARS       RATE     
                          ---------     ----------    --------   ---------     --------    ---------      -----------   --------   
                                                                         (Dollars in Thousands)
<S>                         <C>         <C>            <C>         <C>         <C>           <C>            <C>         <C>       
HELD TO MATURITY
U.S. Treasury notes
   and bills                $ 4,001        6.09%      $ 4,979       5.30%     $    --            --%       $    --           --%  

U.S. agency securities        5,004        7.03        12,463       5.68           --            --             --           --  
                            -------                   -------                 -------                      -------               
   Total                    $ 9,005                   $17,442                 $    --                      $    --           --  
                            =======                   =======                 =======                      =======               

AVAILABLE FOR SALE
U.S. Treasury notes              --          --            --         --           --            --             --           --  
   and bills
U.S. agency securities           --          --         4,492       6.10        3,000          7.67             --           --  
                            -------                   -------                 -------                      -------               
Total                       $    --                   $ 4,492                 $ 3,000                      $    --               
                            =======                   =======                 =======                      =======               
Unrealized loss on
  securities available
  for sale 
    Total
</TABLE>
<TABLE>
<CAPTION>
 
                                     TOTAL                                                           
                          ------------------------           
                                                             
                                                             
                             AMOUNT          YIELD           
                          -----------     ---------          
                            (Dollars in Thousands)
<S>                            <C>           <C>             
HELD TO MATURITY                                           
U.S. Treasury notes                                        
   and bills                   $ 8,980          5.65%         
                                                           
U.S. agency securities          17,467          6.07         
                               -------                       
   Total                       $26,447                       
                               =======                       
                                                           
AVAILABLE FOR SALE                                         
U.S. Treasury notes                 --            --         
   and bills                                               
U.S. agency securities           7,492          6.73         
                               -------                       
Total                          $ 7,492                       
                               =======                       
Unrealized loss on                                         
  securities available                                     
  for sale                         133                       
                               -------
    Total                      $33,806                       
                               =======                
</TABLE>                                                   
                                                           
                        
INTEREST-BEARING DEPOSITS

         As of September 30, 1996 Jacksonville also had demand deposit accounts
in the FHLB of Dallas of $2.4 million as compared to $5.8 million as of
September 30, 1995. In order to comply with a policy adopted by its Board of
Directors, Jacksonville's deposits in FDIC-insured institutions are limited to
$100,000 per bank in certificates of deposit with a maximum maturity of one
year. As of September 30, 1996, Jacksonville had no certificates of deposit.

SOURCES OF FUNDS

         GENERAL. Deposits are the primary source of Jacksonville's funds for
lending and other investment purposes. In addition to deposits, Jacksonville
derives funds from loan principal repayments. Loan repayments are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings may
be used on a short-term basis to compensate for reductions in the availability
of funds from other sources. They may also be used on a longer term basis for
general business purposes.

         DEPOSITS. Jacksonville's deposits are attracted principally from within
Jacksonville's primary market area through the offering of a broad selection of
deposit instruments, including demand and NOW accounts, money market accounts,
passbook savings accounts, and term certificate accounts. Included among these
deposit products are individual retirement account certificates of approximately
$19.4 million at September 30, 1996.

                                       25

<PAGE>   27



Deposit account terms vary, with the principal differences being the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate.

         Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by Jacksonville on a periodic basis. Determination of
rates and terms are predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals and federal regulations.

         Jacksonville does not advertise for deposits outside its local market
area or utilize the services of deposit brokers.

         The following table sets forth the dollar amount of deposits in the
various types of deposit programs offered by Jacksonville at the dates
indicated.
<TABLE>
<CAPTION>
                                                                            SEPTEMBER 30,
                                 -------------------------------------------------------------------------------------------------
                                               1996                               1995                             1994
                                 ------------------------------     ------------------------------     ---------------------------
                                     AMOUNT         PERCENTAGE          AMOUNT         PERCENTAGE          AMOUNT       PERCENTAGE
                                 -----------      -------------     -----------      -------------     -----------     -----------
                                                                       (Dollars in Thousands)
<S>                                 <C>               <C>              <C>              <C>              <C>             <C>    
Certificate accounts:
2.00 - 4.00%                          $3,973             2.28%         $ 14,428             8.30%         $ 98,332          61.71%
4.01 - 6.00%                          96,387            55.30            82,012            47.17            13,666           8.59
6.01 - 8.00%                          31,581            18.11            36,147            20.79                 8             --
8.01 - 10.00%                            139              .08               132              .08                --             --
                                    --------          -------          --------           ------          --------        -------

Total certificate accounts          $132,080            75.77%         $132,719            76.34%         $112,006          70.30%
                                    ========          =======          ========           ======          ========        =======

Transaction accounts:

Passbook savings                     $11,424             6.55%         $ 10,765             6.20%         $ 11,063           6.94%
Money market                          17,648            10.12            17,930            10.32            24,720          15.51
Demand and NOW Accounts               13,176             7.56            12,397             7.14            11,554           7.25
                                    --------          -------          --------          -------          --------        -------

Total transaction accounts           $42,248            24.23%         $ 41,092            23.66%         $ 47,337          29.70%
                                    ========          =======          ========          =======          ========        =======

Total deposits                      $174,328           100.00%         $173,811           100.00%         $159,343         100.00%
                                    ========          =======          ========          =======          ========        =======
</TABLE>

                                       26

<PAGE>   28



         The following table sets forth the savings activities of Jacksonville
during the periods indicated.
<TABLE>
<CAPTION>
                                                  1996                    1995                    1994
                                           -------------------     -------------------     -------------------
                                                                      (In Thousands)
<S>                                          <C>                   <C>                     <C>      
Net increase (decrease)
    before interest credited                  (4,111)                 10,889                 (17,736)

Interest credited                              4,628                   3,579                   2,768
                                            --------                --------                --------
Net increase (decrease) in deposits         $    517                $ 14,468                $(14,968)
                                            ========                ========                ========
</TABLE>

         The following table shows the interest rate and maturity information
for Jacksonville's certificates of deposit at September 30, 1996
<TABLE>
<CAPTION>
                                                      MATURITY DATE
                    ---------------------------------------------------------------------------------
                       ONE YEAR         OVER              OVER              OVER
INTEREST RATE           OR LESS       1-2 YEARS         2-3 YEARS          3 YEARS          TOTAL
- -----------------   --------------- --------------  ----------------     -------------    -----------   
                                                      (In Thousands)
<S>                     <C>            <C>               <C>                <C>             <C>
2.00 -  4.00%             $3,973        $    --           $    --            $    --         $  3,973
4.01 -  6.00%             90,918          5,469                --                 --           96,387
6.01 -  8.00%             31,513             68                --                 --           31,581
8.01 -  10.00%               139             --                --                 --              139
                        --------        -------           -------            -------         --------
                        $126,543        $ 5,537           $    --            $    --         $132,080
                        ========        =======           =======            =======         ========

</TABLE>

                                       27

<PAGE>   29



         The following table sets forth the maturities of Jacksonville's
certificates of deposit having principal amounts of $100,000 or more at
September 30, 1996.
<TABLE>
<CAPTION>
CERTIFICATES OF DEPOSIT MATURING
IN QUARTER ENDING:
- -------------------------------------------
                                                              (In thousands)
<S>                                                               <C>    
December 31, 1996                                                 $ 4,061
March 31, 1997                                                      2,860
June 30, 1997                                                       1,250
September 30, 1997                                                  5,779
After September 30, 1997                                            3,221
                                                                  -------
Total certificates of deposit
  with balances of $100,000
  or more                                                         $17,171
                                                                  =======
</TABLE>

         The following table sets forth the maximum month-end balance and
average balance of Jacksonville's FHLB advances during the periods indicated.
See also, Note 9 to the Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                           YEAR ENDED SEPTEMBER 30,
                           ---------------------------------------------------------
                               1996                 1995                  1994
                           --------------    -----------------     -----------------
                                            (Dollars in Thousands)
<S>                           <C>                  <C>                   <C>    
Maximum balance               $4,000               $ 7,000               $ 4,000
Average balance                1,098                 2,750                   115
Weighted average interest
  rate of FHLB advances         5.71%                 5.52%                 5.27%
</TABLE>

                                       28

<PAGE>   30



         The following table sets forth certain information as to Jacksonville's
long-term (terms to maturity in excess of 90 days) and short-term (terms to
maturity of 90 days or less) FHLB advances at the dates indicated.

<TABLE>
<CAPTION>
                                                          SEPTEMBER 30,
                                  ------------------------------------------------------------
                                         1996                 1995                  1994
                                  -----------------    -----------------     -----------------
                                                      (Dollars in Thousands)
<S>                                 <C>                 <C>                    <C>    
FHLB long-term advances             $2,000              $    --                $ 4,000
  Weighted average interest rate
                                      5.71%                  --%                  5.15%
FHLB short-term advances            $   --              $    --                $    --
  Weighted average interest rate
                                        --%                  --%                    --%

</TABLE>

         BORROWINGS. While Jacksonville has not frequently borrowed from the
FHLB of Dallas, it may obtain advances from the FHLB of Dallas upon the security
of the common stock it owns in that bank and certain of its residential mortgage
loans, provided certain standards related to creditworthiness have been met.
Such advances are made pursuant to several credit programs, each of which has
its own interest rate and range of maturities. Such advances are generally
available to meet seasonal and other withdrawals of deposit accounts and to
permit increased lending. See "Regulation - Federal Regulation of Savings
Associations - Federal Home Loan Bank System." At September 30, 1996,
Jacksonville had $2 million advances from the FHLB of Dallas.

         The Company's ESOP also borrowed funds for the purchase of shares of
the Association Common Stock issued in connection with the MHC Reorganization.
As of September 30, 1996, the outstanding balance of that loan was $1.5 million.

         SUBSIDIARIES. Jacksonville currently owns 100% of the capital stock of
J. S. & L. Corporation ("JS&L") which was established in December 1979. JS&L is
self sufficient due to income from $79,000 in investments, interest from
residential notes receivable and rental income. Its main activity is the
servicing of purchased residential first and second lien notes. The portfolio
includes 35 loans ranging in size from $2,500 to $145,000, most of which were
purchased at a discount. For most of the second lien notes purchased,
Jacksonville holds the first lien note. For the years ended September 30, 1996
and September 30, 1995, JS&L earned $34,800 and $34,900, respectively. JS&L now
makes investments in investments permissible for Jacksonville, rents houses and
office space, and originates and buys first and second liens. JS&L purchases
first and second lien notes pursuant to a written mortgage loan underwriting
policy adopted by JS&L's board of directors. Total investment in JS&L

                                       29

<PAGE>   31



at September 30, 1996 was $210,000. Total capital of JS&L at September 30, 1996
was $810,000 and, as of that date, JS&L has no outstanding indebtedness to
Jacksonville.

         EMPLOYEES. Jacksonville and its subsidiary had 69 full-time employees
and one part-time employee at September 30, 1996. None of these employees is
represented by a collective bargaining agent, and Jacksonville believes that it
enjoys good relations with its personnel.

                                   REGULATION

         Set forth below is a brief description of those laws and regulations
which, together with the descriptions of laws and regulations contained
elsewhere herein, are deemed material to an investor's understanding of the
extent to which the Company and the Association are regulated. The description
of the laws and regulations hereunder and elsewhere herein does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.

THE COMPANY

         GENERAL. The Company, as a savings and loan holding company within the
meaning of the Home Owners' Loan Act ("HOLA"), will be required to register with
the OTS and will be subject to OTS regulations, examinations, supervision and
reporting requirements. As a subsidiary of a savings and loan holding company,
the Association will be subject to certain restrictions in its dealings with the
Company and affiliates thereof.

         ACTIVITIES RESTRICTIONS. There are generally no restrictions on the
activities of a savings and loan holding company which holds only one subsidiary
savings institution. However, if the Director of the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution, the
Director may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings institution; (ii)
transactions between the savings institution and its affiliates; and (iii) any
activities of the savings institution that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings institution. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet a qualified
thrift lender ("QTL") test, then such unitary holding company also shall become
subject to the activities restrictions applicable to multiple savings and loan
holding companies and, unless the savings institution requalifies as a QTL
within one year thereafter, shall register as, and become subject to the
restrictions applicable to, a bank holding company. See "- The Association -
Qualified Thrift Lender Test."

         If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Association,
the Company would

                                       30

<PAGE>   32



thereupon become a multiple savings and loan holding company. Except where such
acquisition is pursuant to the authority to approve emergency thrift
acquisitions and where each subsidiary savings institution meets the QTL test,
as set forth below, the activities of the Company and any of its subsidiaries
(other than the Association or other subsidiary savings institutions) would
thereafter be subject to further restrictions. Among other things, no multiple
savings and loan holding company or subsidiary thereof which is not a savings
institution shall commence or continue for a limited period of time after
becoming a multiple savings and loan holding company or subsidiary thereof any
business activity, upon prior notice to, and no objection by the OTS, other
than: (i) furnishing or performing management services for a subsidiary savings
institution; (ii) conducting an insurance agency or escrow business; (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
savings institution; (iv) holding or managing properties used or occupied by a
subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi)
those activities authorized by regulation as of March 5, 1987 to be engaged in
by multiple savings and loan holding companies; or (vii) unless the Director of
the OTS by regulation prohibits or limits such activities for savings and loan
holding companies, those activities authorized by the Federal Reserve Board as
permissible for bank holding companies. Those activities described in (vii)
above also must be approved by the Director of the OTS prior to being engaged in
by a multiple savings and loan holding company.

         LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between
savings institutions and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of
a savings institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar other types of
transactions. In addition to the restrictions imposed by Sections 23A and 23B,
no savings institution may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate which engages only in activities which are permissible
for bank holding companies, or (ii) purchase or invest in any stocks, bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
which are subsidiaries of the savings institution.

         In addition, Sections 22(h) and (g) of the Federal Reserve Act places
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other

                                       31

<PAGE>   33



outstanding loans to such person and affiliated interests, the institution's
loans to one borrower limit (generally equal to 15% of the institution's
unimpaired capital and surplus). Section 22(h) permits loans to directors,
executive officers and principal stockholders made pursuant to a benefit or
compensation program that is widely available to employees of a subject savings
association provided that no preference is given to any officer, director, or
principal shareholder or related interest thereto over any other employee. In
addition, the aggregate amount of extensions of credit by a savings institution
to all insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers. At September 30, 1996, the Association was in compliance with the
above restrictions.

         RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without prior
approval of the Director of the OTS, (i) control of any other savings
institution or savings and loan holding company or substantially all the assets
thereof or (ii) more than 5% of the voting shares of a savings institution or
holding company thereof which is not a subsidiary. Except with the prior
approval of the Director of the OTS, no director or officer of a savings and
loan holding company or person owning or controlling by proxy or otherwise more
than 25% of such company's stock, may acquire control of any savings
institution, other than a subsidiary savings institution, or of any other
savings and loan holding company.

         The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings institutions).

         The Bank Holding Company Act of 1956 specifically authorizes the
Federal Reserve Board to approve an application by a bank holding company to
acquire control of a savings institution. A bank holding company that controls a
savings institution is also authorized to merge or consolidate the assets and
liabilities of the savings institution with, or transfer assets and liabilities
to, any subsidiary bank which is a member of the BIF with the approval of the
appropriate federal banking agency and the Federal Reserve Board. As a result of
these provisions, there have been a number of acquisitions of savings
institutions by bank holding companies in recent years.

         FEDERAL SECURITIES LAWS.  The Company has filed with the Securities and
Exchange Commission ("SEC") a registration statement under the Securities Act of
1933, as amended

                                       32

<PAGE>   34


(the "Securities Act"), for the registration of the Common Stock to be issued
pursuant to the Conversion. Upon completion of the Conversion and
Reorganization, the Company's Common Stock will be registered with the SEC under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company will then be subject to the information, proxy solicitation,
insider trading restrictions and other requirements under the Exchange Act.

         The registration under the Securities Act of shares of the Common Stock
to be issued in the Conversion and Reorganization does not cover the resale of
such shares. Shares of the Common Stock purchased by persons who are not
affiliates of the Company may be sold without registration. Shares purchased by
an affiliate of the Company will be subject to the resale restrictions of Rule
144 under the Securities Act. If the Company meets the current public
information requirements of Rule 144 under the Securities Act, each affiliate of
the Company who complies with the other conditions of Rule 144 (including those
that require the affiliate's sale to be aggregated with those of certain other
persons) would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (i) 1%
of the outstanding shares of the Company or (ii) the average weekly volume of
trading in such shares during the preceding four calendar weeks.

THE ASSOCIATION

         GENERAL. The OTS has extensive authority over the operations of savings
institutions. As part of this authority, savings institutions are required to
file periodic reports with the OTS and are subject to periodic examinations by
the OTS and the FDIC. The investment and lending authority of savings
institutions are prescribed by federal laws and regulations, and such
institutions are prohibited from engaging in any activities not permitted by
such laws and regulations. Those laws and regulations generally are applicable
to all federally chartered savings institutions and to certain state-chartered
savings institutions. Such regulation and supervision is primarily intended for
the protection of depositors.

         The OTS has broad enforcement authority over all savings institutions,
including, among other things, the ability to assess civil money penalties, to
issue cease and desist or removal orders and to initiate injunctive actions. In
general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely
reports filed with the OTS.

         INSURANCE OF ACCOUNTS. The deposits of the Association are insured to
the maximum extent permitted by the SAIF, which is administered by the FDIC, and
are backed by the full faith and credit of the U.S. Government. As insurer, the
FDIC is authorized to conduct examinations of, and to require reporting by,
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious threat to the FDIC. The FDIC also has the authority

                                       33

<PAGE>   35



to initiate enforcement actions against savings institutions, after giving the
OTS an opportunity to take such action.

         The FDIC may terminate the deposit insurance of any insured depository
institution, including the Association, if it determines after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. There are no pending proceedings to terminate the deposit insurance of
the Association.

         Both the SAIF and the Bank Insurance Fund ("BIF"), the federal deposit
insurance fund that covers the deposits of state and national banks and certain
state savings banks, are required by law to attain and thereafter maintain a
reserve ration of 1.25% of insured deposits. The BIF has achieved the required
reserve rate, and as a result, the FDIC reduced the average deposit insurance
premium paid by BIF-insured banks to a level substantially below the average
premium paid by savings institutions. Banking legislation was enacted September
30, 1996 to eliminate the premium differential between SAIFinsured institutions
and BIF-insured institutions. The legislation provides that all insured
depository institutions with SAIF-assessable deposits as of March 31, 1995 pay a
special one-time assessment to recapitalize the SAIF. Pursuant to this
legislation, the FDIC promulgated a rule that established the special assessment
necessary to recapitalize the SAIF at 65.7 basis points of SAIF-assessable
deposits held by effected institutions as of March 31, 1995. Based upon its
level of SAIF deposits as of March 31, 1995, the Association will pay a special
assessment of approximately $1.1 million. The assessment was accrued in the
quarter ended September 30, 1996.

         Another component of the SAIF recapitalization plan provides for the
merger of the SAIF and the BIF on January 1, 1999, if no insured depository
institution is a savings association on that date. If the Association is
required to convert to a bank charter, the Company would become a bank holding
company which would subject it to the more restrictive activity limits imposed
on bank holding companies unless special grandfather provisions are included in
applicable legislation or regulation. As of September 30, 1996, the Company has
no investments or activities that would be adversely affected if it were
required to become a bank holding company.


         REGULATORY CAPITAL REQUIREMENTS.  Federally insured savings 
institutions are required to maintain minimum levels of regulatory capital
established by the OTS. These standards generally must be as stringent as the
comparable capital requirements imposed on national

                                       34

<PAGE>   36



banks. The OTS also is authorized to impose capital requirements in excess of
these standards on individual institutions on a case-by-case basis.

         Current OTS capital standards require savings institutions to satisfy
three different capital requirements. Under these standards, savings
institutions must maintain "tangible" capital equal to at least 1.5% of adjusted
total assets, "core" capital equal to at least 3% of adjusted total assets and
"total" capital (a combination of core and "supplementary" capital) equal to at
least 8.0% of "risk-weighted" assets. For purposes of the regulation, core
capital generally consists of common equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill." Tangible capital is given the same definition as core capital but
does not include qualifying supervisory goodwill and is reduced by the amount of
all the savings institution's intangible assets, with only a limited exception
for purchased mortgage servicing rights. The Association had no goodwill or
other intangible assets at September 30, 1996. Both core and tangible capital
are further reduced by an amount equal to a savings institution's debt and
equity investments in subsidiaries engaged in activities not permissible to
national banks (other than subsidiaries engaged in activities undertaken as
agent for customers or in mortgage banking activities and subsidiary depository
institutions or their holding companies). These adjustments do not affect the
Association's regulatory capital. Supplementary capital generally consists of
hybrid capital instruments; perpetual preferred stock which is not eligible to
be included as core capital; subordinated debt and intermediate-term preferred
stock; and general allowances for loan losses up to a maximum of 1.25% of
risk-weighted assets.

         In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary capital
included does not exceed the savings institution's core capital. In determining
the required amount of risk-based capital, total assets, including certain
off-balance sheet items, are multiplied by a risk weight based on the risks
inherent in the type of assets. The risk weights assigned by the OTS for
principal categories of assets are (i) 0% for cash and securities issued by the
U.S. Government or unconditionally backed by the full faith and credit of the
U.S. Government; (ii) 20% for securities (other than equity securities) issued
by U.S. Government-sponsored agencies and mortgage-backed securities issued by,
or fully guaranteed as to principal and interest by, the FNMA or the FHLMC,
except for those classes with residual characteristics or stripped
mortgage-related securities; (iii) 50% for prudently underwritten permanent
oneto four-family first lien mortgage loans not more than 90 days delinquent and
having a loan-to-value ratio of not more than 80% at origination unless insured
to such ratio by an insurer approved by the FNMA or the FHLMC, qualifying
residential bridge loans made directly for the construction of one- to
four-family residences and qualifying multi-family residential loans; and (iv)
100% for all other loans and investments, including consumer loans, commercial
loans, and single-family residential real estate loans more than 90 days
delinquent, and for repossessed assets.

                                       35

<PAGE>   37

         In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital regulation. Under the
rule, an institution with a greater than "normal" level of interest rate risk is
subject to a deduction of its interest rate risk component from total capital
for purposes of calculating its risk-based capital. As a result, such an
institution is required to maintain additional capital in order to comply with
the risk-based capital requirement. An institution with a greater than "normal"
interest rate risk is defined as an institution that would suffer a loss of net
portfolio value exceeding 2.0% of the estimated economic value of its assets in
the event of a 200 basis point increase or decrease (with certain minor
exceptions) in interest rates. The interest rate risk component is calculated,
on a quarterly basis, as one-half of the difference between an institution's
measured interest rate risk and 2.0%, multiplied by the economic value of its
assets. The rule also authorizes the Director of the OTS, or his designee, to
waive or defer an institution's interest rate risk component on a case-by-case
basis. The final rule was effective as of January 1, 1994, subject however to a
three quarter "lag" time between the reporting date of the data used to
calculate an institution's interest rate risk and the effective date of each
quarter's interest rate risk component. Thus, an institution with greater than
"normal" risk was not subject to any deduction from total capital until October
1, 1994 (based on the calculation of the interest rate risk component using data
as of December 31, 1993). If the interest rate risk component had been in effect
as of June 30, 1996, Jacksonville would not have been required to make a
deduction from its regulatory capital.


                                       36

<PAGE>   38

         At September 30, 1996, the Association exceeded all of its regulatory
capital requirements. The following table sets forth the Association's
compliance with applicable regulatory capital requirements at September 30,
1996.

<TABLE>
<CAPTION>
                                     HISTORICAL REGULATORY CAPITAL AT
                                           SEPTEMBER 30, 1996(1)
                        -----------------------------------------------------
                                   AMOUNT                       % OF ASSETS
                        --------------------------      -------------------------
                                          (Dollars in Thousands)
<S>                           <C>                             <C>  
Tangible(2):
  Required Minimum           $ 3,248                           1.50%
  Capital Amount              28,526                          13.17
  Excess                      25,278                          11.67

Core(2)(3):
  Required Minimum             6,496                           3.00
  Capital Amount              28,526                          13.17
  Excess                      22,030                          10.17

Risk-based(4)(5):
  Required Minimum             8,872                           8.00
  Capital Amount              29,626                          26.71
  Excess                      20,754                          18.71
</TABLE>

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

(1) Tangible and core capital are computed as a percentage of adjusted total
assets of $216.5 million. Risk-based capital is computed as a percentage of
adjusted risk-weighted assets of $110.9 million.

         A savings institution which is not in capital compliance or which is
otherwise deemed to require more than normal supervision is subject to
restrictions on its ability to grow pursuant to OTS Regulatory Bulletin 3a-1. In
addition, a provision of HOLA generally provides that the Director of OTS must
restrict the asset growth of savings institutions not in regulatory capital
compliance, subject to a limited exception for growth not exceeding interest
credited.

         A savings institution which is not in capital compliance is also
automatically subject to the following: (i) new directors and senior executive
officers and employment contracts for senior executive officers must be approved
by the OTS in advance; (ii) the savings institution may not accept or renew any
brokered deposits; (iii) the savings institution is subject to higher OTS
assessments as a capital-deficient institution; and (iv) the savings institution
may not make any capital distributions without prior written approval.

                                       37

<PAGE>   39




         Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on the institution's operations,
termination of federal deposit insurance and the appointment of a conservator or
receiver. The OTS' capital regulation provides that such actions, through
enforcement proceedings or otherwise, could require one or more of a variety of
corrective actions.

         PROMPT CORRECTIVE ACTION. Under Section 38 of the FDIA, as added by the
FDICIA, each federal banking agency was required to implement a system of prompt
corrective action for institutions which it regulates. The federal banking
agencies, including the OTS, adopted substantially similar regulations to
implement Section 38 of the FDIA. Under the regulations, an institution is
deemed to be (i) "well capitalized" if it has total risk-based capital of 10.0%
or more, has a Tier 1 risk-based capital ratio of 6.0% or more, has a Tier 1
leverage capital ratio of 5.0% or more and is not subject to any order or final
capital directive to meet and maintain a specific capital level for any capital
measure, (ii) "adequately capitalized" if it has a total risk-based capital
ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more and a
Tier 1 leverage capital ratio of 4.0% or more (3.0% under certain circumstances)
and does not meet the definition of "well capitalized," (iii) "undercapitalized"
if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1
risk-based capital ratio that is less than 4.0% or a Tier 1 leverage capital
ratio that is less than 4.0% (3.0% under certain circumstances), (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a
Tier 1 leverage capital ratio that is less than 3.0%, and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. Section 38 of the FDIA and the regulations
promulgated thereunder also specify circumstances under which a federal banking
agency may reclassify a well capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized).

         An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. A federal banking agency must provide the
institution with written notice of approval or disapproval within 60 days after
receiving a capital restoration plan, subject to extensions by the agency.

         An institution which is required to submit a capital restoration plan
must concurrently submit a performance guaranty by each company that controls
the institution. Such guaranty shall be limited to the lesser of (i) an amount
equal to 5.0% of the institution's total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary to restore the relevant capital measures of the institution to
the

                                       38

<PAGE>   40



levels required for the institution to be classified as adequately capitalized.
Such a guarantee shall expire after the federal banking agency notifies the
institution that it has remained adequately capitalized for each of four
consecutive calendar quarters. An institution which fails to submit a written
capital restoration plan within the requisite period, including any required
performance guarantee(s), or fails in any material respect to implement a
capital restoration plan, shall be subject to the restrictions in Section 38 of
the FDIA which are applicable to significantly undercapitalized institutions.

         Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA (i) restricting payment of
capital distributions and management fees, (ii) requiring that the appropriate
federal banking agency monitor the condition of the institution and its efforts
to restore its capital, (iii) requiring submission of a capital restoration
plan, (iv) restricting the growth of the institution's assets and (v) requiring
prior approval of certain expansion proposals. The appropriate federal banking
agency for an undercapitalized institution also may take any number of
discretionary supervisory actions if the agency determines that any of these
actions is necessary to resolve the problems of the institution at the least
possible long-term cost to the deposit insurance fund, subject in certain cases
to specified procedures. These discretionary supervisory actions include
requiring the institution to raise additional capital; restricting transactions
with affiliates; restricting interest rates paid by the institution on deposits;
requiring replacement of senior executive officers and directors; restricting
the activities of the institution and its affiliates; requiring divestiture of
the institution or the sale of the institution to a willing purchaser; and any
other supervisory action that the agency deems appropriate. These and additional
mandatory and permissive supervisory actions may be taken with respect to
significantly undercapitalized and critically undercapitalized institutions.

         At September 30, 1996, the Association was deemed a "well capitalized"
institution for purposes of the above regulations and as such was not subject to
the above mentioned restrictions.

         SAFETY AND SOUNDNESS. On November 18, 1993, a joint notice of proposed
rulemaking was issued by the OTS, the FDIC, the Office of the Comptroller of the
Currency and the Federal Reserve Board (collectively, the "agencies") concerning
standards for safety and soundness required to be prescribed by regulation
pursuant to Section 39 of the FDIA. In general, the standards relate to (1)
operational and managerial matters; (2) asset quality and earnings; and (3)
compensation. The operational and managerial standards cover (a) internal
controls and information systems, (b) internal audit system, (c) loan
documentation, (d) credit underwriting, (e) interest rate risk exposure, (f)
asset growth, and (g) compensation, fees and benefits. Under the proposed asset
quality and earnings standards, the Association would be required to maintain
(1) a maximum ratio of classified assets (assets classified substandard,
doubtful and to the extent that related losses have not been recognized, assets
classified loss) to total capital of 1.0, and (2) minimum earnings sufficient to
absorb losses without impairing capital. The last ratio concerning market value

                                       39

<PAGE>   41



to book value was determined by the agencies not to be feasible. Finally, the
proposed compensation standard states that compensation will be considered
excessive if it is unreasonable or disproportionate to the services actually
performed by the individual being compensated. If an insured depository
institution or its holding company fail to meet any of the standards promulgated
by regulation, then such institution or company will be required to submit a
plan within 30 days to the FDIC specifying the steps it will take to correct the
deficiency. In the event that an institution or company fails to submit or fails
in any material respect to implement a compliance plan within the time allowed
by the agency, Section 39 of the FDIA provides that the FDIC must order the
institution or company to correct the deficiency and may (1) restrict asset
growth; (2) require the institution or company to increase its ratio of tangible
equity to assets; (3) restrict the rates of interest that the institution or
company may pay; or (4) take any other action that would better carry out the
purpose of prompt corrective action. The Association believes that it will be in
compliance with each of the standards if they are adopted as proposed.

         LIQUIDITY REQUIREMENTS. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At the present time, the required minimum
liquid asset ratio is 5%. At September 30, 1996, the Association's liquidity
ratio was 20.07%.

         CAPITAL DISTRIBUTIONS. OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt and
other transactions charged to the capital account of a savings institution to
make capital distributions. Generally, the regulation creates a safe harbor for
specified levels of capital distributions from institutions meeting at least
their minimum capital requirements, so long as such institutions notify the OTS
and receive no objection to the distribution from the OTS. Savings institutions
and distributions that do not qualify for the safe harbor are required to obtain
prior OTS approval before making any capital distributions.

         Generally, a savings institution that before and after the proposed
distribution meets or exceeds its fully phased-in capital requirements (Tier 1
institutions) may make capital distributions during any calendar year equal to
the higher of (i) 100% of net income for the calendar year-to-date plus 50% of
its "surplus capital ratio" at the beginning of the calendar year or (ii) 75% of
net income over the most recent four-quarter period. The "surplus capital ratio"
is defined to mean the percentage by which the institution's ratio of total
capital to assets exceeds the ratio of its fully phased-in capital requirement
to assets. "Fully phased-in capital requirement" is defined to mean an
institution's capital requirement under the statutory and regulatory standards
applicable on December 31, 1994, as modified to reflect any applicable
individual minimum capital requirement imposed upon the institution. Failure to
meet fully phased-in or minimum capital requirements will result in further

                                       40

<PAGE>   42



restrictions on capital distributions, including possible prohibition without
explicit OTS approval. See "- Regulatory Capital Requirements."

         Tier 2 institutions, which are institutions that before and after the
proposed distribution meet or exceed their minimum capital requirements, may
make capital distributions up to 75% of their net income over the most recent
four quarter period.

         In order to make distributions under these safe harbors, Tier 1 and
Tier 2 institutions must submit 30 days written notice to the OTS prior to
making the distribution. The OTS may object to the distribution during that
30-day period based on safety and soundness concerns. In addition, a Tier 1
institution deemed to be in need of more than normal supervision by the OTS may
be downgraded to a Tier 2 or Tier 3 institution as a result of such a
determination.

         At September 30, 1996, the Association was a Tier 1 institution for
purposes of this regulation.

         LOANS TO ONE BORROWER. OTS regulations impose limitations on the
aggregate amount of loans that a savings institution can make to any one
borrower, including related entities, that follows the national bank standard.
The regulations generally do not permit loans-to-one borrower to exceed the
greater of $500,000 or 15% of unimpaired capital and surplus. Loans in an amount
equal to an additional 10% of unimpaired capital and surplus also may be made to
a borrower if the loans are fully secured by readily marketable securities. For
information about the largest borrowers from the Association, see "Business of
Community - Lending Activities - General."

         QUALIFIED THRIFT LENDER TEST. All savings institutions are required to
meet a QTL test set forth in Section 10(m) of the HOLA and regulations of the
OTS thereunder to avoid certain restrictions on their operations. A savings
institution that does not meet the QTL test set forth in the HOLA and
implementing regulations must either convert to a bank charter or comply with
the following restrictions on its operations: (i) the institution may not engage
in any new activity or make any new investment, directly or indirectly, unless
such activity or investment is permissible for a national bank; (ii) the
branching powers of the institution shall be restricted to those of a national
bank; (iii) the institution shall not be eligible to obtain any advances from
its FHLB; and (iv) payment of dividends by the institution shall be subject to
the rules regarding payment of dividends by a national bank. Upon the expiration
of three years from the date the savings institution ceases to be a QTL, it must
cease any activity and not retain any investment not permissible for a national
bank and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).

         Currently, the QTL test requires that 65% of an institution's
"portfolio assets" (as defined) consist of certain housing and consumer-related
assets on a monthly average basis in nine out of every 12 months. Assets that
qualify without limit for inclusion as part of the

                                       41

<PAGE>   43



65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); stock issued by the FHLB of
Dallas; loans for educational purposes, loans to small businesses and loans made
through credit cards or credit card related accounts; and direct or indirect
obligations of the FDIC. In addition, the following assets, among others, may be
included in meeting the test subject to an overall limit of 20% of the savings
institution's portfolio assets: 50% of residential mortgage loans originated and
sold within 90 days of origination; 100% of consumer and educational loans
(other than loans for personal, family or personal purposes included in the
unlimited category); and stock issued by the FHLMC or the FNMA. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At
September 30, 1996, the qualified thrift investments of the Association were
approximately 93.5% of its portfolio assets.

         ACCOUNTING REQUIREMENTS. FIRREA requires the OTS to establish
accounting standards to be applicable to all savings institutions for purposes
of complying with regulations, except to the extent otherwise specified in the
capital standards. Such standards must incorporate GAAP to the same degree as is
prescribed by the federal banking agencies for banks or may be more stringent
than such requirements.

         Effective October 2, 1992, the OTS amended a number of its accounting
regulations and reporting requirements to adopt the following standards: (i)
regulatory reports will incorporate GAAP when GAAP is used by federal banking
agencies; (ii) savings institution transactions, financial condition and
regulatory capital must be reported and disclosed in accordance with OTS
regulatory reporting requirements that will be at least as stringent as for
national banks; and (iii) the Director of the OTS may prescribe regulatory
reporting requirements more stringent than GAAP whenever the Director determines
that such requirements are necessary to ensure the safe and sound reporting and
operation of savings institutions.

         Effective February 10, 1992, the OTS adopted a statement of policy
("Statement") set forth in TB 52 concerning (i) procedures to be used in the
selection of a securities dealer, (ii) the need to document and implement
prudent policies and strategies for securities, whether held for investment,
trading or for sale, and to establish systems and internal controls to ensure
that securities activities are consistent with the financial institution's
policies and strategies, (iii) securities trading and sales practices that may
be unsuitable in connection with securities held in an investment portfolio,
(iv) high-risk mortgage securities that are not suitable for investment
portfolio holdings for financial institutions, and (v) disproportionately large
holdings of long-term, zero-coupon bonds that may constitute an imprudent
investment practice. The Statement applies to investment securities, high-yield,
corporate debt securities, loans, mortgage-backed securities and derivative
securities, and provides guidance concerning the proper classification of and
accounting for securities held

                                       42

<PAGE>   44



for investment, sale and trading. Securities held for investment, sale or
trading may be differentiated based upon an institution's desire to earn an
interest yield (held for investment), to realize a holding gain from assets held
for indefinite periods of time (held for sale), or to earn a dealer's spread
between the bid and asked prices (held for trading). Depository institution
investment portfolios are maintained to provide earnings consistent with the
safety factors of quality, maturity, marketability and risk diversification.
Securities that are purchased to accomplish these objectives may be reported at
their amortized cost only when the depository institution has both the intent
and ability to hold the assets for long-term investment purposes. Securities
held for investment purposes may be accounted for at amortized cost, securities
held for sale are to be accounted for at the lower of cost or market, and
securities held for trading are to be accounted for at market. The Association
believes that its investment activities have been and will continue to be
conducted in accordance with the requirements of OTS policies and GAAP.

         FEDERAL HOME LOAN BANK SYSTEM. The Association is a member of the FHLB
of Dallas, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.

         As a member, the Association is required to purchase and maintain stock
in the FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At September 30, 1996, the Association had $1.7
million in FHLB stock, which was in compliance with this requirement.

         As a result of FIRREA, the FHLBs are required to provide funds for the
resolution of troubled savings institutions and to contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community investment and lowand moderate-income housing projects. These
contributions have adversely affected the level of FHLB dividends paid and could
continue to do so in the future. These contributions also could have an adverse
effect on the value of FHLB stock in the future. For each of the years ended
September 30, 1995 and 1996, dividends paid by the FHLB of Dallas to the
Association amounted to $102,000.

         FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
The percentages are subject to adjustment by the Federal Reserve Board. At
September 30, 1996, the Association met its reserve requirement. Because
required reserves must be maintained in the form of vault cash or a
non-interest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce an institution's earning assets.

                                       43

<PAGE>   45




TEXAS REGULATION

         As a Texas-chartered savings and loan association, Jacksonville also is
subject to regulation and supervision by the Department. Jacksonville is
required to file periodic reports with and is subject to periodic examinations
by the Department. The lending and investment authority of Jacksonville is
prescribed by Texas laws and regulations, as well as applicable federal laws and
regulations, and Jacksonville is prohibited from engaging in any activities not
permitted by such laws and regulations.

         Jacksonville is required by Texas law and regulations to comply with
certain reserve and capital requirements. Texas associations are required to
comply with the following capital requirements (which may be waived by the Texas
Commissioner upon written application):
<TABLE>
<CAPTION>
                                 MINIMUM NET WORTH AS A PERCENTAGE OF
AS OF:                                     TOTAL LIABILITIES
- ------------------------      ------------------------------------------------
<S>                                              <C>  
December 31, 1992                                4.75%
December 31, 1993                                5.00%
December 31, 1994                                5.25%
December 31, 1995                                5.50%
December 31, 1996                                5.75%
December 31, 1997                                6.00%
</TABLE>


         In lieu of meeting these requirements, a Texas association may meet the
net worth requirements required of institutions whose accounts are insured by
the successor to the Federal Savings and Loan Insurance Corporation, the SAIF
administered by the FDIC. At September 30, 1996, Jacksonville met the Texas net
worth and reserve requirements.

         Texas law and regulations also restrict the lending and investment
authority of Texaschartered savings institutions. Such laws and regulations
generally restrict the amount a Texas-chartered savings and loan association can
lend to any one borrower to an amount which, in the aggregate, cannot exceed the
greater of (i) $75,000 or (ii) the association's net worth.

         In addition, Texas law restricts the ability of Texas-chartered savings
and loan associations to invest in, among other things, (i) commercial real
estate loans up to 90% of the appraised value of the security property, or, if
the loan is for the purchase of the property, the purchase price, if less than
90% of the appraised value; (ii) unimproved real estate up to 90% of the
appraised value of the security property, or, if the loan is for the purchase of
the property, the purchase price, if less than the appraised value; (iii)
personal property loans up to 95% of the appraised or market value of the
security property, or, if the loan is for the purchase of the property, the
purchase price if less than 95% of the appraised or market value; (iv) oil and
gas loans on proven reserves of oil and gas and other minerals in place and
before they have been extracted from the ground up to 90% of the

                                       44

<PAGE>   46



value of the proven reserves that act as security, or on producing oil and gas
properties and an assignment of the proceeds of the sale of the portion of the
total production attributable to the interest securing the loan, but no such
loan may exceed three times the annualized net revenue accruing to the interest
securing the loan at the time it is made; (v) home improvement loans up to 95%
of the appraised value of the security property (inclusive of the unpaid balance
of any prior liens on the home); (vi) real estate investments to 100% of the
association's net worth, which investment may be held not more than five years
unless such time period is extended by the Texas Commissioner; (vii) stock or
obligations of any corporation or agency of the United States or Texas that
assists in furthering or facilitating the association's purposes or power,
provided that securities may not be carried on the books of the association at
greater than its actual cost.

         The sum of an association's aggregate direct investments in subsidiary
corporations may not exceed 10% of an association's total assets without prior
approval of the Commissioner. Jacksonville's investment in JS&L is within these
limitations.

         The investment authority of Texas-chartered savings and loan
associations is broader in many respects than that of federally chartered
savings and loan associations. However, since the enactment of FIRREA,
state-chartered savings and loan associations, such as Jacksonville, are
generally prohibited from acquiring or retaining any equity investment, other
than certain investments in service corporations, of a type or in an amount that
is not permitted for a federally chartered savings and loan association. This
prohibition applies to equity investments in real estate, investments in equity
securities and any other investment or transaction that is in substance an
equity investment, even if the transaction is nominally a loan or other
permissible transaction. At September 30, 1996, Jacksonville had no investments
subject to the foregoing prohibition.

         Furthermore, effective January 1, 1990, a state-chartered savings and
loan association may not engage as principal in any activity not permitted for
federal associations unless the FDIC has determined that such activity would
pose no significant risk to the affected deposit insurance fund and the
association is in compliance with the fully phased-in capital standards
prescribed under FIRREA. When certain activities are permissible for a federal
association, the state association may engage in the activity in a higher amount
if the FDIC has not determined that such activity would pose a significant risk
of loss to the affected deposit insurance fund and the association meets the
fully phased-in capital requirements. This increased investment authority does
not apply to investments in nonresidential real estate loans. At September 30,
1996, Jacksonville had no investments which were affected by the foregoing
limitations.

ITEM 2.                    PROPERTIES.
- -------                    -----------

At September 30, 1996, Jacksonville conducted its business from its main office
at Commerce & Neches Streets, Jacksonville, Texas, and four full-service
branches in Cherokee

                                       45

<PAGE>   47



County and surrounding counties. In addition, Jacksonville has a deposit office
in Rusk, Texas that does not originate loans.

         Set forth below is certain information with respect to the office and
other properties of Jacksonville at September 30, 1996.

<TABLE>
<CAPTION>
DESCRIPTION/                                       LEASED/             NET BOOK VALUE
ADDRESS                                             OWNED                OF PROPERTY                 DEPOSITS
- -----------------------------------------     ---------------      ----------------------    ----------------------
                                                                       (In Thousands)
<S>                                                <C>                        <C>                      <C>   
Main Office                                         Owned                     501                      66,900
Commerce and Neches Streets                                             
Jacksonville, Texas                                                     
                                                                        
Branch Office                                       Owned                     585                      55,200
1015 North Church Street                                                
Palestine, Texas                                                        
                                                                        
Deposit Office                                      Owned                      64                      13,000
107 East Fourth Street                                                  
Rusk, Texas                                                             
                                                                        
Branch Office                                       Owned                     448                      13,300
1412 Judson Road                                                        
Longview, Texas                                                         
                                                                        
Branch Office                                       Owned                     465                      16,200
617 South Palestine Street                                              
Athens, Texas                                                           
                                                                        
Branch Office                                       Owned                   1,193                       9,700
5620 Old Bullard Road                                                   
Tyler, Texas                                                            
</TABLE>
- ------------------------------------


         In addition to the above offices, Jacksonville owns two other 
properties: (1) Lots in Spring Park South Estates No. 3, Jacksonville, Texas;
(2) Lots in Spring Park South Estates No. 2, Jacksonville, Texas (net book value
of both properties: $1.00).



                                       46

<PAGE>   48



ITEM 3.                    LEGAL PROCEEDINGS.
- -------                    ------------------

         Jacksonville is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate, are believed by management
to be immaterial to the financial condition of Jacksonville.

ITEM 4.                    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------                    ----------------------------------------------------

         On October 22, 1996, the Company held a special meeting of stockholders
at which stockholders approved the 1996 Stock Option Plan and the 1996
Management Recognition Plan.

PART II.


ITEM 5.                    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- -------                    -------------------------------------------------
                           STOCKHOLDER MATTERS.
                           --------------------

         The information required herein is incorporated by reference from page
36 of the Company's 1996 Annual Report to Stockholders, which is included
herein as Exhibit 13 ("Annual Report").

ITEM 6.                    SELECTED FINANCIAL DATA.
- -------                    ------------------------

         The information required herein is incorporated by reference from page
1 of the Company's 1996 Annual Report.

ITEM 7.                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
- -------                    ------------------------------------------------- 
                           CONDITION AND RESULTS OF OPERATIONS.
                           ------------------------------------

         The information required herein is incorporated by reference from pages
2 to 6 of the Company's 1996 Annual Report.

ITEM 8.                    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- -------                    --------------------------------------------

         The information required herein is incorporated by reference from pages
13 to 35 of the Company's 1996 Annual Report.


                                       47

<PAGE>   49



ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- -------           -----------------------------------------------------------
                  AND FINANCIAL DISCLOSURE.
                  -------------------------

         Not applicable.

PART III.

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- --------          ---------------------------------------------------

         The information required herein is incorporated by reference from pages
3 to 10 of the Company's definitive proxy statement, dated January 2, 1997,
("Proxy Statement").

ITEM 11.          EXECUTIVE COMPENSATION.
- --------          -----------------------

         The information required herein is incorporated by reference from pages
8 to 11 of the Company's Proxy Statement.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
- --------          --------------------------------------------------- 
                  MANAGEMENT.
                  -----------

         The information required herein is incorporated by reference from pages
2 and 3 of the Company's Proxy Statement.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------          -----------------------------------------------

         The information required herein is incorporated by reference from
the Company's Proxy Statement.

PART IV.

ITEM 14.          EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON 
- --------          ------------------------------------------------------- 
                  FORM 8-K.
                  ---------

         (a)      Documents filed as part of this Report

                  (1) The following financial statements are incorporated by
         reference from Item 8 hereof (see Exhibit 13 attached hereto):

                  Independent Auditor's Report

                  Consolidated Statements of Financial Condition at 
                  September 30, 1996 and 1995

                  Consolidated Statements of Earnings for the Years Ended 
                  September 30, 1996, 1995 and 1994


                                       48

<PAGE>   50



                  Consolidated Statements of Changes in Stockholders' Equity for
                  the Years Ended September 30, 1996, 1995 and 1994

                  Consolidated Statements of Cash Flows for the Years Ended 
                  September 30, 1996, 1995, and 1994

                  Notes to Consolidated Financial Statements

                  (2) All schedules for which provision is made in the
         applicable accounting regulations of the Securities and Exchange
         Commission are omitted because of the absence of conditions under which
         they are required or because the required information is included in
         the financial statements and related notes thereto.

         (3) The following exhibits are filed as part of this Form 10-K and this
list includes the Exhibit Index.

<TABLE>
<CAPTION>
           No.                                     Exhibits                                          Page
- ----------------------     ------------------------------------------------------      ------------------------------
<S>      <C>               <C>                                                                      <C>    
           3.1             Charter                                                                    *
           3.2             Bylaws                                                                     *
           4.1             Specimen Common Stock Certificate                                          *
         10.1(a)           1994 Stock Incentive Plan                                                  **
         10.1(b)           1994 Directors' Stock Option Plan                                          **
         10.1(c)           1994 Management Recognition Plan                                          E-1
         10.1(d)           1996 Management Recognition Plan                                          E-11
         10.1(e)           1996 Stock Option Plan                                                     **
         10.1(f)           Employee Stock Ownership Plan                                              *
           13              Annual Report to Stockholders and                                         E-21
                           Notice of Annual Meetings of
                           Shareholders and Proxy Statement
           23              Consents of Independent Auditors                                          E-72
</TABLE>


         *Incorporated herein by reference to the Registrant's Registration 
Statement No. 33-81015 on Form S-1.

         **Incorporated herein by reference to the Registrant's Registration 
Statement No. 333-18031 on Form S-8.

         (b)      Reports on Form 8-K during the quarter ended 
                  September 30, 1996:

                  1.       On October 18, 1996, the Company filed a current
                           report on Form 8-K reporting the special FDIC deposit
                           insurance assessment.

                                       49

<PAGE>   51




                  2.       On October 23, 1996, the Company filed a current
                           report on Form 8-K reporting the commencement of
                           stock purchases for the 1996 Management Recognition
                           Plan.

                  3.       On November 14, 1996, the Company filed a current
                           report on Form 8-K reporting the commencement of the
                           repurchase of 5% of its outstanding common stock.

                  4.       On December 16, 1996, the Company filed a current 
                           report on Form 8-K reporting the declaration of a 
                           $0.125 per share dividend.

                  5.       On December 20, 1996, the Company filed a current
                           report on Form 8-K reporting its yearend September
                           30, 1996 earnings.

         (c)      See (a)(3) above for all exhibits filed herewith and the 
Exhibit Index.

         (d)      There are no other financial statements and financial 
statement schedules which were excluded from Item 8 which are required to be 
included herein.




                                       50

<PAGE>   52



                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                 JACKSONVILLE BANCORP, INC.



December 23, 1996                                By:/s/ Charles Broadway
                                                    --------------------
                                                 Charles Broadway
                                                 Chief Executive Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



/s/ Charles Broadway                                         December 23, 1996
- ----------------------------------------------
Charles Broadway, Director and Chief Executive
  Officer (Principal Executive Officer)

/s/ W.G. Brown                                               December 23, 1996
- ----------------------------------------------
W. G. Brown, Chairman

/s/ Ray W. Beall                                             December 23, 1996
- ----------------------------------------------
Ray W. Beall, Director



                                       51

<PAGE>   53


/s/ Jerry M. Chancellor                                      December 23, 1996
- ---------------------------------------------- 
Jerry M. Chancellor, Director and President



/s/ Dr. Joe Tollett                                          December 23, 1996
- ---------------------------------------------- 
Dr. Joe Tollet, Director



/s/ Bill W. Taylor                                            December 23, 1996
- ---------------------------------------------- 
Bill W. Taylor, Director and
  Executive Vice President (Principal Financial
  and Accounting Officer)

                                       52


<PAGE>   1
                                                                EXHIBIT 10.1(c)


                    JACKSONVILLE SAVINGS AND LOAN ASSOCIATION
                           1994 MANAGEMENT RECOGNITION
                            PLAN AND TRUST AGREEMENT


                                    ARTICLE I
                       ESTABLISHMENT OF THE PLAN AND TRUST

        1.01 Jacksonville Savings and Loan Association (the "Company") hereby
establishes a Management Recognition Plan (the "Plan") and Trust (the "Trust")
upon the terms and conditions hereinafter stated in this Management Recognition
Plan and Trust Agreement (the "Agreement").

        1.02 The Trustees hereby accept this Trust and agree to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.


                                   ARTICLE II
                               PURPOSE OF THE PLAN

        2.01 The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing such key employees of the Company and any
Subsidiaries with a proprietary interest in the Company as compensation for
their contributions to the Company and any Subsidiaries and as an incentive to
make such contributions in the future.


                                   ARTICLE III
                                   DEFINITIONS

        The following words and phrases when used in this Agreement with an
initial capital letter, unless the context clearly indicates otherwise, shall
have the meanings set forth below. Wherever appropriate, the masculine pronouns
shall include the feminine pronouns and the singular shall include the plural.

        3.01 "Beneficiary" means the person or persons designated by a Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.

        3.02  "Board" means the Board of Directors of the Company.

        3.03  "Code" means the Internal Revenue Code of 1986, as amended.



<PAGE>   2



        3.04 "Committee" means the committee appointed by the Board pursuant to
Article IV hereof.

        3.05 "Common Stock" means shares of the common stock, $.01 par value per
share, of the Company.

        3.06 "Disability" means any physical or mental impairment which
qualifies an Employee for disability benefits under the applicable long-term
disability plan maintained by the Company or any Subsidiary or, if no such plan
applies, which would qualify such Employee for disability benefits under the
Federal Social Security System.

        3.07 "Effective Date" means the hour and day upon which Common Stock is
initially sold by the Company in the Offering.

        3.08 "Employee" means any person who is employed by the Company or any
Subsidiary, including officers or other employees who may be directors of the
Company.

        3.09 "Exchange Act" means the Securities Exchange Act of 1934, as 
amended.

        3.10 "Offering" means the offering of Common Stock to the public
pursuant to the Plan of Stock Issuance adopted by the Company following the
reorganization of First Federal Savings and Loan into the mutual holding company
form of organization.

        3.11 "Plan Shares" or "Shares" means shares of Common Stock held in the
Trust which may be distributed to a Recipient pursuant to the Plan.

        3.12 "Plan Share Award" or "Award" means a right granted under this Plan
to receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII.

        3.13 "Recipient" means an Employee who receives a Plan Share Award under
the Plan.

        3.14 "Retirement" means a termination of employment upon or after
attainment of age sixty-five (65) or such earlier age as may be specified in a
Recipient's Plan Share Award.

        3.15 "Subsidiary" means any subsidiaries of the Company which, with the
consent of the Board, agree to participate in this Plan.

        3.16 "Trustee" means those persons (normally, members of the Committee)
nominated by the Committee and approved by the Board pursuant to Sections 4.01
and 4.02 to hold legal title to the Plan assets for the purposes set forth
herein.



                                        2


<PAGE>   3



                                   ARTICLE IV
                           ADMINISTRATION OF THE PLAN

        4.01 ROLE OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, which shall consist of two or more members of the
Board, none of whom shall be an officer or employee of the Company and each of
whom shall be a "disinterested person" within the meaning of Rule 16b-3 under
the Exchange Act. The Committee shall have all of the powers allocated to it in
this and other Sections of the Plan. The interpretation and construction by the
Committee of any provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding. The Committee shall act by vote or written
consent of a majority of its members. Subject to the express provisions and
limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. The Committee
shall report its actions and decisions with respect to the Plan to the Board at
appropriate times, but in no event less than one time per calendar year. The
Committee shall recommend to the Board one or more individuals (normally, from
among its members) to act as Trustees in accordance with the provisions of this
Plan and Trust and the terms of Article VIII hereof.

        4.02 ROLE OF THE BOARD. The members of the Committee and the Trustee or
Trustees shall be appointed or approved by, and will serve at the pleasure of,
the Board. The Board may in its discretion from time to time remove members
from, or add members to, the Committee, and may remove, replace or add Trustees,
provided that any directors who are selected as members of the Committee shall
not be officers or employees of the Company and shall be "disinterested persons"
within the meaning of Rule 16b-3 promulgated under the Exchange Act.

        4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards granted under it. If a member of
the Board or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Company
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Company and any Subsidiaries and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

        4.04 COMPLIANCE WITH LAWS AND REGULATIONS. All awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency or stockholders as
may be required.


                                        3


<PAGE>   4



                                    ARTICLE V
                                  CONTRIBUTIONS

        5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the
amount (or the method of computing the amount) and timing of any contributions
by the Company and any Subsidiaries to the Trust established under this Plan.
Such amounts may be paid in cash or in shares of Common Stock and shall be paid
to the Trust at the designated time of contribution. No contributions by
Employees shall be permitted.

        5.02 INVESTMENT OF TRUST ASSETS; NUMBER OF PLAN SHARES. Subject to
Section 8.02 hereof, the Trustees shall invest all of the Trust's assets
primarily in Common Stock. The aggregate number of Plan Shares initially
available for distribution pursuant to this Plan, subject to adjustment as
provided in Section 9.01 hereof, shall be equal to 1 1/2% of the shares of
Common Stock which are issued by the Company in the Offering, which shares shall
be purchased by the Trust in such Offering with funds contributed by the
Company. Subsequent to consummation of the Offering, the Trust may purchase from
the Company additional shares of Common Stock for distribution pursuant to this
Plan.


                                   ARTICLE VI
                            ELIGIBILITY; ALLOCATIONS

        6.01 ELIGIBILITY. (a) Plan Share Awards may be made to such Employees as
may be selected by the Committee. In selecting those Employees to whom Plan
Share Awards may be granted and the number of Shares covered by such Awards, the
Committee shall consider the position and responsibilities of the eligible
Employees, the value of their services to the Company and any Subsidiaries, and
any other factors the Committee may deem relevant, including operating results,
asset quality and supervisory concerns. The Committee may but shall not be
required to request the written recommendation of the Chief Executive Officer of
the Company other than with respect to Plan Share Awards to be granted to him.

        6.02 FORM OF ALLOCATION. As promptly as practicable after a
determination is made pursuant to Section 6.01 that a Plan Share Award is to be
issued, the Committee shall notify the Recipient in writing of the grant of the
Award, the number of Plan Shares covered by the Award, and the terms upon which
the Plan Shares subject to the Award shall be distributed to the Employee. Such
terms shall be reflected in a written agreement with the Employee. The date on
which the Committee so notifies the Recipient shall be considered the date of
grant of the Plan Share Award. The Committee shall maintain records as to all
grants of Plan Share Awards under the Plan.


                                        4


<PAGE>   5



        6.03 ALLOCATIONS NOT REQUIRED TO ANY SPECIFIC EMPLOYEE. Notwithstanding
anything to the contrary in Section 6.01 hereof, no Employee shall have any
right or entitlement to receive a Plan Share Award hereunder, such Awards being
at the total discretion of the Committee.

                                   ARTICLE VII
             EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS

        7.01 EARNING PLAN SHARES; FORFEITURES.
             
             (a) GENERAL RULES. Unless the Committee shall specifically state
to the contrary at the time a Plan Share Award is granted, Plan Shares subject
to an Award shall be earned by a Recipient at the rate of one-third of the
aggregate number of Shares covered by the Award as of each January 1 following
the date of grant of the Award. If the employment of a Recipient is terminated
prior to the third (3rd) January 1 following the date of grant of a Plan Share
Award for any reason (except as specifically provided in subsections (b), (c)
and (d) below), the Recipient shall forfeit the right to any Shares subject to
the Award which have not theretofore been earned.

        In determining the number of Plan Shares which are to be earned,
fractional Shares shall be rounded down to the nearest whole number, provided
that such fractional Shares shall be aggregated and distributed on the third
(3rd) January 1 following the date of grant.

             (b) EXCEPTION FOR TERMINATIONS DUE TO DEATH, DISABILITY AND
RETIREMENT. Notwithstanding the general rule contained in Section 7.01(a), all
Plan Shares subject to a Plan Share Award held by a Recipient whose employment
with the Company or any Subsidiary terminates due to death, Disability or
Retirement, shall be deemed earned as of the Recipient's last day of employment
with the Company or any Subsidiary and shall be distributed as soon as
practicable thereafter; provided, however, that no Awards shall be distributed
prior to six months from the date of grant of the Plan Share Award.

             (c) EXCEPTION FOR TERMINATIONS AFTER A CHANGE IN CONTROL.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient shall be deemed to be earned
in the event of a "change in control of the Company". A "change in control of
the Company" is defined as a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act, or any successor thereto, whether or not
the Company in fact is required to comply with Regulation 14A thereunder, except
that "a change in control of the Company" shall not include any corporate
reorganization of the Company undertaken in conjunction with the conversion of
First Federal Mutual Holding Company, the parent mutual holding company of the
Company, from the mutual to the stock form.


                                        5


<PAGE>   6



             (d) REVOCATION FOR MISCONDUCT. Notwithstanding anything
hereinafter to the contrary, the Board may by resolution immediately revoke,
rescind and terminate any Plan Share Award, or portion thereof, previously
awarded under this Plan, to the extent Plan Shares have not been distributed
hereunder to the Recipient, whether or not yet earned, in the case of an
Employee who is discharged from the employ of the Company or any Subsidiary for
cause (as hereinafter defined). Termination of employment shall be deemed to be
for cause if the Employee has been convicted of a felony by a court of competent
jurisdiction or has been adjudged by a court of competent jurisdiction to be
liable for gross negligence or misconduct in the performance of his duties to
the Company or any Subsidiary.

        7.02 DISTRIBUTION OF DIVIDENDS. Any cash dividends or stock dividends
declared in respect of each Plan Share held by the Trust will be paid by the
Trust, as soon as practicable after the Trust's receipt thereof, to the
Recipient on whose behalf such Plan Share is then held by the Trust.

        7.03 DISTRIBUTION OF PLAN SHARES.

             (a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Plan Shares shall be
distributed to a Recipient or his Beneficiary, as the case may be, as soon as
practicable after they have been earned, provided, however, that no Plan Shares
shall be distributed to a Recipient or Beneficiary pursuant to a Plan Share
Award within six months from the date on which that Plan Share Award was granted
to such person.

             (b) FORM OF DISTRIBUTIONS.  All Plan Shares, together with 
any Shares representing stock dividends, shall be distributed in the form of
Common Stock.  One share of Common Stock shall be given for each Plan Share
earned and distributable.  Payments representing cash dividends shall be made
in cash.

             (c) WITHHOLDING. The Trustees may withhold from any cash payment
or Common Stock distribution made under this Plan sufficient amounts to cover
any applicable withholding and employment taxes, and if the amount of a cash
payment is insufficient, the Trustees may require the Recipient or Beneficiary
to pay to the Trustees the amount required to be withheld as a condition of
delivering the Plan Shares. The Trustees shall pay over to the Company or any
Subsidiary which employs or employed such Recipient any such amount withheld
from or paid by the Recipient or Beneficiary.

             (d) RESTRICTIONS ON SELLING OF PLAN SHARES. Plan Share Awards may
not be sold, assigned, pledged or otherwise disposed of prior to the time that
they are earned and distributed pursuant to the terms of this plan. Following
distribution, the Committee may require the Recipient or his Beneficiary, as the
case may be, to agree not to sell or otherwise dispose of his distributed Plan
Shares except in accordance with all then applicable Federal and state
securities laws, and the Committee may cause a legend to be placed on the stock
certificate(s) representing the distributed Plan Shares in order to restrict

                                        6


<PAGE>   7



the transfer of the distributed Plan Shares for such period of time or under
such circumstances as the Committee, upon the advice of counsel, may deem
appropriate.

        7.04 VOTING OF PLAN SHARES. After a Plan Share Award has been made, the
Recipient shall be entitled to direct the Trustees as to the voting of the Plan
Shares which are covered by the Plan Share Award and which have not yet been
earned and distributed to him pursuant to Section 7.03, subject to rules and
procedures adopted by the Committee for this purpose. All shares of Common Stock
held by the Trust as to which Recipients have not directed the voting shall be
voted by the Trustees as the Committee in its discretion shall direct.


                                  ARTICLE VIII
                                      TRUST

        8.01 TRUST. The Trustees shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.

        8.02 MANAGEMENT OF TRUST. It is the intent of this Plan and Trust that
the Trustees shall have complete authority and discretion with respect to the
arrangement, control and investment of the Trust, and that the Trustees shall
invest all assets of the Trust in Common Stock to the fullest extent
practicable, except (i) to the extent that the Trustees determine that the
holding of monies in cash or cash equivalents is necessary to meet the
obligations of the Trust and (ii) contributions to the Trust by the Company
prior to the Offering may be temporarily invested in such interest-bearing
account or accounts as the Trustees shall determine to be appropriate. In
performing their duties, the Trustees shall have the power to do all things and
execute such instruments as may be deemed necessary or proper, including the
following powers:

             (a) To invest up to one hundred percent (100%) of all Trust
assets in Common Stock without regard to any law now or hereafter in force
limiting investments for trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and in making
such investment, the Trustees are authorized to purchase Common Stock from the
Company or from any other source, and such Common Stock so purchased may be
outstanding, newly issued, or treasury shares.

             (b) To invest any Trust assets not otherwise invested in
accordance with (a) above, in such deposit accounts, and certificates of
deposit, obligations of the United States Government or its agencies or such
other investments as shall be considered the equivalent of cash.


                                        7

<PAGE>   8



             (c) To sell, exchange or otherwise dispose of any property at any 
time held or acquired by the Trust.

             (d) To cause stocks, bonds or other securities to be registered in
the name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an asset of the Trust).

             (e) To hold cash without interest in such amounts as may in the
opinion of the Trustees be reasonable for the proper operation of the Plan and
Trust.

             (f) To employ brokers, agents, custodians, consultants and 
accountants.

             (g) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.

             (h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute as
to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.

        Notwithstanding anything herein contained to the contrary, the Trustees
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.

        8.03 RECORDS AND ACCOUNTS. The Trustees shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.

        8.04 EXPENSES. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Company.

        8.05 INDEMNIFICATION. Subject to the requirements of applicable laws and
regulations, the Company shall indemnify, defend and hold the Trustees harmless
against all claims, expenses and liabilities arising out of or related to the
exercise of the Trustees' powers and the discharge of their duties hereunder,
unless the same shall be due to their gross negligence or willful misconduct.

                                   ARTICLE IX
                                  MISCELLANEOUS

        9.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan
Shares available for distribution pursuant to the Plan Share Awards and the
number of Shares to

                                        8


<PAGE>   9



which any Plan Share Award relates shall be proportionately adjusted for any
increase or decrease in the total number of outstanding shares of Common Stock
issued subsequent to the effective date of the Plan resulting from any split,
subdivision or consolidation of shares or other capital adjustment, or other
increase or decrease in such shares effected without receipt or payment of
consideration by the Company.

        9.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution, at
any time amend or terminate the Plan. However, upon termination of the Plan, all
Plan Share Awards will be distributed to the Recipients regardless of whether or
not such Plan Share Awards had otherwise been earned under the service
requirements set forth in Article VII; provided, however, that no Awards shall
be distributed prior to six months from the date of grant of the Plan Share
Award.

        9.03 NONTRANSFERABLE. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to a Recipient who was notified in
writing of an Award by the Committee pursuant to Section 6.02. No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or Trust,
nor shall the Company or any Subsidiary be subject to any claim for benefits
hereunder.

        9.04 EMPLOYMENT RIGHTS. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustees, the
Committee or the Board in connection with the Plan shall create any right on the
part of any Employee to continue in the employ of the Company or any Subsidiary.

        9.05 VOTING AND DIVIDEND RIGHTS. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04 above, prior to the time said Plan Shares are actually earned and
distributed to him.

        9.06 GOVERNING LAW. The Plan and Trust shall be governed by the laws of
the State of Texas.

        9.07 EFFECTIVE DATE. This Plan shall be effective as of the Effective
Date, and Awards may be granted hereunder as of or after the Effective Date and
as long as the Plan remains in effect.

        9.08 TERM OF PLAN. This Plan shall remain in effect until the earlier of
(1) ten (10) years from the Effective Date, (2) termination by the Board, or (3)
the distribution to Recipients and Beneficiaries of all assets of the Trust.

        9.09 TAX STATUS OF TRUST. It is intended that the trust established
hereby be treated as a Grantor Trust of the Company under the provisions of
Section 671 et seq. of the Code, as the same may be amended from time to time.

                                        9

<PAGE>   10



        IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officers and the corporate seal to be affixed and duly
attested, and the initial Trustees of the Trust established pursuant hereto have
duly and validly executed this Agreement, all on this 31st day of March 1994.


                                            JACKSONVILLE SAVINGS AND LOAN
                                             ASSOCIATION

                                            By:
                                                ---------------------------
                                                   Charles Broadway
                                                   President and Director
                                          
ATTEST:                                   
                                          
- ---------------------                                          
Jaunice Friday                            
Secretary                                 
                                          
                                            -----------------------------------
                                            W.G. Brown
                                          
                                            -----------------------------------
                                            Frank H. Brown
                                          
                                            -----------------------------------
                                            Dr. Joe Tollett
                                          

                                       10
                                    

<PAGE>   1
                                                                 EXHIBIT 10.1(d)


                           JACKSONVILLE BANCORP, INC.
              1996 MANAGEMENT RECOGNITION PLAN AND TRUST AGREEMENT


                                    ARTICLE I
                       ESTABLISHMENT OF THE PLAN AND TRUST

         1.01     Jacksonville Bancorp, Inc. (the "Corporation") hereby 
establishes a Management Recognition Plan (the "Plan") and Trust (the "Trust")
upon the terms and conditions hereinafter stated in this 1996 Management
Recognition Plan and Trust Agreement (the "Agreement").

         1.02     The Trustee hereby accepts this Trust and agrees to hold the 
Trust assets existing on the date of this Agreement and all additions and 
accretions thereto upon the terms and conditions hereinafter stated.


                                   ARTICLE II
                               PURPOSE OF THE PLAN

         2.01     The purpose of the Plan is to retain personnel of experience 
and ability in key positions by providing Employees and Non-Employee Directors 
of the Corporation and of Jacksonville Savings and Loan Association (the
"Association") with a proprietary interest in the Corporation as compensation
for their contributions to the Corporation, the Association, and any other
Subsidiaries and as an incentive to make such contributions in the future.


                                   ARTICLE III
                                   DEFINITIONS

         The following words and phrases when used in this Agreement with an
initial capital letter, unless the context clearly indicates otherwise, shall
have the meanings set forth below. Wherever appropriate, the masculine pronouns
shall include the feminine pronouns and the singular shall include the plural.

         3.01     "Association" means Jacksonville Savings and Loan Association,
the wholly owned subsidiary of the Corporation.

         3.02     "Beneficiary" means the person or persons designated by a
Recipient to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.

         3.03     "Board" means the Board of Directors of the Corporation.



                                        1


<PAGE>   2




         3.04     "Code" means the Internal Revenue Code of 1986, as amended.

         3.05     "Committee" means the committee appointed by the Board 
pursuant to Article IV hereof.

         3.06     "Common Stock" means shares of the common stock, $0.01 par 
value per share, of the Corporation.

         3.07     "Disability" means any physical or mental impairment which
qualifies an Employee for disability benefits under the applicable long-term
disability plan maintained by the Corporation or any Subsidiary or, if no such
plan applies, which would qualify such Employee for disability benefits under
the Federal Social Security System.

         3.08     "Effective Date" means the day upon which the Board adopts 
this Plan.

         3.09     "Employee" means any person who is employed by the 
Corporation, the Association, or any Subsidiary, or is an officer of the 
Corporation, the Association, or any Subsidiary, including officers or other 
employees who may be directors of the Corporation.

         3.10     "Exchange Act" means the Securities Exchange Act of 1934, as 
amended.

         3.11     "Non-Employee Director" means a member of the Board on the 
Effective Date who is not an Employee other than Robert F. Brown.

         3.12     "OTS" means the Office of Thrift Supervision.

         3.13     "Plan Shares" or "Shares" means shares of Common Stock held 
in the Trust which may be distributed to a Recipient pursuant to the Plan.

         3.14     "Plan Share Award" or "Award" means a right granted under this
Plan to receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII.

         3.15     "Recipient" means an Employee or Non-Employee Director who 
receives a Plan Share Award under the Plan.

         3.16     "Retirement" means a termination of employment which 
constitutes a "retirement" under any applicable qualified pension benefit 
plan maintained by the Company or a Subsidiary Company, or, if no such
plan is applicable, which would constitute "retirement" under any qualified
pension benefit plan maintained by the Company or a Subsidiary Company, if such
individual were a participant in such plan.

         3.17     "Subsidiary" means Jacksonville Savings and Loan Association 
and any other subsidiaries of the Corporation or the Association which, with the
consent of the Board, agree to participate in this Plan.


                                        2


<PAGE>   3




         3.18     "Trustee" means such firm, entity or persons and approved by 
the Board of Directors to hold legal title to the Plan for the purposes set 
forth herein.

                                   ARTICLE IV
                           ADMINISTRATION OF THE PLAN

         4.01     ROLE OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, which shall consist of two or more members of the
Board, each of whom shall be a Non-Employee Director. The Committee shall have
all of the powers allocated to it in this and other Sections of the Plan. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Plan Share Award granted hereunder shall be final and binding in the
absence of action by the Board of Directors. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. The Committee
shall report its actions and decisions with respect to the Plan to the Board at
appropriate times, but in no event less than one time per calendar year.

         4.02     ROLE OF THE BOARD. The members of the Committee and the 
Trustee shall be appointed or approved by, and will serve at the pleasure of, 
the Board. The Board may in its discretion from time to time remove members 
from, or add members to, the Committee, and may remove or replace the Trustee, 
provided that any directors who are selected as members of the Committee shall 
be Non-Employee Directors.

         4.03     LIMITATION ON LIABILITY. No member of the Board or the 
Committee shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Plan Share Awards granted under it.
If a member of the Board or the Committee is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of anything done or not done by him in such capacity under or with respect to
the Plan, the Corporation shall, subject to the requirements of applicable laws
and regulations, indemnify such member against all liabilities and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in the best interests of the Corporation and any Subsidiaries and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.

         4.04     COMPLIANCE WITH LAWS AND REGULATIONS. All Awards granted 
hereunder shall be subject to all applicable federal and state laws,
rules and regulations and to such approvals by any government or regulatory
agency or stockholders as may be required.



                                        3


<PAGE>   4



                                    ARTICLE V
                                  CONTRIBUTIONS

         5.01     AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall 
determine the amount (or the method of computing the amount) and timing of
any contributions by the Corporation and any Subsidiaries to the Trust
established under this Plan. Such amounts may be paid in cash or in shares of
Common Stock and shall be paid to the Trust at the designated time of
contribution. No contributions by Employees or Directors shall be permitted.

         5.02     INVESTMENT OF TRUST ASSETS; NUMBER OF PLAN SHARES. Subject to
Section 8.02 hereof, the Trustee shall invest all of the Trust's assets
primarily in Common Stock. The aggregate number of Plan Shares available for
distribution pursuant to this Plan shall be 64,736 shares of Common Stock, which
shares shall be purchased from the Corporation and/or from stockholders thereof
by the Trust with funds contributed by the Corporation. During the time this
Plan remains in effect, Awards to each Employee and each NonEmployee Director
shall not exceed 25% and 5% of the shares of Common Stock available under the
Plan, respectively.


                                   ARTICLE VI
                            ELIGIBILITY; ALLOCATIONS

         6.01     AWARDS TO NON-EMPLOYEE DIRECTORS. Plan Share Awards equal to 
9,708 shares shall be made to Non-Employee Directors.

                  (a) INITIAL ALLOCATION. A Plan Share Award shall be allocated
to each NonEmployee Director as of the day on which the Plan is approved by
stockholders of the Corporation. Specifically, each Non-Employee Director shall
receive an initial Plan Share Award of 3,236 shares of Common Stock.

         6.02     AWARDS TO EMPLOYEES. Plan Share Awards may be made to such
Employees as may be selected by the Board of Directors or the Committee. In
selecting those Employees to whom Plan Share Awards may be granted and the
number of Shares covered by such Awards, the Board of Directors or the Committee
shall consider the duties, responsibilities and performance of each respective
Employee, his present and potential contributions to the growth and success of
the Corporation, his salary and such other factors as shall be deemed relevant
to accomplishing the purposes of the Plan. The Board of Directors or the
Committee may but shall not be required to request the written recommendation of
the Chief Executive Officer of the Corporation other than with respect to Plan
Share Awards to be granted to him.

         6.03     FORM OF ALLOCATION. As promptly as practicable after a
determination is made pursuant to Sections 6.01 or 6.02 that a Plan Share Award
is to be issued, the Board of Directors or the Board of Directors or the
Committee shall notify the Recipient in writing

                                        4


<PAGE>   5



of the grant of the Award, the number of Plan Shares covered by the Award, and
the terms upon which the Plan Shares subject to the Award shall be distributed
to the Recipient. The date on which the Board of Directors or the Committee so
notifies the Recipient shall be considered the date of grant of the Plan Share
Award. The Board of Directors or the Committee shall maintain records as to all
grants of Plan Share Awards under the Plan.

         6.04     ALLOCATIONS NOT REQUIRED TO ANY SPECIFIC EMPLOYEE. 
Notwithstanding anything to the contrary in Section 6.02 hereof, no Employee
shall have any right or entitlement to receive a Plan Share Award hereunder,
such Awards being at the total discretion of the Board of Directors or the
Committee.


                                   ARTICLE VII
             EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS

         7.01     EARNING PLAN SHARES; FORFEITURES.

                  (a) GENERAL RULES. Subject to the terms hereof, Plan Share
Awards shall be earned by a Recipient at the rate of twenty percent (20%) of the
aggregate number of Shares covered by the Award as of each anniversary of the
date of grant of the Award. If the employment of an Employee or service as a
Non-Employee Director is terminated prior to the fifth (5th) annual anniversary
of the date of grant of a Plan Share Award for any reason other than for death,
Retirement or Disability, the Recipient shall forfeit the right to any Shares
subject to the Award which have not theretofore been earned. In the event of a
forfeiture of the right to any Shares subject to an Award, such forfeited Shares
shall become available for allocation pursuant to Section 6.02 hereof as if no
Award had been previously granted with respect to such Shares. No fractional
shares shall be distributed pursuant to this Plan.

                  (b) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient whose employment or service
with the Corporation or any Subsidiary terminates due to death or Disability
shall be deemed earned as of the Recipient's last day of employment with the
Corporation or any Subsidiary and shall be distributed as soon as practicable
thereafter; provided, however, that Awards shall be distributed in accordance
with Section 7.03(a).

                  (c) REVOCATION FOR MISCONDUCT. Notwithstanding anything
hereinafter to the contrary, the Board may by resolution immediately revoke,
rescind and terminate any Plan Share Award, or portion thereof, previously
awarded under this Plan, to the extent Plan Shares have not been distributed
hereunder to the Recipient, whether or not yet earned, in the case of an
Employee who is discharged from the employ of the Corporation or any Subsidiary
for cause (as hereinafter defined). Termination for cause shall mean termination
because of the Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful

                                        5


<PAGE>   6



violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order. Plan Share Awards granted to
a Non-Employee Director who is removed for cause pursuant to the Corporation's
Certificate of Incorporation or Bylaws shall terminate as of the effective date
of such removal.

         7.02     DISTRIBUTION OF DIVIDENDS. Any cash dividends or stock 
dividends declared in respect of each unvested Plan Share Award will be
held by the Trust for the benefit of the Recipient on whose behalf such Plan
Share Award is then held by the Trust and such dividends, including any
interest thereon, will be paid out proportionately by the Trust to the
Recipient thereof as soon as practicable after the Plan Share Awards become
earned. Any cash dividends or stock dividends declared in respect of each
vested Plan Share held by the Trust will be paid by the Trust, as soon as
practicable after the Trust's receipt thereof, to the Recipient on whose behalf
such Plan Share is then held by the Trust.

         7.03     DISTRIBUTION OF PLAN SHARES.

                  (a) TIMING OF DISTRIBUTIONS: General Rule. Plan Shares shall
be distributed to the Recipient or his Beneficiary, as the case may be, as soon
as practicable after they have been earned, provided, however, that no Plan
Shares shall be distributed to the Recipient or Beneficiary pursuant to a Plan
Share Award within six months from the date on which that Plan Share Award was
granted to such person.

                  (b) FORM OF DISTRIBUTIONS.  All Plan Shares, together 
with any Shares representing stock dividends, shall be distributed in the form
of Common Stock. One share of Common Stock shall be given for each Plan Share
earned and distributable. Payments representing cash dividends shall be made in
cash.

                  (c) WITHHOLDING. The Trustee may withhold from any cash
payment or Common Stock distribution made under this Plan sufficient amounts to
cover any applicable withholding and employment taxes, and if the amount of a
cash payment is insufficient, the Trustee may require the Recipient or
Beneficiary to pay to the Trustee the amount required to be withheld as a
condition of delivering the Plan Shares. The Trustee shall pay over to the
Corporation or any Subsidiary which employs or employed such Recipient any such
amount withheld from or paid by the Recipient or Beneficiary.

                  (d) RESTRICTIONS ON SELLING OF PLAN SHARES. Plan Share Awards
may not be sold, assigned, pledged or otherwise disposed of prior to the time
that they are earned and distributed pursuant to the terms of this Plan.
Following distribution, the Board of the Directors or the Committee may require
the Recipient or his Beneficiary, as the case may be, to agree not to sell or
otherwise dispose of his distributed Plan Shares except in accordance with all
then applicable Federal and state securities laws, and the Board of Directors or
the Committee may cause a legend to be placed on the stock certificate(s)
representing the distributed Plan Shares in order to restrict the transfer of
the distributed Plan Shares for such period of time or under such circumstances
as the Board of Directors or the Committee, upon the advice of counsel, may deem
appropriate.

                                        6


<PAGE>   7




         7.04     VOTING OF PLAN SHARES. All Plan Shares which have not yet been
earned and allocated shall be voted by the Trustee in its sole discretion.


                                  ARTICLE VIII
                                      TRUST

         8.01     TRUST. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.

         8.02     MANAGEMENT OF TRUST. It is the intent of this Plan and Trust 
that the Trustee shall have complete authority and discretion with respect to
the arrangement, control and investment of the Trust, and that the Trustee
shall invest all assets of the Trust in Common Stock to the fullest extent
practicable, except to the extent that the Trustee determine that the holding
of monies in cash or cash equivalents is necessary to meet the obligations of
the Trust. In performing their duties, the Trustee shall have the power to do
all things and execute such instruments as may be deemed necessary or proper,
including the following powers:

                  (a) To invest up to one hundred percent (100%) of all Trust
assets in Common Stock without regard to any law now or hereafter in force
limiting investments for trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and in making
such investment, the Trustee are authorized to purchase Common Stock from the
Corporation or from any other source, and such Common Stock so purchased may be
outstanding, newly issued, or treasury shares.

                  (b) To invest any Trust assets not otherwise invested in
accordance with (a) above, in such deposit accounts, and certificates of
deposit, obligations of the United States Government or its agencies or such
other investments as shall be considered the equivalent of cash.

                  (c) To sell, exchange or otherwise dispose of any 
property at any time held or acquired by the Trust.

                  (d) To cause stocks, bonds or other securities to be
registered in the name of a nominee, without the addition of words indicating
that such security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).

                  (e) To hold cash without interest in such amounts as may in
the opinion of the Trustee be reasonable for the proper operation of the Plan
and Trust.

                  (f) To employ brokers, agents, custodians, consultants 
and accountants.

                                        7


<PAGE>   8




                  (g) To hire counsel to render advice with respect to their
rights, duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.

                  (h) To hold funds and securities representing the amounts to
be distributed to a Recipient or his Beneficiary as a consequence of a dispute
as to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.

         Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.

         8.03     RECORDS AND ACCOUNTS. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Board of Directors or the Committee.

         8.04     EXPENSES.  All costs and expenses incurred in the operation 
and administration of this Plan shall be borne by the Corporation.

         8.05     INDEMNIFICATION. Subject to the requirements of applicable 
laws and regulations, the Corporation shall indemnify, defend and hold the 
Trustee harmless against all claims, expenses and liabilities arising out of 
or related to the exercise of the Trustee's powers and the discharge of their 
duties hereunder, unless the same shall be due to their gross negligence or 
willful misconduct.


                                   ARTICLE IX
                                  MISCELLANEOUS

         9.01     ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan
Shares available for distribution pursuant to the Plan Share Awards and the
number of Shares to which any Plan Share Award relates shall be proportionately
adjusted for any increase or decrease in the total number of outstanding shares
of Common Stock issued subsequent to the effective date of the Plan resulting
from any split, subdivision or consolidation of shares or other capital
adjustment, or other increase or decrease in such shares effected without
receipt or payment of consideration by the Corporation.

         9.02     AMENDMENT AND TERMINATION OF PLAN. The Board may, by 
resolution, at any time amend or terminate the Plan, subject to regulations
of the OTS and any required stockholder approval or any stockholder approval
which the Board may deem to be advisable for any reason, such as for the
purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities or other laws or satisfying any applicable stock exchange
listing requirements. The Board may not, without the consent of the Recipient,

                                        8


<PAGE>   9



alter or impair his Plan Share Award except as specifically authorized herein.
Upon termination of the Plan, the Recipient's Plan Share Awards shall be
distributed to the Recipient in accordance with the terms of Article VII hereof.
         9.03     NONTRANSFERABLE. Plan Share Awards and rights to Plan Shares 
shall not be transferable by a Recipient, and during the lifetime of the
Recipient, Plan Shares may only be earned by and paid to a Recipient who was
notified in writing of an Award by the Committee pursuant to Section 6.03. No
Recipient or Beneficiary shall have any right in or claim to any assets of the
Plan or Trust, nor shall the Corporation or any Subsidiary be subject to any
claim for benefits hereunder.

         9.04     EMPLOYMENT OR SERVICE RIGHTS. Neither the Plan nor any grant 
of a Plan Share Award or Plan Shares hereunder nor any action taken by the
Trustee, the Committee or the Board in connection with the Plan shall create
any right on the part of any Employee or Non-Employee Director to continue in
such capacity.

         9.05     VOTING AND DIVIDEND RIGHTS. No Recipient shall have any 
voting or dividend rights or other rights of a stockholder in respect of any    
Plan Shares covered by a Plan Share Award, except as expressly provided in
Sections 7.02 and 7.04 above, prior to the time said Plan Shares are actually
earned and distributed to him.

         9.06     GOVERNING LAW. To the extent not governed by Federal law, 
the Plan and Trust shall be governed by the laws of the State of Texas.

         9.07     EFFECTIVE DATE. This Plan shall be effective as of the 
Effective Date, and Awards may be granted hereunder as of or after the
Effective Date and as long as the Plan remains in effect. Notwithstanding the
foregoing or anything to the contrary in this Plan, the implementation of this
Plan and any Awards granted pursuant hereto are subject to the non-objection of
the OTS and approval of the Corporation's stockholders.

         9.08     TERM OF PLAN. This Plan shall remain in effect until the 
earlier of (1) ten (10) years from the Effective Date, (2) termination by the
Board, or (3) the distribution to Recipients and Beneficiaries of all assets of
the Trust.

         9.09     TAX STATUS OF TRUST. It is intended that the trust established
hereby be treated as a Grantor Trust of the Corporation under the provisions of
Section 671 et seq. of the Code, as the same may be amended from time to time.

                                        9


<PAGE>   10


         IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers and the corporate seal to be affixed
and duly attested, and the initial Trustee of the Trust established pursuant
hereto have duly and validly executed this Agreement, all on this 22nd day of
October 1996.

                                       JACKSONVILLE BANCORP, INC.

                                       By:
                                          -----------------------------
                                           Charles Broadway
                                           President

ATTEST:


By:
   -----------------------------
   Sandra Thompson
   Secretary

                                                 TRUSTEES:




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





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





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





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


                                       10


<PAGE>   1
 
                         [JACKSONVILLE BANCORP LOGO]
 
                              1996 ANNUAL REPORT
<PAGE>   2
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>                                                                                      <C>
President's Letter to Stockholders
Selected Consolidated Financial Data..................................................     1
Management's Discussion and Analysis of Financial Condition and Results of
  Operations..........................................................................     2
     Average Balances, Net Interest Income and Yields Earned and Rates Paid...........     5
     Rate/Volume Analysis.............................................................     6
Comparison of Results of Operations...................................................     7
Liquidity & Capital Resources.........................................................    10
Independent Auditors' Report..........................................................    12
Consolidated Financial Statements:
     Consolidated Statements of Financial Condition...................................    13
     Consolidated Statements of Earnings..............................................    14
     Consolidated Statements of Stockholders' Equity..................................    15
     Consolidated Statements of Cash Flows............................................    16
Notes to Consolidated Financial Statements............................................    17
Stock Information.....................................................................    36
Directors and Executive Officers......................................................    37
Banking Locations.....................................................................    37
Stockholder Information...............................................................    38
Transfer Agent/Registrar..............................................................    38
Shareholder Requests..................................................................    38
</TABLE>
<PAGE>   3
 
Dear Stockholder:
 
     On behalf of our employees, officers and directors, I take great pleasure
in presenting the first annual report of Jacksonville Bancorp, Inc.
 
     1996 was a significant year for your company, one that was filled with
changes and accomplishments. The most visible change obviously was our second
step conversion on March 29, 1996 from the mutual holding company ownership to a
full stock company. With that second step conversion came the formation of
Jacksonville Bancorp, Inc., which is the parent company for Jacksonville Savings
and Loan Association. We were very gratified by the response of our stock
offering in which we sold almost 1.62 million shares of stock at $10.00 per
share. We also were pleased to convert each existing share of Jacksonville
Savings and Loan stock held by the public into 1.41785 shares of Jacksonville
Bancorp, Inc. stock. As a result of the offering there are now 2,664,265 shares
of Jacksonville Bancorp, Inc. stock held by the public. At September 30, 1996
the book value of our stock was $13.29 per share.
 
     During this fiscal year Jacksonville Savings and Loan Association:
 
     - successfully completed and opened a new loan annex complex at our
       Palestine, Texas branch location.
 
     - experienced a record amount in total loan originations of almost $68.2
       million in primarily single family residential loan, construction loans
       and consumer loans.
 
     - made a decision to close the loan originations office in Nacogdoches,
       Texas after careful consideration and study.
 
     - saw legislation to provide for thrifts to pay a one-time assessment of
       $4.7 billion to recapitalize SAIF of which Jacksonville paid a total of
       $1.1 million.
 
     After the special SAIF premium was expensed, profit for the year amount to
$1.58 million or $.62 per share. This is an increase of $190,969 over fiscal
year 1995. With lower insurance premiums, the association expects to recoup the
$1.1 million in special assessment in approximately 3.5 years.
 
     We want to acknowledge our appreciation to our retiring chief executive
officer, Charles Broadway, for his forty-one years of service and dedication to
our institution. Although he is retiring at the end of December 1996, we will
continue to depend on his expertise and experience as he continues to serve on
our Board and Loan Committee.
 
     The financial industry is a rapidly changing business and will be
challenging in 1996. With the additional capital generated through the second
step conversion we expect to meet these challenges by continuing to produce more
loans as well as look at possible diversification of business activities, in
order to maximize the return to you, our stockholders.
 
     From our directors, our officers and staff we wish you a very prosperous
New Year.
 
Sincerely,
 
Jerry Chancellor
President
Jacksonville Bancorp, Inc.
<PAGE>   4
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     The following selected consolidated financial and other data of the Company
does not purport to be complete and is qualified in its entirety by reference to
the more detailed financial information contained elsewhere herein.
 
<TABLE>
<CAPTION>
                                                                                      SEPTEMBER 30,
                                                                 --------------------------------------------------------
                                                                   1996        1995        1994        1993        1992
                                                                 --------    --------    --------    --------    --------
<S>                                                              <C>         <C>         <C>         <C>         <C>
SELECTED FINANCIAL CONDITION AND OTHER DATA:
Total assets..................................................   $217,856    $199,251    $187,021    $189,572    $191,809
Cash and cash equivalents.....................................      5,193       8,051       7,003       7,637       9,162
Investment securities.........................................     33,805      42,907      44,892      41,348      36,030
Mortgage-backed securities, net...............................     12,107       3,442       2,995       4,214       5,441
Loans receivable, net.........................................    158,034     135,933     123,133     126,030     128,107
Foreclosed real estate, net...................................      1,051       2,052       2,549       4,623       7,227
Deposits......................................................    174,328     173,811     159,343     174,311     178,851
Borrowings....................................................      2,000         358       4,461          --          --
Stockholders' equity..........................................     35,431      20,331      18,989      10,873       8,795
Full-service offices..........................................          5           5           4           4           4
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED SEPTEMBER 30,
                                                                      ---------------------------------------------------
                                                                       1996       1995       1994       1993       1992
                                                                      -------    -------    -------    -------    -------
<S>                                                                   <C>        <C>        <C>        <C>        <C>
SELECTED OPERATING DATA:
Total interest income..............................................   $15,394    $13,232    $12,895    $14,586    $15,695
Total interest expense.............................................     8,453      7,127      5,623      6,951      9,475
                                                                      -------    -------    -------    -------    -------
    Net interest income............................................     6,941      6,105      7,272      7,635      6,220
Provision for losses on loans......................................       100         25         18        325        384
                                                                      -------    -------    -------    -------    -------
    Net interest income after provision for losses on loans........     6,841      6,080      7,254      7,310      5,836
Noninterest income.................................................     1,290        927        970        938      1,058
Noninterest expense................................................     5,846      5,045      4,638      4,564      3,702
                                                                      -------    -------    -------    -------    -------
Income before income taxes.........................................     2,284      1,962      3,586      3,684      3,192
Income taxes.......................................................       704        573      1,184      1,606      1,093
                                                                      -------    -------    -------    -------    -------
Net income.........................................................   $ 1,580    $ 1,389    $ 2,402    $ 2,078    $ 2,099
                                                                      ========   ========   ========   ========   ========
Earnings per share.................................................   $   .64    $   .56    $   .43    $    --    $    --
                                                                      -------    -------    -------    -------    -------
Net income (loss)..................................................     55.60%     29.47%     19.92%        --%        --%
                                                                      ========   ========   ========   ========   ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                               AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                                                           ----------------------------------------------
                                                                            1996      1995      1994      1993      1992
                                                                           ------    ------    ------    ------    ------
<S>                                                                        <C>       <C>       <C>       <C>       <C>
SELECTED OPERATING RATIOS(1):
Return on average assets................................................      .76%      .73%     1.28%     1.09%     1.12%
Return on average equity................................................     6.13      7.06     16.57     21.03     27.10
Average equity to average assets........................................    12.41     10.37      7.73      5.18      4.12
Equity to assets at end of period.......................................    16.27     10.20     10.15      5.74      4.59
Interest rate spread(2).................................................     2.99      3.08      3.95      4.33      3.81
Net interest margin(2)..................................................     3.50      3.40      4.12      4.31      3.64
Non-performing loans and troubled debt restructurings to total loans at
  end of period(3)......................................................      .76       .70       .81       .95      1.15
Non-performing assets and troubled debt restructurings to total assets
  at end of period(3)...................................................     1.03      1.51      1.90      3.07      4.53
Average interest-earning assets to average interest-bearing
  liabilities...........................................................   111.92    107.81    105.28      99.4      97.0
Net interest income after provision for loan losses to total noninterest
  expense...............................................................   117.01    120.52    156.40    160.16    157.64
Noninterest expense to average total assets.............................     2.82      2.67      2.47      2.39      1.97
</TABLE>
 
- ---------------
(1) With the exception of end of period ratios, all ratios are based on average
    monthly balances during the periods and are annualized where appropriate.
(2) Interest rate spread represents the difference between the weighted average
    yield on interest-earning assets and the weighted average rate on
    interest-bearing liabilities. Net interest margin represents net interest
    income as a percentage of average interest-earning assets.
(3) Non-performing loans consist of non-accrual loans and accruing loans that
    are contractually past due 90 days or more, non-performing assets consist of
    non-performing loans and real estate acquired by foreclosure, deed in lieu
    thereof or deemed insubstance foreclosure and troubled debt restructurings
    consist of restructured debt in accordance with Statement of Financial
    Accounting Standards No. 15.
(4) Earnings per share amounts for prior years have been restated to give effect
    to the exchange ratio of 1.41785 in connection with the Reorganization
    effective March 29, 1996.
 
                                        1
<PAGE>   5
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
GENERAL
 
     Jacksonville Bancorp, Inc. (the "Company"), through Jacksonville Savings
and Loan Association ("Jacksonville"), its wholly owned subsidiary, is primarily
engaged in attracting deposits from the general public and using those and other
available sources of funds to originate loans secured by single-family
residences located in Cherokee County and surrounding counties in East Texas. To
a lesser extent, Jacksonville also originates construction loans, land loans and
consumer loans. It also has a significant amount of investments in
mortgage-backed securities and United States Government and federal agency
obligations.
 
     The profitability of Jacksonville depends primarily on its net interest
income, which is the difference between interest and dividend income on
interest-earning assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing deposits and
borrowings. Jacksonville's net earnings also is dependent, to a lesser extent,
on the level of its noninterest income (including servicing fees and other fees)
and its noninterest expenses, such as compensation and benefits, occupancy and
equipment insurance premiums, and miscellaneous other expenses, as well as
federal income tax expense.
 
ASSET AND LIABILITY MANAGEMENT
 
     The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate-sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest rate-sensitive assets exceeds the amount of interest
rate-sensitive liabilities, and is considered negative when the amount of
interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would have the
opposite effect.
 
     The lending activities of savings associations have historically emphasized
long-term, fixed-rate loans secured by single-family residences, and the primary
source of funds of such institutions has been deposits. The deposit accounts of
savings associations generally bear interest rates that reflect market rates and
largely mature or are subject to repricing within a short period of time. This
factor, in combination with substantial investments in long-term, fixed-rate
loans, has historically caused the income earned by savings associations on
their loan portfolios to adjust more slowly to changes in interest rates than
their cost of funds.
 
     Jacksonville originates both fixed- and variable-rate residential real
estate loans as market conditions dictate. Prior to November 1980, Jacksonville,
like virtually all savings associations, originated only fixed-rate loans and
held them in portfolio until maturity. As a result of the problems caused by
holding fixed-rate loans in a rapidly increasing interest-rate environment,
changes in regulations to allow for variable-rate loans and consumer demand for
such loans during periods of high interest rates, in the 1980s Jacksonville
began to transform its portfolio into loan products the interest rates of which
adjust periodically. As a result, Jacksonville's loan portfolio, as of September
30, 1996 consisted of 63.8% of adjustable or floating rate loans. In order to
meet its customers' demand for fixed-rate loans during periods of lower interest
rates, until 1994 Jacksonville followed a policy of selling to third parties a
high percentage of the fixed-rate loans it originated while retaining its
variable-rate loans. The mixture of originations for sale and originations for
portfolio varies depending on the general mix of interest-earning assets
Jacksonville then currently holds in its portfolio and other factors such as
market fees for loan sales and the overall interest-rate environment. As
interest rates declined in late 1991, Jacksonville originated an increasingly
higher percentage of fixed-rate residential first
 
                                        2
<PAGE>   6
 
mortgage loans and continued to sell approximately 90% of such loans upon
origination. Since 1994, it has been Jacksonville's policy to retain fixed-rate
residential first mortgage loans with terms of 15 years or less.
 
     Notwithstanding the foregoing, however, because Jacksonville's
interest-bearing liabilities which mature or reprice within short periods
substantially exceed its earning assets with similar characteristics, material
and prolonged increases in interest rates generally would adversely affect net
interest income, while material and prolonged decreases in interest rates
generally, but to a lesser extent because of their historically low levels,
would have the opposite effect. Presented below, as of September 30, 1996, the
most recent available, is an analysis of Jacksonville's IRR as measured by
changes in NPV and NII for instantaneous and sustained parallel shifts of 100
basis points in market interest rates. The table also contains the policy that
the Board of Directors deems advisable in the event of various changes in
interest rates. Such limits have been established with consideration of the
impact of various rate changes and Jacksonville's current strong capital
position.
 
                              NET PORTFOLIO VALUE
 
<TABLE>
<CAPTION>
                                 ESTIMATED
  CHANGE IN                       NPV AS A
INTEREST RATES     ESTIMATED     PERCENTAGE     AMOUNT OF
(BASIS POINTS)        NPV        OF ASSETS       CHANGE       PERCENT     POLICY
- --------------     ---------     ----------     ---------     -------     ------
                             (DOLLARS IN THOUSANDS)
<S>                <C>           <C>            <C>           <C>         <C>
     +400           $20,935          9.7%       $ (14,639)      (41%)      (100%)
     +300            24,946         16.1          (10,628)      (30)        (75)
     +200            28,861         13.3           (6,713)      (19)        (50)
     +100            32,502         15.0           (3,072)       (9)        (25)
       --            35,574         16.4               --        --          --
     -100            37,786         17.5            2,212         6          25
     -200            39,044         18.0            3,470        10          50
     -300            40,357         18.6            4,783        13          75
     -400            42,302         19.5            6,728        19         100
</TABLE>
 
     The OTS uses the above NPV calculation to monitor institutions' IRR. The
OTS has promulgated regulations regarding a required adjustment to an
institution's risk-based capital based on IRR. The application of the OTS'
methodology quantifies IRR as the change in the NPV which results from a
theoretical 200 basis point increase or decrease in market interest rates. If
the NPV from either calculation would decrease by more than 2% of the present
value of the institution's assets, the institution must deduct 50% of the amount
of the decrease in excess of such 2% in the calculation of risk-based capital.
The IRR regulations were originally effective as of January 1, 1994, subject to
a two quarter "lag" time between the reporting date of the data used to
calculate an institution's interest rate risk and the effective date of each
quarter's interest rate risk component. However, in October 1994 and March 1995
the Director of the OTS indicated that it would waive the capital deductions for
institutions with a greater than "normal" risk until the OTS publishes an
appeals process, which the OTS expects will occur shortly. At September 30,
1996, 2% of the present value of Jacksonville's assets was approximately $4.3
million. Because the IRR of a 200 basis point increase in market interest rates
(which was greater than a 200 basis point decrease) was $6.7 million,
Jacksonville's September 30, 1996 Interest Risk Capital component would have
been $1.2 million (50% of the approximate $2.4 million difference). At September
30, 1996, Jacksonville would not have been required to make a deduction from its
capital because the lowest of the three prior quarters' component is a negative
number. However, because Jacksonville has retained more of its fixed-rate loans
in recent periods, it is likely that if the regulation is implemented that
Jacksonville will be required to make a deduction from its capital in future
periods in determining its risk-based capital requirement.
 
CHANGES IN FINANCIAL CONDITION
 
     At September 30, 1996, Jacksonville's assets totaled $217.9 million, as
compared to $199.3 million at September 30, 1995. Total assets increased $18.6
million, or 9.3%, from September 30, 1995 to September 30, 1996 and was
principally funded by the $14.0 million of net proceeds from the Stock Offering.
The increase in
 
                                        3
<PAGE>   7
 
total assets during fiscal 1996 was principally the result of a $22.1 million or
16.3% increase in loans receivable, net from $135.9 million at September 30,
1995 to $158.0 million at September 30, 1996. The increase resulted from an
increase in single-family residential loans of $14.7 million or 12.5%, an
increase in construction loans of $2.7 million or 62.2% and an increase in
consumer loans secured by vehicles of $2.0 million or 208% during the period. A
$10.1 million, or 27.5%, decrease in investment securities held to maturity was
partially offset by a $8.7 million increase in mortgage-backed securities held
to maturity. These adjustments in Jacksonville's investment portfolio are the
result of the use of funds from maturing investments to fund single family
residential, construction and consumer loans.
 
     At September 30, 1995, Jacksonville's assets totaled $199.3 million, as
compared to $187.0 million at September 30, 1994. Total assets increased $12.3
million, or 6.5%, from September 30, 1994 to September 30, 1995. The increase in
total assets during fiscal 1995 was principally the result of a $12.8 million or
10.4% increase in loans receivable, net from $123.1 million at September 30,
1994 to $135.9 million at September 30, 1995 as a result principally of an
increase in single-family residential loans of $8.6 million or 7.9%, and an
increase in construction loans of $2.6 million or 159% during the period. A $4.2
million, or 10.3%, decrease in investment securities held to maturity was
partially offset by a $1.2 million increase in interest bearing deposits and a
$2.2 million increase in investment securities available for sale. These
adjustments were made in Jacksonville's investment portfolio in order to provide
greater flexibility to Jacksonville to react to changes in interest rates.
 
     During the year ended September 30, 1996, total liabilities increased $3.6
million or 2.0% to $182.1 million. This increase was primarily the result of $2
million of Federal Home Loan Bank advances and a $1.1 million SAIF special
assessment. Jacksonville had no such advances outstanding as of September 30,
1995 and the SAIF special assessment was a one-time event. These increases were
partially offset by the repayment of the $358,000 ESOP note.
 
     During the year ended September 30, 1995, total liabilities increased $11.0
million or 6.6% to $178.5 million. This increase was primarily the result of an
increase of $14.5 million or 9.1% in deposits plus $620,000 or 22.9% increase in
advances from borrowers for taxes and insurance. These increases were partially
offset by a decrease of $4.0 million in advances from the FHLB of Dallas. The
increase in deposits was primarily due to an increase in deposit rates we well
as the full operation of the Tyler branch office.
 
                                        4
<PAGE>   8
 
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
 
     The following table presents for the periods indicated the total dollar
amount of interest from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollar and rates, and the net interest margin. The table does
not reflect any effect of income taxes. All average balances are based on
month-end balances. Management believes that the use of average monthly balances
is representative of its operations.
 
<TABLE>
<CAPTION>
                  SEPTEMBER 30,
                      1996                      1996                              1995                              1994
                  -------------    ----------------------------    ------------------------------    ------------------------------
                     YIELD/        AVERAGE               YIELD/    AVERAGE                 YIELD/    AVERAGE                 YIELD/
                      RATE         BALANCE     INTEREST   RATE     BALANCE     INTEREST     RATE     BALANCE     INTEREST     RATE
                  -------------    --------    --------  ------    --------    --------    ------    --------    --------    ------
<S>                      <C>       <C>         <C>       <C>       <C>         <C>         <C>       <C>         <C>         <C>
INTEREST-EARNING                                         
  ASSETS:                                                
  Loans                                                  
  receivable...          8.24%     $145,021    $ 12,169    8.39%   $128,623    $ 10,337      8.04%   $122,051    $  9,909      8.12%
  Mortgage-backed                                        
    securities...        7.06         9,561         700    7.32       3,106         249      8.02       3,486         310      8.89
 Investment                                              
 securities...           6.05        37,109       2,170    5.85      41,753       2,290      5.48      45,733       2,494      5.45
  Other                                                  
  interest-earning                                       
     assets(2)...        5.88         6,446         355    5.51       6,227         356      5.72       5,357         182      3.40
                                   --------    --------            --------    --------              --------    --------
     Total                                               
     interest-earning                                    
       assets...                    198,137    $ 15,394    7.77%    179,709    $ 13,232      7.36%    176,627    $ 12,895      7.30%
                                   --------    ========            --------    ========    ======    --------    ========    ======
  Non-interest-earning                                   
     assets...                        9,565                          10,074                            10,925
                                   --------                        --------                          --------
     Total                                               
  assets...                        $207,702                        $189,783                          $187,552
                                   ========                        ========                          ========
INTEREST-BEARING                                         
  LIABILITIES:                                           
Deposits...              4.71%     $176,062    $  8,390    4.77%   $163,729    $  6,924      4.23%   $167,652    $  5,617      3.35%
                                   --------    --------            --------    --------              --------    --------
  Borrowings...          5.71         1,098          63    6.49       2,956         203      6.87         115           6      5.27
                                   --------    --------            --------    --------              --------    --------
     Total                                               
     interest-bearing                                    
       liabilities...               177,160    $  8,453    4.78     166,685    $  7,127      4.28     167,767    $  5,623      3.35
                                   --------    ========            --------    ========    ------    --------    ========    ======
  Non-interest-bearing                                   
     liabilities...                   4,761                           3,414                             5,290
                                   --------                        --------                          --------
     Total                                               
     liabilities...                 181,921                         170,099                           173,057
                                   --------                        --------                          --------
Stockholder's                                            
  Equity...                          25,781                          19,684                            14,495
                                   --------                        --------                          --------
     Total                                               
liabilities                                              
       and                                               
       stockholders'                                     
  equity...                        $207,702                        $189,783                          $187,552
                                   ========                        ========                          ========
Net                                                      
  interest                                               
  income;                                                
  interest                                               
  rate                                                   
  spread...                                    $  6,941    2.99%               $  6,105      3.08%               $  7,272      3.95%
                                                =======                         =======    ======                 =======    ======
Net                                                      
  interest                                               
  margin(3)...                                             3.50%                             3.40%                             4.12%
                                                                                           ======                            ======
Average                                                  
interest-earning                                         
  assets to                                              
  average                                                
  interest-bearing                                       
  liabilities...                                         111.92%                           107.81%                           105.28%
                                                                                           ======                            ======
</TABLE>
 
- ---------------
 
(1) Annualized.
 
(2) Consists primarily of interest-bearing deposits.
 
(3) Net interest margin is net interest income divided by average
    interest-earning assets.
 
                                        5
<PAGE>   9
RATE/VOLUME ANALYSIS
 
     The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
Jacksonville's interest income and expense during the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume), and (iii) total change in rate and volume. The
combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
 
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED SEPTEMBER 30,
                                                                -----------------------------------------------------------------
                                       1996 VS. 1995                    1995 VS. 1994                      1994 VS. 1993
                                ----------------------------    ------------------------------    -------------------------------
                                   INCREASE                         INCREASE                          INCREASE
                                  (DECREASE)                       (DECREASE)                        (DECREASE)
                                    DUE TO          TOTAL            DUE TO           TOTAL            DUE TO            TOTAL
                                --------------     INCREASE     ----------------     INCREASE     -----------------     INCREASE
                                RATE    VOLUME    (DECREASE)     RATE     VOLUME    (DECREASE)     RATE      VOLUME    (DECREASE)
                                ----    ------    ----------    ------    ------    ----------    -------    ------    ----------
                                                                     (DOLLARS IN THOUSANDS)
<S>                             <C>     <C>       <C>           <C>       <C>       <C>           <C>        <C>       <C>
INTEREST-EARNING ASSETS:
  Loans......................   $466    $1,366      $1,832      $  (98)   $  526     $    428     $(1,241)   $(513)     $ (1,754)
  Mortgage-backed
     securities..............    (22)      473         451         (29)      (32)         (61)         27      (77)          (50)
  Investment securities......    147      (267)       (120)         14      (218)        (204)       (221)     332           111
  Other interest-earning
     assets..................    (13)       12          (1)        140        34          174          (6)       8             2
                                ----    ------    --------      ------    ------    ---------     -------    -----     ---------
     Total interest-earning
       assets................   $578    $1,584      $2,162      $   27    $  310     $    337     $(1,441)   $(250)     $ (1,691)
                                ====    ======    ========      ======    ======     ========     =======    =====      ========
INTEREST-BEARING LIABILITIES:
  Deposits...................   $922    $  544      $1,466      $1,441    $ (134)    $  1,307     $  (938)   $(396)     $ (1,334)
  Other Borrowings...........    (11)     (129)       (140)          3       194          197           3        3             6
                                ----    ------    --------      ------    ------    ---------     -------    -----     --------- 
     Total interest-bearing
       liabilities...........   $911    $  415      $1,326      $1,444    $   60     $  1,504     $  (935)   $(393)     $ (1,328)
                                ====    ======    ========      ======    ======     ========     =======    =====      ========
  Increase (decrease) in net
     interest income.........                       $  836                           $ (1,167)                          $   (363)
                                                  ========                           ========                           ========
</TABLE>
 
                                        6
<PAGE>   10
 
                      COMPARISON OF RESULTS OF OPERATIONS
 
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND
1995
 
     GENERAL.  Jacksonville had net earnings of $1.6 million for the year ended
September 30, 1996 as compared to $1.4 million for the year ended September 30,
1995. During fiscal 1996, Jacksonville's net interest income increased by
$836,000 and its noninterest income increased by $362,000 while the provision
for losses on loans increased $75,000. Noninterest expense increased by
$802,000, primarily as a result of the SAIF special assessment. Without the SAIF
special assessment, Jacksonville's net earnings would have been $2.3 million for
fiscal 1996, an increase of $700,000 or 44.7% as compared to the net earnings
for fiscal 1996.
 
     The $900,000 increase in net earnings for fiscal 1996, as calculated
without the SAIF special assessment, was primarily the result of an increase in
the average balance of interest-earning assets of $18.4 million or 10.3%. The
amount of such assets increased primarily as a result of the deployment of the
$14.0 million of proceeds from the Stock Offering into loans receivable and
mortgage backed securities. The amount of the increased earnings was enhanced by
generally higher interest rates during the period in which the loans were
originated which resulted in the average yield on Jacksonville's
interest-earning assets increasing by 41 basis points from 7.36% in fiscal 1995
to 7.77% in fiscal 1996. The positive impact on earnings resulting from the
increase in average balance of and average yield on Jacksonville's
interest-earning assets was partially offset by the 50 basis point increase in
the average rate paid on interest-bearing liabilities from 4.28% in fiscal 1995
to 4.78% in fiscal 1996. The increase in average interest-earning assets,
however, more than offset the change in the interest rate spread from 3.08% in
fiscal 1995 to 2.99% in fiscal 1996.
 
     NET INTEREST INCOME.  Net interest income increased by $836,000, or 13.7%,
for the year ended September 30, 1996 compared to the year ended September 30,
1995. This increase was due primarily to a $2.2 million, or 16.3%, increase in
interest income partially offset by a $1.3 million or 18.6% increase interest
expense.
 
     The $2.2 million increase in total interest income was the result of
increases in interest on loans receivable of $1.8 million or 17.7%, and interest
on mortgage-backed securities of $451,000 or 180.9%, offset by a decrease in
interest income of $120,000, or 5.2% from investment securities. The increase in
interest income from loans receivable was due primarily to a $16.4 million, or
12.7%, increase in the average balance of Jacksonville's loan portfolio. The
increase in interest income from mortgage-backed securities reflects an increase
in average balance from $3.1 million in fiscal 1995 to $9.6 million in fiscal
1996 partially offset by a decline in average yield from 8.02% to 7.32% in the
respective periods. The decrease in interest income from investment securities
reflects primarily a decrease in average balance from $41.8 million to $37.1
million, or 11.1%. The decrease in the average balance of securities reflects a
shift in portfolio mix by management of Jacksonville as funds from maturing
investment securities were used to purchase mortgage-backed securities and to
fund new mortgage loans. The average yield on loans originated and retained by
Jacksonville during fiscal 1996 was 8.26%.
 
     The $1.3 million increase in total interest expense from $7.1 million for
the year ended September 30, 1995, to $8.5 million for the year ended September
30, 1996, was primarily due to an increase in the average rate paid on deposits
from 4.23% in fiscal 1995 to 4.77% in fiscal 1996. The 54 basis point increase
rates paid on deposits resulted from a general increase in market rates of
interest.
 
     As a result of the foregoing, Jacksonville's net interest income increased
by $836,000 or 13.7%, during fiscal 1996 compared to fiscal 1995. Jacksonville's
net interest rate spread was 2.99% for the year ended September 30, 1996 as
compared to 3.08% in fiscal 1995.
 
     PROVISION FOR LOSSES ON LOANS.  Jacksonville's provision for loan losses
was $100,000 for the year ended September 30, 1996 compared to $25,000 for the
year ended September 30, 1995. Provisions for losses on loans are charged to
earnings to bring the total allowance to a level deemed appropriate by
management based on historical experience, the volume and type of lending
conducted by Jacksonville, industry standards, the amount of non-performing
assets, general economic conditions, particularly as they relate to
Jacksonville's market area, and other factors related to the collectability of
Jacksonville's loan portfolio. Upon consideration
 
                                        7
<PAGE>   11
 
of such factors, Jacksonville determined that $100,000 in provisions for losses
on loans were appropriate in 1996. During fiscal 1996 Jacksonville had no
chargeoffs or recoveries. Jacksonville's allowance for losses amounted to $1.1
million at September 30, 1996 as compared to $1.0 million at September 30, 1995.
 
     NON-INTEREST INCOME.  Noninterest income amounted to $1.3 million for the
year ended September 30, 1996 compared to $928,000 in fiscal 1995. The $362,000
increase was due primarily to $230,000 in income from loan servicing rights
compared to no income from such rights in fiscal 1995, an increase in fees and
deposit service charges of $140,000 and an increase in income from real estate
operations, net, of $9,000, partially offset by a decrease of $17,000 in other
noninterest income. The income from servicing rights is the result of
Jacksonville's adoption of Financial Accounting Standards Board ("FASB") No. 122
which requires the recognition of income from loans sold at the time of sale.
The increase in income from fees and deposit service charges reflects an
increase in loan originations and an increase in service charges on deposits.
 
     NON-INTEREST EXPENSE.  Noninterest expense amounted to $5.8 million for the
year ended September 30, 1996 compared to $5.0 million during fiscal 1995. The
primary reason for the $802,000, or 15.9% increase in noninterest expense during
fiscal 1996 was the $1.1 million SAIF special assessment which was partially
offset by a $102,000 reversal of a provision for real estate losses compared to
a $16,000 provision in fiscal 1995 and a $173,000 decrease in other non-interest
expenses. The SAIF special assessment resulted from legislation enacted into law
on September 30, 1996 which, among other things recapitalized the SAIF through
the special assessment. Pursuant to regulatory provisions recently promulgated
by the Federal Deposit Insurance Corporation, the recapitalization will result
in a substantial reduction of deposit insurance premiums for most SAIF members.
 
     INCOME TAXES.  Income tax expense amounted to $704,000 during the year
ended September 30, 1996, compared to $573,000 in fiscal 1995. The changes in
such amounts primarily reflect differences in gross income levels of
Jacksonville. See Note 11 to Consolidated Financial Statements.
 
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND
1994
 
     GENERAL.  Jacksonville had net earnings of $1.4 million for the year ended
September 30, 1995, compared to net earnings of $2.4 million for fiscal 1994.
Net interest income decreased $1.2 million while the provision for losses on
loans increased $7,000. Noninterest income decreased $43,000. Noninterest
expense increased by $407,000.
 
     The $1.0 million or 42.2% decrease in net earnings for fiscal 1995 was
primarily the result of interest-rate fluctuation during the period. A
significant portion of Jacksonville's interest-bearing liabilities matured or
repriced during the fiscal year resulting in an increase in the average interest
expense of 93 basis points (with 1.0% equalling 100 basis points). During the
same period, the average yield on interest-earning assets, which consist
primarily of adjustable rate mortgage loans with adjustment dates ranging from
one to five years, only increased by six basis points. The resulting change in
the interest rate spread from 3.95% to 3.08% combined with the increased
noninterest expense and the decreased noninterest income were the primary
reasons for the significant decline in net earnings.
 
     NET INTEREST INCOME.  Net interest income decreased by $1.2 million, or
16.0%, for the year ended September 30, 1995 compared to the year ended
September 30, 1994. This decrease was due primarily to a $1.5 million, or 26.7%,
increase in interest expense primarily from interest expenses on deposits.
 
     Total interest income increased $337,000, or 2.6%, for the year ended
September 30, 1995 as compared to the year ended September 30, 1994. The
increase was the result of increases in interest on loans receivable of
$428,000, or 4.3%, and interest on funds on deposit of $174,000, offset by
decreases in interest income of $204,000, or 19.7% from investment securities
and a decrease of $61,000, or 8.2% from mortgage-backed securities. The increase
in interest income from loans receivable was due primarily to a $6.6 million, or
5.4%, increase in the average balance of Jacksonville's loan portfolio. The
decrease in interest income from mortgage-backed securities reflects a decrease
in average balance from $3.5 million in fiscal 1994 to $3.1 million in fiscal
1995 and a decline in average yield from 8.89% to 8.02% in the respective
periods. The decrease in interest income from investment securities reflects
primarily a decrease in average balance from
 
                                        8
<PAGE>   12
 
$45.7 million to $41.8 million, or 8.7%. The decrease in the average balance of
securities reflects a shift in portfolio mix by management of Jacksonville as
funds from maturing investment securities were used to fund new mortgage loans.
The average yield on loans originated and retained by Jacksonville during fiscal
1995 was 8.28%.
 
     Interest expense increased by $1.5 million for the year ended September 30,
1995 compared to fiscal 1994. This increase from $5.6 million for the year ended
September 30, 1994, to $7.1 million for the year ended September 30, 1995, was
primarily due to an increase in average interest rates on deposits from 3.35% to
4.23%. The substantial increase in interest expense was due to an increase in
market interest rates. In order to maintain a substantial portion of its
existing deposit base, Jacksonville followed a policy of offering the prevailing
market rate on accounts that matured or repriced during the period. Jacksonville
also attempted to establish a presence in the deposit market of its new Tyler
branch office by offering interest rates for new deposits at or above levels
offered by its competition.
 
     As a result of the foregoing, Jacksonville's net interest income decreased
by $1.2 million, or 16.0%, during fiscal 1995 compared to fiscal 1994.
Jacksonville's net interest rate spread was 3.08% for the year ended September
30, 1995 as compared to 3.95% in fiscal 1994.
 
     PROVISION FOR LOSSES ON LOANS.  Jacksonville's provision for loan losses
was $25,000 for the year ended September 30, 1995 compared to $18,000 for the
year ended September 30, 1994. Provisions for losses on loans are charged to
earnings to bring the total allowance to a level deemed appropriate by
management based on historical experience, the volume and type of lending
conducted by Jacksonville, industry standards, the amount of non-performing
assets, general economic conditions, particularly as they relate to
Jacksonville's market area, and other factors related to the collectibility of
Jacksonville's loan portfolio. Upon consideration of such factors, Jacksonville
determined that $25,000 in provisions for losses on loans were appropriate in
1995. The fiscal 1995 provisions offset the net chargeoffs of $25,000 for fiscal
1995. Jacksonville's allowance for losses amounted to $1.0 million at both
September 30, 1995 and 1994.
 
     NON-INTEREST INCOME.  Noninterest income amounted to $928,000 for the year
ended September 30, 1995 compared to $970,000 in 1994. The $42,000 decrease was
due to a decrease in income from real estate operations, net, of $220,000,
partially offset by an increase in fees and deposit service charges of $178,000.
The decrease in income from real estate operations reflects a reduction in real
estate owned that was income producing property from $2.5 million at September
30, 1994 to $2.1 million at September 30, 1995.
 
     NON-INTEREST EXPENSE.  Noninterest expense amounted to $5.0 million for the
year ended September 30, 1995 compared to $4.6 million during fiscal 1994. The
primary reason for the $407,000, or 8.8% increase in noninterest expense during
fiscal 1995 was a $255,000, or 9.3% increase in compensation and benefit
expense, a $54,000 or 15.4% increase in occupancy and equipment expense, and a
$198,000 increase in other expense partially offset by a $63,000 decrease in
insurance expense in fiscal 1995 compared to fiscal 1994.
 
     The increase in compensation and benefit expense is primarily the result of
an increase of $88,000 in the expenses associated with the ESOP and 1994 MRP and
a $147,000 expense associated with the cost of additional personnel employed to
staff the Tyler branch office and the Nacogdoches origination office. The
increase in occupation and equipment expense was primarily the result of costs
incurred in connection with the operation of those same two new offices. The
other non-interest expense increase consisted of (i) several expenses related to
operation within a mutual holding company organization including a state
franchise tax increase of $66,000 resulting from the capitalization of the MHC
combined with increased capital and earnings and stock service expense of
$45,000, and (ii) miscellaneous expense associated with the addition of the two
offices and the increased volume of loans including increased advertising
expense of $50,000.
 
     INCOME TAXES.  Income tax expense amounted to $573,000 during the year
ended September 30, 1995, compared to $1.2 million in fiscal 1994. The changes
in such amounts primarily reflect differences in gross income levels of
Jacksonville. See Note 10 to Consolidated Financial Statements.
 
                                        9
<PAGE>   13
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Jacksonville is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of United States
Government, federal agency and other investments having maturities of five years
or less. Current OTS regulations require that a savings association maintain
liquid assets of not less than 5% of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less, of
which short-term liquid assets must consist of not less than 1%. Monetary
penalties may be imposed for failure to meet applicable liquidity requirements.
At September 30, 1996, Jacksonville's liquidity exceeded the minimum liquidity
requirement, as measured for regulatory purposes.
 
     Cash was generated by Jacksonville's operating activities of $3.0 million
and $1.9 million during the years ended September 30, 1996 and 1995,
respectively, primarily as a result of net earnings of $1.6 million and $1.4
million, respectively. The adjustments to reconcile net earnings to net cash
provided by operations during the periods presented consisted primarily of the
provision for losses on loans, depreciation and amortization expense,
amortization of deferred loan origination fees and increases or decreases in
other assets and other liabilities. The primary investing activity of
Jacksonville is lending, which is funded with cash provided from operations and
financing activities, as well as proceeds from amortization and prepayments on
existing loans and proceeds from maturities of investment securities and
mortgage-backed securities. During the year ended September 30, 1996,
Jacksonville's investing activities used cash of $21.6 million principally as a
result of net loan originations of $21.8 million. During the year ended
September 30, 1995, Jacksonville's investing activities provided cash flow of
$11.5 million principally as a result of net loan originations of $14.5 million
partially offset by net proceeds from maturities of investment securities of
$2.1 million. Jacksonville's financing activities generated cash of $15.6
million during the year ended September 30, 1996 as a result of a $14.0 million
net proceeds from the sale of common stock offset by net repayments of $2.0
million of FHLB advances. During the year ended September 30, 1995,
Jacksonville's financing activities generated cash of $10.7 million as a result
of a net increase in deposits of $14.5 million offset by net prepayments of $4.0
million in FHLB advances. For additional information about cash flows from
Jacksonville operating, financing and investing activities, see the Consolidated
Statements of Cash Flows included in the Consolidated Financial Statements.
 
     At September 30, 1996, Jacksonville had $5.4 million of outstanding
commitments to originate residential real estate loans and no commitments to
purchase investment securities. At the same date, the total amount of
certificates of deposit which are scheduled to mature by September 30, 1997 are
$126.5 million. Jacksonville believes that it has adequate resources to fund
commitments as they arise and that it can adjust the rate on savings
certificates to retain deposits in changing interest rate environments. If
Jacksonville requires funds beyond its internal funding capabilities, advances
from the FHLB of Dallas are available as an additional source of funds.
 
     Jacksonville is required to maintain specified amounts of capital pursuant
to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") and regulations promulgated by the OTS thereunder. The capital
standards generally require the maintenance of regulatory capital sufficient to
meet a tangible capital requirement, a core capital requirement and a risk-based
capital requirement. At September 30, 1996, Jacksonville's tangible and core
capital totaled $28.5 million or 13.17% of adjusted total assets, which exceeded
the respective minimum requirements at that date by approximately $25.3 million
and $22.0 million, respectively, or 11.67% and 10.17% of adjusted total assets,
respectively. Jacksonville's risk-based capital totaled $29.6 million at
September 30, 1996, or 26.7% of risk-weighted assets, which exceeded the current
requirement of 8% of risk-weighted assets by approximately $20.8 million of
risk-weighted assets. See "Regulation -- The Association -- Regulatory Capital
Requirements."
 
ACCOUNTING REQUIREMENTS
 
     In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement No. 114, "Accounting by Creditors for Impairment of a Loan," which was
later amended by Statement No. 118, "Accounting by Creditors for Impairment of
Loan -- Income Recognition and Disclosures." The Association
 
                                       10
<PAGE>   14
 
adopted the new standards effective October 1, 1995, and the implementation did
not have a material adverse effect on the Association's financial condition or
results of operations.
 
     In March 1995, the FASB issued Statement No. 121 ("SFAS No. 121"), entitled
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 requires that long-lived assets, certain
identifiable intangibles, and goodwill related to those assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 is effective
for financial statements for fiscal years beginning after December 15, 1995. The
Association adopted the provisions of SFAS No. 121 effective October 1, 1996 and
it did not have a material adverse effect on financial condition or results of
operations.
 
     In May 1995 the FASB issued Statement of Financial Accounting Standards No.
122 ("SFAS No. 122") entitled "Accounting for Mortgage Servicing Rights." This
statement eliminates the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination activities
and those acquired through purchase transactions. The provisions of SFAS No. 122
must be applied prospectively in fiscal years beginning after December 15, 1995.
Jacksonville adopted the provisions of SFAS No. 122, effective October 1, 1995.
 
     In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," establishing financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages all entities to
adopt a new method of accounting to measure compensation cost of all employee
stock compensation plans based on the estimated fair value of the award at the
date it is granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense recognition
for most plans. Companies that elect to remain with the existing accounting are
required to disclose in a footnote to the financial statements pro forma net
income and, if presented, earnings per share, as if SFAS No. 123 had been
adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995;
however, companies are required to disclose information for awards granted in
their first fiscal year beginning after December 15, 1994.
 
     AICPA Statement of Accounting Position 94-6 was issued in December 1994 and
requires disclosures beyond those now required or generally made in financial
statements about risks and uncertainties existing at the date of those financial
statements related to (1) nature of operations, (2) use of estimates in the
preparation of financial statements, (3) certain significant estimates, and (4)
current vulnerability due to certain concentrations. This Statement is effective
for fiscal years ending after December 15, 1995. Management believes the
Association's financial statements include these required disclosures.
 
IMPACT OF INFLATION AND CHANGING PRICES
 
     The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars,
without considering changes in relative purchasing power over time due to
inflation.
 
     Unlike most industrial companies, virtually all of Jacksonville's assets
and liabilities are monetary in nature. As a result, interest rates generally
have a more significant impact on a financial institution's performance than
does the effect of inflation.
 
                                       11
<PAGE>   15
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
  Jacksonville Bancorp, Inc.
 
     We have audited the accompanying consolidated statements of financial
condition of Jacksonville Bancorp, Inc. and subsidiaries as of September 30,
1996 and 1995, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the years in the three year
period ended September 30, 1996. These consolidated 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 generally accepted auditing
standards. 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 subsidiaries as of September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three year period ended September 30, 1996 in conformity with generally accepted
accounting principles.
 
                                          HENRY & PETERS, P.C.
 
Tyler, Texas
November 20, 1996
 
                                       12
<PAGE>   16
 
                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                          SEPTEMBER 30, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                        1996            1995
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
ASSETS
     Cash on hand and in banks...................................   $  2,777,737    $  2,248,481
     Interest-bearing deposits...................................      2,415,678       5,802,983
     Investment securities:
          Held-to-maturity, approximate fair market value of
            $26,378,089 and $36,391,229, respectively............     26,446,748      36,499,177
          Available-for-sale, carried at fair value..............      7,358,750       6,408,250
     Mortgage-backed certificates:
          Held-to-maturity, approximate fair market value of
            $12,107,707 and $3,480,855, respectively.............     12,107,184       3,441,684
     Loans receivable, net.......................................    158,034,126     135,932,935
     Accrued interest receivable.................................      1,633,042       1,448,348
     Foreclosed real estate, net.................................      1,051,033       2,052,287
     Premises and equipment, net.................................      3,256,065       2,908,723
     Stock in Federal Home Loan Bank of Dallas, at cost..........      1,739,900       1,636,200
     Mortgage servicing rights...................................        231,541              --
     Federal income taxes receivable.............................        584,787         628,162
     Prepaid expenses and other assets...........................        219,453         244,162
                                                                    ------------    ------------
               Total assets......................................   $217,856,044    $199,251,392
                                                                    ============    ============
                              LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
     Deposits....................................................   $174,327,887    $173,810,946
     ESOP Note Payable...........................................             --         358,309
     Advance from Federal Home Loan Bank.........................      2,000,000              --
     Advances from borrowers for taxes and insurance.............      3,518,198       3,326,583
     SAIF special assessment payable.............................      1,070,478              --
     Accrued expenses and other liabilities......................      1,149,898         986,636
                                                                    ------------    ------------
               Total liabilities.................................    182,066,461     178,482,474
DEFERRED INCOME
     Gain on sale of real estate owned...........................        358,915         438,052
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
     Preferred stock, no par value, 5,000,000 shares authorized;
       none issued...............................................             --              --
     Common stock, $.01 par value, 25,000,000 shares authorized;
       2,664,265 and 2,651,025 shares issued and outstanding,
       respectively..............................................         26,643          26,510
     Additional paid-in capital..................................     22,297,343       6,901,244
     Retained earnings, substantially restricted.................     14,746,925      13,943,851
     Less:
          Shares acquired by Employee Stock Ownership Plan.......     (1,528,219)       (358,309)
          Shares acquired by Management Recognition Plan.........        (24,375)       (121,875)
          Net unrealized loss on securities available-for-sale,
            net of income taxes of $45,152 and $31,195,
            respectively.........................................        (87,649)        (60,555)
                                                                    ------------    ------------
               Total stockholders' equity........................     35,430,668      20,330,866
                                                                    ------------    ------------
               Total liabilities and stockholders' equity........   $217,856,044    $199,251,392
                                                                    ============    ============
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       13
<PAGE>   17
 
                           JACKSONVILLE BANCORP, INC.
 
                      CONSOLIDATED STATEMENTS OF EARNINGS
                 YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                            1996           1995           1994
                                                         -----------    -----------    -----------
<S>                                                      <C>            <C>            <C>
INTEREST INCOME
     Loans receivable.................................   $12,169,431    $10,337,486    $ 9,909,303
     Mortgage-backed securities.......................       700,215        249,244        310,323
     Investment securities............................     2,170,435      2,289,539      2,493,693
     Other............................................       354,197        355,540        181,986
                                                         -----------    -----------    -----------
          Total interest income.......................    15,394,278     13,231,809     12,895,305
INTEREST EXPENSE
     Deposits.........................................     8,390,643      6,924,045      5,617,244
     Interest on borrowings...........................        62,749        202,941          6,208
                                                         -----------    -----------    -----------
          Total interest expense......................     8,453,392      7,126,986      5,623,452
                                                         -----------    -----------    -----------
          Net interest income.........................     6,940,886      6,104,823      7,271,853
PROVISION FOR LOSSES ON LOANS.........................       100,000         25,197         18,319
                                                         -----------    -----------    -----------
     Net interest income after provision for losses on
       loans..........................................     6,840,886      6,079,626      7,253,534
NONINTEREST INCOME
     Fees and deposit service charges.................       906,612        767,202        589,481
     Real estate operations, net......................        84,309         75,095        295,464
     Other............................................        68,245         85,299         85,248
     Mortgage servicing rights........................       230,491             --             --
                                                         -----------    -----------    -----------
          Total noninterest income....................     1,289,657        927,596        970,193
NONINTEREST EXPENSE
     Compensation and benefits........................     2,977,991      3,005,431      2,749,875
     Occupancy and equipment..........................       442,633        406,933        352,569
     Insurance expense................................       447,528        433,967        496,683
     Provisions for real estate losses................      (102,142)        16,136         54,284
     Other............................................     1,010,016      1,182,539        984,514
     SAIF special assessment..........................     1,070,478             --             --
                                                         -----------    -----------    -----------
          Total noninterest expense...................     5,846,504      5,045,006      4,637,925
INCOME BEFORE TAXES ON INCOME.........................     2,284,039      1,962,216      3,585,802
TAXES ON INCOME
     Current..........................................       623,000        556,146      1,170,799
     Deferred.........................................        81,000         17,000         13,000
                                                         -----------    -----------    -----------
          Total income tax expense....................       704,000        573,146      1,183,799
                                                         -----------    -----------    -----------
          Net earnings................................   $ 1,580,039    $ 1,389,070    $ 2,402,003
                                                         ===========    ===========    ===========
Earnings per share....................................   $       .64    $       .56    $       .43
                                                         ===========    ===========    ===========
Average number of shares outstanding..................     2,483,708      2,460,765      2,449,383
                                                         ===========    ===========    ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       14
<PAGE>   18
 
            JACKSONVILLE SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                                                       UNREALIZED
                                                            UNVESTED      UNVESTED      LOSS ON
                                            ADDITIONAL       SHARES        SHARES      SECURITIES                       TOTAL
                                 COMMON       PAID-IN        HELD BY       HELD BY     AVAILABLE      RETAINED      STOCKHOLDERS'
                                 STOCK        CAPITAL         ESOP           MRP        FOR SALE      EARNINGS         EQUITY
                                --------    -----------    -----------    ---------    ----------    -----------    -------------
<S>                             <C>         <C>            <C>            <C>          <C>           <C>            <C>
Balance at September 30,
  1993.......................   $     --    $        --    $        --    $      --     $     --     $10,872,730     $ 10,872,730
    Issuance of 2,649,607
      shares of common stock
      on March 31, 1994 in
      connection with
      Reorganization.........     26,496      6,880,380       (511,870)    (292,500)          --              --        6,102,506
    Contribution of capital
      to Mutual Holding
      Company................         --             --             --           --           --        (100,000)        (100,000)
    ESOP shares released.....         --             --         51,187           --           --              --           51,187
    Accrual of Management
      recognition plan
      awards.................         --             --             --       65,000           --              --           65,000
    Dividends declared.......         --             --             --           --           --        (210,600)        (210,600)
    Net unrealized loss on
      securities available-
      for-sale...............         --             --             --           --     (194,125)             --         (194,125)
    Net earnings.............         --             --             --           --           --       2,402,003        2,402,003
                                --------    -----------    -----------    ---------    ----------    -----------    -------------
Balance at September 30,
  1994.......................     26,496      6,880,380       (460,683)    (227,500)    (194,125)     12,964,133       18,988,701
    ESOP shares released.....         --         10,878        102,374           --           --              --          113,252
    Accrual of Management
      recognition plan
      awards.................         --             --             --      105,625           --              --          105,625
    Dividends declared.......         --             --             --           --           --        (409,352)        (409,352)
    Change in net unrealized
      loss on securities
      available-for-sale.....         --             --             --           --      133,570              --          133,570
    Shares issued under stock
      option plan............         14          9,986             --           --           --              --           10,000
    Net earnings.............         --             --             --           --           --       1,389,070        1,389,070
                                --------    -----------    -----------    ---------    ----------    -----------    -------------
Balance at September 30,
  1995.......................     26,510      6,901,244       (358,309)    (121,875)     (60,555)     13,943,851       20,330,866
    Shares issued under stock
      option plan............         78         54,762             --           --           --              --           54,840
    ESOP shares released.....         --         20,480        124,820           --           --              --          145,300
    Accrual of management
      recognition plan
      awards.................         --             --             --       97,500           --              --           97,500
    Cancellation of shares
      held by Jacksonville
      Federal Mutual Holding
      Company................    (16,128)        16,128             --           --           --              --               --
    Proceeds from issuance of
      1,618,409 shares of
      Jacksonville Bancorp,
      Inc. common stock on
      March 29, 1996, net of
      140 fractional shares
      acquired, and net of
      offering expense of
      $863,178...............     16,183     15,304,729     (1,294,730)          --           --              --       14,026,182
    Return of capital from
      Jacksonville Federal
      Mutual Holding
      Company................         --             --             --           --           --         100,000          100,000
    Change in net unrealized
      loss on securities
      available-for-sale.....         --             --             --           --      (27,094)             --          (27,094)
    Dividends declared.......         --             --             --           --           --        (876,965)        (876,965)
    Net earnings.............         --             --             --           --           --       1,580,039        1,580,039
                                --------    -----------    -----------    ---------    ---------     -----------    -------------
Balance at September 30,
  1996.......................   $ 26,643    $22,297,343    $(1,528,219)   $ (24,375)    $(87,649)    $14,746,925     $ 35,430,668
                                ========    ===========    ===========    =========    =========     ===========     ============
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       15
<PAGE>   19
 
                           JACKSONVILLE BANCORP, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                            1996           1995           1994
                                                         -----------    -----------    -----------
<S>                                                      <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income..........................................   $ 1,580,039    $ 1,389,070    $ 2,402,003
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation.....................................       187,119        179,385        136,034
     Amortization/Accretion of securities.............       148,300        121,942        243,569
     Provision for losses on loans and losses on real
       estate.........................................        (2,142)        41,333         72,603
     Loans originated for sale........................   (21,848,000)   (13,817,000)   (24,854,000)
     Loans sold.......................................    21,848,000     13,817,000     23,694,000
     Net loss on sale of other real estate............       162,422        255,948        658,973
     Accrual of MRP awards............................        97,500        105,625         65,000
     Release of ESOP shares...........................        85,217         10,878             --
     Change in assets and liabilities:
       Decrease (Increase) in prepaid expenses and
          other assets................................        24,709       (111,127)       321,984
       Decrease (Increase) in federal income taxes
          receivable..................................        57,332         76,955       (106,199)
       Increase SAIF assessment payable...............     1,070,478             --             --
       Increase in accrued expenses and other
          liabilities.................................       163,262         33,717        274,749
       Decrease in deferred income....................       (79,137)      (131,534)      (400,166)
       Increase in mortgage servicing rights..........      (231,541)            --             --
       (Increase) Decrease in accrued interest
          receivable..................................      (184,694)       (73,520)        80,394
                                                         -----------    -----------    -----------
          Net cash provided by operating activities...     3,078,864      1,898,672      2,588,944
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds on maturity of investment securities.......    23,409,535     15,542,656     14,843,862
  Purchase of investment securities...................   (14,474,405)   (13,474,300)   (18,918,671)
  Net principal payments (originations) on loans......   (21,825,762)   (14,450,731)     2,950,270
  Proceeds from sale of foreclosed real estate........       565,545      1,849,871      2,449,530
  Purchase of mortgage-backed securities..............   (10,926,796)    (1,001,897)            --
  Principal paydowns on mortgage-backed securities....     2,238,744        551,483      1,212,557
  Capital expenditures................................      (534,461)      (463,056)    (1,004,933)
  Purchase of stock in FHLB Dallas....................      (103,700)       (92,800)       (57,800)
  Contribution of capital to mutual holding company...            --             --       (100,000)
  Return of capital from mutual holding company.......       100,000             --             --
                                                         -----------    -----------    -----------
          Net cash (used in) provided by investing
            activities................................   (21,551,300)   (11,538,774)     1,374,815
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase (decrease) in deposits.................       516,941     14,467,835    (14,968,332)
  Net increase (decrease) in advance payments by
     borrowers for property taxes and insurance.......       191,615        620,477        (33,973)
  Advances from FHLB..................................     4,000,000             --      4,000,000
  Payment of FHLB advance.............................    (2,000,000)    (4,000,000)            --
  Proceeds from sale of common stock..................    14,026,182             --      6,614,376
  Proceeds from exercise of stock options.............        54,840         10,000             --
  Payment of ESOP loan................................      (298,226)            --             --
  Dividends paid......................................      (876,965)      (409,352)      (210,600)
                                                         -----------    -----------    -----------
          Net cash provided by (used in) financing
            activities................................    15,614,387     10,688,960     (4,598,529)
                                                         -----------    -----------    -----------
          Net (decrease) increase in cash and cash
            equivalents...............................    (2,858,049)     1,048,858       (634,770)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..........     8,051,464      7,002,606      7,637,376
                                                         -----------    -----------    -----------
CASH AND CASH EQUIVALENTS, END OF YEAR................   $ 5,193,415    $ 8,051,464    $ 7,002,606
                                                         ===========    ===========    ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       16
<PAGE>   20
 
                           JACKSONVILLE BANCORP, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 -- BASIS OF PRESENTATION AND REORGANIZATION
 
     The accompanying consolidated financial statements include the accounts of
Jacksonville Bancorp, Inc. (Company) and its wholly-owned subsidiaries
Jacksonville IHC, Inc. (IHC) and Jacksonville Savings and Loan Association
(Association) and its wholly-owned subsidiary JS&L Corporation (JS&L). The
Company, through its principal subsidiary, the Association, is primarily engaged
in attracting deposits from the general public and using those and other
available sources of funds to originate loans secured by single-family
residences located in the East Texas area. To a lesser extent, the Association
also originates construction loans, land loans, and consumer loans. IHC's main
activity is holding an intercompany loan receivable from the Association in
connection with the Association's employee stock ownership plan. JS&L's main
activity is the servicing of purchased residential mortgage notes receivable.
All significant intercompany transactions and balances are eliminated in
consolidation.
 
     On March 29, 1996, the Association and Jacksonville Federal Mutual Holding
Company (Mutual Holding Company) completed a second step conversion
(Reorganization). As part of the Reorganization, Jacksonville Bancorp, was
formed as a first-tier wholly-owned subsidiary of the Association. The Mutual
Holding Company was converted to an interim federal stock savings association
and simultaneously merged with and into the Association. At that point, the
Mutual Holding Company ceased to exist and 1,137,500 shares, or 60.8%, of the
outstanding Association's common stock owned by the Mutual Holding Company was
cancelled. A second interim savings and loan association (Interim) which was
formed by Jacksonville Bancorp solely for the Reorganization was then merged
with and into the Association. As a result of the merger of Interim with and
into the Association, the Association became a wholly-owned subsidiary of
Jacksonville Bancorp. Pursuant to an exchange ratio of 1.41785 shares for each
share of the Association common stock, the 737,734 outstanding public shares of
the Association were exchanged for approximately 1,045,996 shares of
Jacksonville Bancorp. The exchange ratio insured that the public stockholders of
the Association maintained a 39.2% ownership interest in Jacksonville Bancorp.
Concurrent with the Reorganization, Jacksonville Bancorp sold 1,618,409
additional shares to members of the Mutual Holding Company, employees of the
Association, and the public at a price of $10.00 per share. Reorganization and
offering costs of approximately $863,000 resulted in net proceeds from the
offering of approximately 14,026,000.
 
     Each depositor of the Association as of the effective date of the
Conversion will have upon liquidation of the Association a right to their pro
rata interest in a liquidation account established pursuant to regulations for
the benefit of such depositors. The Association maintains records to ensure such
rights will receive statutory priority as required. The reorganization was
accounted for as a change in corporate form with the historic basis of
accounting for the Association unchanged.
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Investment and Mortgage-Backed Securities
 
     The Association classifies and accounts for debt and equity securities as
follows:
 
     Held-to-Maturity
 
          Debt and equity securities that management has the positive intent and
     ability to hold until maturity are classified as held-to-maturity and are
     carried at their remaining unpaid principal balance, net of unamortized
     premiums or unaccreted discounts. Premiums are amortized and discounts are
     accreted using the level interest yield method over the estimated remaining
     term of the underlying security.
 
     Available-for-Sale
 
          Debt and equity securities that will be held for indefinite periods of
     time, including securities that may be sold in response to changes in
     market interest or prepayment rates, needs for liquidity and
 
                                       17
<PAGE>   21
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

     changes in the availability of and the yield of alternative investments are
     classified as available-for-sale. These assets are carried at market value.
     Market value is determined using published quotes as of the close of
     business. Unrealized gains and losses are excluded from earnings and
     reported net of tax as a separate component of retained earnings until
     realized.
 
     Trading Securities
 
          Debt and equity securities that are bought and held principally for
     the purpose of selling them in the near term are classified as trading
     securities and reported at market value, with unrealized gains and losses
     included in earnings.
 
  Premises and Equipment
 
     Land is carried at cost. Building, leasehold improvements, and furniture,
fixtures, and equipment are carried at cost, less accumulated depreciation and
amortization. Buildings and furniture, fixtures and equipment are depreciated
using the straight-line method over the estimated useful lives of the assets.
The cost of leasehold improvements is being amortized using the straight-line
method over the terms of the related leases.
 
Federal Income Taxes
 
     The Company and its subsidiaries plan to file a consolidated Federal income
tax return. The tax provision or benefit is based on income or loss reported for
financial statement purposes, and differs from amounts currently payable or
refundable because certain revenues and expenses are recognized for financial
reporting purposes differently than they are recognized for tax reporting
purposes. The cumulative effects of any temporary differences are reflected as
deferred income taxes using the liability method (see Note 11).
 
  Loans Receivable
 
     Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses, and net deferred loan origination fees and discounts.
Discounts on loans are recognized over the lives of the loans using the interest
method.
 
     The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Association's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, estimated value of any underlying
collateral, and current economic conditions. Currently, the allowance for loan
losses is formally reevaluated on a quarterly basis.
 
     Uncollectible interest on loans that are contractually past due is
chargedoff or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued, and income is subsequently recognized only to
the extent cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.
 
  Loans Held for Sale
 
     Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized by charges to earnings.
 
                                       18
<PAGE>   22
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

  Loan Origination and Commitment Fees and Related Costs
 
     Loan fees received are accounted for substantially in accordance with FASB
Statement No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases". Loan fees
and certain direct loan origination costs are deferred, and the net fee is
recognized as an adjustment to interest income over the contractual life of the
loans. Commitment fees and costs relating to commitments whose likelihood of
exercise is remote are recognized over the commitment period on a straight-line
basis. If the commitment is subsequently exercised during the commitment period,
the remaining unamortized commitment fee at the time of exercise is recognized
over the life of the loan as an adjustment of yield.
 
  Foreclosed Real Estate
 
     Real estate properties acquired through loan foreclosure are initially
recorded at the lower of cost (loan balance) or fair value, less estimated costs
of disposition, at the date of foreclosure. Costs relating to development and
improvement of property are capitalized, whereas costs relating to holding
property are expensed.
 
     Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its estimated net realizable value. Currently, all major
foreclosed real estate properties are formally reevaluated on a quarterly basis
to determine the adequacy of the allowance for losses.
 
     Gains on sale of foreclosed real estate are accounted for in accordance
with Statement of Financial Accounting Standards No. 66. When the borrower's
initial cash down payment does not meet the minimum requirements, the gain on
sale is deferred and recorded on the installment basis until such time as
sufficient principal payments are received to meet the minimum down payment
requirements. Losses on sale of foreclosed real estate are recognized at the
date of sale.
 
  Use of Estimates
 
     The preparation of financial consolidated statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
     Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
 
  Earnings Per Share
 
     Earnings per share have been calculated by dividing net income by the
weighted average number of shares of common stock outstanding for the year. The
effect of shares issuable under stock options has been accounted for using the
treasury stock method. As discussed in Note 14, the Association accounts for the
202,048 shares issued to its Employee Stock Ownership Plans (ESOP) (72,575
exchange shares and 129,473 newly issued shares) in accordance with Statement of
Position 93-6. As a result, shares controlled by the ESOP are not considered in
the weighted average number of shares of common stock outstanding until the
shares are committed for allocation to an employee's individual account. All per
share amounts and outstanding shares previously reported for the Association
have been adjusted to reflect the Reorganization using the exchange ratio of
1.41785 and adjusted for additional shares acquired by the ESOP. While the
 
                                       19
<PAGE>   23
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

number of outstanding shares has been restated for all periods to reflect the
Reorganization, earnings on the proceeds from the Reorganization are reflected
only in the third and fourth quarters of 1996. For the year ended September 30,
1994, earnings per share was calculated by dividing net income since April 1,
1994, the date of the reorganization, by the weighted average number of common
shares outstanding. The Association reported net income of $1,057,003 in the
period from April 1 to September 30, 1994.
 
     In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." This statement requires
either; (a) recognition of compensation cost in earnings for stock-based
compensation plans based upon the fair value of stock options; or (b) pro forma
disclosures of what earnings and per share amounts would have been had the fair
value method been used for expense recognition. Management is continuing to
evaluate the impact of this statement and plans to present pro forma disclosures
in future financial statements.
 
  Mortgage Servicing Rights
 
     Effective October 1, 1995 with the adoption of Financial Accounting
Standards No. 122 (SFAS No. 122) entitled "Accounting for Mortgage Servicing
Rights", the cost of mortgage servicing rights is amortized in proportion to,
and over the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the estimated fair value of those rights.
Fair values are estimated using discounted cash flows based on current market
interest rates and market data regarding sales of mortgage servicing rights. The
Association sells predominately single-family first mortgage loans with simple
risk characteristics and uses a single stratum for purposes of measuring
impairment. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights exceed their fair value.
 
                                       20
<PAGE>   24
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
  Cash Flows
 
     For purposes of the statement of cash flows, the Association considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. A summary of cash and cash equivalents
follows:
 
<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30,
                                                        --------------------------------------
                                                           1996          1995          1994
                                                        ----------    ----------    ----------
    <S>                                                 <C>           <C>           <C>
    Cash on hand and in banks........................   $2,777,737    $2,248,481    $2,380,049
    Interest bearing deposits........................    2,415,678     5,802,983     4,622,557
                                                        ----------    ----------    ----------
    Cash and cash equivalents........................   $5,193,415    $8,051,464    $7,002,606
                                                         =========     =========     =========
    Supplemental disclosure:
    Cash paid for:
         Interest....................................   $8,439,688    $7,103,637    $5,628,000
                                                         =========     =========     =========
         Income taxes................................   $  500,000    $  565,000    $1,290,000
                                                         =========     =========     =========
    Non-cash operating activities:
         Change in deferred taxes on net unrealized
           gains and losses on securities
           available-for-sale........................   $   13,957    $  (64,809)   $  100,004
                                                         =========     =========     =========
    Non-cash investing activities:
         Change in net unrealized gains and losses on
           securities available-for-sale.............   $  (41,051)   $  202,379    $ (294,129)
                                                         =========     =========     =========
         Transfer from loans to real estate acquired
           through foreclosure.......................   $  410,000    $  958,000    $1,008,000
                                                         =========     =========     =========
         Loans made relating to sale of foreclosed
           real estate...............................   $1,308,536    $1,502,600    $1,641,330
                                                         =========     =========     =========
    Non-cash financing activities:
         Reduction of ESOP obligation recorded as
           compensation..............................   $       --    $  102,374    $       --
                                                         =========     =========     =========
</TABLE>
 
                                       21
<PAGE>   25
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3 -- INVESTMENT SECURITIES
 
     The amortized cost and estimated market values of investments in debt
securities are as follows as of September 30, 1996:
 
<TABLE>
<CAPTION>
                                                                AVAILABLE-FOR-SALE
                                               ----------------------------------------------------
                                                                                         ESTIMATED
                                               AMORTIZED     UNREALIZED    UNREALIZED      MARKET
                                                  COST         GAINS         LOSSES        VALUE
                                               ----------    ----------    ----------    ----------
    <S>                                        <C>           <C>           <C>           <C>
    U.S. Agency securities..................   $7,491,551    $       --     $ 132,801    $7,358,750
                                                =========     =========      ========     =========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 HELD-TO-MATURITY
                                              ------------------------------------------------------
                                                                                          ESTIMATED
                                               AMORTIZED     UNREALIZED    UNREALIZED      MARKET
                                                 COST          GAINS         LOSSES         VALUE
                                              -----------    ----------    ----------    -----------
    <S>                                       <C>            <C>           <C>           <C>
    U.S. Treasury notes....................   $ 8,979,850     $  7,329      $  44,514    $ 8,942,665
    U.S. Agency securities.................    17,466,898       70,623        102,097     17,435,424
                                              -----------    ----------    ----------    -----------
                                              $26,446,748     $ 77,952      $ 146,611    $26,378,089
                                               ==========     ========       ========     ==========
</TABLE>
 
     The amortized cost and estimated market values of investments in debt
securities are as follows as of September 30, 1995:
 
<TABLE>
<CAPTION>
                                                                 AVAILABLE-FOR-SALE
                                                ----------------------------------------------------
                                                                                          ESTIMATED
                                                AMORTIZED     UNREALIZED    UNREALIZED      MARKET
                                                   COST         GAINS         LOSSES        VALUE
                                                ----------    ----------    ----------    ----------
    <S>                                         <C>           <C>           <C>           <C>
    U.S. Agency securities...................   $6,500,000      $2,000       $ 93,750     $6,408,250
                                                 =========    ========       ========      =========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 HELD-TO-MATURITY
                                              ------------------------------------------------------
                                                                                          ESTIMATED
                                               AMORTIZED     UNREALIZED    UNREALIZED      MARKET
                                                 COST          GAINS         LOSSES         VALUE
                                              -----------    ----------    ----------    -----------
    <S>                                       <C>            <C>           <C>           <C>
    U.S. Treasury notes....................   $12,491,643     $  46,666     $  26,400    $12,511,909
    U.S. Agency securities.................    24,007,534        55,616       183,830     23,879,320
                                              -----------    ----------    ----------    -----------
                                              $36,499,177     $ 102,282     $ 210,230    $36,391,229
                                               ==========      ========      ========     ==========
</TABLE>
 
     The scheduled maturities of securities at September 30, 1996 were as
follows:
 
<TABLE>
<CAPTION>
                                                HELD-TO-MATURITY            AVAILABLE-FOR-SALE
                                                   SECURITIES                   SECURITIES
                                           --------------------------    ------------------------
                                                           ESTIMATED                   ESTIMATED
                                            AMORTIZED       MARKET       AMORTIZED       MARKET
                                              COST           VALUE          COST         VALUE
                                           -----------    -----------    ----------    ----------
    <S>                                    <C>            <C>            <C>           <C>
    Due in one year or less.............   $ 9,004,738    $ 9,069,918    $       --    $       --
    Due from one to five years..........    12,442,010     17,308,171     4,491,775     4,431,250
    Due from six to ten years...........            --             --     2,999,776     2,927,500
                                           -----------    -----------    ----------    ----------
                                           $26,446,748    $26,378,089    $7,491,551    $7,358,750
                                            ==========     ==========     =========     =========
</TABLE>
 
                                       22
<PAGE>   26
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3 -- INVESTMENT SECURITIES -- (CONTINUED)

     The scheduled maturities of securities at September 30, 1995 were as
follows:
 
<TABLE>
<CAPTION>
                                                HELD-TO-MATURITY            AVAILABLE-FOR-SALE
                                                   SECURITIES                   SECURITIES
                                           --------------------------    ------------------------
                                                           ESTIMATED                   ESTIMATED
                                            AMORTIZED       MARKET       AMORTIZED       MARKET
                                              COST           VALUE          COST         VALUE
                                           -----------    -----------    ----------    ----------
    <S>                                    <C>            <C>            <C>           <C>
    Due in one year or less.............   $15,010,157    $14,986,791    $       --    $       --
    Due from one to five years..........    21,489,020     21,404,438     3,500,000     3,426,250
    Due from five to ten years..........            --             --     3,000,000     2,982,000
                                           -----------    -----------    ----------    ----------
                                           $36,499,177    $36,391,229    $6,500,000    $6,408,250
                                            ==========     ==========     =========     =========
</TABLE>
 
NOTE 4 -- MORTGAGE-BACKED SECURITIES
 
     The amortized cost and estimated market values of mortgage-backed
securities are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                 HELD-TO-MATURITY
                                              ------------------------------------------------------
                                                                                          ESTIMATED
                                               AMORTIZED     UNREALIZED    UNREALIZED      MARKET
              SEPTEMBER 30, 1996                 COST          GAINS         LOSSES         VALUE
    ---------------------------------------   -----------    ----------    ----------    -----------
    <S>                                       <C>            <C>           <C>           <C>
    GNMA certificates......................   $ 1,283,657     $ 41,817      $ 33,256     $ 1,292,218
    FHLMC certificates.....................     3,553,077       21,408        37,966       3,536,519
    FNMA certificates......................     7,270,450        9,923         1,403       7,278,970
                                              -----------    ----------    ----------    -----------
                                              $12,107,184     $ 73,148      $ 72,625     $12,107,707
                                               ==========     ========      ========      ==========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  HELD-TO-MATURITY
                                                ----------------------------------------------------
                                                                                          ESTIMATED
                                                AMORTIZED     UNREALIZED    UNREALIZED      MARKET
               SEPTEMBER 30, 1995                  COST         GAINS         LOSSES        VALUE
    -----------------------------------------   ----------    ----------    ----------    ----------
    <S>                                         <C>           <C>           <C>           <C>
    GNMA certificates........................   $1,521,150     $ 40,387      $  9,491     $1,552,046
    FHLMC certificates.......................    1,920,534       23,278        15,003      1,928,809
                                                ----------    ----------    ----------    ----------
                                                $3,441,684     $ 63,665      $ 24,494     $3,480,855
                                                 =========     ========      ========      =========
</TABLE>
 
                                       23
<PAGE>   27
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 5 -- LOANS RECEIVABLE
 
     Loans receivable are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,
                                                                ----------------------------
                                                                    1996            1995
                                                                ------------    ------------
    <S>                                                         <C>             <C>
    Mortgage loans (principally conventional):
         Single family residential...........................   $132,599,211    $117,852,980
         Multi-family residential............................      1,268,331       1,183,246
         Commercial..........................................      8,604,174       8,166,799
         Construction........................................      6,996,272       4,311,600
         Land................................................      4,394,732       3,753,936
                                                                ------------    ------------
                                                                 153,862,720     135,268,561
    Business and Consumer loans:
         Commercial business.................................        218,984         232,234
         Consumer:
              Secured by deposits............................      2,289,873       1,921,602
              Secured by vehicles............................      2,961,000         960,000
              Personal real estate loans.....................      2,685,808       1,253,477
              Other..........................................        921,535         525,680
                                                                ------------    ------------
                                                                   9,077,200       4,892,993
                                                                ------------    ------------
                   Total loans...............................    162,939,920     140,161,554
         Less:
              Undisbursed portion of loans in process........     (2,956,166)     (2,229,575)
              Unearned discounts.............................        (89,217)       (105,860)
              Net deferred loan-origination fees.............       (760,411)       (893,184)
              Allowance for loan losses......................     (1,100,000)     (1,000,000)
                                                                ------------    ------------
                   Net loans.................................   $158,034,126    $135,932,935
                                                                 ===========     ===========
</TABLE>
 
     The Association at September 30, 1996 had mortgage loan commitments
outstanding substantially all of which are at rates to be determined at closing
(rates range from 7.25% to 9.00%) as follows:
 
<TABLE>
                    <S>                                        <C>
                    Variable-rate                              $  586,922
                    Fixed-rate                                  4,785,563
                                                               ----------
                                                               $5,372,485
                                                                =========
</TABLE>
 
     The Association had committed to sell a substantial portion of fixed-rate
loans when funded.
 
     Activity in the allowance for loan losses is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30,
                                                            --------------------------------------
                                                               1996          1995          1994
                                                            ----------    ----------    ----------
<S>                                                         <C>           <C>           <C>
Balance at beginning of period...........................   $1,000,000    $1,000,087    $  996,480
     Provision charged to income.........................      100,000        25,197        18,319
     Charge-offs.........................................           --       (56,962)      (23,865)
     Recoveries..........................................           --        31,678         9,153
                                                            ----------    ----------    ----------
Balance at end of period.................................   $1,100,000    $1,000,000    $1,000,087
                                                             =========     =========     =========
</TABLE>
 
                                       24
<PAGE>   28
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 5 -- LOANS RECEIVABLE -- (CONTINUED)

     At September 30, 1996 and 1995, the Association did not have any material
loans which are impaired as defined by FASB Statement No. 114, as amended by
FASB Statement No. 118. However, the Association did have non-accrual loans, for
which FASB Statement No. 114 does not apply, of $815,000 and $563,000 at
September 30, 1996 and 1995, respectively. The Association is not committed to
lend additional funds to debtors whose loans have been modified.
 
     Loans to officers and directors totaled $361,000 and $531,000 at September
30, 1996 and 1995, respectively.
 
     Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
these loans is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,
                                                         -----------------------------------------
                                                            1996           1995           1994
                                                         -----------    -----------    -----------
<S>                                                      <C>            <C>            <C>
Mortgage loans underlying FHLMC pass-through
  securities..........................................   $47,171,302    $31,096,293    $19,587,287
                                                          ==========     ==========     ==========
</TABLE>
 
     Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $1,125,000 and $861,000 at September 30, 1996 and
1995, respectively.
 
NOTE 6 -- REAL ESTATE
 
     An analysis of the activity in the allowance for losses in real estate
acquired in settlement of loans follows:
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED SEPTEMBER 30,
                                                        --------------------------------------
                                                           1996          1995          1994
                                                        ----------    ----------    ----------
    <S>                                                 <C>           <C>           <C>
    Balance at beginning of period...................   $2,050,507    $2,229,666    $2,799,504
         Provisions for losses.......................     (102,142)       16,136        54,284
         Charge-offs.................................     (256,838)     (195,295)     (744,356)
         Recoveries..................................           --            --       120,234
                                                        ----------    ----------    ----------
    Balance at end of period.........................   $1,691,527    $2,050,507    $2,229,666
                                                         =========     =========     =========
</TABLE>
 
     For regulatory reporting purposes the above amounts are reported as
"specific" reserves and are allocated to specific properties. The Association
carries its "general valuation allowance" as an allowance for loan losses (see
Note 5).
 
NOTE 7 -- ACCRUED INTEREST RECEIVABLE
 
     Accrued interest receivable is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,
                                                                ------------------------
                                                                   1996          1995
                                                                ----------    ----------
        <S>                                                     <C>           <C>
        Investment securities................................   $  548,638    $  593,747
        Mortgage-backed securities...........................       82,575        27,352
        Loans receivable.....................................    1,001,829       827,249
                                                                ----------    ----------
                                                                $1,633,042    $1,448,348
                                                                 =========     =========
</TABLE>
 
                                       25
<PAGE>   29
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 8 -- PREMISES AND EQUIPMENT
 
     Premises and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                            SEPTEMBER 30,
                                                       ------------------------      ESTIMATED
                                                          1996          1995        USEFUL LIVES
                                                       ----------    ----------    --------------
    <S>                                                <C>           <C>           <C>
    Land............................................   $  466,718    $  466,718          --
    Building and improvements.......................    3,252,841     2,761,684    5 to 40 years
    Furniture, fixtures and equipment...............    1,773,837     1,730,531    3 to 15 years
                                                       ----------    ----------
                                                        5,493,396     4,958,933
         Less accumulated depreciation..............    2,237,329     2,050,210
                                                       ----------    ----------
                                                       $3,256,067    $2,908,723
                                                        =========     =========
</TABLE>
 
NOTE 9 -- DEPOSITS
 
     Deposits are summarized as follows:
 
<TABLE>
<CAPTION>
                                                         1996                       1995
                                                -----------------------    -----------------------
                                                   AMOUNT       PERCENT       AMOUNT       PERCENT
                                                ------------    -------    ------------    -------
    <S>                                         <C>             <C>        <C>             <C>
    Demand and NOW Accounts..................   $ 13,176,028       7.56    $ 12,396,447       7.14
    Money market.............................     17,648,483      10.12      17,929,682      10.32
    Passbook savings.........................     11,423,531       6.55      10,765,387       6.20
                                                ------------    -------    ------------    -------
                                                  42,248,042      24.23      41,091,516      23.66
                                                ------------    -------    ------------    -------
    Certificates of deposit:
         2% to 3%............................             --         --              --         --
         3% to 4%............................      3,973,491       2.28      14,427,572       8.30
         4% to 5%............................     46,339,139      26.58      38,928,883      22.40
         5% to 6%............................     50,047,745      28.72      43,083,404      24.77
         6% to 7%............................     31,368,135      17.99      35,915,162      20.65
         7% to 8%............................        212,336        .12         232,219        .14
         8% to 9%............................        138,999        .08         132,190        .08
                                                ------------    -------    ------------    -------
                                                 132,079,845      75.77     132,719,430      76.34
                                                ------------    -------    ------------    -------
                                                $174,327,887     100.00    $173,810,946     100.00
                                                 ===========     ======     ===========     ======
</TABLE>
 
     The aggregate amount of short-term jumbo certificates of deposit with a
minimum denomination of $100,000 was approximately $17,171,000 and $16,228,000
at September 30, 1996 and 1995, respectively.
 
     Scheduled maturities of certificates of deposit are as follows:
 
<TABLE>
<CAPTION>
                                                         1996                       1995
                                                -----------------------    -----------------------
                TERM TO MATURITY                   AMOUNT       PERCENT       AMOUNT       PERCENT
    -----------------------------------------   ------------    -------    ------------    -------
    <S>                                         <C>             <C>        <C>             <C>
    Within 12 months.........................   $126,542,420      95.81    $123,972,678      93.41
    13 to 24 months..........................      5,537,425       4.19       8,680,887       6.54
    25 to 36 months..........................             --         --          65,865        .05
    Greater than 36 months...................             --         --              --         --
                                                ------------    -------    ------------    -------
                                                $132,079,845     100.00    $132,719,430     100.00
                                                 ===========     ======     ===========     ======
</TABLE>
 
                                       26
<PAGE>   30
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 9 -- DEPOSITS -- (CONTINUED)

     Interest expense on deposits is summarized as follows:
 
<TABLE>
<CAPTION>
                                                               1996          1995
                                                            ----------    ----------
            <S>                                             <C>           <C>
            Money Market.................................   $  579,466    $  642,044
            Passbook savings.............................      338,728       328,008
            NOW..........................................      205,815       239,489
            Certificates of deposit......................    7,266,634     5,714,504
                                                            ----------    ----------
                                                            $8,390,643    $6,924,045
                                                             =========     =========
</TABLE>
 
     The Federal Reserve Board requires all depository institutions to maintain
reserves against their transaction accounts (primarily NOW and Super NOW
checking accounts) and non-personal time deposits. Required reserves must be
maintained in the form of vault cash or a non-interest-bearing account at a
Federal Reserve Bank.
 
     In September, 1996 Congress passed legislation to recapitalize the Savings
Association Insurance Fund (SAIF) which insures Association depositors up to
applicable limits established by the Federal Deposit Insurance Corporation
(FDIC). This recapitalization will result in a substantial reduction in future
insurance premiums (based on current rates) and will put the Association at the
same premium level as a well capitalized commercial bank. This one time
assessment of $1,070,000 was accrued as a charge to expense in the accompanying
September 30, 1996 statement of earnings.
 
NOTE 10 -- BORROWINGS
 
     During June, 1996, the Association borrowed $4,000,000 from the Federal
Home Loan Bank of Dallas and repaid $2,000,000 of the advance in September,
1996. The $2,000,000 balance at September 30, 1996, bears interest at 5.71% and
is due June, 2003. The note is secured by a pledge of Federal Home Loan Bank
stock.
 
     On September 20, 1994, the Association borrowed $4,000,000 from the Federal
Home Loan Bank of Dallas. The advance bears interest at an initial rate of 5.15%
and resets quarterly based upon a three-month LIBOR plus two basis points.
Interest is payable quarterly with the principal balance due September 20, 2001.
Federal Home Loan Bank stock is pledged as collateral for the advance. This
advance was repaid during the year ended September 30, 1995.
 
NOTE 11 -- FEDERAL INCOME TAXES
 
     The Company and its subsidiaries plan to file a consolidated federal income
tax return. If certain conditions are met in determining taxable income, the
Association is allowed a special bad-debt deduction based on a percentage of
taxable income (presently 8 percent) or on specified experience formulas. This
special bad debt deduction is repealed for years beginning after January 1,
1997.
 
     Federal income tax receivable (payable) shown on the accompanying
consolidated statements of condition consists of the following:
 
<TABLE>
<CAPTION>
                                                                 1996        1995
                                                               --------    --------
            <S>                                                <C>         <C>
            Current.........................................   $224,635    $200,967
            Deferred........................................    360,152     427,195
                                                               --------    --------
                                                               $584,787    $628,162
                                                               ========    ========
</TABLE>
 
                                       27
<PAGE>   31
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 11 -- FEDERAL INCOME TAXES -- (CONTINUED)

     The provision for Federal income taxes differs from that computed at the
statutory corporate tax rate as follows:
 
<TABLE>
<CAPTION>
                                                            1996        1995          1994
                                                          --------    ---------    ----------
    <S>                                                   <C>         <C>          <C>
    Computed "expected" tax expense....................   $776,573    $ 667,153    $1,219,173
    Adjustments:
         SFAS No. 122 mortgage servicing rights........    (78,367)          --            --
         Bad debt deduction and real estate losses.....    (12,200)    (101,799)      (42,514)
         Other.........................................     17,994        7,792         7,140
                                                          --------    ---------    ----------
                                                          $704,000    $ 573,146    $1,183,799
                                                          ========    =========     =========
</TABLE>
 
     Deferred taxes are provided for timing differences in the recognition of
income and expense for tax and financial statement purposes. The sources and
effects of these differences are as follows:
 
<TABLE>
<CAPTION>
                                                                   1996        1995        1994
                                                                 --------    --------    --------
<S>                                                              <C>         <C>         <C>
Differed loan fees............................................   $ 45,270    $ 14,881    $ 41,657
Accrued pension liability.....................................    (15,877)    (19,335)    (42,233)
FHLB stock dividends..........................................     35,360      31,552      19,652
Deferred compensation.........................................     21,707          --          --
Other, net....................................................     (5,460)    (10,098)     (6,076)
                                                                 --------    --------    --------
                                                                 $ 81,000    $ 17,000    $ 13,000
                                                                 ========    ========    ========
</TABLE>
 
     The deferred Federal income tax receivable shown in the accompanying
balance sheets at September 30, was comprised of the following:
 
<TABLE>
<CAPTION>
                                                                     1996        1995
                                                                   --------    --------
        <S>                                                        <C>         <C>
        Deferred income tax assets:
             Net unrealized losses on available for sale
               securities.......................................   $ 45,162    $ 31,195
             Deferred loan fees.................................    258,000     303,683
             Deferred compensation and other employee
               benefits.........................................    321,000     314,996
             Other..............................................         --         321
                                                                   --------    --------
                  Total deferred income tax assets..............    624,162     650,195
        Deferred income tax liabilities:
             FHLB stock dividends...............................    130,000      94,728
             Book/tax depreciation difference...................    133,000     127,534
             Other..............................................      1,010         738
                                                                   --------    --------
                  Total deferred income tax liabilities.........    264,010     223,000
                                                                   --------    --------
             Net deferred income tax assets.....................   $360,152    $427,195
                                                                   ========    ========
</TABLE>
 
     Stockholders' equity at September 30, 1996 and 1995, includes approximately
$3,000,000, for which no deferred Federal income tax liability (approximately
$1,020,000) has been recognized. These amounts represent an allocation of bad
debt deductions for tax purposes only. Reduction of amounts so allocated for
purposes other than tax bad debt losses would create income for tax purposes
only, which would be subject to the then-current corporate income tax rate.
 
                                       28
<PAGE>   32
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 12 -- STOCKHOLDERS' EQUITY
 
     The Mutual Holding Company had requested and received approval from the
Office of Thrift Supervision to waive receipt of dividends on it shares through
march 31, 1996. Dividends declared by the Association on Mutual Holding Company
shares total $1,365,000 at September 30, 1996. Since the Mutual Holding Company
ceased to exist effective March 29, 1996, this amount remains restricted for the
payment of dividends to Company stockholders.
 
NOTE 13 -- PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION
 
     The Association has a qualified defined benefit retirement plan covering
substantially all of its employees. The benefits are based on each employee's
years of service and the average of the highest compensation for sixty
consecutive completed calendar months. The benefits are reduced by a specified
percentage of the employee's social security benefit. An employee becomes fully
vested upon completion of five years of qualifying service. It is the policy of
the Association to fund an amount between the minimum and the maximum amount
that can be deducted for Federal income tax purposes.
 
     The following table sets forth the plan's funded status and amounts
recognized in the Association's consolidated statements of financial condition
at September 30:
 
     Actuarial present value of benefit obligations:
 
<TABLE>
<CAPTION>
                                                                   1996          1995
                                                                ----------    ----------
        <S>                                                     <C>           <C>
        Accumulated benefit obligation:
             Vested..........................................   $1,453,490    $1,143,959
             Nonvested.......................................      122,567        17,722
                                                                ----------    ----------
                                                                 1,576,057     1,161,681
        Effect of projected future compensation..............      579,773     1,159,055
                                                                ----------    ----------
        Projected benefit obligation for service rendered to
          date...............................................    2,155,830     2,320,736
        Plan assets at fair value; primarily cash and
          short-term investments.............................    2,328,220     2,054,914
                                                                ----------    ----------
        Plan assets in excess of (less than) projected
          benefit obligation.................................   $  172,390    $ (265,822)
                                                                 =========     =========
</TABLE>
 
     The components of computed net pension expense for the years ended
September 30, are as follows:
 
<TABLE>
<CAPTION>
                                                               1996        1995        1994
                                                             --------    --------    --------
    <S>                                                      <C>         <C>         <C>
         Service cost -- benefits earned during the
           year...........................................   $127,148    $118,410    $144,114
         Interest cost on projected benefit obligation....    155,090     148,447     162,599
         Actual return on plan assets.....................   (118,323)   (119,522)    (64,369)
         Net amortization and deferral....................    (10,411)       (514)     (7,486)
                                                             --------    --------    --------
              Net pension expense.........................   $153,504    $146,821    $234,858
                                                             ========    ========    ========
         Assumptions used to develop the net periodic
           pension cost were:
         Discount rate....................................       7.00%       6.75%       5.75%
         Expected long-term rate of return on assets......       6.50%       6.50%       5.50%
         Rate on increase in compensation levels..........       5.00%       5.00%       6.00%
</TABLE>
 
     The Association has a defined contribution thrift plan in effect for
substantially all employees. Compensation and benefits expense includes $39,508
in 1996, $39,710 in 1995, and $29,572 in 1994 for such plan. The thrift plan
permits employee contributions in the amount of 1% to 6% of compensation. The
 
                                       29
<PAGE>   33
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 13 -- PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION -- (CONTINUED)

Association contributes for each thrift plan participant a matching contribution
equal to 50% of the participant's contribution. In addition to the required
matching contributions, the Association may contribute an additional amount of
matching contributions determined by the board of directors at its discretion.
 
     In addition to the aforementioned benefit plans, the Association has
deferred compensation arrangements with key officers and certain directors. The
deferred compensation is funded through life insurance contracts and calls for
annual payments for a period of ten years. The Association funds the cost of the
insurance for the officers while the cost of directors insurance is funded
through a reduction in their normal directors fees. Vesting occurs after
specified years of service and payments begin upon retirement. Expense reported
in the statement of earnings under these arrangements totalled approximately
$73,000 in 1996, $33,000 in 1995, and $121,000 in 1994. At September 30, 1996
and 1995, the Association had recorded a net liability of $271,000 and $218,000,
respectively, related to such arrangements.
 
NOTE 14 -- EMPLOYEE STOCK OWNERSHIP PLAN
 
     The Association has established an Employee Stock Ownership Plan (ESOP)for
employees age 21 or older who have at least one year of credited service with
the Association. The ESOP will be funded by the Association's contributions made
in cash (which primarily will be invested in Company common stock) or common
stock. Benefits may be paid either in shares of common stock or in cash. The
Association accounts for its ESOP in accordance with the AICPA's Statement of
Position 93-6.
 
     During 1994 the ESOP borrowed $511,870 from a local bank and used the
proceeds to purchase 51,187 shares of Association common stock (exchanged for
72,575 shares of Jacksonville Bancorp stock in 1996). The balance of this note
was paid in full in connection with the Reorganization. Also, in conjunction
with the Reorganization, the ESOP acquired an additional 129,473 shares of
common stock of the Company.
 
     The Association makes annual contributions to the ESOP equal to the debt
service less dividends received on the unallocated shares. The ESOP shares have
been pledged as collateral for the loan. As the loan is repaid, shares are
released from collateral and committed for allocation to active employees, based
on the proportion of debt service paid in the year. The shares pledged as
collateral are reported as stock acquired by the ESOP plan in the statement of
financial condition. As shares are released from collateral, the Association
reports compensation expense equal to the average fair value of the shares over
the period in which the shares were earned. Also, the shares become outstanding
for earnings per share computations. Dividends on allocated shares are recorded
as a reduction of retained earnings and dividends on unallocated shares are
recorded as a reduction of the loan and accrued interest. ESOP compensation
expense was $153,000, $114,000, and $67,000 for the years ended September 30,
1996, 1995, and 1994, respectively. At September 30, 1996 and 1995, 49,226 and
21,461 ESOP shares, respectively, have been released for allocation of which
28,792 and 12,527 were allocated to participants At September 30, 1996 and 1995,
respectively. The 152,822 unreleased shares at September 30, 1996 have a fair
value of approximately $1,950,000.
 
NOTE 15 -- MANAGEMENT RECOGNITION PLAN
 
     As part of the initial conversion, the Association adopted a Management
Recognition Plan (MRP) to enable the Association to provide officers and
employees with a proprietary interest in the Association as incentive to
contribute to its success.
 
     The Association contributed $292,500 to the Trust and the Trust purchased
29,250 shares of common stock (exchanged for 41,472 shares of Jacksonville
Bancorp stock in 1996). The committee appointed by the board of directors on
March 31, 1994 granted all 41,472 shares to 13 officers.
 
     The shares granted are in the form of restricted stock to be earned and
payable over a three-year period at the rate of one-third per year beginning
March 31, 1995. Compensation expense in the amount of the fair market value of
the common stock at the date of the grant to the officer or employee is being
recognized pro
 
                                       30
<PAGE>   34
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 15 -- MANAGEMENT RECOGNITION PLAN -- (CONTINUED)

rata over the three years during which the shares are earned and payable. MRP
expense included in compensation and benefits in the accompanying consolidated
statements of earnings totalled $97,500, $106,000 and $65,000 for the years
ended September 30, 1996, 1995 and 1994, respectively.
 
NOTE 16 -- STOCK OPTION PLANS
 
     Certain directors, officers and employees have options to purchase shares
of the Associations' common stock under its 1994 Stock Incentive Plans. The
option price is the fair market value at the date of grant. The options are
exercisable beginning September 30, 1994 and expire March 31, 2004. Under the
option plans, 73,123 shares were reserved for issuance and at September 30, 1994
no shares remain available for future grant to directors, officers and employees
on a merit basis. In connection with the formation of the Company and issuance
of additional stock effective March 31, 1996, the shares under option were
converted to Company shares at a ratio of 1.41785 for each share under option.
The option price per share was adjusted according to $7.05 per share. A summary
of transactions follows:
 
<TABLE>
<CAPTION>
                                                                    NUMBER     AGGREGATE
                                                                      OF        OPTION
                                                                    SHARES       PRICE
                                                                    -------    ---------
        <S>                                                         <C>        <C>
        Options outstanding at September 30, 1994................   103,677    $ 731,230
             options exercised...................................     1,418       10,000
                                                                    -------    ---------
        Options outstanding at September 30, 1995................   102,259    $ 721,230
             options exercised...................................     7,775       54,840
                                                                    -------    ---------
        Options outstanding at September 30, 1996 (excise price
          of $7.05 per share)....................................    94,484    $ 666,390
                                                                    =======     ========
</TABLE>
 
NOTE 17 -- COMMITMENTS AND CONTINGENCIES
 
     In the ordinary course of business, the Company and subsidiaries have
various outstanding commitments and contingent liabilities that are not
reflected in the accompanying consolidated financial statements. In addition,
the Company and subsidiaries are defendants in certain claims and legal actions
arising in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material adverse effect on the consolidated financial
position of the Company and subsidiaries.
 
     The Association is obligated under noncancelable operating leases for
computer equipment. Leases are generally short term and the remaining commitment
at September 30, 1996 is not significant to the Company's operations or
financial condition.
 
NOTE 18 -- REGULATORY MATTERS
 
     The Association is required to meet certain tangible, core, and risk-based
capital requirements as specified by Federal regulatory agencies. Tangible
capital generally consists of total stockholder's equity minus certain
intangible assets. Core capital generally consists of tangible capital plus
certain qualifying items. The risk-based capital requirements are dependent upon
certain risk factors related to both recorded assets and off-balance sheet
commitments and obligations.
 
                                       31
<PAGE>   35
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 18 -- REGULATORY MATTERS -- (CONTINUED)

     The following schedule presents the Association's regulatory capital ratio
as of September 30, 1996:
 
<TABLE>
<CAPTION>
                                                                    CORE      TANGIBLE    RISK-BASED
                                                                   CAPITAL    CAPITAL      CAPITAL
                                                                   -------    --------    ----------
                                                                        (DOLLARS IN THOUSANDS)
<S>                                                                <C>        <C>         <C>
Consolidated Stockholders' equity...............................   $35,431    $ 35,431     $ 35,431
Capitalization of Jacksonville Bancorp, Inc. ...................     6,993       6,993        6,993
                                                                   -------    --------    ---------
          Total stockholder's equity for Association............    28,438      28,438       28,438
Unrealized losses on available-for-sale securities..............        88          88           88
General loan loss allowance.....................................        --          --        1,100
                                                                   -------    --------    ---------
Regulatory capital..............................................    28,526      28,526       29,626
Minimum capital requirement.....................................     6,496       3,248        8,872
                                                                   -------    --------    ---------
          Amount in excess of requirement.......................   $22,030    $ 25,278     $ 20,754
                                                                   =======    ========    =========
Regulatory capital as a percentage of assets:
     Actual percentage..........................................    13.17%      13.17%       26.71%
                                                                   =======     =======    =========
     Required percentage........................................     3.00%       1.50%        8.00%
                                                                   =======     =======    =========
</TABLE>
 
NOTE 19 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
 
     The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the financial statements. The
contractual amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
 
     The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as they
do for on-balance-sheet instruments. Unless noted otherwise, the Company
generally requires collateral to support financial instruments with credit risk.
 
     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 the majority of the commitments are
expected to be funded, the total commitment amounts represent future expected
cash requirements. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained if deemed necessary by the
Company upon extension of credit is based in part on management's credit
evaluation of the counterpart. Collateral held varies but consists principally
of residential real estate and deposits.
 
NOTE 20 -- SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
 
     The economy of the Company's market area, East Texas, has in the past been
directly tied to the oil and gas industry. Oil and gas prices have had an
indirect effect on the Association's business. Although the Association has a
diversified loan portfolio, a significant portion of its loans are secured by
real estate. Repayment of these loans is in part dependent upon the economic
conditions in the market area. Part of the risk associated with real estate
loans has been mitigated since much of this group represents loans secured by
residential dwellings that are primarily owner occupied. Losses on this type of
loan have historically been less than those on speculative and commercial
properties. The Association's loan policy requires appraisal prior to funding
any real estate loans and outlines the appraisal requirements on those renewing.
 
                                       32
<PAGE>   36
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 21 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
 
  Cash and Interest Bearing Deposits
 
     For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
 
  Investment and Mortgage-Backed Securities
 
     For securities held as investments, fair value equals quoted market price,
if available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
 
  Accrued Interest
 
     The carrying amounts of accrued interest approximates their fair values.
 
  Loans Receivable
 
     For certain homogeneous categories of loans, such as residential mortgages,
fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
 
  Deposit Liabilities
 
     The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
 
  Borrowings
 
     Rates currently available to the Association for debt with similar terms
and remaining maturities are used to estimate fair value of existing debt.
 
  Commitments to Extend Credit and Standby Letters of Credit
 
     At September 30, 1996 the Association had not issued any standby letters of
credit. Commitments to extend credit totalled $5,372,000 at September 30, 1996
and consisted primarily of agreements to fund mortgage loans at the prevailing
rates based upon acceptable collateral. Fees charged for these commitments are
not significant to the operations or financial position of the Association and
primarily represent a recovery of underwriting costs.
 
     The Company has not been required to perform on any financial guarantees
during the past two years. The Company has not incurred any losses on its
commitments in the last two years.
 
                                       33
<PAGE>   37
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 21 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)

     The estimated fair values of the Company's financial instruments at
September 30, are as follows:
 
<TABLE>
<CAPTION>
                                                     1996                            1995
                                         ----------------------------    ----------------------------
                                           CARRYING          FAIR          CARRYING          FAIR
                                            AMOUNT          VALUE           AMOUNT          VALUE
                                         ------------    ------------    ------------    ------------
<S>                                      <C>             <C>             <C>             <C>
FINANCIAL ASSETS:
Cash and interest-bearing deposits....   $  5,193,415    $  5,193,415    $  8,051,464    $  8,051,464
                                         ============    ============    ============    ============
Investment securities.................   $ 33,805,498    $ 33,736,839    $ 42,907,427    $ 42,799,479
                                         ============    ============    ============    ============
Accrued interest receivable...........   $  1,633,042    $  1,633,042    $  1,448,348    $  1,448,348
                                         ============    ============    ============    ============
Loans and mortgage-backed
  securities..........................   $171,241,310                    $140,374,619
Less: Allowance for loan losses.......      1,100,000                      (1,000,000)
                                         ------------                    ------------
                                         $170,141,310    $172,560,000    $139,374,619    $142,390,000
                                         ============    ============    ============    ============
FINANCIAL LIABILITIES:
Deposits..............................   $174,327,887    $174,138,000    $173,810,946    $172,409,000
                                         ============    ============    ============    ============
Borrowings............................   $  2,000,000    $  2,000,000    $    358,309    $    423,000
                                         ============    ============    ============    ============
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Commitments to extend credit..........                   $  5,372,000                    $  3,277,000
                                                         ============                    ============
</TABLE>
 
                                       34
<PAGE>   38
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 22 -- CONDENSED FINANCIAL STATEMENTS OF JACKSONVILLE BANCORP, INC.
          (PARENT COMPANY ONLY)
 
     Jacksonville Bancorp, Inc. was organized in December, 1995 and began
operations on March 29, 1996, effective with the Reorganization. The Company's
balance sheet as of September 30, 1996 and related statements of earnings and
cash flows from inception through September 30, 1996, are as follows:
 
<TABLE>
        <S>                                                               <C>
                                        BALANCE SHEET
        ASSETS
             Cash in bank (Association)................................   $ 5,776,215
             Investment in Association.................................    28,438,091
             Investment in IHC.........................................     1,538,274
             Other assets..............................................        11,121
                                                                          -----------
                                                                          $35,763,701
                                                                          ===========
        LIABILITIES AND STOCKHOLDERS' EQUITY
             Dividends payable.........................................   $   333,033
             Stockholders' equity......................................    35,430,668
                                                                          -----------
                  Total liabilities and stockholders' equity...........   $35,763,701
                                                                          ===========
                                    STATEMENT OF EARNINGS
        Income.........................................................   $        --
        General and administrative expenses............................        32,708
                                                                          -----------
             Loss before income taxes and equity in subsidiaries.......       (32,708)
        Income tax (benefit)...........................................       (11,121)
                                                                          -----------
        Loss before equity in earnings of subsidiaries.................       (21,587)
        Equity in earnings of Association..............................       739,661
        Equity in earnings of IHC......................................        63,868
                                                                          -----------
             Net earnings..............................................   $   781,942
                                                                          ===========
                                         CASH FLOWS
        Operations activities
             Net earnings..............................................   $   781,942
             Adjustments to reconcile net income to net cash provided
               by operating activities
                  Equity in earnings to subsidiaries...................      (803,529)
                  Increase in other assets.............................       (11,121)
                                                                          -----------
                  Net cash used in operations..........................       (32,708)
        Investing activities
             Investment in subsidiaries................................    (7,884,226)
        Financing activities:
             Dividends paid............................................      (333,033)
             Proceeds from sale of stock...............................    14,026,182
                                                                          -----------
                  Net cash provided by financing activities............    13,693,149
                                                                          -----------
                  Net increase in cash and cash equivalents, at end of
                    year...............................................   $ 5,776,215
                                                                          ===========
</TABLE>
 
                                       35
<PAGE>   39
 
                               STOCK INFORMATION
 
     Shares of Jacksonville Bancorp, Inc.'s common stock are traded nationally
under the symbol "JXVL" on the NASDAQ National Market System. At December 20,
1996, the Company had 2,638,265 shares of common stock outstanding and had 461
stockholders of record.
 
     The following table sets forth the reported high and low sale prices of a
share of the Association's common stock as reported by NASDAQ (the common stock
commenced trading on the NASDAQ National Market System on March 29, 1996) and
cash dividends paid per share of common stock during the periods indicated.
 
<TABLE>
<CAPTION>
                                                                HIGH      LOW     DIVIDEND
                                                                -----    -----    --------
        <S>                                                     <C>      <C>      <C>
        Quarter ended December 31, 1994(1)...................    7.40     7.40     $0.10
        Quarter ended March 31, 1995(1)......................    7.58     7.14      0.10
        Quarter ended June 30, 1995(1).......................    7.58     7.31      0.10
        Quarter ended September 30, 1995(1)..................   12.69     8.11      0.10
        Quarter ended December 31, 1995(1)...................   11.90    10.57      0.10
        Quarter ended March 31, 1996(1)......................   11.63    10.40      0.10
        Quarter ended June 30, 1996..........................   10.88     9.13      0.125
        Quarter ended September 30, 1996.....................   13.13    10.00      0.125
</TABLE>
 
- ---------------
(1) Amounts previously reported for Jacksonville stock have been restated to
     reflect the exchange of 1.41785 shares of the Company stock for each share
     of Jacksonville stock during the second quarter of fiscal 1996.
 
                                       36
<PAGE>   40
 
                        DIRECTORS AND EXECUTIVE OFFICERS
 
W.G. BROWN
Chairman of the Board of the Company;
Retired, Owner of Brown Lumber
Industries
 
RAY W. BEALL
Director of the Company; Retired senior
executive for Beall's Department Store
 
CHARLES BROADWAY
Director, Chief Executive Officer of the
Company
 
ROBERT BROWN
Director of the Company; Manager,
Brown Lumber Industries
 
JERRY M. CHANCELLOR
Director and President of the Company
 
BILLY W. TAYLOR
Director and Executive Vice President of
the Company
 
DR. JOE TOLLETT
Director of the Company; Retired
Pediatrician
 
DR. JOE TOLLETT
Director of the Company; Retired
Pediatrician
 
                               BANKING LOCATIONS
 
                                  MAIN OFFICE
                          Commerce and Neches Streets
                           Jacksonville, Texas 75766
                                 (903) 586-9861
 
                                 BRANCH OFFICES
 
<TABLE>
<S>                          <C>
1015 North Church Street     617 South Palenstine Street
Palestine, Texas 75801       Athens, Texas 75751
(903) 729-3228               (903) 677-2511

107 East Fourth Street       5620 Old Bullard Road
Rusk, Texas 75785            Tyler, Texas 75703
(903) 683-2287               (903) 534-9144

1412 Judson Road
Longview, Texas 75601
(903) 758-0118
</TABLE>
 
                                       37
<PAGE>   41
 
                            STOCKHOLDER INFORMATION
 
     Jacksonville Bancorp, Inc. is a Texas-chartered corporation and savings and
loan holding company. Its primary asset, Jacksonville Savings and Loan
Association, is a Texas-chartered stock savings and loan association which
conducts business from its main office in Jacksonville, Texas and five branch
offices in the neighboring communities.
 
                            TRANSFER AGENT/REGISTRAR
 
Mellon Securities Trust Company
120 Broadway, 13th Floor
New York, New York 10005
1-800-526-0801
 
                              SHAREHOLDER REQUESTS
 
     Requests for annual reports, quarterly reports and related stockholder
literature should be directed to Corporate Secretary, Jacksonville Bancorp,
Inc., Commerce and Neches Streets, Jacksonville, Texas 75766.
 
     Shareholders needing assistance with stock records, transfers or lost
certificates, please contact the Company's transfer agent, Mellon Securities
Trust Company.
 
                                       38
<PAGE>   42
 
[JACKSONVILLE BANCORP LOGO]
 
                                                                 January 2, 1997
 
Dear Stockholder:
 
     You are cordially invited to attend the Annual Meeting of Stockholders of
Jacksonville Bancorp, Inc. The meeting will be held at the Norman Activity
Center, located at 526 East Commerce Street, Jacksonville, Texas, on Wednesday,
January 22, 1997 at 10:00 a.m., Central Time. The matters to be considered by
stockholders at the Annual Meeting are described in the accompanying materials.
 
     It is very important that you be represented at the Annual Meeting
regardless of the number of shares you own or whether you are able to attend the
meeting in person. We urge you to mark, sign, and date your proxy card today and
return it in the envelope provided, even if you plan to attend the Annual
Meeting. This will not prevent you from voting in person, but will ensure that
your vote is counted if you are unable to attend.
 
     Your continued support of and interest in Jacksonville Bancorp, Inc. are
sincerely appreciated.
 
                                          Sincerely,
 
                                          /s/ CHARLES BROADWAY

                                          Charles Broadway
                                          Chief Executive Officer
<PAGE>   43
 
                           JACKSONVILLE BANCORP, INC.
                          COMMERCE AND NECHES STREETS
                           JACKSONVILLE, TEXAS 75766
                                 (903) 586-9861
 
                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                         TO BE HELD ON JANUARY 22, 1997
 
     NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of
Jacksonville Bancorp, Inc, ("Company") will be held at the Norman Activity
Center, located at 526 East Commerce Street, Jacksonville, Texas on Wednesday,
January 22, 1997, at 10:00 a.m., Central Time, for the following purposes, all
of which are more completely set forth in the accompanying Proxy Statement:
 
          1. To elect three directors of the Company for a three-year term and
     until their successors are elected and qualified;
 
          2. To ratify the appointment of Henry & Peters, P.C. as the
     Association's independent auditors for the fiscal year ending September 30,
     1997; and
 
          3. To transact such other business as may properly come before the
     meeting or any adjournment thereof.
 
     The Board of Directors of the Company has fixed December 6, 1996 as the
voting record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting. Only those stockholders of record as of the
close of business on that date will be entitled to vote at the Annual Meeting or
at any such adjournment.
 
                                          BY ORDER OF THE BOARD OF DIRECTORS
                                          /s/ SANDRA THOMPSON
                                          Sandra Thompson, Secretary
 
January 2, 1997
Jacksonville, Texas
 
     YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING,
YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED
BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
<PAGE>   44
 
                           JACKSONVILLE BANCORP, INC.
 
                   ------------------------------------------
 
                                PROXY STATEMENT
 
                   ------------------------------------------
 
                         ANNUAL MEETING OF STOCKHOLDERS
 
                                JANUARY 22, 1997
 
GENERAL
 
     This Proxy Statement is being furnished to the stockholders of the Company
in connection with the solicitation of proxies by the Board of Directors for use
at its Annual Meeting of Stockholders ("Annual Meeting") to be held at the
Norman Activity Center, located at 526 East Commerce Street, Jacksonville,
Texas, on Wednesday, January 22, 1997, at 10:00 a.m., Central Time, and at any
adjournment thereof, for the purposes set forth in the Notice of Annual Meeting
of Stockholders. This Proxy Statement is first being mailed to stockholders on
or about January 2, 1997.
 
VOTING RIGHTS
 
     Only the holders of record of the outstanding shares of the common stock,
$0.01 par value per share, of the Company ("Common Stock") at the close of
business on December 6, 1996 (the "Voting Record Date") will be entitled to
notice of and to vote at the Annual Meeting. At such date, there were 2,664,265
shares of Common Stock issued and outstanding.
 
     Each share of Common Stock is entitled to one vote at the Annual Meeting on
all matters properly presented at the meeting. Directors are elected by a
plurality of the votes cast with a quorum present. The affirmative vote of the
holders of a majority of the total votes present, in person or by proxy, at the
Annual Meeting is required for approval of the proposal to ratify the
independent auditors. The presence, either in person or by proxy, of the holders
of a majority of the shares of Common Stock outstanding on the Voting Record
Date is necessary to constitute a quorum at the Annual Meeting. Abstentions are
considered in determining the presence of a quorum, but abstentions and broker
non-votes will not effect the vote required to approve the proposals presented
at the Annual Meeting.
 
PROXIES
 
     Shares of Common Stock represented by properly executed proxies, if such
proxies are received in time and not revoked, will be voted in accordance with
the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH PROXIES WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR DESCRIBED HEREIN, THE
OTHER MATTERS DESCRIBED BELOW AND, IN THE DISCRETION OF THE PROXY HOLDER, AS TO
ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE ANNUAL MEETING. ANY HOLDER
OF COMMON STOCK WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE INSTRUCTIONS AS
TO THE MANNER IN WHICH SUCH SHARES ARE TO BE VOTED WILL BE DEEMED TO HAVE VOTED
IN FAVOR OF THE MATTERS SET FORTH IN THE PRECEDING SENTENCE.
 
     A Company stockholder who has given a proxy may revoke it at any time prior
to its exercise at the Annual Meeting by (i) giving written notice of revocation
to the Secretary of the Company (ii) properly submitting to the Company a
duly-executed proxy bearing a later date, or (iii) attending the Annual Meeting
and voting in person. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows:
Jacksonville Bancorp, Inc., Commerce and Neches Streets, Jacksonville, Texas
75766, Attention: Secretary.
<PAGE>   45
 
BENEFICIAL OWNERSHIP
 
     The following table sets forth information as to the Common Stock
beneficially owned, as of December 6, 1996, by the only persons or entities
known to the Company to be the beneficial owners of more than 5% of the Common
Stock and by all directors and officers of the Company as a group.
 
<TABLE>
<CAPTION>
                                                                            AMOUNT AND
                                                                              NATURE
                                                                                OF         PERCENT
                                                                            BENEFICIAL       OF
                  NAME AND ADDRESS OF BENEFICIAL OWNER                     OWNERSHIP(1)     CLASS
- ------------------------------------------------------------------------   ------------    -------
<S>                                                                        <C>             <C>
Jacksonville Bancorp, Inc. Employee Stock Ownership Plan................      202,048        7.6%
Commerce and Neches Streets
Jacksonville, Texas 75766
All directors and officers of the Company as a group (six persons)......      219,147(2)     8.1%
</TABLE>
 
- ---------------
(1) Pursuant to rules promulgated by the Securities and Exchange Commission
    ("SEC") under the Securities Exchange Act of 1934, as amended ("Exchange
    Act"), a person or entity is considered to beneficially own shares of Common
    Stock if the person or entity has or shares (i) voting power, which includes
    the power to vote or to direct the voting of the shares, or (ii) investment
    power, which includes the power to dispose or direct the disposition of the
    shares. Unless otherwise indicated, a person or entity has sole voting and
    sole investment power with respect to the indicated shares. Shares which are
    subject to stock options and which may be exercised within 60 days of the
    Voting Record Date are deemed to be outstanding for the purpose of computing
    the percentage of Common Stock beneficially owned by such person.
 
(2) Includes in the case of all directors and officers of the Company as a
    group, (i) exercisable options to purchase 46,533 shares pursuant to the
    Company's 1994 Stock Incentive Plan and 1994 Directors' Stock Option Plan;
    (ii) 5,638 shares of Common Stock which were awarded to certain officers of
    the Company pursuant to the Company's 1994 Management Recognition Plan
    ("MRP"); and (iii) 5,244 shares of Common Stock allocated to the account of
    the officers in the Company's Employee Stock Ownership Plan (the "ESOP").
 
               INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR
 
ELECTION OF DIRECTORS
 
     The Bylaws of the Company provide that the Board of Directors shall be
divided into three classes which are as equal in number as possible, and that
the members of each class of directors are to be elected for a term of three
years and until their successors are elected and qualified.
 
     At the Annual Meeting, stockholders of the Company will be asked to elect
three directors of the Company for a three-year term and until their successors
are elected and qualified. The nominees for election as directors were selected
by the Nominating Committee of the Board of Directors and, each nominee
currently serves as a director of the Company. There are no arrangements or
understandings between the persons named and any other person pursuant to which
such person was selected as a nominee for election as a director at the Annual
Meeting. No director or nominee for director is related to any other director or
executive officer of the Company by blood, marriage or adoption, other than that
W.G. Brown and Dr. Joe Tollett are cousins and that Robert F. Brown is the son
of W.G. Brown and the nephew of Dr. Joe Tollett.
 
     If any person named as nominee should be unable or unwilling to stand for
election at the time of the Annual Meeting, the proxies will nominate and vote
for any replacement nominee or nominees recommended by the Board of Directors of
the Company. At this time, the Board of Directors knows of no reason why any of
the nominees may not be able to serve as a director if elected.
 
                                        2
<PAGE>   46
 
               INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR
                       AND DIRECTORS WHOSE TERMS CONTINUE
 
     The following tables present information concerning each nominee for
director and each director whose term continues and reflects his tenure as a
director of the Company, his principal occupation during the past five years as
well as the number of shares of Common Stock beneficially owned by each such
person as of the Voting Record Date.
 
                   NOMINEES FOR DIRECTOR FOR THREE-YEAR TERM
 
<TABLE>
<CAPTION>
                                                                                            COMMON STOCK
                                                                                            BENEFICIALLY
                                                 POSITION WITH                              OWNED AS OF
                                              THE ASSOCIATION AND                       DECEMBER 6, 1996(1)
                                              PRINCIPAL OCCUPATION
                                                   DURING THE               DIRECTOR    --------------------
            NAME                AGE             PAST FIVE YEARS              SINCE        NO.          %
- -----------------------------   ---    ----------------------------------   --------    --------      ---
<S>                             <C>    <C>                                  <C>         <C>         <C>
Jerry M. Chancellor..........   54     Director and Executive Vice            1984        25,339(2)      0.9%
                                       President (since 1983) of the
                                         Association
Bill W. Taylor...............   55     Director and Senior Vice President     1993        28,784(3)      1.1
                                         (since 1984) of the Association
Dr. Joe Tollett..............   68     Director; Retired pediatrician         1973        28,750(4)      1.1
</TABLE>
 
                     DIRECTORS WITH TERMS EXPIRING IN 1998
 
<TABLE>
<CAPTION>
                                                                                            COMMON STOCK
                                                                                            BENEFICIALLY
                                                 POSITION WITH                              OWNED AS OF
                                              THE ASSOCIATION AND                       DECEMBER 6, 1996(1)
                                              PRINCIPAL OCCUPATION
                                                   DURING THE               DIRECTOR    --------------------
            NAME                AGE             PAST FIVE YEARS              SINCE        NO.          %
- -----------------------------   ---    ----------------------------------   --------    --------      ---
<S>                             <C>    <C>                                  <C>         <C>         <C>
Ray W. Beall.................   68     Director, Retired, formerly senior     1966        26,320(5)      1.0%
                                         executive for Beall's Department
                                         Store
Robert F. Brown..............   48     Manager, Brown Lumber Industries,      1995        17,462(6)      0.7
                                         Jacksonville, Texas, since 1994;
                                         partner of Shapiro-Brown,
                                         Dallas, Texas, a management
                                         company for multi-family
                                         properties
</TABLE>
 
                                        3
<PAGE>   47
 
                     DIRECTORS WITH TERMS EXPIRING IN 1999
 
<TABLE>
<CAPTION>
                                                                                            COMMON STOCK
                                                                                            BENEFICIALLY
                                                 POSITION WITH                              OWNED AS OF
                                              THE ASSOCIATION AND                       DECEMBER 6, 1996(1)
                                              PRINCIPAL OCCUPATION
                                                   DURING THE               DIRECTOR    --------------------
            NAME                AGE             PAST FIVE YEARS              SINCE        NO.          %
- -----------------------------   ---    ----------------------------------   --------    --------      ---
<S>                             <C>    <C>                                  <C>         <C>         <C>
Charles Broadway.............   63     Director, President and Chief          1981        36,559(7)      1.4%
                                         Executive Officer (since 1983)
                                         of the Association
W.G. Brown...................   77     Chairman of the Board and              1953        55,933(8)      2.1
                                         Director; Owner of Brown Lumber
                                         Industries, Jacksonville, Texas
</TABLE>
 
                   THE BOARD OF DIRECTORS RECOMMENDS THAT THE
                        NOMINEES BE ELECTED AS DIRECTORS
- ---------------
(1) Based on information furnished by the respective individuals. Pursuant to
    rules promulgated by the SEC under the Exchange Act, a person or entity is
    considered to beneficially own shares of Common Stock if the person or
    entity has or shares (i) voting power, which includes the power to vote or
    to direct the voting of the shares, or (ii) investment power, which includes
    the power to dispose or direct the disposition of the shares. Unless
    otherwise indicated, a person or entity has sole voting and sole investment
    power with respect to the indicated shares. Shares which are subject to
    stock options and which may be exercised within 60 days of the Voting Record
    Date are deemed to be outstanding for the purpose of computing the
    percentage of Common Stock beneficially owned by such person.
 
(2) Includes 10,223 shares which may be acquired upon the exercise of
    outstanding stock options, 1,753 shares of restricted stock granted pursuant
    to the 1994 MRP which are scheduled to vest on March 31, 1997 and 1,709
    shares allocated to his account in the ESOP.
 
(3) Includes 808 shares held jointly with Mr. Taylor's children, 383 shares held
    by his wife, 8,130 shares which may be acquired upon the exercise of
    outstanding stock options, 1,583 shares of restricted stock granted pursuant
    to the 1994 MRP which are scheduled to vest on March 31, 1997 and 1,369
    shares allocated to his account in the ESOP.
 
(4) Includes 3,630 shares held by Dr. Tollett's wife, 3,804 shares held jointly
    with his wife, 9,030 shares held in a family trust and 5,178 shares which
    may be acquired upon the exercise of stock options.
 
(5) Includes 5,178 shares which may be acquired upon the exercise of stock
    options.
 
(6) Includes 10,000 shares held in trust for his children.
 
(7) Includes 15,945 shares held jointly with Mr. Broadway's wife, 12,646 shares
    which may be acquired upon the exercise of stock options, 2,302 shares of
    restricted stock granted pursuant to the 1994 MRP which are scheduled to
    vest on March 31, 1997 and 2,166 shares allocated to his account in the
    ESOP.
 
(8) Includes 423 shares held as custodian for Mr. Brown's children, 35,446
    shares held by a company which Mr. Brown owns, 14,886 shares held in a
    family trust and 5,178 shares which may be acquired upon the exercise of
    stock options.
 
     On October 22, 1996, the Company's shareholders approved the 1996 Stock
Option Plan and the 1996 Management Recognition Plan. On that date following the
approval of the plans, grants of restricted stock and stock options were made to
the Company's directors and executive officers.
 
                                        4
<PAGE>   48
 
THE BOARD OF DIRECTORS AND ITS COMMITTEES
 
     Regular meetings of the Board of Directors of the Company are held once a
month and special meetings of the Board of Directors of the Company are held
from time-to-time as needed. There were 14 meetings of the Board of Directors of
the Company held during fiscal 1996. No director attended fewer than 75% of the
total number of meetings of the Board of Directors of the Company held during
fiscal 1996 and the total number of meetings held by all committees of the Board
on which the director served during such year.
 
     The Company's business is primarily conducted through Jacksonville Savings
& Loan Association ("Jacksonville"), a Texas-chartered savings and loan
association and a wholly owned subsidiary of the Company. The Board of Directors
of Jacksonville has established various committees, including Audit, Investment,
REO Disposition and Salary committees.
 
     The Audit Committee reviews and makes recommendations regarding
Jacksonville's annual audit and meets on an as needed basis. The Audit Committee
currently consists of Messrs. Brown and Taylor. The Audit Committee met once in
fiscal 1996.
 
     The REO Disposition Committee reviews proposed real estate owned
transactions and marketing strategies for approval and approves the disposition
of particular parcels of real estate owned. The REO Disposition Committee
currently consists of each member of the Board of Directors. The REO Disposition
Committee meets quarterly and met four times in fiscal 1996.
 
     The Salary Committee reviews and makes recommendations to the Board on
employee salaries. The Salary Committee currently consists of Ray Beall, Charles
Broadway, W.G. Brown, Dr. Joe Tollett and Jerry Chancellor. The Salary Committee
meets on an as needed basis and met three times in fiscal 1996.
 
     Jacksonville's Board of Directors generally reviews and makes
recommendations with respect to investment policies and practices. In the
absence of such Board action, the Investment Committee, currently consisting of
Messrs. Broadway and Taylor and Dr. Tollett, has the authority to act in such
capacity. In fiscal 1996, there were 16 meetings of the Investment Committee.
 
     The entire board of directors serves as the Nominating Committee and each
year nominates individuals for election as directors of the Company. The
Nominating Committee met once time during fiscal 1996.
 
DIRECTORS' COMPENSATION
 
     During the fiscal year ended September 30, 1996, each member of the Board
of Directors was paid $600 for each Board meeting attended. During the same
period, each member of a Board Committee described above, who is an outside
director was paid $200 per meeting attended. Committee members otherwise do not
receive any fees for committee meetings.
 
     The Company also maintains the 1994 Directors' Stock Option Plan and the
1996 Stock Option Plan pursuant to which non-employee directors of the Company
were granted options to purchase an aggregate of 47,601 shares of Common Stock
at an exercise price of $10.00 per share. In addition, the Company maintains the
1996 MRP pursuant to which non-employee directors of the Company (other than
Robert F. Brown) were granted an aggregate of 9,708 shares of restricted stock
and Messrs. Broadway, Chancellor and Taylor were granted 7,554, 12,020, and
11,407 shares of restricted stock, respectively.
 
                                        5
<PAGE>   49
 
                             EXECUTIVE COMPENSATION
 
SUMMARY
 
     The following table sets forth a summary of certain information concerning
the compensation awarded to or paid by [JACKSONVILLE] for services rendered in
all capacities during the last two fiscal years to the President and Chief
Executive Officer of [JACKSONVILLE] and any other executive officer of
[JACKSONVILLE] who received salary and bonuses aggregating more than $100,000
during the last fiscal year.
 
                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
                                                ANNUAL COMPENSATION                       LONG TERM COMPENSATION
                                     -----------------------------------------     ------------------------------------
                                                                                            AWARDS              PAYOUTS
                                                                                   -------------------------    -------
                                                                    OTHER                         RESTRICTED    
        NAME AND                                                   ANNUAL                           STOCK        LTIP
   PRINCIPAL POSITION       YEAR     SALARY(1)      BONUS      COMPENSATION(2)     OPTIONS(3)     AWARDS(4)     PAYOUTS
- -----------------------------------------------------------------------------------------------------------------------
<S>                         <C>      <C>           <C>         <C>                 <C>            <C>           <C>
Charles Broadway........    1996     $116,816      $20,323           --                  --        $    --        --
Chief Executive Officer     1995      116,816       20,323           --                  --             --        --
                            1994      113,672       29,596           --              13,393         48,670        --
- -----------------------------------------------------------------------------------------------------------------------
Jerry M. Chancellor(6)..    1996     $ 94,856      $16,408           --                  --        $    --        --
President                   1995       94,856       16,408           --                  --             --        --
                            1994       94,676       23,897           --              10,826         37,060        --
 
<CAPTION>
        NAME AND           ALL OTHER
   PRINCIPAL POSITION     COMPENSATION
- ---------------------------------------
<S>                         <C>
Charles Broadway........    $ 40,872(5)
Chief Executive Officer       13,255
                              13,445
- ---------------------------------------
Jerry M. Chancellor(6)..    $ 29,346(7)
President                      7,556
                               7,709
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
- ---------------
(1) Includes directors fees and fees for services as an officer and director of
    JS&L Corp., a subsidiary of Jacksonville.
 
(2) Does not include amounts attributable to miscellaneous benefits received by
    the named executive officer, including the payment of club membership dues.
    The costs to Jacksonville of providing such benefits to the named executive
    officer during the year ended September 30, 1996 did not exceed the lesser
    of $50,000 or 10% of the total of annual salary and bonus reported for such
    individual.
 
(3) Consists of awards granted pursuant to the Association's 1994 Stock
    Incentive Plan during the year ended September 30, 1994.
 
(4) Includes the grant of 4,867 and 3,706 shares of restricted Common Stock
    during the year ended September 30, 1994 to Messrs. Broadway and Chancellor
    pursuant to the 1994 MRP. After being exchanged pursuant to the exchange
    ratio of 1.41785 as a result of Jacksonville's "second step" conversion (the
    "Conversion and Reorganization") in fiscal 1996, the restricted shares
    granted to Messrs. Broadway and Chanceller had a fair market value of
    approximately $87,975 and $66,988 at September 30, 1996, respectively. The
    shares granted pursuant to the 1994 MRP vest over a three-year period at the
    rate of 33% per year, commencing on March 31, 1995, and the named executive
    officer is entitled to all voting and other stockholder rights (including
    the right to receive dividends) with respect to such shares.
 
(5) Includes (i) a premium of $9,597 paid to fund a deferred compensation plan,
    (ii) a matching contribution of $3,658 Jacksonville pursuant to a defined
    contribution thrift plan and (iii) 2,166 shares allocated to Mr. Broadway's
    account in the Company's ESOP which shares had a market value of $27,617 at
    September 30, 1996.
 
(6) Mr. Chancellor became president of the Company and Jacksonville on July 9,
    prior to that date, Mr. Broadway had served as president and chief executive
    officer.
 
(7) Includes (i) a premium of $4,602 paid to fund a deferred compensation plan,
    (ii) a matching contribution of $2,954 Jacksonville pursuant to a defined
    contribution thrift plan and (iii) 1,709 shares allocated to Mr.
    Chancellor's account in the Company's ESOP which shares had a market value
    of $21,790 at September 30, 1996.
 
                                        6
<PAGE>   50
 
STOCK OPTIONS
 
     The following table sets forth certain information concerning exercises of
stock options granted pursuant to the Company's 1994 Stock Incentive Plan by the
named executive officers during the year ended September 30, 1996 and options
held at September 30, 1995.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
                               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                         AND YEAR END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------ 
                                                                                   NUMBER OF
                                                                                   EXERCISABLE   VALUE OF
                                                    SHARES                          OPTIONS     EXERCISABLE
                                                  ACQUIRED ON                         AT        OPTIONS AT
                      NAME                         EXERCISE      VALUE REALIZED    YEAR END     YEAR END(1)
- ------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>               <C>          <C>
Charles Broadway.............................       $--              $--           12,646       $72,082
- ------------------------------------------------------------------------------------------------------------
Jerry M. Chancellor..........................       $--              $--           10,223       $58,271
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
 
- ---------------
(1) Based on a per share market price of $12.75 as of September 30, 1996 as
    adjusted for the exchange of Jacksonville common stock for Company Common
    Stock in the Conversion and Reorganization.
 
EMPLOYMENT AGREEMENTS
 
     The Company has entered into employment agreements will Messrs. Broadway,
Chancellor and Taylor (the "Executives"). The employment agreements provide each
officer with a three-year term of employment subject to additional one-year
extensions at the discretion of the Board of Directors.
 
     The employment agreements are terminable with or without cause by the
Company. The Executives have no right to compensation or other benefits pursuant
to the employment agreement for any period after voluntary termination or
termination by the Company for cause, disability, retirement or death. However,
in the event that (i) an Executive terminates his employment because of failure
of the Company to comply with any material provision of the employment agreement
or (ii) the employment agreement was terminated by an Executive for Good Reason,
as defined, an Executive would be entitled to 3.00 or 2.99 times, respectively,
the average annual compensation, as defined, paid to him by the Company during
the five most recent taxable years ending during the calendar year in which the
notice of termination occurs or such portion of such period in which the
Executive served as an employee of the Company as well as continued
participation in employee benefit plans of the Company until the expiration of
the remaining term of employment. "Good Reason" is generally defined in the
employment agreements to include failure to comply with a material portion of
the agreements or the assignment by the Company to the Executive of any duties
which are materially inconsistent with the Executive's positions, duties,
responsibilities and status with the Company prior to a change of control of the
Company.
 
     The employment agreements provide that in the event that any of the
payments to be made thereunder or otherwise upon termination of employment by
the Executive following a change in control are deemed to constitute "excess
parachute payments" within the meaning of Section 280G of the Code, then such
payments and benefits received thereunder would be reduced, in the manner
determined by the Company, by the amount, if any, which is the minimum necessary
to result in no portion of the payments and benefits being non-deductible by the
Company for federal income tax purposes. Excess parachute payments generally
would be defined as payments in excess of three times the recipient's average
annual compensation from the Company includable in the recipient's gross income
during the most recent five taxable years ending before the date on which a
change in control of the Company or other triggering events occurred ("base
amount"). A recipient of excess parachute payments is subject to a 20% excise
tax on the amount by which such payments exceed the base amount, in addition to
regular income taxes, and payments in excess of the base amount would not be
deductible by the Company as compensation expense of federal income tax
purposes.
 
     Although the above-described employment agreements could increase the cost
of any acquisition of control of the Company, management does not believe that
the terms thereof would have a significant anti-takeover effect.
 
                                        7
<PAGE>   51
 
INDEBTEDNESS OF MANAGEMENT
 
     Jacksonville, in the ordinary course of business, makes available to its
directors and executive officers mortgage loans on their primary residences,
consumer loans and loans on their savings accounts. Such loans are made on the
same terms as comparable loans to other borrowers.
 
               RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
 
     The Board of Directors of the Company has appointed Henry & Peters, P.C. as
independent auditors for the Company for the year ending September 30, 1997, and
further directed that the selection of auditors be submitted for ratification by
the stockholders at the Annual Meeting. The Company has been advised by Henry &
Peters, P.C. that neither the firm nor any of its associates has any
relationship with the Company other than the usual relationship that exists
between independent public accountants and clients. Henry & Peters, P.C. will
have representatives at the Annual Meeting who will have an opportunity to make
a statement, if they so desire, and will be available to respond to appropriate
questions.
 
     THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF HENRY & PETERS, P.C., AS INDEPENDENT AUDITORS FOR THE YEAR ENDING
SEPTEMBER 30, 1997.
 
                                 OTHER MATTERS
 
     Management is not aware of any business to come before the Annual Meeting
other than those matters described in this Proxy Statement. However, if any
other matters should properly come before the Annual Meeting, it is intended
that the proxies solicited hereby will be voted with respect to those other
matters in accordance with the judgment of the persons voting the proxies.
 
     The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of the Common Stock. In addition to solicitations by
mail, directors, officers and employees of the Company may solicit proxies
personally or by telephone without additional compensation.
 
                             STOCKHOLDER PROPOSALS
 
     Any proposal which a stockholder wishes to have included in the proxy
solicitation materials to be used in connection with the next Annual Meeting of
Stockholders of the Company must be received at the office of the Company no
later than November 2, 1997. If such proposal is in compliance with all of the
requirements of Rule 14a-8 under the Exchange Act, it will be included in the
Proxy Statement and set forth on the form of proxy issued for the next Annual
Meeting of Stockholders. It is urged that any such proposals be sent by
certified mail, return receipt requested.
 
                    ANNUAL REPORTS AND FINANCIAL STATEMENTS
 
     Stockholders of the Company as of the record date for the Annual Meeting
are being forwarded a copy of the Company's Annual Report to Stockholders for
the year ended September 30, 1996 ("Annual Report"). Included in the Annual
Report are the financial statements of the Company as of September 30, 1996 and
1995 and for each of the years in the three-year period ended September 30,
1996, prepared in accordance with generally accepted accounting principles, and
the related report of the Company's independent public accountants. The Annual
Report is not a part of this Proxy Statement.
 
     UPON RECEIPT OF A WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY
STOCKHOLDER WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE EXCHANGE ACT FOR THE YEAR ENDED
SEPTEMBER 30, 1996. UPON WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY SUCH
STOCKHOLDER A COPY OF THE EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K. SUCH
WRITTEN REQUESTS SHOULD BE DIRECTED TO JACKSONVILLE BANCORP, INC., COMMERCE AND
NECHES STREETS, JACKSONVILLE, TEXAS 75766, ATTENTION: SECRETARY. THE ANNUAL
REPORT ON FORM 10-K IS NOT A PART OF THIS PROXY STATEMENT.
 
                                        8

<PAGE>   1
                                                                      EXHIBIT 23

                         Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Jacksonville Bancorp, Inc., Jacksonville, Texas, of our report dated November
20, 1996, included in the 1996 Annual Report to Shareholders of Jacksonville
Bancorp, Inc., Jacksonville, Texas.

                                                          HENRY & PETERS, P.C.

Tyler, Texas
December 20, 1996



<PAGE>   2



                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Registration Statement No.
333-18031 of Jacksonville Bancorp, Inc. ("Company") on Form S-8 of our report
dated November 20, 1996, appearing in the Company's Annual Report on Form 10-K
for the year ended September 30, 1996.

                                                          HENRY & PETERS, P.C.

Tyler, Texas
December 20, 1996

<TABLE> <S> <C>

<ARTICLE> 9
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          SEP-30-1996
<PERIOD-START>                             OCT-01-1995
<PERIOD-END>                               SEP-30-1996
<CASH>                                       2,777,737
<INT-BEARING-DEPOSITS>                       2,415,678
<FED-FUNDS-SOLD>                                     0
<TRADING-ASSETS>                                     0
<INVESTMENTS-HELD-FOR-SALE>                  7,358,750
<INVESTMENTS-CARRYING>                      38,553,932
<INVESTMENTS-MARKET>                        38,485,796
<LOANS>                                    159,134,126
<ALLOWANCE>                                  1,100,000
<TOTAL-ASSETS>                             217,856,014
<DEPOSITS>                                 174,327,887
<SHORT-TERM>                                 2,000,000
<LIABILITIES-OTHER>                          6,097,489
<LONG-TERM>                                          0
                                0
                                          0
<COMMON>                                        26,643
<OTHER-SE>                                  35,404,025
<TOTAL-LIABILITIES-AND-EQUITY>             217,856,014
<INTEREST-LOAN>                             12,169,431
<INTEREST-INVEST>                            2,870,650
<INTEREST-OTHER>                               354,197
<INTEREST-TOTAL>                            15,394,278
<INTEREST-DEPOSIT>                           8,390,643
<INTEREST-EXPENSE>                           8,453,392
<INTEREST-INCOME-NET>                        6,940,886
<LOAN-LOSSES>                                  100,000
<SECURITIES-GAINS>                                   0
<EXPENSE-OTHER>                              5,846,504
<INCOME-PRETAX>                              2,284,039
<INCOME-PRE-EXTRAORDINARY>                   2,284,039
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 1,580,039
<EPS-PRIMARY>                                     0.62
<EPS-DILUTED>                                     0.62
<YIELD-ACTUAL>                                    7.77
<LOANS-NON>                                        815
<LOANS-PAST>                                         0
<LOANS-TROUBLED>                                   387
<LOANS-PROBLEM>                                      0
<ALLOWANCE-OPEN>                             1,000,000
<CHARGE-OFFS>                                        0
<RECOVERIES>                                         0
<ALLOWANCE-CLOSE>                            1,100,000
<ALLOWANCE-DOMESTIC>                         1,100,000
<ALLOWANCE-FOREIGN>                                  0
<ALLOWANCE-UNALLOCATED>                              0
        

</TABLE>


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