<PAGE>   1
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                          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