<PAGE>   1
                         [JACKSONVILLE BANCORP LOGO]


                               1998 ANNUAL REPORT










<PAGE>   2


Dear Stockholder:

         On behalf of your Board of Directors, we take pleasure in presenting
our 1998 annual report.

         Fiscal 1998 was the first full year for our wholly owned operating
subsidiary Jacksonville Savings Bank, SSB ("the Bank"), formerly Jacksonville
Savings and Loan Association, to operate under a Texas Savings Bank charter.
We are pleased with the results.  Having the word "Bank" in our name has made
the public aware that we offer most all banking products rather than those
typically thought of as offered by thrifts.  Our fiscal 1998 net profit
reflected our primary objective of profitable growth by utilizing the positive
aspects of the charter change.

         During fiscal 1998, the Bank opened its first in-store branch in the
Wal-Mart Supercenter located at 515 E. Loop in Longview, Texas. After nine
months of operation the branch has met most of management's expectations.  At
September 30, 1998 the branch had deposits of $1.4 million, shy of pro-forma
estimates by $260,000, while loan balances for the same period reached $1.6
million which exceeded estimates by $130,500.

         Our results of operations in fiscal 1998 reflected another year of
solid performance.  Company assets increased from $233.9 million to $263.2
million, an increase of 12.5%.  Loans receivable, net rose by 9.8% from $174.0
million in 1997 to $191.2 million in 1998. Loan originations for the year
totaled $89.3 million of which the company sold $23 million in loans to Federal
Home Loan Mortgage Corporation and retained servicing rights on these loans,
and $5.2 million whole loans were sold to the secondary market, servicing
released.  The growth in the loans originated is indicative of the strength of
our market share in the East Texas area.

         Included in our loan growth are increases in consumer loan volume and
the addition of home equity loans to our portfolio.  Consumer loans increased
from $14.9 million at September 30, 1997 to $20.7 million at September 30,
1998.  The State of Texas approved home equity lending beginning January, 1998
and through September 30, 1998 we had originated $9.0 million in home equity
loans.

         The Company posted growth of $12.5 million in deposits to $204.5
million at September 30, 1998 compared to $192.0 million for the same period in
1997.  Composite cost of funds on deposits increased only slightly from 4.71%
in 1997 to 4.76% in September 1998.










<PAGE>   3
         Net income for the year totaled $3.3 million, or $1.44 per share basic
and $1.38 per share diluted, as compared to $3.2 million, or $1.30 per share
basic and $1.27 per share diluted for fiscal 1997.

         While the 1998 fiscal year results were favorable, we were
disappointed that our stock value, following the down trend of the market, fell
from $17.25 at the beginning of the fiscal year to $15.50 at September 30,
1998, after reaching a high of $24.75 on December 31, 1997.  We hope that our
solid performance and steady earnings growth will improve the value of your
stock as we are committed to meet our stockholders expectations for a
competitive return on your investment.  Book value of the stock at September
30, 1998 was $14.88 per share and we paid total dividends for the year of $.50
per share.

         Because of the market value of our stock, management felt it was an
excellent opportunity to continue to repurchase Treasury shares in order to
create more stockholder value.  During the year the Company purchased a total
of 54,825 shares bringing total Treasury shares to 285,925 at fiscal year end.

         With our strong growth in assets our capital to asset ratio declined
from 14.44% in 1997 to 13.51% in 1998.  Our capital position is still in excess
of most of our industry peers.  While this limits our return on equity to some
extent, it supplies substantial assurance that the Company will remain strong
even with a down turn of the economy. In fiscal 1999 we expect to continue to
leverage the excess capital through controlled growth in an effort to improve
your rate of return.

         Our company has remained diligent in becoming "Year 2000" compliant.
Our in-house system has been through all phases of our Year 2000 Compliance
Project.  A full in-house system test was completed successfully on November 6,
1998.  All internal programs have been placed into production and our in-house
system is considered to be Year 2000 compliant.  For external vendors we are
still in the testing stage which is expected to be complete by December 31,
1998.

         In 1999 we will strive to gain more market share in East Texas by
offering competitive banking products in a friendly customer oriented
atmosphere. The Board of Directors, Management and Employees of your Company
remain committed to maximizing the value of your investment in Jacksonville
Bancorp, Inc.  We thank you for the confidence that you have placed in the
Company and look forward to reporting continued successes in the future.



Sincerely,


/s/ JERRY CHANCELLOR


Jerry Chancellor
President & CEO









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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                         Page
                                                                                                         ----
<S>                                                                                                       <C>
President's Letter to Stockholders

Selected Consolidated Financial Data  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1

Management's Discussion and Analysis of Financial Condition
    and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    2
         Average Balances, Net Interest Income and Yields Earned and Rates Paid . . . . . . . . . . . .    7
         Rate/Volume Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    8

Comparison of Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    9

Liquidity & Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12

Independent Auditors' Report  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   16 

Consolidated Financial Statements:
         Consolidated Statements of Financial Condition . . . . . . . . . . . . . . . . . . . . . . . .   17 
         Consolidated Statements of Earnings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   18 
         Consolidated Statements of Stockholders' Equity  . . . . . . . . . . . . . . . . . . . . . . .   19 
         Consolidated Statements of Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   21 

Notes to Consolidated Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   23 

Stock Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   42

Directors and Executive Officers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   43

Banking Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   43

Stockholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   44

Transfer Agent/Registrar  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   44

Shareholder Requests  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   44
</TABLE>
<PAGE>   5
                      SELECTED CONSOLIDATED FINANCIAL DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

    The following selected consolidated financial and other data of the Company
does not purport to be complete and is qualified in its entirety by reference
to the more detailed financial information contained elsewhere herein.





<TABLE>
<CAPTION>

                                                                               SEPTEMBER 30
                                                    ==================================================================
                                                      1998          1997           1996          1995          1994
                                                    =======       =======        ========      =======       =========
 <S>                                                  <C>            <C>           <C>            <C>         <C>
 SELECTED FINANCIAL CONDITION AND OTHER DATA:
 Total assets ....................................... $263,160       $233,944      $217,856       $199,251    $187,021
 Cash and cash equivalents ..........................   10,868          4,114         5,193          8,051       7,003
 Investment securities ..............................   20,013         25,931        33,805         42,907      44,892
 Mortgage-backed securities .........................   31,866         21,217        12,107          3,442       2,995
 Loans receivable, net ..............................  191,153        174,044       158,034        135,933     123,133
 Foreclosed real estate, net.........................      531            526         1,051          2,052       2,549
 Deposits ...........................................  204,490        192,033       174,328        173,811     159,343
 Borrowings .........................................   17,000          2,000         2,000            358       4,461
 Stockholders' equity ...............................   35,562         33,788        35,431         20,331      18,989
 Full-service offices ...............................        7              6             6              6           5
</TABLE>

<TABLE>
<CAPTION>
                                                                        YEAR ENDED SEPTEMBER 30,
                                                    ==================================================================
                                                      1998          1997           1996          1995          1994
                                                    =======       =======        ========      =======       =========
 <S>                                                  <C>            <C>           <C>            <C>         <C>

 SELECTED OPERATING DATA:
 Total interest income ...........................     $18,541        $17,172       $15,394        $13,232     $12,895
 Total interest expense ..........................       9,628          8,771         8,453          7,127       5,623
                                                       -------        -------       -------        -------     -------
   Net interest income ...........................       8,913          8,401         6,941          6,105       7,272
 Provision for losses on loans ...................          35            110           100             25          18
                                                       -------        -------       -------        -------     -------
   Net interest income after provision for losses                                                                    
     on loans  ...................................       8,878          8,291         6,841          6,080       7,254

 Noninterest income ..............................       1,554          1,392         1,290            927         970
 Noninterest expense .............................       5,639          5,063         5,846          5,045       4,638
                                                       -------        -------       -------        -------     -------
 Income before income taxes ......................       4,793          4,620         2,284          1,962       3,586
 Income taxes ....................................       1,468          1,380           704            573       1,184
                                                       -------        -------       -------        -------     -------
 Net income ......................................     $ 3,325        $ 3,240       $ 1,580        $ 1,389     $ 2,402
                                                       =======        =======       =======        =======     =======
 Earnings per share(1)
   Basic .........................................     $  1.44        $  1.30       $   .64        $   .56     $   .43
   Diluted .......................................        1.38           1.27           .63            .56         .43
                                                       -------        -------       -------        -------     -------
 Dividends Payout Ratio ..........................       45.25%         36.98%        55.50%         29.47%      19.92%
                                                       =======        =======       =======        =======     =======
</TABLE>

<TABLE>
<CAPTION>
                                                                 AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                                    ==================================================================
                                                      1998          1997           1996          1995          1994
                                                    =======       =======        ========      =======       =========
 <S>                                                 <C>            <C>           <C>          <C>            <C>    
 SELECTED OPERATING RATIOS(2):                                                                                       
 Return on average assets .......................      1.37%          1.45%          .76%         .73%          1.28% 
 Return on average equity .......................      9.98           9.35          6.13         7.06          16.57 
 Average equity to average assets ...............     13.74          15.54         12.41        10.37           7.73 
 Equity to assets at end of period ..............     13.51          14.44         16.27        10.20          10.15 
 Interest rate spread(3) ........................      3.21           3.32          2.99         3.08           3.95 
 Net interest margin(3) .........................      3.84           3.94          3.50         3.40           4.12 
 Non-performing loans and troubled debt                                                                              
   restructurings to total loans at end of                                                                           
   period(4) ....................................       .55            .59           .76          .70            .81   
                                                                                                                     
 Non-performing assets and troubled debt                                                                             
   restructurings to total assets at end of 
   period(4) ....................................       .60            .66          1.03         1.51           1.90 
 Average interest-earning assets to average                                                                          
   interest-bearing liabilities .................    115.38         114.95        111.92       107.81         105.28 
 Net interest income after provision for loan                                                                        
   losses to total noninterest expense ..........    157.45         163.78        117.01       120.52         156.40 
</TABLE>


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

(1) Earnings per share amounts for prior years have been restated to give
    effect to the exchange ratio of 1.41785 in connection with the
    Reorganization effective March 29, 1996.

(2) With the exception of end of period ratios, all ratios are based on average
    monthly balances during the periods and are annualized where appropriate.

(3) Interest rate spread represents the difference between the weighted average
    yield on interest-earning assets and the weighted average rate on
    interest-bearing liabilities.  Net interest margin represents net interest
    income as a percentage of average interest-earning assets.

(4) Non-performing loans consist of non-accrual loans and accruing loans that
    are contractually past due 90 days or more, non-performing assets consist
    of non-performing loans and real estate acquired by foreclosure, deed in
    lieu thereof or deemed insubstance foreclosure and troubled debt
    restructurings consist of restructured debt in accordance with Statement of
    Financial Accounting Standards No. 15.


                                      1


<PAGE>   6
                     MANAGEMENT DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

         Jacksonville Bancorp, Inc. (the "Company"), through its wholly-owned
subsidiary, Jacksonville IHC, Inc., ("IHC") and Jacksonville Savings Bank, SSB
("Jacksonville"), wholly owned subsidiary of IHC, is primarily engaged in
attracting deposits from the general public and using those and other available
sources of funds to originate loans secured by single-family residences located
in Cherokee County and surrounding counties in East Texas.  To a lesser extent,
Jacksonville also originates construction loans, land loans, consumer loans,
and home equity loans that began January 1, 1998 after State of Texas approval.
It also has a significant amount of investments in mortgage-backed securities
and United States Government and federal agency obligations.

         The profitability of Jacksonville depends primarily on its net
interest income, which is the difference between interest and dividend income
on interest-earning assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing deposits and
borrowings.  Jacksonville's net earnings also is dependent, to a lesser extent,
on the level of its noninterest income (including servicing fees and other
fees) and its noninterest expenses, such as compensation and benefits,
occupancy and equipment insurance premiums, and miscellaneous other expenses,
as well as federal income tax expense.

ASSET AND LIABILITY MANAGEMENT

         The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate-sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time.  The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates.  A gap is considered positive when
the amount of interest rate-sensitive assets exceeds the amount of interest
rate-sensitive liabilities, and is considered negative when the amount of
interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets.  Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would have the
opposite effect.

         The lending activities of savings associations have historically
emphasized long-term, fixed-rate loans secured by single-family residences, and
the primary source of funds of such institutions has been deposits.  The
deposit accounts of savings associations generally bear interest rates that
reflect market rates and largely mature or are subject to repricing within a
short period of time. This factor, in combination with substantial investments
in long-term, fixed-rate loans, has historically caused the income earned by
savings associations on their loan portfolios to adjust more slowly to changes
in interest rates than their cost of funds.


                                      2

<PAGE>   7
         Jacksonville originates both fixed- and variable-rate residential real
estate loans as market conditions dictate.  Prior to November 1980,
Jacksonville, like virtually all savings associations, originated only
fixed-rate loans and held them in portfolio until maturity.  As a result of the
problems caused by holding fixed-rate loans in a rapidly increasing
interest-rate environment, changes in regulations to allow for variable-rate
loans and consumer demand for such loans during periods of high interest rates,
in the 1980's Jacksonville began to transform its portfolio into loan products
the interest rates of which adjust periodically.  As a result, Jacksonville's
loan portfolio, as of September 30, 1998 consisted of 38.1% of adjustable or
floating rate loans.

         In order to meet its customers' demand for fixed-rate loans during
periods of lower interest rates, until 1994 Jacksonville followed a policy of
selling to third parties a high percentage of the fixed-rate loans it
originated while retaining its variable-rate loans.  The mixture of
originations for sale and originations for portfolio varies depending on the
general mix of interest-earning assets Jacksonville then currently holds in its
portfolio and other factors such as market fees for loan sales and the overall
interest-rate environment. As interest rates declined in late 1991,
Jacksonville originated an increasingly higher percentage of fixed-rate
residential first mortgage loans and continued to sell approximately 90% of
such loans upon origination.  Since 1994, it has been Jacksonville's policy to
retain a large portion of its fixed-rate residential first mortgage loans with
terms of 15 years or less.

         Notwithstanding the foregoing, however, because Jacksonville's
interest-bearing liabilities which mature or reprice within short periods
substantially exceed its earning assets with similar characteristics, material
and prolonged increases in interest rates generally would adversely affect net
interest income, while material and prolonged decreases in interest rates
generally, but to a lesser extent because of their historically low levels,
would have the opposite effect.

         The Bank's interest rate risk and asset-liability management are the
responsibility of the Interest Rate Risk Committee which reports to the Board
of Directors and is comprised of members of the Bank's senior management.  The
Committee is actively involved in formulating the economic projections used by
the Bank in its planning and budgeting process and establishes policies which
monitor and coordinate the Bank's sources, uses and pricing of funds.

         Interest rate risk, including mortgage prepayment risk, is the most
significant non-credit related risk to which the Bank is exposed.  Net interest
income, the Bank's primary source of revenue, is affected by changes in
interest rates as well as fluctuations in the level and duration of assets and
liabilities on the Bank's balance sheet.

         Interest rate risk can be defined as the exposure of the Bank's net
interest income or financial position to adverse movements in interest rates.
In addition to directly impacting net interest income, changes in the level of
interest rates can also affect, (i) the amount of loans originated and sold by
the institution, (ii) the ability of borrowers to repay adjustable or variable
rate loans, (iii) the average maturity of loans, which tend to increase when
new loan rates are substantially higher than rates on existing loans and,
conversely, decrease when rates on new loans are substantially lower than rates
on existing loans, (iv) the value of the Bank's mortgage loans and the
resultant ability to realize gains on the sale of such assets and (v) the
carrying value of investment securities classified as available-for-sale and
the resultant adjustments to shareholder's equity.


                                      3
<PAGE>   8
         The primary objective of the Bank's asset-liability management is to
maximize net interest income while maintaining acceptable levels of interest
rate sensitivity.  To accomplish this the Bank monitors interest rate
sensitivity by use of a sophisticated simulation model which analyzes resulting
net interest income under various interest rate scenarios and anticipated
levels of business activity.  Complicating management's efforts to measure
interest rate risk is the uncertainty of assumptions used for the maturity,
repricing, and/or runoff characteristics of some of the Bank's assets and
liabilities.

         To cope with these uncertainties, management gives careful attention
to its assumptions.  For example, certain of the Bank's interest-bearing
deposit products (NOW accounts, savings and money market deposits) have no
contractual maturity and based on historical experience have only a fractional
sensitivity to movements in market rates.  Because management believes it has
some control with respect to the extent and timing of rates paid on
non-maturity deposits, certain assumptions based on historical experience are
built into the model.  Another major assumption built into the model involves
the ability customers have to prepay loans, often without penalty.  The risk of
prepayment tends to increase when interest rates fall.  Since future prepayment
behavior of loan customers is uncertain, the resultant interest rate
sensitivity of loan assets cannot be determined exactly.  The Bank utilizes
market consensus prepayment assumptions related to residential mortgages.

         The Bank uses simulation analysis to measure the sensitivity of net
interest income over a specified time period (generally 1 year) under various
interest-rate scenarios using the assumptions discussed above.  The Bank's
policy on interest rate risk specifies that if interest rates were to shift
immediately up or down 200 basis points, estimated net interest income should
decline by less than 20%.  Management estimates, based on its simulation model,
that an instantaneous 2% increase in interest rates at September 30, 1998,
would result in less than a 7.50% decrease in net interest income over the next
twelve months, while a 2% decrease in rates would result in less than an 2.15%
decrease in net interest income over the next twelve months.  It should be
emphasized that the results are highly dependent on material assumptions such
as those discussed above.  It should also be noted that the exposure of the
Bank's net interest income to gradual and/or modest changes in interest rates
is relatively small.

         At September 30, 1998, the Bank was within the acceptable ranges set
forth in the Bank's Interest Rate Risk policy.

YEAR 2000 COMPLIANCE

         Jacksonville has been actively addressing the Year 2000 problem since
1996.  The data system operated by Jacksonville is maintained by an in-house
staff consisting of five personnel.  The Year 2000 Compliance Project consist
of five phases; Awareness, Assessment, Modification, Testing, and
Implementation.  The in-house system has been through all five phases of the
Year 2000 Compliance Project.  A full system test was completed successfully on
November 6, 1998.  All internal programs have been placed into production and
Jacksonville's system is considered to be Year 2000 compliant. Since the main
system has been through all five phases of the plan, the possibility of failure
is minute.  However, as Jacksonville employs a staff of programmers, any
remediation to software problems that may occur would be rapid.


                                      4
<PAGE>   9
         For all software supplied by external vendors three phases of the plan
have been completed and the staff is currently working in phase four testing.
This phase is expected to be completed by December 31, 1998.  Should any of the
small number of external vendors not be ready by the March 31, 1999 deadline, a
replacement would be introduced.

         The cost of the Year 2000 plan is considered to be minimal to the
institution since an in-house staff has been able to perform the majority of
the necessary steps toward Y2K compliance.

CHANGES IN FINANCIAL CONDITION

         At September 30, 1998, Jacksonville's assets totaled $263.2 million,
as compared to $233.9 million at September 30, 1997.  Total assets increased
$29.2 million, or 12.5%, from September 30, 1997 to September 30, 1998.  The
increase in total assets during fiscal 1998 was principally the result of a
$17.1 million or 9.8% increase in loans receivable, net from $174.0 million at
September 30, 1997 to $191.2 million at September 30, 1998.  The increase was
primarily the result of an increase in single-family residential loans of $8.9
million or 6.3%, an increase in construction loans, net of $4.7 million or
43.4% and an increase in consumer loans of $5.7 million or 38.4% during the
period.  A $7.0 million, or 31.0% decrease in investment securities, held to
maturity; and a $2.8 million, or 28.3% decrease in mortgage-backed securities,
held to maturity, was more than offset  by a $13.4 million increase in
mortgage-backed securities, available for sale and a $1.1 million, or 30.3%
increase in investment securities available for sale.  The increase in
mortgage-backed securities, available for sale, was primarily due to the
Jacksonville's  decision to implement a limited wholesale growth strategy
involving leveraged investing using FHLB advances to increase earnings.

         During the year ended September 30, 1998, total liabilities increased
$27.5 million or 13.8% to $227.4 million.  This increase was primarily the
result of an increase in total deposits of $12.5 million, or 6.5%; and an
increase in advances from Federal Home Loan Bank of $15.0 million which
proceeds were used to purchase mortgage-backed securities.

         Stockholders equity increased from $33.8 million at September 30, 1997
to $35.6 million at September 30, 1998, an increase of $1.8 million or 5.25%.
The increase was primarily the results of annual earnings after dividends less
the purchase of 54,825 Treasury shares in the amount of $990,000.

         At September 30, 1997, Jacksonville's assets totaled $233.9 million,
as compared to $217.9 million at September 30, 1996.  Total assets increased
$16.0 million, or 7.4%, from September 30, 1996 to September 30, 1997.  The
increase in total assets during fiscal 1997 was principally the result of a
$16.0 million or 10.1% increase in loans receivable, net from $158.0 million at
September 30, 1996 to $174.0 million at September 30, 1997.  The increase
resulted from an increase in single-family residential loans of $8.5 million or
6.5%, an increase in construction loans, net of $1.7 million or 42.9% and an
increase in consumer loans of $6.1 million or 68.4% during the period.  A $4.0
million, or 15.1% decrease in investment securities, held to maturity; a $3.9
million, or 52.9% decrease in investment securities, available for sale; and a
$2.3 million, or 18.9% decrease in mortgage-backed securities, held to
maturity, was more than offset by a $11.4 million increase in mortgage-backed
securities, available for sale.  These adjustments in Jacksonville's investment
and mortgage-backed securities portfolio were a result of management's decision
to use these funds to invest in loan originations and to purchase adjustable
mortgage-backed securities.


                                      5
<PAGE>   10
         During the year ended September 30, 1997, total liabilities increased
$17.9 million or 9.8% to $200.0 million.  This increase was primarily the
result of an increase in total deposits of $17.7 million, or 10.2%; an increase
in accrued expenses and other liabilities of $832,000, offset by a reduction in
the SAIF special assessment payable of $1.1 million.

         Stockholders equity decreased $1.6 million or 4.64% from $35.4 million
in 1996 to $33.8 million in 1997 primarily as a result of annual earnings after
dividends less the purchase of Treasury shares in the amount of $3.4 million.


                                      6
<PAGE>   11
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID

         The following table presents for the periods indicated the total
dollar amount of interest from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollar and rates, and the net interest margin.
The table does not reflect any effect of income taxes.  All average balances
are based on month-end balances.  Management believes that the use of average
monthly balances is representative of its operations.


<TABLE>
<CAPTION>
                                 SEPTEMBER
                                  30, 1998                1998                                     1997                
                                 =========   =================================    ==================================== 
                                  YIELD/     AVERAGE                    YIELD/        AVERAGE                  YIELD/  
                                   RATE      BALANCE     INTEREST        RATE         BALANCE     INTEREST      RATE   
                                 =========   ========    ========     ========    =============   =========   ======== 
                                                                                                                       
                                                                                                                       
 <S>                               <C>     <C>           <C>             <C>        <C>           <C>           <C>    
INTEREST-EARNING ASSETS:                                                                                               
 Loans receivable(3) .............  8.24%   $180,021      $15,442         8.58%      $163,569      $14,094       8.62% 
 Mortgage-backed securities ......  7.03      22,286        1,501         6.74         16,434        1,135       6.91  
 Investment securities ...........  5.97      23.502        1,261         5.36         28,292        1,657       5.86  
 Other interest-earning assets(1)   5.43       6,326          337         5.33          5,041          286       5.68  
                                            --------      -------                    --------      -------             
Total interest-earning assets.....          $232,135      $18,541        7.99%       $213,336      $17,172       8.05% 
                                            --------      =======      =======       --------      =======     ======  
Non-interest-earning assets ......            10,306                                    9,586                          
                                            --------                                 --------                          
   Total assets ..................          $242,441                                 $222,922                          
                                            ========                                 ========                          
INTEREST-BEARING LIABILITIES:
 Transaction accounts.............  2.51%   $ 47,720      $ 1,217         2.55%      $ 43,884      $ 1,140       2.60% 
 Time deposits ...................  5.43     148,546        8,131         5.47        138,863        7,459       5.37  
                                            --------      -------                    --------      -------             
   Total deposits ................  4.69     196,266        9,348         4.76        182,747        8,599       4.71  
                                            --------      -------                    --------      -------             
 Borrowings.......................  5.19       4,923          280         5.69          2,846          172       6.04  
                                            --------      -------                    --------      -------             
   Total interest-bearing                                                                                              
     liabilities .................           201,189      $ 9,628         4.78%       185,593      $ 8,771       4.73% 
                                            --------      =======      =======       --------      =======     ======  
Non-interest-bearing liabilities..             7,949                                    2,688                          
                                            --------                                 --------                          
   Total liabilities .............           209,138                                  188,281                          
                                            --------                                 --------                          
Stockholder's Equity .............            33,303                                   34,641                          
                                            --------                                 --------                          
   Total liabilities and                                                                                               
     stockholders' equity ........          $242,441                                 $222,922                          
                                            ========                                 ========                          
Net interest income;                                                                                                   
 interest rate speed .............                        $ 8,913        3.21%                     $ 8,401       3.32% 
                                                          =======      =======                     =======     ======  
Net interest margin(2)............                                       3.84%                                   3.94% 
                                                                       =======                                 ======  
Average interest-earning                                                                                               
 assets to average interest                                                                                            
 bearing liabilities .............                                     115.38%                                 114.95% 
                                                                       =======                                 ======  
            
</TABLE>


<TABLE>
<CAPTION>
                                             
                                                       1996
                                     ======================================
                                      AVERAGE                      YIELD/
                                      BALANCE        INTEREST       RATE
                                     =========     ===========   ==========
                                   
                                   
 <S>                                   <C>           <C>            <C>
INTEREST-EARNING ASSETS:           
 Loans receivable(3) .............      $145,021      $12,169        8.39%
 Mortgage-backed securities ......         9,561          700        7.32
 Investment securities ...........        37,109        2,170        5.85
 Other interest-earning assets(1)          6,446          355        5.51
                                        --------      -------
Total interest-earning assets.....      $198,137      $15,394        7.77% 
                                        ========      =======     ======= 
Non-interest-earning assets ......         9,565
                                        --------                          
   Total assets ..................      $207,702
                                        ========                          
INTEREST-BEARING LIABILITIES:                       
 Transaction accounts.............      $ 44,661      $ 1,124        2.52%
 Time deposits ...................       131,401        7,266        5.53
                                        --------      -------
   Total deposits ................       176,062        8,390        4.77
                                        --------             
 Borrowings.......................         1,098           63        5.71
                                        --------      -------
   Total interest-bearing                                                 
     liabilities .................       177,160      $ 8,453        4.78%
                                        --------      =======     =======
Non-interest-bearing liabilities..         4,761
                                        --------             
   Total liabilities .............       181,921
                                        --------             
Stockholder's Equity .............        25,781
                                        --------             
   Total liabilities and           
     stockholders' equity ........      $207,702
                                        ========             
Net interest income;               
 interest rate speed .............                    $ 6,941        2.99%
                                                      =======     =======
Net interest margin(2)............                                   3.50%
                                                                  =======
Average interest-earning           
 assets to average interest        
 bearing liabilities .............                                 111.92%
                                                                  =======
            
</TABLE>

------------------
  (1) Consists primarily of interest-bearing deposits.

  (2) Net interest margin is net interest income divided by average
      interest-earning assets.

  (3) Includes non-accrual loans which do not significantly impact the average.


                                      7
<PAGE>   12
         The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected Jacksonville's interest income and expense during the periods
indicated.  For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume), and (iii) total change in
rate and volume.  The combined effect of changes in both rate and volume has
been allocated proportionately to the change due to rate and the change due to
volume.

<TABLE>
<CAPTION>
                                                                
                                                                
                                                      YEAR ENDED SEPTEMBER 30,                      
                              ==========================================================================
                                          1998 VS. 1997                          1997 VS. 1996          
                              ==================================     ================================== 
                                                                                                        
                                     INCREASE                               INCREASE                    
                                    (DECREASE)         TOTAL               (DECREASE)          
                                      DUE TO          INCREASE               DUE TO            TOTAL  
                              ===================== ============     ======================   INCREASE
                                RATE       VOLUME    (DECREASE)        RATE         VOLUME   (DECREASE) 
                              ========    ========= ============     ==========   ========= =========== 
                                                       (DOLLARS IN THOUSANDS)         
<S>                           <C>         <C>          <C>           <C>           <C>        <C>       
INTEREST-EARNING ASSETS:                                                                                
 Loans ......................   $ (65)      $1,413       $1,348       $ 340          $1,585     $1,925  
 Mortgage-backed securities..     (33)         399          366         (37)            472        435  
 Investment securities.......    (133)        (263)        (396)          3            (516)      (513) 
 Other interest-earning                                                                                 
  assets ....................     (19)          70           51          12             (81)       (69) 
                                ------      ------       ------       -----          ------     ------  
   Total interest-earning                                                                               
     assets .................   $(250)      $1,619       $1,369        $318          $1,460     $1,778  
                                ======      ======       ======       =====          ======     ======  
                                                                                                        
INTEREST-BEARING LIABILITIES: 
 Deposits ...................   $   94     $   655       $  749       $(104)         $  313     $  209  
 Other borrowings ...........      (11)        119          108          (5)            114        109  
                                ------     -------       ------       ------         ------     ------  
 Total interest-bearing                                                                                 
 liabilities ................   $   83     $   774       $  857       $(109)         $  427     $  318  
                                ======     =======       ======       ======         ======     ======  
 Increase (decrease in net                                                                              
 interest income ............                            $  512                                 $1,460  
                                                        =======                                 ======  
</TABLE>                        


<TABLE>
<CAPTION>
                             
                             
                                      YEAR ENDED SEPTEMBER 30, 
                                ===================================
                                           1996 VS. 1995
                                ===================================
                             
                                       INCREASE                 
                                      (DECREASE)          TOTAL  
                                        DUE TO           INCREASE
                                ====================== ============
                                  RATE         VOLUME   (DECREASE)
                                =========    ========= ============
                                      (DOLLARS IN THOUSANDS)
<S>                               <C>        <C>         <C>
INTEREST-EARNING ASSETS:     
 Loans ......................      $466        $1,366     $1,832
 Mortgage-backed securities..       (22)          473        451
 Investment securities.......       147          (267)      (120)
 Other interest-earning                                          
  assets ....................       (13)           12         (1)
                                   ----        ------     ------
   Total interest-earning                                       
     assets .................      $578        $1,584     $2,162
                                   ====        ======     ======
                             
INTEREST-BEARING LIABILITIES:                
 Deposits ...................      $922        $  544     $1,466
 Other borrowings ...........       (11)         (129)      (140)
                                   ----        ------     ------
 Total interest-bearing      
 liabilities ................      $911        $  415     $1,326
                                   ====        ======     ======
 Increase (decrease in net   
 interest income ............                             $  836
                                                          ======
</TABLE>                     


                                      8

<PAGE>   13
                      COMPARISON OF RESULTS OF OPERATIONS

         GENERAL.  Jacksonville had net earnings of $3.3 million for the year
ended September 30, 1998 as compared to $3.2 million for the year ended
September 30, 1997.  During fiscal 1998, Jacksonville's net interest income
increased by $511,000 and its noninterest income increased by $162,000 while
the provision for losses on loans decreased $75,000.  Noninterest expense
increased by $576,000, primarily as a result of an increase in compensation and
benefits of $490,000.

         The $86,000 increase in net earnings for fiscal 1998  was primarily
the result of an increase in the average balance of interest-earning assets of
18.8 million or 8.81%.  The amount of such assets increased primarily as a
result of use of the increase in deposits and advances from the Federal Home
Loan Bank, to fund loans receivable and mortgage backed securities.  While the
average balance of interest-earning assets increased, the Bank experienced
generally lower interest rates during the period in which loans were originated
which resulted in the average yield on Jacksonville's interest-earning assets
decreasing by 6 basis points from 8.05% in fiscal 1997 to 7.99% in fiscal 1998.
The positive impact on earnings resulting from the increase in average balance
on Jacksonville's interest-earning assets was offset by a 5 basis point
increase  in the average rate paid on interest-bearing liabilities from 4.73%
in fiscal 1997 to 4.78% in fiscal 1998.  The interest rate spread decreased
from 3.32% in fiscal 1997 to 3.21% in 1998.

         NET INTEREST INCOME.  Net interest income increased by $511,000, or
6.1%, for the year ended September 30, 1998 compared to the year ended
September 30, 1997.  This increase was due primarily to a $1.4 million, or
8.0%, increase in total interest income partially offset by a $857,000 or 9.8%
increase total interest expense.

         The $1.4 million increase in total interest income was the result of
increases in interest on loans receivable of $1.3 million or 9.6%, and interest
on mortgage-backed securities of $367,000 or 32.3%, and increase of $50,000 in
other interest income, offset by a decrease in interest income of $397,000, or
23.9% from investment securities. The increase in interest income from loans
receivable was due primarily to a $16.5 million, or 10.1%, increase in the
average balance of Jacksonville's loan portfolio.  The increase in interest
income from mortgage-backed securities reflects an increase in average balance
from $16.4 million in fiscal 1997 to $22.3 million in fiscal 1998 with a
decrease in average yield from 6.91% to 6.74% in the respective periods.  The
decrease in interest income from investment securities reflects primarily a
decrease in average balance from $28.3 million to $23.5 million, or 16.9%.  The
decrease in the average balance of securities reflects a shift in portfolio mix
by management of Jacksonville as funds from maturing investment securities were
used to purchase mortgage-backed securities and to fund new mortgage loans.
The average yield on loans originated and retained by Jacksonville during
fiscal 1998 was 8.57%.

         The $857,000 increase in total interest expense from $8.8 million for
the year ended September 30, 1997, to $9.6 million for the year ended September
30, 1998, was primarily due to an increase in the growth of deposits, and to an
increase in interest paid on FHLB advances.  The average rate paid on deposits
increased from 4.71% in fiscal 1997 to 4.76 % in fiscal 1998.  The 5 basis
point increase in rates paid on average deposits resulted from managements
decision to offer slightly higher savings rates to attract more market share of
retail money.


                                      9
<PAGE>   14
         Jacksonville's net interest rate spread was 3.21% for the year ended
September 30, 1998 as compared to 3.32% in fiscal 1997.

         PROVISION FOR LOSSES ON LOANS.  Jacksonville's provision for loan
losses was $35,000 for the year ended September 30, 1998 compared to $110,000
for the year ended September 30, 1997. Provisions for losses on loans are
charged to earnings to bring the total allowance to a level deemed appropriate
by management based on historical experience, the volume and type of lending
conducted by Jacksonville, industry standards, the amount of non-performing
assets, general economic conditions, particularly as they relate to
Jacksonville's market area, and other factors related to the collectability of
Jacksonville's loan portfolio.  While non-performing loans increased to
$678,000 during fiscal 1998, net charge-offs for the period were up only
$39,000 and totaled only $57,000 for the year.  The Company's level of net
loans outstanding increased $17.1 million which included an increase of 38.4%
in consumer loans.  Overall economic conditions remained stable for the market
area and credit quality for the applicants showed no material change.  Upon
consideration of such factors, Jacksonville determined that $35,000 in
provisions for losses on loans were appropriate in 1998, primarily because of
the increase in the loan portfolio.   Jacksonville's allowance for losses
amounted to $1.2 million at September 30, 1998 the same amount as allocated on
September 30, 1997.

         NON-INTEREST INCOME.  Noninterest income amounted to $1.6 million for
the year ended September 30, 1998 compared to $1.4 million in fiscal 1997.  The
$162,000 increase  was due primarily to an increase in fees and deposit service
charges of $168,000; an increase of $61,000 in other noninterest income
partially offset by a decrease in income from origination of loan servicing of
$22,000, and a decrease of $44,000 in real estate operations, net.  The
increase in income from fees and deposit service charges reflects an increase
in loan originations and an increase in service charges on deposits.

         NON-INTEREST EXPENSE.  Noninterest expense amounted to $5.6 million
for the year ended September 30, 1998 compared to $5.1 million during fiscal
1997.  The primary reason for the $576,000, or 11.4% increase in noninterest
expense during fiscal 1998 was from increases in compensation and benefits of
$490,000; in provisions for real estate losses of $89,000, and other
noninterest expenses of $54,000, offset by a reduction in insurance expense of
$57,000.

         INCOME TAXES.  Income tax expense amounted to $1.5 million during the
year ended September 30, 1998, compared to $1.4 million in fiscal 1997.  The
changes in such amounts primarily reflect differences in gross income levels of
Jacksonville.  See Note 11 to Consolidated Financial Statements.


COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND
1996

          GENERAL.  Jacksonville had net earnings of $3.2 million for the year
ended September 30, 1997 as compared to $1.6 million for the year ended
September 30, 1996.  During fiscal 1997, Jacksonville's net interest income
increased by $1.5 million and its noninterest income increased by $102,000
while the provision for losses on loans increased $10,000.  Noninterest expense
decreased by $783,000, primarily as a result of the payment of the SAIF special
assessment of $1.1 million in 1996; offset by an increase of $292,000 in
compensation and benefits.

                                      10
<PAGE>   15
         The $1.6 million increase in net earnings for fiscal 1997  was
primarily the result of an increase in the average balance of interest-earning
assets of $15.2 million or 7.7%.  The amount of such assets increased primarily
as a result of use of the increase in deposits to fund loans receivable and
mortgage backed securities.  The amount of the increased earnings was enhanced
by generally higher interest rates during the period in which the loans were
originated which resulted in the average yield on Jacksonville's
interest-earning assets increasing by 28 basis points from 7.77% in fiscal 1996
to 8.05% in fiscal 1997.  The positive impact on earnings resulting from the
increase in average balance of and average yield on Jacksonville's
interest-earning assets was further enhanced by a 5 basis point decrease  in
the average rate paid on interest-bearing liabilities from 4.78% in fiscal 1996
to 4.73% in fiscal 1997.  The interest rate spread increased from 2.99% in
fiscal 1996 to 3.32% in 1997.

         NET INTEREST INCOME.  Net interest income increased by $1.5 million,
or 21.0%, for the year ended September 30, 1997 compared to the year ended
September 30, 1996.  This increase was due primarily to a $1.8 million, or
11.6%, increase in total interest income partially offset by a $318,000 or 3.8%
increase total interest expense.

         The $1.8 million increase in total interest income was the result of
increases in interest on loans receivable of $1.9 million or 15.8%, and
interest on mortgage-backed securities of $435,000 or 62.1%, offset by a
decrease in interest income of $513,000, or 23.6% from investment securities.
The increase in interest income from loans receivable was due primarily to a
$18.5 million, or 12.8%, increase in the average balance of Jacksonville's loan
portfolio.  The increase in interest income from mortgage-backed securities
reflects an increase in average balance from $9.6 million in fiscal 1996 to
$16.4 million in fiscal 1997 partially offset by a decline in average yield
from 7.32% to 6.91% in the respective periods.  The decrease in interest income
from investment securities reflects primarily a decrease in average balance
from $37.1 million to $28.3 million, or 23.8%.  The decrease in the average
balance of securities reflects a shift in portfolio mix by management of
Jacksonville as funds from maturing investment securities were used to purchase
mortgage-backed securities and to fund new mortgage loans.  The average yield
on loans originated and retained by Jacksonville during fiscal 1997 was 8.6%.

         The $318,000 increase in total interest expense from $8.5 million for
the year ended September 30, 1996, to $8.8 million for the year ended September
30, 1997, was primarily due to an increase in the growth of deposits.  The
average rate paid on deposits decreased from 4.77% in fiscal 1996 to 4.71% in
fiscal 1997.  The 6 basis point decrease in rates paid on average deposits
resulted from a general decrease in market rates of interest in the area on
longer term certificates of deposit which matured in 1997 and were reinvested
at lower rates.

         Jacksonville's net interest rate spread was 3.32% for the year ended
September 30, 1997 as compared to 2.99% in fiscal 1996.

         PROVISION FOR LOSSES ON LOANS.  Jacksonville's provision for loan
losses was $110,000 for the year ended September 30, 1997 compared to $100,000
for the year ended September 30, 1996. Provisions for losses on loans are
charged to earnings to bring the total allowance to a level deemed appropriate
by management based on historical experience, the volume and type of lending
conducted by Jacksonville, industry standards, the amount of non-performing
assets, general economic conditions, particularly as they relate to
Jacksonville's market area, and other


                                      11

<PAGE>   16
factors related to the collectability of Jacksonville's loan portfolio.  While
non-performing loans reduced to $644,000 during fiscal 1997, net charge-offs
for the period were up $18,000.  The Company's level of net loans outstanding
increased $16.0 million which included an increase of 68.4% in consumer loans.
Overall economic conditions remained stable for the market area and credit
quality for the applicants showed no material change.  Upon consideration of
such factors, Jacksonville determined that $110,000 in provisions for losses on
loans were appropriate in 1997, primarily because of the increase in the loan
portfolio.  Jacksonville's allowance for losses amounted to $1.2 million at
September 30, 1997 as compared to $1.1 million at September 30, 1996.

         NON-INTEREST INCOME.  Noninterest income amounted to $1.4 million for
the year ended September 30, 1997 compared to $1.3 million in fiscal 1996.  The
$102,000 increase  was due primarily to an increase in fees and deposit service
charges of $41,000 and an increase in income from real estate operations, net,
of $95,000; an increase of $33,000 in other noninterest income partially offset
by a decrease in income from origination of loan servicing of $68,000, as
management lowered its estimate of the value of servicing rights for loans
originated and sold during 1997. The increase in income from fees and deposit
service charges reflects an increase in loan originations and an increase in
service charges on deposits.

         NON-INTEREST EXPENSE.  Noninterest expense amounted to $5.1 million
for the year ended September 30, 1997 compared to $5.8 million during fiscal
1996.  The primary reason for the $784,000, or 13.4% decrease in noninterest
expense during fiscal 1997 was the $1.1 million SAIF special assessment paid in
1996 combined with a reduction in insurance expense of $223,000, partially
offset by increases in compensation and benefits of $292,000; in occupancy and
equipment of $86,000; in provisions for real estate losses of $13,000, and
other noninterest expenses of $118,000.  The Bank has actively marketed and
sold foreclosed real estate and the local real estate market has continued to
improve resulting in the reversal of previously established allowance for
losses on foreclosed real estate in 1997 and 1996.  The SAIF special assessment
resulted from legislation enacted into law on September 30, 1996 which, among
other things recapitalized the SAIF through the special assessment. Pursuant to
regulatory provisions recently promulgated by the Federal Deposit Insurance
Corporation, the recapitalization resulted in a substantial reduction of
deposit insurance premiums for most SAIF members.

         INCOME TAXES.  Income tax expense amounted to $1.4 million during the
year ended September 30, 1997, compared to $704,000 in fiscal 1996.  The
changes in such amounts primarily reflect differences in gross income levels of
Jacksonville.  See Note 11 to Consolidated Financial Statements.  During fiscal
1997 the Internal Revenue Service completed its examination of tax years 1994
and 1995 with no substantial change to net income in either year.

LIQUIDITY AND CAPITAL RESOURCES

         Jacksonville is required under applicable state regulations to
maintain specified levels of liquidity in an amount not less than 10% of its
average daily deposits for the most recently completed calendar quarter in cash
and readily marketable investments.


                                      12
<PAGE>   17
         Cash was generated by Jacksonville's operating activities of $3.8 and
$3.5 million during the years ended September 30, 1998 and 1997, respectively,
primarily as a result of net earnings of $3.3 million and $3.2 million,
respectively.  The adjustments to reconcile net earnings to net cash provided
by operations during the periods presented consisted primarily of the provision
for losses on loans, depreciation and amortization expense, amortization of
deferred loan origination fees and increases or decreases in other assets and
other liabilities.

         The primary investing activity of Jacksonville is lending and
purchases of investment and mortgage-backed securities, which is funded with
cash provided from operations and financing activities, as well as proceeds
from amortization and prepayments on existing loans and proceeds from
maturities of investment securities and mortgage-backed securities.  During the
year ended September 30, 1998, Jacksonville's investing activities used cash of
$22.3 million principally as a result of net loan originations of $17.1
million; to purchase mortgage backed securities totaling $17.7 million; to
purchase investment securities of $12.5 million partially offset by proceeds on
maturity of investment securities of $18.5 million and principal paydown on MBS
of $6.9 million.

          During the year ended September 30, 1997, Jacksonville's investing
activities used cash of $17.3 million principally as a result of net loan
originations of $16.1 million; purchases of mortgage-backed securities of $11.4
million; purchases of investment securities of $6.0 million; partially offset
by net proceeds from maturities of investment securities of $14.0 million; and
principal paydowns on mortgage-backed securities of $2.3 million.

         During the year ended September 30, 1998, Jacksonville's financing
activities generated cash of $25.2 million as a result of a net increase in
deposits of $12.5 million, and net increase of $15.0 million in advances from
FHLB offset by the purchase of Treasury Stock in the amount of $990,000; the
payment of dividends in the amount of $1.2 million, and a net decrease of
$116,000 in advance payments by borrowers for property taxes and insurances.

         Jacksonville's financing activities generated cash of $12.7 million
during the year ended September 30, 1997 as a result of a net increase in
deposits of $17.7 million and an increase of $405,000 in tax and insurance
escrow accounts; offset by purchase of Treasury Stock of $3.4 million; purchase
of MRP shares of $836,000 and dividends paid of $1.2 million.  For additional
information about cash flows from Jacksonville operating, financing and
investing activities, see the Consolidated Statements of Cash Flows included in
the Consolidated Financial Statements.

         At September 30, 1998, Jacksonville had 8.7 million of outstanding
commitments to originate residential real estate loans and no commitments to
purchase investment securities.  At the same date, the total amount of
certificates of deposit which are scheduled to mature by September 30, 1999 are
$129.6 million.  Jacksonville believes that it has adequate resources to fund
commitments as they arise and that it can adjust the rate on savings
certificates to retain deposits in changing interest rate environments.  If
Jacksonville requires funds beyond its internal funding capabilities, advances
from the FHLB of Dallas are available as an additional source of funds.

         Jacksonville is required to maintain specified amounts of capital
pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA") and regulations promulgated by the FDIC thereunder.  The
capital standards generally require the maintenance of


                                      13
<PAGE>   18
regulatory capital sufficient to meet Tier 1 leveraged capital requirement, a
Tier 1 risk based capital requirement and a total risk-based capital
requirement.  At September 30, 1998, Jacksonville's Tier 1 leveraged capital
and Tier 1 risk-based capital totaled $33.5 million or 13.14% of adjusted total
assets and 24.37% of risk-weighted assets, respectively.  These capital levels
exceeded the minimum requirements at that date by approximately $23.3 million
and $28.0 million, respectively.  Jacksonville's total risk based capital was
$34.7 million at September 30, 1998 or 25.22% of risk-weighted assets which
exceeded the current requirement of 8% of risk-weighted assets by approximately
$23.7 million.

ACCOUNTING REQUIREMENTS

         In May 1995 the FASB issued Statement of Financial Accounting
Standards No. 122 ("SFAS No. 122") entitled "Accounting for Mortgage Servicing
Rights."  This statement eliminates the accounting distinction between rights
to service mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions.  The provisions of
SFAS No. 122 must be applied prospectively in fiscal years beginning after
December 15, 1995. Jacksonville adopted the provisions of SFAS No. 122,
effective October 1, 1995, and the effect of such change was to increase assets
and net income as reflected in the consolidated financial statements.

         In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
all entities to adopt a new method of accounting to measure compensation cost
of all employee stock compensation plans based on the estimated fair value of
the award at the date it is granted.  Companies are, however, allowed to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting, which generally does not result in compensation
expense recognition for most plans.  Companies that elect to remain with the
existing accounting are required to disclose in a footnote to the financial
statements pro forma net income and, if presented, earnings per share, as if
SFAS No. 123 had been adopted.  The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
The Company has elected to disclose the effect of this standard in the
consolidated financial statements and accordingly the adoption of this standard
in 1997 did not effect consolidated financial position or results of
operations.

         In June, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130").  This statement, which the Company will be required to
adopt, establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.  The
new standard requires that all items that are required to e recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.  Reclassification of financial statement for earlier
periods provided for comparative purposes is required.  The company will adopt
("SFAS 130") beginning October 1, 1998.


                                      14
<PAGE>   19
         In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131").  This
statement, which the Company will be required to adopt, supersedes FAS 14,
"Financial Reporting for Segments of a Business Enterprise", but retains the
requirement to report information about major customers.  The new standard
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments.  In the initial year of
application, comparative information for earlier years is to be restated.  The
company will adopt SFAS 131 in the year beginning October 1, 1998.

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which amends FASB Statements No. 52 and 107, and supersedes FASB Statements No.
80, 105 and 119.  SFAS No.  133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities.  SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.  Initial application of SFAS No. 133 should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of SFAS No.
133.  Earlier application of SFAS No. 133 is encouraged but is permitted only
as of the beginning of any fiscal quarter that begins after issuance of SFAS
No. 133.  The Company has not yet determined the impact on its results of
operations, financial position or cash flows as a result of implementing SFAS
No. 133.

IMPACT OF INFLATION AND CHANGING PRICES

         The consolidated financial statements and related financial data
presented herein have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power over time due
to inflation.

         Unlike most industrial companies, virtually all of Jacksonville's
assets and liabilities are monetary in nature.  As a result, interest rates
generally have a more significant impact on a financial institution's
performance than does the effect of inflation.





                             [Financials to come]



                                      15

<PAGE>   20





                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Jacksonville Bancorp, Inc.

We have audited the accompanying consolidated statements of financial condition
of Jacksonville Bancorp, Inc. and subsidiaries, as of September 30, 1998 and
1997, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the years in the three-year period ended
September 30, 1998.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jacksonville
Bancorp, Inc. and subsidiaries, as of September 30, 1998 and 1997, and the
results of their operations and cash flows for each of the years in the three
year period ended September 30, 1998, in conformity with generally accepted
accounting principles.





                                           /s/ HENRY & PETERS, P.C.  
                                           HENRY & PETERS, P.C.




Tyler, Texas
October 22, 1998





                                       16
<PAGE>   21
                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                          SEPTEMBER 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                                          1998            1997
                                                                                                      -----------      -----------
                                                                ASSETS
<S>                                                                                                <C>              <C>
Cash on hand and in banks                                                                          $    3,086,417   $    1,336,212
Interest-bearing deposits                                                                               7,781,229        2,777,833
Investment securities:
  Held-to-maturity, approximate fair market value of
    $15,587,250 and $22,508,860, respectively                                                          15,492,501       22,461,957
  Available-for-sale, carried at fair value                                                             4,520,484        3,468,900
Mortgage-backed certificates:
  Held-to-maturity, approximate fair market value of
    $7,133,165 and $9,936,023, respectively                                                             7,045,343        9,824,878
  Available-for-sale, carried at fair value                                                            24,820,600       11,392,514
Loans receivable, net                                                                                 191,153,399      174,044,353
Accrued interest receivable                                                                             2,090,470        1,952,013
Foreclosed real estate, net                                                                               530,728          526,234
Premises and equipment, net                                                                             3,935,778        3,388,532
Stock in Federal Home Loan Bank of Dallas, at cost                                                      1,621,900        1,844,400
Mortgage servicing rights                                                                                 534,463          437,581
Deferred tax assets                                                                                       322,265          325,303
Other assets                                                                                              224,597          163,776
                                                                                                     ------------     ------------
         Total assets                                                                                $263,160,174     $233,944,486
                                                                                                     ============     ============

                                                 LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Deposits                                                                                           $204,489,918     $192,033,298
  Advance from Federal Home Loan Bank                                                                  17,000,000        2,000,000
  Advances from borrowers for taxes and insurance                                                       3,807,168        3,923,588
  Accrued expenses and other liabilities                                                                2,131,267        1,981,724
                                                                                                     ------------     ------------
    Total liabilities                                                                                 227,428,353      199,938,610

DEFERRED INCOME
  Gain on sale of real estate owned                                                                       169,740          217,672

STOCKHOLDERS' EQUITY
  Preferred stock, no par value, 5,000,000 shares authorized; none issued                                       -                -
  Common stock, $.01 par value, 25,000,000 shares authorized;
    2,675,972 and 2,674,668 shares issued; 2,390,047 and 2,443,568
    shares outstanding in 1998 and 1997, respectively                                                      26,760           26,747
  Additional paid-in capital                                                                           22,649,848       22,471,258
  Retained earnings, substantially restricted                                                          18,963,133       16,788,491
  Less:
  Treasury stock, at cost (285,925 and 231,100 shares, respectively)                                   (4,413,266)      (3,423,528)
    Shares acquired by Employee Stock Ownership Plan                                                   (1,223,932)      (1,378,106)
    Shares acquired by Management Recognition Plan                                                       (515,344)        (682,483)
    Net unrealized gain (loss) on investments available-for-sale,
      net of income taxes of $38,575 and $(7,303), respectively                                            74,882          (14,175)
                                                                                                     ------------     ------------
         Total stockholders' equity                                                                    35,562,081       33,788,204
                                                                                                     ------------     ------------
         Total liabilities and stockholders' equity                                                  $263,160,174     $233,944,486
                                                                                                     ============     ============
</TABLE>



  See accompanying notes to consolidated financial statements.





                                       17
<PAGE>   22
                           JACKSONVILLE BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF EARNINGS
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                              1998                  1997                    1996
                                                          -----------           -----------              -----------
<S>                                                      <C>                   <C>                      <C>
INTEREST INCOME
  Loans receivable                                        $15,442,039           $14,093,616              $12,169,431
  Mortgage-backed securities                                1,501,491             1,134,799                  700,215
  Investment securities                                     1,260,766             1,657,500                2,170,435
  Other                                                       336,885               286,566                  354,197
                                                          -----------           -----------              -----------
    Total interest income                                  18,541,181            17,172,481               15,394,278

INTEREST EXPENSE
  Deposits                                                  9,348,433             8,599,136                8,390,643
  Interest on borrowings                                      279,894               171,913                   62,749
                                                          -----------           -----------              -----------
    Total interest expense                                  9,628,327             8,771,049                8,453,392
                                                          -----------           -----------              -----------
    Net interest income                                     8,912,854             8,401,432                6,940,886

PROVISION FOR LOSSES ON LOANS                                  35,000               110,084                  100,000
                                                          -----------           -----------              -----------
    Net interest income after provision for
      losses on loans                                       8,877,854             8,291,348                6,840,886

NONINTEREST INCOME
  Fees and deposit service charges                          1,116,117               947,783                  906,612
  Real estate operations, net                                 135,315               179,718                   84,309
  Other                                                       162,171               101,604                   68,245
  Mortgage servicing rights                                   140,394               162,462                  230,491
                                                          -----------           -----------              -----------
    Total noninterest income                                1,553,997             1,391,567                1,289,657

NONINTEREST EXPENSE
  Compensation and benefits                                 3,759,893             3,269,947                2,977,991
  Occupancy and equipment                                     529,524               529,124                  442,633
  Insurance expense                                           167,851               224,658                  447,528
  Provisions for real estate losses                              (144)              (88,737)                (102,142)
  Other                                                     1,181,369             1,127,519                1,010,016
  SAIF special assessment                                           -                     -                1,070,478
                                                          -----------           -----------              -----------
    Total noninterest expense                               5,638,493             5,062,511                5,846,504
                                                          -----------           -----------              -----------

INCOME BEFORE TAXES ON INCOME                               4,793,358             4,620,404                2,284,039

TAXES ON INCOME
  Current                                                   1,428,256             1,383,880                  623,000
  Deferred                                                     40,000                (3,000)                  81,000
                                                          -----------           -----------              -----------
    Total income tax expense                                1,468,256             1,380,880                  704,000
                                                          -----------           -----------              -----------
      Net earnings                                        $ 3,325,102           $ 3,239,524              $ 1,580,039
                                                          ===========           ===========              ===========

EARNINGS PER COMMON SHARE
  Basic                                                   $      1.44           $      1.30              $       .64
                                                          ===========           ===========              ===========
  Diluted                                                 $      1.38           $      1.27              $       .63
                                                          ===========           ===========              ===========
</TABLE>





See accompanying notes to consolidated financial statements.





                                       18
<PAGE>   23
                           JACKSONVILLE BANCORP, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                              Unvested       Unvested
                                                              Additional       Shares         Shares
                                                  Common        Paid-in       Held by         Held by
                                                   Stock        Capital         ESOP            MRP
                                                ----------    ----------     ---------       ---------
<S>                                             <C>           <C>           <C>              <C>
BALANCE AT SEPTEMBER 30, 1995                   $   26,510    $6,901,244     $(358,309)      $(121,875)
  Shares issued under stock option plan                 78        54,762             -               -
  ESOP shares released                                   -        20,480       124,820               -
  Accrual of management recognition
    plan awards                                          -             -             -          97,500
  Cancellation of shares held by
    Jacksonville Federal Mutual
    Holding Company                                (16,128)       16,128             -               -
  Proceeds from issuance of 1,618,409
    shares of Jacksonville Bancorp, Inc.
    common stock on March 29, 1996, net
    of 140 fractional shares acquired, and
    net of offering expense of $863,178             16,183    15,304,729    (1,294,730)              -
  Return of capital from Jacksonville
    Federal Mutual Holding Company                       -             -             -               -
  Change in net unrealized loss on
    securities available-for-sale                        -             -             -               -
  Dividends declared                                     -             -             -               -
  Net earnings                                           -             -             -               -
                                                ----------    ----------     ---------       ---------
BALANCE AT SEPTEMBER 30, 1996                       26,643    22,297,343    (1,528,219)        (24,375)

<CAPTION>
                                                 Unrealized
                                                (Loss) Gain
                                               on Securities                                    Total
                                                 Available-     Retained       Treasury     Stockholders'
                                                  For-Sale      Earnings         Stock         Equity
                                               -------------  -----------   -------------   ------------
<S>                                               <C>         <C>           <C>              <C>
BALANCE AT SEPTEMBER 30, 1995                     $(60,555)   $13,943,851   $           -    $20,330,866
  Shares issued under stock option plan                  -              -               -         54,840
  ESOP shares released                                   -              -               -        145,300
  Accrual of management recognition
    plan awards                                          -              -               -         97,500
  Cancellation of shares held by
    Jacksonville Federal Mutual
    Holding Company                                      -              -               -              -
  Proceeds from issuance of 1,618,409
    shares of Jacksonville Bancorp, Inc.
    common stock on March 29, 1996, net
    of 140 fractional shares acquired, and
    net of offering expense of $863,178                  -              -               -     14,026,182
  Return of capital from Jacksonville
    Federal Mutual Holding Company                       -        100,000               -        100,000
  Change in net unrealized loss on
    securities available-for-sale                  (27,094)             -               -        (27,094)
  Dividends declared                                     -       (876,965)              -       (876,965)
  Net earnings                                           -      1,580,039               -      1,580,039
                                               -------------  -----------   -------------   ------------
BALANCE AT SEPTEMBER 30, 1996                      (87,649)    14,746,925               -     35,430,668
</TABLE>





                                       19
<PAGE>   24
                           JACKSONVILLE BANCORP, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
                                   CONTINUED

<TABLE>
<CAPTION>
                                                                Unvested        Unvested
                                                 Additional       Shares         Shares
                                      Common       Paid-in       Held by         Held by
                                       Stock       Capital         ESOP            MRP
                                      -------   -----------   -----------      ----------
<S>                                   <C>       <C>           <C>              <C>
BALANCE AT SEPTEMBER 30, 1996         $26,643   $22,297,343   $(1,528,219)     $  (24,375)
  Shares issued under stock
    option plan                           104        73,237             -               -
  ESOP shares released                      -       100,678       150,113               -
  Purchase of management
    recognition plan shares                 -             -             -        (835,693)
  Accrual of management
    recognition plan awards                 -             -             -         177,585
  Change in net unrealized
    gain (loss) on securities
      available-for-sale                    -             -             -               -
  Dividends declared                        -             -             -               -
  Net earnings                              -             -             -               -
  Purchase of Treasury stock                -             -             -               -
                                      -------   -----------   -----------      ----------
BALANCE AT SEPTEMBER 30, 1997          26,747    22,471,258    (1,378,106)       (682,483)
  Shares issued under stock
    option plan                            13         9,180             -               -
  ESOP shares released                      -       169,410       154,174               -
  Accrual of management
    recognition plan awards                 -             -             -         167,139
  Change in net unrealized
    gain (loss) on securities
      available-for-sale                    -             -             -               -
  Dividends declared                        -             -             -               -
  Net earnings                              -             -             -               -
  Purchase of Treasury stock                -             -             -               -
                                      -------   -----------   -----------      ----------
BALANCE AT SEPTEMBER 30, 1998         $26,760   $22,649,848   $(1,223,932)     $ (515,344)
                                      =======   ===========   ===========      ==========

<CAPTION>

                                   Unrealized
                                   (Loss) Gain
                                  on Securities                                    Total
                                    Available-     Retained       Treasury     Stockholders'
                                     For-Sale      Earnings         Stock         Equity
                                   ----------    -----------   -------------   ------------
<S>                                <C>           <C>           <C>             <C>
BALANCE AT SEPTEMBER 30, 1996      $  (87,649)   $14,746,925   $           -   $ 35,430,668
  Shares issued under stock
    option plan                             -              -               -         73,341
  ESOP shares released                      -              -               -        250,791
  Purchase of management
    recognition plan shares                 -              -               -       (835,693)
  Accrual of management
    recognition plan awards                 -              -               -        177,585
  Change in net unrealized
    gain (loss) on securities
      available-for-sale               73,474              -               -         73,474
  Dividends declared                        -     (1,197,958)              -     (1,197,958)
  Net earnings                              -      3,239,524               -      3,239,524
  Purchase of Treasury stock                -              -      (3,423,528)    (3,423,528)
                                   ----------    -----------   -------------   ------------
BALANCE AT SEPTEMBER 30, 1997         (14,175)    16,788,491      (3,423,528)    33,788,204
  Shares issued under stock
    option plan                             -              -               -          9,193
  ESOP shares released                      -              -               -        323,584
  Accrual of management
    recognition plan awards                 -              -               -        167,139
  Change in net unrealized
    gain (loss) on securities
      available-for-sale               89,057              -               -         89,057
  Dividends declared                        -     (1,150,460)              -     (1,150,460)
  Net earnings                              -      3,325,102               -      3,325,102
  Purchase of Treasury stock                -              -        (989,738)      (989,738)
                                   ----------    -----------   -------------   ------------
BALANCE AT SEPTEMBER 30, 1998      $   74,882    $18,963,133   $  (4,413,266)  $ 35,562,081
                                   ==========    ===========   =============   ============
</TABLE>
See accompanying notes to consolidated financial statements.





                                       20
<PAGE>   25
                          JACKSONVILLE BANCORP, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                           1998           1997            1996
                                                                      ------------   ------------     ------------
<S>                                                                   <C>            <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                          $  3,325,102   $  3,239,524     $  1,580,039
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Depreciation                                                         165,233        212,715          187,119
      Amortization/accretion of securities                                 166,145         37,035          148,300
      Provision for losses (gains) on loans and on real estate              35,144         21,347           (2,142)
      Loans originated for sale                                        (28,189,992)   (22,311,000)     (21,848,000)
      Loans sold                                                        28,189,992     22,311,000       21,848,000
      Net gain on sale of equipment                                        (11,640)             -                -
      Net (gain) loss on sale of other real estate                        (132,794)       179,521          162,422
      Accrual of MRP awards                                                167,139        177,585           97,500
      Release of ESOP shares                                               323,584        250,791           85,217
      Change in assets and liabilities:
         (Increase) decrease in other assets                               (60,821)       280,312           24,709
         (Increase) decrease in deferred tax assets                        (42,840)        (3,000)          57,332
         (Decrease) increase SAIF assessment payable                             -     (1,070,478)       1,070,478
         Increase in accrued expenses and
          other liabilities                                                149,543        831,826          163,262
         Decrease in deferred income                                       (47,932)      (141,243)         (79,137)
         Increase in mortgage servicing rights                             (96,882)      (206,040)        (231,541)
         Increase in accrued interest receivable                          (138,457)      (318,971)        (184,694)
                                                                      ------------   ------------     ------------
          Net cash provided by operating activities                      3,800,524      3,490,924        3,078,864
                                                                      ------------   ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds on maturity of investment securities                         18,456,288     13,955,186       23,409,535
  Purchase of investment securities                                    (12,493,297)    (5,995,546)     (14,474,405)
  Net principal payments/originations on loans                         (17,145,410)   (16,062,470)     (21,825,762)
  Proceeds from sale of foreclosed real estate                             129,520        376,174          565,545
  Proceeds from sale of equipment                                           33,735              -                -
  Purchase of mortgage-backed securities                               (17,662,769)   (11,371,963)     (10,926,796)
  Principal paydowns on mortgage-backed securities                       6,937,889      2,251,044        2,238,744
  Capital expenditures                                                    (734,574)      (345,182)        (534,461)
  Purchase of stock in FHLB Dallas                                         (24,500)      (104,500)        (103,700)
  Sale of stock in FHLB Dallas                                             247,000              -                -
  Return of capital from mutual holding company                                  -              -          100,000
                                                                      ------------   ------------     ------------
           Net cash used in investing activities                       (22,256,118)   (17,297,257)     (21,551,300)
                                                                      ------------   ------------     ------------
</TABLE>





                                       21
<PAGE>   26
                           JACKSONVILLE BANCORP, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
                                   CONTINUED

<TABLE>
<CAPTION>
                                                           1998              1997            1996
                                                         -----------      -----------    -------------
<S>                                                      <C>             <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in deposits                               $12,456,620      $17,705,411    $     516,941
    Net (decrease) increase in advance payments by
    borrowers for property taxes and insurance              (116,420)         405,390          191,615
  Advances from FHLB                                      20,000,000        5,000,000        4,000,000
  Payment of FHLB advance                                 (5,000,000)      (5,000,000)      (2,000,000)
  Proceeds from sale of common stock                               -                -       14,026,182
  Proceeds from exercise of stock options                      9,193           73,341           54,840
  Payment of ESOP loan                                             -                -         (298,226)
  Purchase of Treasury stock                                (989,738)      (3,423,528)               -
  Purchase of MRP shares                                           -         (835,693)               -
  Dividends paid                                          (1,150,460)      (1,197,958)        (876,965)
                                                         -----------      -----------    -------------
           Net cash provided by financing activities      25,209,195       12,726,963       15,614,387
                                                         -----------      -----------    -------------
           Net increase (decrease) in cash
              and cash equivalents                         6,753,601       (1,079,370)      (2,858,049)

CASH AND CASH EQUIVALENTS
  Beginning of year                                        4,114,045        5,193,415        8,051,464
                                                         -----------      -----------    -------------
  End of year                                            $10,867,646      $ 4,114,045    $   5,193,415
                                                         ===========      ===========    =============
</TABLE>

See accompanying notes to consolidated financial statements.





                                       22
<PAGE>   27
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997


NOTE 1 - BASIS OF PRESENTATION AND REORGANIZATION
  The accompanying consolidated financial statements include the accounts of
  Jacksonville Bancorp, Inc. (Company), and its wholly-owned subsidiary
  Jacksonville IHC, Inc. (IHC), and its wholly-owned subsidiary Jacksonville
  Savings Bank, SSB (Bank), and its wholly-owned subsidiary JS&L Corporation
  (JS&L).  The Company, through its principal subsidiary, the Bank, is
  primarily engaged in attracting deposits from the general public and using
  those and other available sources of funds to originate loans secured by
  single-family residences located in the East Texas area. To a lesser extent,
  the Bank also originates construction loans, land loans, and consumer loans.
  IHC's main activity is holding an intercompany loan receivable from the Bank
  in connection with the Bank's employee stock ownership plan. JS&L's main
  activity is the servicing of purchased residential mortgage notes receivable.
  All significant intercompany transactions and balances are eliminated in
  consolidation.

  On March 29, 1996, Jacksonville Savings and Loan Association (Association),
  and Jacksonville Federal Mutual Holding Company (Mutual Holding Company),
  completed a second step conversion (Reorganization).  As part of the
  Reorganization, Jacksonville Bancorp, was formed as a first-tier wholly-owned
  subsidiary of the Association.  The Mutual Holding Company was converted to
  an interim federal stock savings association and simultaneously merged with
  and into the Association.  At that point, the Mutual Holding Company ceased
  to exist and 1,137,500 shares, or 60.8%, of the outstanding Association's
  common stock owned by the Mutual Holding Company was canceled.  A second
  interim savings and loan association (Interim) which was formed by
  Jacksonville Bancorp solely for the Reorganization was then merged with and
  into the Association.  As a result of the merger of Interim with and into the
  Association, the Association became a wholly-owned subsidiary of Jacksonville
  Bancorp.  Pursuant to an exchange ratio of 1.41785 shares for each share of
  the Association common stock, the 737,734 outstanding public shares of the
  Association were exchanged for approximately 1,045,996 shares of Jacksonville
  Bancorp.  The exchange ratio insured that the public stockholders of the
  Association maintained a 39.2% ownership interest in Jacksonville Bancorp.
  Concurrent with the Reorganization, Jacksonville Bancorp sold 1,618,409
  additional shares to members of the Mutual Holding Company, employees of the
  Association, and the public at a price of $10.00 per share. Reorganization
  and offering costs of approximately $863,000 resulted in net proceeds from
  the offering of approximately 14,026,000.

  Each depositor of the Association, as of the effective date of the
  Conversion, will have upon liquidation of the Association a right to their
  pro rata interest in a liquidation account established pursuant to
  regulations for the benefit of such depositors.  The Association maintains
  records to ensure such rights will receive statutory priority as required.
  The reorganization was accounted for as a change in corporate form with the
  historic basis of accounting for the Association unchanged.

  On July 2, 1997, the Association consummated its conversion to a
  state-chartered savings bank, Jacksonville Savings Bank, SSB.  The main
  purpose of the conversion was to reduce the duplication associated with
  meeting the regulatory requirements of three regulators.  With the conversion
  to a state savings bank, the Bank will be regulated by the Texas Savings and
  Loan Department as its primary federal regulator, and the insurer of its
  deposits will be the FDIC.  Prior to the conversion, the Association's
  primary federal regulator had been the Office of Thrift Supervision.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  INVESTMENT AND MORTGAGE-BACKED SECURITIES
  The Association classifies and accounts for debt and equity securities as
  follows:

    HELD-TO-MATURITY
    Debt and equity securities that management has the positive intent and
    ability to hold until maturity are classified as held-to-maturity and are
    carried at their remaining unpaid principal balance, net of unamortized
    premiums or unaccreted discounts.  Premiums are amortized and discounts are
    accreted using the level interest yield method over the estimated remaining
    term of the underlying security.





                                       23
<PAGE>   28
                          JACKSONVILLE BANCORP, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 1998 AND 1997
                                  CONTINUED
                                      
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
  INVESTMENT AND MORTGAGE-BACKED SECURITIES - CONTINUED
    AVAILABLE-FOR-SALE
    Debt and equity securities that will be held for indefinite periods of
    time, including securities that   may be sold in response to changes in
    market interest or prepayment rates, needs for liquidity and changes in the
    availability of and the yield of alternative investments are classified as
    available-for-sale.  These assets are carried at market value.  Market
    value is determined using published quotes as of the close of business.
    Unrealized gains and losses are excluded from earnings and reported net of
    tax as a separate component of retained earnings until realized.

    TRADING SECURITIES
    Debt and equity securities that are bought and held principally for the
    purpose of selling them in the near term are classified as trading
    securities and reported at market value, with unrealized gains and losses
    included in earnings.

  PREMISES AND EQUIPMENT
  Land is carried at cost.  Building, leasehold improvements, and furniture,
  fixtures, and equipment are carried at cost, less accumulated depreciation
  and amortization.  Buildings and furniture, fixtures and equipment are
  depreciated using the straight-line method over the estimated useful lives of
  the assets. The cost of leasehold improvements is being amortized using the
  straight-line method over the terms of the related leases.

  FEDERAL INCOME TAXES
  The Company and its subsidiaries plan to file a consolidated Federal income
  tax return.  The tax provision or benefit is based on income or loss reported
  for financial statement purposes, and differs from amounts currently payable
  or refundable because certain revenues and expenses are recognized for
  financial reporting purposes differently than they are recognized for tax
  reporting purposes.  The cumulative effects of any temporary differences are
  reflected as deferred income taxes using the liability method (see Note 11).

  LOANS RECEIVABLE
  Loans receivable are stated at unpaid principal balances, less the allowance
  for loan losses, and net deferred loan origination fees and discounts.
  Discounts on loans are recognized over the lives of the loans using the
  interest method.

  The allowance for loan losses is increased by charges to income and decreased
  by charge-offs (net of recoveries). Management's periodic evaluation of the
  adequacy of the allowance is based on the Bank's past loan loss experience
  known, and inherent risks in the portfolio, adverse situations that may
  affect the borrower's ability to repay, estimated value of any underlying
  collateral, and current economic conditions. Currently, the allowance for
  loan losses is formally reevaluated on a quarterly basis.  In management's
  opinion there are no material loans, either individually or in the aggregate,
  which are impaired as defined by Statement of Financial Accounting Standards
  No. 114, as amended by Statement No. 118.  While management uses available
  information to recognize losses on loans, further additions to the allowance
  may be necessary based on changes in economic conditions.  In addition,
  various regulatory agencies as an integral part of their examinations,
  periodically review the allowance for loan losses.

  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 back to normal, in which case the loan is returned to
  accrual status.





                                       24
<PAGE>   29
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
  LOANS HELD-FOR-SALE
  Mortgage loans originated and intended for sale in the secondary market are
  carried at the lower of cost or estimated market value in the aggregate.  Net
  unrealized losses are recognized by charges to earnings.

  LOAN ORIGINATION AND COMMITMENT FEES AND RELATED COSTS
  Loan fees received are accounted for substantially in accordance with FASB
  Statement No. 91, "Accounting for Nonrefundable Fees and Costs Associated
  with Originating or Acquiring Loans and Initial Direct Costs of Leases."
  Loan fees and certain direct loan origination costs are deferred, and the net
  fee is recognized as an adjustment to interest income over the contractual
  life of the loans.  Commitment fees and costs relating to commitments whose
  likelihood of exercise is remote are recognized over the commitment period on
  a straight-line basis.  If the commitment is subsequently exercised during
  the commitment period, the remaining unamortized commitment fee at the time
  of exercise is recognized over the life of the loan as an adjustment of
  yield.

  FORECLOSED REAL ESTATE
  Real estate properties acquired through loan foreclosure are initially
  recorded at the lower of cost (loan balance) or fair value, less estimated
  costs of disposition, at the date of foreclosure.  Costs relating to
  development and improvement of property are capitalized, whereas costs
  relating to holding property are expensed.

  Valuations are periodically performed by management, and an allowance for
  losses is established by a charge to operations if the carrying value of a
  property exceeds its estimated net realizable value.  Currently, all major
  foreclosed real estate properties are formally reevaluated on a quarterly
  basis to determine the adequacy of the allowance for losses.

  Gains on sale of foreclosed real estate are accounted for in accordance with
  Statement of Financial Accounting Standards No. 66.  When the borrower's
  initial cash down payment does not meet the minimum requirements, the gain on
  sale is deferred and recorded on the installment basis until such time as
  sufficient principal payments are received to meet the minimum down payment
  requirements.  Losses on sale of foreclosed real estate are recognized at the
  date of sale.

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

  Material estimates that are particularly susceptible to significant change
  relate to the determination of the allowance for losses on loans and the
  valuation of real estate acquired in connection with foreclosures or in
  satisfaction of loans.  In connection with the determination of the
  allowances for losses on loans and foreclosed real estate, management obtains
  independent appraisals for significant properties.

  MORTGAGE SERVICING RIGHTS
  The cost of mortgage servicing rights is amortized in proportion to, and over
  the period of, estimated net servicing revenues.  Impairment of mortgage
  servicing rights is assessed based on the estimated fair value of those
  rights.  Fair values are estimated using discounted cash flows based on
  current market interest rates and market data regarding sales of mortgage
  servicing rights.  The Bank sells predominately single-family first mortgage
  loans with simple risk characteristics and uses a single stratum for purposes
  of measuring impairment. The amount of impairment recognized is the amount by
  which the capitalized mortgage servicing rights exceed their fair value.





                                       25
<PAGE>   30
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
  EARNINGS PER SHARE
  The Company has adopted the provisions of Statement of Financial Accounting
  Standards No. 128, "Earnings Per Share" (FAS 128).  This statement supersedes
  APB 15, "Earnings Per Share" and simplifies the computation of earnings per
  share (EPS) by replacing the "primary" EPS requirements of APB 15 with a
  "basic" EPS computation based upon weighted-average shares outstanding.
  Shares issued to its Employee Stock Ownership Plan (ESOP) are accounted for
  in accordance with AICPA Statement of Position 93-6.  The new standard
  requires a dual presentation of basic and diluted EPS.  Diluted EPS is
  similar to fully diluted EPS required under APB 15 for entities with complex
  capital structures.  The adoption of FAS 128 did not have a material impact
  on the Company.  All previous periods have been restated to reflect the
  adoption of FAS 128.

  Earnings per share on a basic and diluted basis as required by Statement of
  Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share" is
  calculated as follows:

<TABLE>
<CAPTION>
                                                                     Years Ended June 30,
                                                          --------------------------------------------
                                                             1998             1997            1996
                                                          ----------       ----------       ----------
    <S>                                                   <C>              <C>              <C>
    Basic net earnings per share
      Net income                                          $3,325,102       $3,239,524       $1,580,039
      Weighted-average shares outstanding                  2,304,567        2,485,535        2,483,708
                                                          ----------       ----------       ----------
           Per share                                      $     1.44       $     1.30       $      .64
                                                          ==========       ==========       ==========
    Diluted net earnings per share
      Net income                                          $3,325,102       $3,239,524       $1,580,039
      Weighted-average shares outstanding
         plus assumed conversions                          2,412,993        2,554,565        2,517,334
                                                          ----------       ----------       ----------
           Per share                                      $     1.38       $     1.27       $      .63
                                                          ==========       ==========       ==========
    Calculation of weighted average shares
      outstanding plus assumed conversions
         Weighted-average shares outstanding               2,304,567        2,485,535        2,483,708
         Effect of dilutive stock options                    108,426           69,030           33,626
                                                          ----------       ----------       ----------
                                                           2,412,993        2,554,565        2,517,334
                                                          ==========       ==========       ==========
</TABLE>

  STOCK-BASED COMPENSATION
  Statement of Financial Accounting Standards No. 123, "Accounting for
  Stock-Based compensation," encourages, but does not require companies to
  record compensation cost for stock-based employee compensation plans at fair
  value.  The Company has chosen to continue to account for stock-based
  compensation using the intrinsic value method prescribed in Accounting
  Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
  and related Interpretations.  Accordingly, compensation cost for stock
  options is measured as the excess, if any, of the quoted market price of the
  company's stock at the date of the grant over the amount an employee must pay
  to acquire the stock.

  RECENT ACCOUNTING PRONOUNCEMENTS
  In June 1997, the Financial Accounting Standards Board issued Statement of
  Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
  130).  This statement, which the Company will be required to adopt,
  establishes standards for reporting and display of comprehensive income and
  its components in a full set of general-purpose financial statements.  The
  new standard requires that all items that are required to be recognized under
  accounting standards as components of comprehensive income be reported in a
  financial statement that is displayed with the same prominence as other
  financial statements.  Reclassification of financial statements for earlier
  periods provided for comparative purposes is required.  The Company will
  adopt FAS 130 beginning October 1, 1998.





                                       26
<PAGE>   31
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
  RECENT ACCOUNTING PRONOUNCEMENTS - CONTINUED
  In June 1997, the Financial Accounting Standards Board issued Statement of
  Financial Accounting Standards No. 131, "Disclosures about Segments of an
  Enterprise and Related Information" (FAS 131).  This statement, which the
  Company will be required to adopt, supersedes FAS 14, "Financial Reporting
  for Segments of a Business Enterprise," but retains the requirement to report
  information about major customers.  The new standard requires that a public
  business enterprise report financial and descriptive information about its
  reportable operating segments.  In the initial year of application,
  comparative information for earlier years is to be restated.  The Company
  will adopt FAS 131 beginning October 1, 1998.

  In June 1998, the Financial Accounting Standards Board issued Statement of
  Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
  and Hedging Activities" (FAS 133).  FAS 133 establishes accounting and
  reporting standards for derivative instruments, including certain derivative
  instruments embedded in other contracts and for hedging activities and
  requires that an entity recognize all derivatives as either assets or
  liabilities in the statement of financial condition and measure those
  instruments at fair value.  FAS 133 is effective for all fiscal quarters of
  fiscal years beginning after June 15, 1999.  Initial application of FAS 133
  should be as of the beginning of an entity's fiscal quarter; on that date,
  hedging relationships must be designated anew and documented pursuant to the
  provisions of FAS 133.  Earlier application of FAS 133 is encouraged but is
  permitted only as of the beginning of any fiscal quarter that begins after
  issuance of FAS 133.  The Company has not yet determined the impact on its
  results of operations, financial position or cash flows as a result of
  implementing FAS 133.

  CASH FLOWS
  For purposes of the statement of cash flows, the Company considers all highly
  liquid debt instruments purchased with an original maturity of three months
  or less to be cash equivalents.  A summary of cash and cash equivalents
  follows:

<TABLE>
<CAPTION>
                                                                                September 30,
                                                                --------------------------------------------
                                                                    1998            1997             1996
                                                                -----------      -----------      ----------
    <S>                                                         <C>              <C>             <C>
    Cash on hand and in banks                                   $ 3,086,417      $ 1,336,212      $2,777,737
    Interest bearing deposits                                     7,781,229        2,777,833       2,415,678
                                                                -----------      -----------      ----------
    Cash and cash equivalents                                   $10,867,646      $ 4,114,045      $5,193,415
                                                                ===========      ===========      ==========
    Supplemental disclosure:
      Cash paid for:
         Interest                                               $ 9,567,381      $ 8,776,209      $8,439,688
                                                                ===========      ===========      ==========
         Income taxes                                           $ 1,441,000      $   825,000      $  500,000
                                                                ===========      ===========      ==========
    Non-cash operating activities:
      Change in deferred taxes on net unrealized gains
         and losses on securities available-for-sale            $   (45,878)     $   (37,850)     $   13,957
                                                                ===========      ===========      ==========
    Non-cash investing activities:
      Change in net unrealized gains and losses
         on securities available-for-sale                       $   134,935      $   111,323     $   (41,051)
                                                                ===========      ===========     ===========
      Transfer from loans to real estate acquired
         through foreclosure                                    $   353,000      $   689,000     $   410,000
                                                                ===========      ===========     ===========
      Loans made relating to sale of foreclosed
         real estate                                            $   384,000       $  569,805      $1,308,536
                                                                ===========       ==========      ==========
</TABLE>





                                       27
<PAGE>   32
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 3 - INVESTMENT SECURITIES
  The amortized cost and estimated market values of investments in debt
  securities are as follows as of September 30, 1998:

<TABLE>
<CAPTION>
                                                                    Available-for-sale
                                           ----------------------------------------------------------------
                                                                                                 Estimated
                                               Amortized       Unrealized      Unrealized         Market
                                                 Cost             Gains         Losses             Value
                                           ------------    --------------     -----------      ------------
    <S>                                    <C>             <C>                <C>              <C>
    U. S. Agency securities                $  4,500,000    $       20,484     $          -     $  4,520,484
                                           ============    ==============     ============     ============
</TABLE>

<TABLE>
<CAPTION>
                                                                    Held-to-maturity
                                            ---------------------------------------------------------------
                                                                                                  Estimated
                                               Amortized       Unrealized       Unrealized         Market
                                                 Cost             Gains           Losses           Value
                                            -----------    --------------     ------------      -----------
    <S>                                     <C>            <C>                <C>               <C>
    U. S. Treasury notes                    $ 3,002,139    $       14,212     $          -      $ 3,016,351
    U. S. Agency securities                  12,490,362            80,537                -       12,570,899
                                            -----------    --------------     ------------      -----------
                                            $15,492,501    $       94,749     $          -      $15,587,250
                                            ===========    ==============     ============      ===========
</TABLE>

  The amortized cost and estimated market values of investments in debt
  securities are as follows as of September 30, 1997:

<TABLE>
<CAPTION>
                                                                     Available-for-sale
                                           ----------------------------------------------------------------
                                                                                                  Estimated
                                               Amortized       Unrealized       Unrealized         Market
                                                 Cost             Gains           Losses            Value
                                           ------------    --------------     -----------      ------------
    <S>                                    <C>            <C>               <C>                <C>
    U.S. Agency securities                 $  3,493,535   $         6,400   $       31,035     $  3,468,900
                                           ============   ===============   ==============     ============
</TABLE>

<TABLE>
<CAPTION>
                                                                     Held-to-maturity
                                            ---------------------------------------------------------------
                                                                                                  Estimated
                                               Amortized       Unrealized       Unrealized         Market
                                                 Cost             Gains           Losses            Value
                                            -----------    --------------     ------------      -----------
    <S>                                     <C>            <C>              <C>                 <C>
    U. S. Treasury notes                    $ 6,492,139    $       17,582   $        6,121      $ 6,503,600
    U. S. Agency securities                  15,969,818            49,129           13,687       16,005,260
                                            -----------    --------------     ------------      -----------
                                            $22,461,957    $       66,711   $       19,808      $22,508,860
                                            ===========    ==============   ==============      ===========
</TABLE>

  The scheduled maturities of securities at September 30, 1998, were as
follows:

<TABLE>
<CAPTION>
                                                    Held-to-maturity                   Available-for-sale
                                                       securities                        securities
                                            -----------------------------       ---------------------------
                                                               Estimated                          Estimated
                                             Amortized          Market           Amortized         Market
                                               Cost              Value              Cost            Value
                                            -----------       -----------       ----------       ----------
    <S>                                     <C>               <C>               <C>              <C>
    Due in one year or less                 $ 5,498,204       $ 5,526,350       $1,000,000       $1,007,500
    Due from one to five years                9,994,297        10,060,900        2,500,000        2,511,750
    Due from five to ten years                        -                 -        1,000,000        1,001,234
                                            -----------    --------------     ------------      -----------
                                            $15,492,501       $15,587,250       $4,500,000       $4,520,484
                                            ===========       ===========       ==========       ==========
</TABLE>





                                       28
<PAGE>   33
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED

NOTE 3 - INVESTMENT SECURITIES - CONTINUED
  The scheduled maturities of securities at September 30, 1997, were as
follows:

<TABLE>
<CAPTION>
                                                 Held-to-maturity                   Available-for-sale
                                                    securities                        securities
                                            -----------------------------       ---------------------------
                                                              Estimated                           Estimated
                                             Amortized          Market          Amortized          Market
                                               Cost             Value             Cost              Value
                                            -----------       -----------       ----------       ----------
    <S>                                     <C>               <C>               <C>              <C>
    Due in one year or less                 $ 9,501,221       $ 9,485,475       $  500,000       $  480,000
    Due from one to five years               11,960,736        12,015,885        1,993,603        1,998,900
    Due from five to ten years                1,000,000         1,007,500          999,932          990,000
                                            -----------       -----------       ----------       ----------
                                            $22,461,957       $22,508,860       $3,493,535       $3,468,900
                                            ===========       ===========       ==========       ==========
</TABLE>

NOTE 4 - MORTGAGE-BACKED SECURITIES
  The amortized cost and estimated market values of mortgage-backed securities
are summarized as follows:

<TABLE>
<CAPTION>
                                                                      Held-to-maturity
                                             --------------------------------------------------------------
                                                                                                  Estimated
     September 30,                            Amortized        Unrealized       Unrealized         Market
         1998                                   Cost              Gains           Losses            Value
    ------------------                       ----------        ----------      -----------       -----------
    <S>                                      <C>               <C>             <C>               <C>
    GNMA certificates                        $  846,654        $   34,643      $     4,170       $  877,127
    FHLMC certificates                        1,804,915            14,816            6,627        1,813,104
    FNMA certificates                         4,393,774            53,086            3,926        4,442,934
                                             ----------        ----------      -----------       -----------
                                             $7,045,343        $  102,545      $    14,723       $7,133,165
                                             ==========        ==========      ===========       ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                     Available-for-sale
                                            ---------------------------------------------------------------
                                                                                                  Estimated
      September 30,                          Amortized         Unrealized       Unrealized         Market
          1998                                 Cost               Gains           Losses            Value
    ------------------                      -----------        ----------       -----------    ------------
    <S>                                     <C>                <C>              <C>            <C>
    GNMA certificates                       $ 5,194,110        $   21,468       $        -      $ 5,215,578
    FHLMC certificates                        3,685,407            12,171              965        3,696,613
    FNMA certificates                        15,848,111            64,420            4,122       15,908,409
                                            -----------        ----------       ----------      -----------
                                            $24,727,628        $   98,059       $    5,087      $24,820,600
                                            ===========        ==========       ==========      ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                      Held-to-maturity
                                             --------------------------------------------------------------
                                                                                                  Estimated
      September 30,                           Amortized        Unrealized       Unrealized         Market
          1997                                  Cost              Gains           Losses            Value
    ------------------                       ----------       -----------     ------------       ----------
    <S>                                      <C>              <C>             <C>                <C>
    GNMA certificates                        $1,078,879       $    47,797     $      9,000       $1,117,676
    FHLMC certificates                        2,397,944            25,736           13,579        2,410,101
    FNMA certificates                         6,348,055            65,604            5,413        6,408,246
                                             ----------       -----------     ------------       ----------
                                             $9,824,878       $   139,137     $     27,992       $9,936,023
                                             ==========       ===========     ============       ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                     Available-for-sale
                                            ---------------------------------------------------------------
                                                                                                  Estimated
       September 30,                         Amortized         Unrealized       Unrealized         Market
           1997                                Cost               Gains           Losses            Value
    ------------------                      -----------        ----------       -----------     -----------
    <S>                                     <C>                 <C>              <C>            <C>
    GNMA certificates                       $         -         $       -        $       -      $         -
    FHLMC certificates                        4,840,229            11,962              354        4,851,837
    FNMA certificates                         6,549,129                 -            8,452        6,540,677
                                            -----------        ----------       -----------     -----------
                                            $11,389,358         $  11,962        $   8,806      $11,392,514
                                            ===========         =========        =========      ===========
</TABLE>





                                       29
<PAGE>   34
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 4 - MORTGAGE-BACKED SECURITIES - CONTINUED
  The scheduled maturities of mortgage-backed securities at September 30, 1998,
were as follows:

<TABLE>
<CAPTION>
                                                 Held-to-maturity                   Available-for-sale
                                                    securities                        securities
                                             ----------------------------      ----------------------------
                                                              Estimated                           Estimated
                                             Amortized          Market          Amortized          Market
                                               Cost             Value             Cost              Value
                                             ----------       -----------      -----------      -----------
    <S>                                      <C>               <C>             <C>              <C>
    Due in one year or less                  $        -        $        -      $         -      $         -
    Due from one to five years                  533,677           530,730                -                -
    Due from five to ten years                2,473,169         2,518,509        5,027,873        5,063,511
    Due after ten years                       4,038,497         4,083,926       19,699,755       19,757,089
                                             ----------       -----------      -----------      -----------
                                             $7,045,343        $7,133,165      $24,727,628      $24,820,600
                                             ==========        ==========      ===========      ===========
</TABLE>

  The scheduled maturities of mortgage-backed securities as of September 30,
1997, were as follows:


<TABLE>
<CAPTION>
                                                   Held-to-maturity                    Available-for-sale
                                                    securities                          securities
                                             ----------------------------      ----------------------------
                                                               Estimated                         Estimated
                                              Amortized         Market          Amortized          Market
                                                Cost            Value             Cost              Value
                                             ----------       -----------      -----------      -----------
    <S>                                      <C>               <C>             <C>              <C>
    Due in one year or less                  $        -        $        -      $         -      $         -
    Due from one to five years                  767,975           769,643                -                -
    Due from five to ten years                4,091,899         4,658,611                -                -
    Due after ten years                       4,965,004         4,507,769       11,389,358       11,392,514
                                             ----------       -----------      -----------      -----------
                                             $9,824,878        $9,936,023      $11,389,358      $11,392,514
                                             ==========        ==========      ===========      ===========
</TABLE>
NOTE 5 - LOANS RECEIVABLE
  Loans receivable  are summarized as follows:

<TABLE>
<CAPTION>
                                                                        September 30,
                                                              ---------------------------------
                                                                  1998                  1997
                                                              ------------         ------------
    <S>                                                       <C>                  <C>
    Mortgage loans (principally conventional):
      Single family residential                               $149,960,319         $141,106,415
      Multi-family residential                                   1,091,156            1,143,982
      Commercial                                                 9,763,998            9,491,964
      Construction                                              15,486,672           10,799,609
      Land                                                       3,770,811            3,445,890
                                                              ------------         ------------
                                                               180,072,956          165,987,860
    Business and Consumer loans:
      Commercial business                                           54,602               76,261
      Consumer:
         Secured by deposits                                     2,022,974            2,126,445
         Secured by vehicles                                    10,576,958            6,537,021
         Personal real estate loans                              5,171,309            4,274,291
         Other                                                   2,884,160            1,983,294
                                                              ------------         ------------
                                                                20,710,003           14,997,312
                                                              ------------         ------------
         Total loans                                           200,782,959          180,985,172
      Less:
         Undisbursed portion of loans in process                (7,845,663)          (5,024,707)
         Unearned discounts                                        (45,904)             (62,338)
         Net deferred loan-origination fees                       (567,671)            (661,797)
         Allowance for loan losses                              (1,170,322)          (1,191,977)
                                                              ------------         ------------
           Net loans                                          $191,153,399         $174,044,353
                                                              ============         ============
</TABLE>





                                       30
<PAGE>   35
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 5 - LOANS RECEIVABLE - CONTINUED
  The Bank at September 30, had mortgage loan commitments outstanding
substantially all of which are at rates to be determined at closing (rates
range from 6.00% to 9.25%) as follows:

<TABLE>
<CAPTION>
                                            1998             1997
                                         ----------       ----------
         <S>                             <C>              <C>
         Variable-rate                   $   55,122       $  729,000
         Fixed-rate                       4,953,322        4,092,301
                                         ----------       ----------
                                         $5,008,444       $4,821,301
                                         ==========       ==========
</TABLE>

  The Bank had committed to sell a substantial portion of fixed-rate loans when
funded.

  Activity in the allowance for loan losses are summarized as follows as of
September 30,:

<TABLE>
<CAPTION>
                                                             1998             1997             1996
                                                          ----------       ----------       ----------
    <S>                                                   <C>              <C>              <C>
    Balance at beginning of period                        $1,191,977       $1,100,000       $1,000,000
      Provision charged to income                             35,000          110,084          100,000
      Charge-offs                                            (56,656)         (18,107)               -
      Recoveries                                                   -                -                -
                                                          ----------       ----------       ----------
    Balance at end of period                              $1,170,321       $1,191,977       $1,100,000
                                                          ==========       ==========       ==========
</TABLE>

  At September 30, 1998 and 1997, there were no material loans which were
  impaired as defined by FASB Statement No. 114, as amended by FASB Statement
  No. 118.  However, the Bank did have non-accrual loans, for which FASB
  Statement No. 114 does not apply, of $678,000 and $644,000, at September 30,
  1998 and 1997, respectively.  The Bank is not committed to lend additional
  funds to debtors whose loans have been modified.

  Loans to officers and directors totaled $411,000 and $354,000 at September
  30, 1998 and 1997, respectively.

  Mortgage loans serviced for others are not included in the accompanying
  consolidated statements of financial condition.  The unpaid principal
  balances of these loans are summarized as follows as of September 30,:

<TABLE>
<CAPTION>
                                                            1998               1997             1996
                                                         -----------      -----------      -----------
  <S>                                                    <C>              <C>              <C>
  Mortgage loans underlying FHLMC
    pass-through securities                              $77,445,977      $62,078,118      $47,171,302
                                                         ===========      ===========      ===========
</TABLE>

  Custodial escrow balances maintained in connection with the foregoing loan
  servicing were approximately $1,651,000 and $1,419,000, at September 30, 1998
  and 1997, respectively.

NOTE 6 - REAL ESTATE
  An analysis of the activity in the allowance for losses in real estate
  acquired in settlement of loans at September 30, were as follows:

<TABLE>
<CAPTION>
                                                             1998              1997              1996
                                                          ----------       ----------       -----------
    <S>                                                   <C>              <C>              <C>
    Balance at beginning of period                        $1,304,972       $1,691,527       $2,050,507
      Provisions for losses                                     (144)         (88,737)        (102,142)
      Charge-offs                                                  -         (297,818)        (256,838)
      Recoveries                                                   -                -                -
                                                          ----------       ----------       -----------
    Balance at end of period                              $1,304,828       $1,304,972       $1,691,527
                                                          ==========       ==========       ==========
</TABLE>

  For regulatory reporting purposes the above amounts are reported as
  "specific" reserves and are allocated to specific properties.  The Bank
  carries its "general valuation allowance" as an allowance for loan losses
  (see Note 5).





                                       31
<PAGE>   36
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 7 - ACCRUED INTEREST RECEIVABLE
  Accrued interest receivable is summarized as follows as of September 30,:

<TABLE>
<CAPTION>
                                                             1998             1997
                                                          ----------       ----------
    <S>                                                   <C>              <C>
    Investment securities                                 $  289,565       $  384,752
    Mortgage-backed securities                               212,242          149,218
    Loans receivable                                       1,588,663        1,418,043
                                                          ----------       ----------
                                                          $2,090,470       $1,952,013
                                                          ==========       ==========
</TABLE>

NOTE 8 - PREMISES AND EQUIPMENT
  Premises and equipment consist of the following:

<TABLE>
<CAPTION>
                                                        September 30,
                                                  ---------------------------              Estimated
                                                     1998            1997                Useful Lives
                                                  ----------      -----------            -------------
    <S>                                          <C>             <C>                     <C>
    Land                                          $1,046,057      $   777,094                 -
    Building and improvements                      3,287,552        3,082,986            5 to 40 years
    Furniture, fixtures and equipment              2,175,602        1,978,494            3 to 15 years
                                                  ----------      -----------        
                                                   6,509,211        5,838,574
    Less accumulated depreciation                  2,573,433        2,450,042
                                                  ----------      -----------
                                                  $3,935,778       $3,388,532
                                                  ==========       ==========
</TABLE>

NOTE 9 - DEPOSITS
  Deposits at September 30, are summarized as follows:

<TABLE>
<CAPTION>
                                                      1998                             1997
                                       -----------------------------      ----------------------------
                                          Amount            Percent          Amount            Percent
                                       ------------         --------      -----------          -------
    <S>                                <C>                    <C>        <C>                    <C>
    Transaction accounts:
      Demand and NOW                   $ 24,355,223            11.91     $ 18,411,158             9.60
      Money market                       13,858,303             6.78       15,829,107             8.24
      Passbook savings                   12,683,902             6.20       12,202,513             6.35
                                       ------------         --------     ------------          -------
                                         50,897,428            24.89       46,442,778            24.19
                                       ------------         --------     ------------          -------
    Certificates of deposit:
      4% to 5%                           39,539,063            19.34       24,305,496            12.66
      5% to 6%                           97,129,878            47.50       99,707,956            51.92
      6% to 7%                           16,674,103             8.16       21,280,985            11.08
      7% to 8%                              106,608              .05          150,153              .08
      8% to 9%                              142,838              .06          145,930              .07
                                       ------------         --------     ------------          -------
                                        153,592,490            75.11      145,590,520            75.81
                                       ------------         --------     ------------          -------
                                       $204,489,918           100.00     $192,033,298           100.00
                                       ============         ========     ============          =======
</TABLE>

  The aggregate amount of short-term jumbo certificates of deposit with a
  minimum denomination of $100,000 was approximately $25,677,000 and
  $23,191,000, at September 30, 1998 and 1997, respectively.

  Scheduled maturities of certificates of deposit are as follows as of
September 30,:

<TABLE>
<CAPTION>
                                                                     1998
                                                        ----------------------------
    <S>                                                 <C>                    <C>
    Term to maturity                                        Amount            Percent
    ----------------                                    ------------         --------
    Within 12 months                                    $129,588,803            84.37
    12 to 24 months                                       10,402,657             6.78
    24 to 36 months                                       10,902,131             7.09
    Greater than 36 months                                 2,698,899             1.76
                                                        ------------         --------
                                                        $153,592,490           100.00
                                                        ============         ========
</TABLE>





                                       32
<PAGE>   37
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 9 - DEPOSITS - CONTINUED
  Interest expense on deposits at September 30, are summarized as follows:

<TABLE>
<CAPTION>
                                                             1998            1997              1996
                                                          ----------       ----------       ----------
    <S>                                                  <C>              <C>              <C>
    Money Market                                          $  648,031       $  597,484       $  579,466
    Passbook savings                                         370,980          340,422          338,728
    NOW  198,448                                             201,920          205,815
    Certificates of deposit                                8,130,974        7,459,310        7,266,634
                                                          ----------       ----------       ----------
                                                          $9,348,433       $8,599,136       $8,390,643
                                                          ==========       ==========       ==========
</TABLE>

  The Federal Reserve Board requires all depository institutions to maintain
  reserves against their transaction accounts (primarily NOW and Super NOW
  checking accounts) and non-personal time deposits. Required reserves must be
  maintained in the form of vault cash or a non-interest-bearing account at a
  Federal Reserve Bank.

  In September 1996, Congress passed legislation to recapitalize the Savings
  Association Insurance Fund (SAIF) which insures Bank depositors up to
  applicable limits established by the Federal Deposit Insurance Corporation
  (FDIC).  This recapitalization will result in a substantial reduction in
  future insurance premiums (based on current rates) and will put the Bank at
  the same premium level as a well capitalized commercial bank.  This one time
  assessment of $1,070,000 was accrued as a charge to expense in the
  accompanying September 30, 1996 statement of earnings.

NOTE 10 - BORROWINGS
  Information related to Federal Home Loan Bank borrowings as of September 30,
is provided in the table below:

<TABLE>
<CAPTION>
                                                                    1998              1997
                                                                  -----------     ------------
      <S>                                                        <C>              <C>
      Balance at end of period                                    $17,000,000     $  2,000,000
      Average amount outstanding during the period                  4,923,000        2,846,000
      Maximum amount outstanding during the period                 19,000,000        5,000,000
      Weighted average interest rate during the period                   5.7%            6.00%
      Interest rates at end of period                            4.9% - 5.56%             5.8%
</TABLE>

  Scheduled repayments of Federal Home Loan Bank borrowings at September 30,
1998 are as follows:

<TABLE>
      <S>                              <C>
      Under 1 year                      $ 2,000,000
      Due 1 to 5 years                       -
      Due 6 to 10 years                  15,000,000
      Over 10 years                          -
                                        -----------
                                        $17,000,000
                                        ===========
</TABLE>
  The advances are collateralized by a blanket lien on first mortgage loans.

NOTE 11 - FEDERAL INCOME TAXES
  The Company and its subsidiaries file a consolidated federal income tax
  return.  Previously, if certain conditions are met in determining taxable
  income, the Bank is allowed a special bad-debt deduction, based on a
  percentage of taxable income (presently 8%), or on specified experience
  formulas.  This special bad-debt deduction is repealed for years beginning
  after January 1, 1997.

<TABLE>
                                  <S>              <C>              <C>
                                  $1,468,256       $1,380,880       $  704,000
                                  ==========       ==========       ==========
</TABLE>                  





                                       33
<PAGE>   38
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 11 - FEDERAL INCOME TAXES - CONTINUED
  The provision for Federal income taxes differs from that computed at the
statutory corporate tax rate as follows:

<TABLE>
<CAPTION>
                                                             1998            1997              1996
                                                          ----------       ----------       ----------
    <S>                                                   <C>              <C>              <C>
    Computed "expected" tax expense                       $1,629,742       $1,570,937       $  776,573
    Adjustments:
      SFAS No. 122 mortgage servicing rights                 (32,940)         (55,237)         (78,367)
      Bad-debt deduction and real estate losses              (33,299)        (161,600)         (12,200)
      Other                                                  (95,247)          26,780           17,994
                                                          ----------       ----------       ----------
</TABLE>

  Deferred taxes are provided for timing differences in the recognition of
  income and expense for tax and financial statement purposes.  The sources and
  effects of these differences are as follows:

<TABLE>
<CAPTION>
                                                               1998           1997              1996
                                                             -------        ---------         --------
    <S>                                                      <C>            <C>                <C>
    Deferred loan fees                                       $20,842         $ 33,529          $45,270
    Accrued pension liability                                  8,678          (18,192)         (15,877)
    FHLB stock dividends                                           -           35,530           35,360
    Deferred compensation                                      5,738           31,883           21,707
    Deferred loan costs                                         (428)         (65,334)               -
    Other, net                                                 5,170          (20,416)          (5,460)
                                                             -------        ---------          -------
                                                             $40,000        $  (3,000)         $81,000
                                                             =======        =========          =======
</TABLE>

  The components of the net deferred tax assets shown in the accompanying
balance sheets at were comprised of the following:

<TABLE>
<CAPTION>
                                                                              1998             1997
                                                                             --------         --------
    <S>                                                                      <C>              <C>
    Deferred income tax assets:
      Net unrealized loss on available-for-sale securities                   $      -         $  8,376
      Deferred loan fees                                                      204,169          225,011
      Deferred compensation and other employee benefits                       320,099          333,872
      Deferred loan costs                                                      65,762           65,334
                                                                             --------         --------
         Total deferred income tax assets                                     590,030          632,593
    Deferred income tax liabilities:
      Net unrealized gain on available-for-sale securities                     38,575                -
      FHLB stock dividends                                                    165,618          165,618
      Book/tax depreciation difference                                        146,200          141,672
                                                                             --------         --------
         Total deferred income tax liabilities                                350,393          307,290
                                                                             --------         --------
      Net deferred income tax assets                                         $239,637         $325,303
                                                                             ========         ========
</TABLE>

  Stockholders' equity at September 30, 1998 and 1997, includes approximately
  $3,000,000, for which no deferred Federal income tax liability (approximately
  $1,020,000) has been recognized.  These amounts represent an allocation of
  bad-debt deductions for tax purposes only (base year bad debt reserve).
  Reduction of amounts so allocated for purposes other than tax bad-debt losses
  would create income for tax purposes only, which would be subject to the
  then-current corporate income tax rate.

NOTE 12 - STOCKHOLDERS' EQUITY
  The Mutual Holding Company had requested and received approval from the
  Office of Thrift Supervision to waive receipt of dividends on its shares
  through March 31, 1996.  Dividends declared by the Association on Mutual
  Holding Company shares total $1,365,000 at September 30, 1996.  Since the
  Mutual Holding Company ceased to exist effective March 29, 1996, this amount
  remains restricted for the payment of dividends to Company stockholders.





                                       34
<PAGE>   39
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 13 - PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION
  The Bank has a qualified defined benefit retirement plan covering
  substantially all of its employees.  The benefits are based on each
  employee's years of service and the average of the highest compensation for
  sixty consecutive completed calendar months.  The benefits are reduced by a
  specified percentage of the employee's social security benefit.  An employee
  becomes fully vested upon completion of five years of qualifying service.  It
  is the policy of the Bank to fund an amount between the minimum and the
  maximum amount that can be deducted for Federal income tax purposes.

  The following table sets forth the plan's funded status and amounts
  recognized in the Bank's consolidated statements of financial condition at
  September 30:

    Actuarial present value of benefit obligations:

<TABLE>
<CAPTION>
                                                                             1998              1997
                                                                           ----------      -----------
    <S>                                                                   <C>              <C>
      Accumulated benefit obligation:
         Vested                                                            $1,215,554      $   946,464
         Nonvested                                                             18,875            8,702
                                                                           ----------      -----------
                                                                            1,234,429          955,166
      Effect of projected future compensation                                 965,165          738,890
                                                                           ----------      -----------

    Projected benefit obligation for service rendered to date               2,199,594        1,694,056
    Plan assets at fair value; primarily cash and short-term investments    1,796,216        1,596,085
                                                                           ----------      -----------
    Plan assets in excess of (less than) projected benefit obligation     $  (403,378)     $   (97,971)
                                                                          ===========      ===========
</TABLE>

    The components of computed net pension expense for the years ended
September 30, are as follows:

<TABLE>
<CAPTION>
                                                            1998              1997             1996
                                                          ----------       ----------       ----------
    <S>                                                   <C>              <C>              <C>
    Service cost - benefits earned during the year        $   89,998       $   95,691       $  127,148
    Interest cost on projected benefit obligation            116,967          149,291          155,090
    Actual return on plan assets                            (102,787)        (112,625)        (118,323)
    Net amortization and deferral                            (11,786)         (50,215)         (10,411)
                                                          ----------       ----------      -----------
           Net pension expense                            $   92,392       $   82,142       $  153,504
                                                          ==========       ==========       ==========
    Assumptions used to develop the net periodic
      pension cost were:
         Discount rate                                         6.50%            7.00%            7.00%
         Expected long-term rate of return on assets           6.00%            6.50%            6.50%
         Rate on increase in compensation levels               5.00%            5.00%            5.00%
</TABLE>

  The Bank has a defined contribution thrift plan in effect for substantially
  all employees.  Compensation and benefits expense includes $43,870 in 1998,
  $39,516 in 1997, and $39,508 in 1996 for such plan.  The thrift plan permits
  employee contributions in the amount of 1% to 6% of compensation.  The Bank
  contributes for each thrift plan participant a matching contribution equal to
  50% of the participant's contribution. In addition to the required matching
  contributions, the Bank may contribute an additional amount of matching
  contributions determined by the Board of Directors at its discretion.

  In addition to the aforementioned benefit plans, the Bank has deferred
  compensation arrangements with key officers and certain directors.  The
  deferred compensation is funded through life insurance contracts and calls
  for annual payments for a period of ten years.  The Bank funds the cost of
  the insurance for the officers while the cost of directors' insurance is
  funded through a reduction in their normal directors' fees.  Vesting occurs
  after specified years of service and payments begin upon retirement.  Expense
  reported in the statement of earnings under these arrangements totaled
  approximately $112,000 in 1998, $100,000 in 1997, and $73,000 in 1996.  At
  September 30, 1998 and 1997, the Bank had recorded a net liability of
  $300,000 and $300,000, respectively, related to such arrangements.





                                       35
<PAGE>   40
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 14 - EMPLOYEE STOCK OWNERSHIP PLAN
  The Bank has established an Employee Stock Ownership Plan (ESOP) for
  employees age 21 or older who have at least one year of credited service with
  the Bank.  The ESOP will be funded by the Bank's contributions made in cash
  (which primarily will be invested in Company common stock) or common stock.
  Benefits may be paid either in shares of common stock or in cash.  The Bank
  accounts for its ESOP in accordance with the AICPA's Statement of Position
  93-6.

  During 1994, the ESOP borrowed $511,870 from a local bank and used the
  proceeds to purchase 51,187 shares of Association common stock (exchanged for
  72,575 shares of Jacksonville Bancorp stock in 1996).  The balance of this
  note was paid in full in connection with the Reorganization.  Also, in
  conjunction with the Reorganization, the ESOP acquired an additional 129,473
  shares of common stock of the Company.

  The Bank makes annual contributions to the ESOP equal to the debt service,
  less dividends received on the unallocated shares.  The ESOP shares have been
  pledged as collateral for the loan.  As the loan is repaid, shares are
  released from collateral and committed for allocation to active employees,
  based on the proportion of debt service paid in the year.  The shares pledged
  as collateral is reported as stock acquired by the ESOP plan in the statement
  of financial condition.  As shares are released from collateral, the Bank
  reports compensation expense equal to the average fair value of the shares
  over the period in which the shares were earned.  Also, the shares become
  outstanding for earnings per share computations. Dividends on allocated
  shares are recorded as a reduction of retained earnings, and dividends on
  unallocated shares are recorded as a reduction of the loan and accrued
  interest.  ESOP compensation expense was $285,000, $223,000, and $153,000 for
  the years ended September 30, 1998, 1997, and 1996, respectively. At
  September 30, 1998 and 1997, 86,902 and 63,754 ESOP shares, respectively,
  have been released for allocation, of which 72,152 and 42,331 were allocated
  to participants at September 30, 1998 and 1997, respectively.  The fair value
  of the unreleased shares of 115,149 and 138,297 at September 30, 1998 and
  1997, was approximately $1,439,363 and $2,385,000, respectively.

NOTE 15 - MANAGEMENT RECOGNITION PLAN
  As part of the initial conversion, the Bank adopted a Management Recognition
  Plan (MRP) to enable the Bank to provide officers and employees with a
  proprietary interest in the Association as incentive to contribute to its
  success.

  The Bank contributed $292,500 to the MRP Trust, and the MRP Trust purchased
  29,250 shares of common stock (exchanged for 41,472 shares of Jacksonville
  Bancorp stock in 1996).  The committee appointed by the board of directors on
  March 31, 1994, granted all 41,472 shares to 13 officers.  The shares granted
  are in the form of restricted stock to be earned and payable over a
  three-year period at the rate of one-third per year beginning, March 31,
  1995.

  In October 1996, the Bank adopted a second MRP Trust.  The Bank contributed
  $835,700 to the MRP Trust, and the MRP Trust purchased 55,028 shares of
  common stock.  The shares granted are in the form of restricted stock earned
  and payable over a five-year period at twenty percent (20%) per year,
  beginning on October 22, 1997.

  Compensation expense in the amount of the fair market value of the common
  stock at the date of the grant to the officer or employee is being recognized
  pro rata over the period during which the shares are earned and payable. MRP
  expense included in compensation and benefits in the accompanying
  consolidated statements of earnings totaled $167,000, $177,000, and $97,500
  for the years ended September 30, 1998, 1997, and 1996, respectively.





                                       36
<PAGE>   41
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 16 - STOCK OPTION PLANS
  Certain directors and officers have options to purchase shares of the
  Associations' common stock under its 1994 Stock Incentive Plans.  The option
  price is the fair market value at the date of grant.  The options are
  exercisable, beginning September 30, 1994, and expire March 31, 2004.  Under
  the option plans, 73,123 shares were reserved for issuance and, at September
  30, 1994, no shares remain available for future grant to directors, officers
  and employees on a merit basis.  In connection with the formation of the
  Company and issuance of additional stock effective March 31, 1996, the shares
  under option were converted to Company shares at a ratio of 1.41785 for each
  share under option.  The option price per share was adjusted according to
  $7.05 per share.

  On October 22, 1996, stockholders approved the Company's 1996 Stock Incentive
  Plans.  Under these plans, 161,840 shares were reserved for issuance to
  director and officers.  All shares were granted and no shares remain
  available for future grant.  The option price is the fair market value at the
  date of grant.  The options are exercisable, beginning October 1997, vest 20%
  per year, and expire October 22, 2007.

  A summary of activity in the Company's stock incentive plans follows:

<TABLE>
<CAPTION>
                                                              Number       Aggregate      Weighted Average
                                                               of           Option             Price
                                                             Shares          Price           Per Share
                                                           ---------      -----------         --------
    <S>                                                      <C>          <C>                 <C>
    Options outstanding at September 30, 1996                 94,485      $   666,390         $   7.05
      Options granted                                        161,840        2,043,230            12.63
      Options exercised                                       10,403           73,341             7.05
                                                           ---------      -----------         --------
    Options outstanding at September 30, 1997                245,922        2,636,279            10.70
      Options granted                                              -                -                -
      Options exercised                                        1,304            9,193             7.05
                                                           ---------      -----------         --------
    Options outstanding at September 30, 1998
      (excise price of $7.05 to $12.63 per share)            244,618       $2,627,086           $10.74
                                                           =========       ==========           ======
    Exercisable at September 30, 1998                        115,138       $  992,337           $ 8.62
                                                           =========       ==========           ======
</TABLE>

  The weighted average fair value at date of grant for options granted under
  the 1996 Stock Incentive Plans was approximately $4.10 per option.  The fair
  value of options at date of grant was estimated using a binomial model with
  the following assumptions:

<TABLE>
      <S>                                                       <C>
      Expected life (years)                                       8
      Interest rate                                             6.6%
      Volatility                                                 20%
      Dividend yield                                              3%
</TABLE>

  Stock-based compensation costs would have reduced net income and earnings per
  share on a proforma basis for 1998 and 1997, by approximately $88,000 and
  $.04 per share each year, respectively, had the fair values at options
  granted in that year been recognized as compensation expense on a
  straight-line basis over the vesting period of the grant.  The proforma
  effect on net income for 1998 and 1997 is not representative of the proforma
  effect on net income for future years, because it does not take into effect
  grants made in prior years.





                                       37
<PAGE>   42
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 17 - COMMITMENTS AND CONTINGENCIES
  In the ordinary course of business, the Company and subsidiaries have various
  outstanding commitments and contingent liabilities that are not reflected in
  the accompanying consolidated financial statements.  In addition, the Company
  and subsidiaries are defendants in certain claims and legal actions arising
  in the ordinary course of business.  In the opinion of management, after
  consultation with legal counsel, the ultimate disposition of these matters is
  not expected to have a material adverse effect on the consolidated financial
  position of the Company and subsidiaries.

  The Bank is obligated under noncancelable operating leases for computer
  equipment.  Leases are generally short-term and the remaining commitment at
  September 30, 1998, is not significant to the Company's operations or
  financial condition.

NOTE 18 - REGULATORY MATTERS
  The Bank is subject to various regulatory capital requirements administered
  by the federal banking agencies.  Failure to meet minimum capital
  requirements can initiate certain mandatory - and possibly additional
  discretionary - actions by regulators that, if undertaken, could have a
  direct material effect on the Bank's financial statements.  Under capital
  adequacy guidelines and the regulatory framework for prompt corrective
  action, the Bank must meet specific capital guidelines that involve
  quantitative measures of the Bank's assets, liabilities, and certain
  off-balance-sheet items as calculated under regulatory accounting practices.
  The Bank's capital amounts and classification are also subject to qualitative
  judgments by the regulators about components, risk-weightings, and other
  factors.

  Quantitative measures established by regulation to ensure capital adequacy
  require the Bank to maintain minimum amounts and ratios (set forth in the
  table below) of total and Tier I capital (as defined in the regulations) to
  risk-weighted assets (as defined), and of Tier I capital to average assets
  (as defined). Management believes that, as of September 30, 1998 and 1997,
  the Bank meets all capital adequacy requirements to which it is subject.

<TABLE>
<CAPTION>
                                                                                                To Be Well
                                                                                             Capitalized Under
                                                                     For Capital             Prompt Corrective
                                               Actual:              Adequacy Purposes:       Action Provisions:
                                    ---------------------------------------------------------------------------
As of September 30, 1998:            Amount        Ratio         Amount       Ratio          Amount      Ratio
-------------------------           -----------    ------      -----------   ------        -----------   -----
    <S>                             <C>             <C>       <C>              <C>        <C>            <C>
    Risk-based capital
      (to risk-weighted assets)     $34,720,000     25.2%      $11,015,360     8.0%        $13,769,200   10.0%
    Tier I capital
      (to risk-weighted assets)     $33,550,000     24.4%      $ 5,507,680     4.0%        $ 8,261,520    6.0%
    Tier I capital
      (to average assets)           $33,550,000     13.1%      $10,214,640     4.0%        $12,768,300    5.0%
</TABLE>

<TABLE>
<CAPTION>
As of September 30, 1997:            Amount        Ratio         Amount      Ratio           Amount      Ratio
-------------------------           -----------    ------       ----------   ------        -----------   -----
    <S>                             <C>            <C>          <C>            <C>         <C>           <C>
    Risk-based capital
      (to risk-weighted assets)     $32,870,234    26.37%       $9,971,621     8.0%        $12,464,526   10.0%
    Tier I capital

      (to risk-weighted assets)     $31,678,257    25.41%       $4,985,810     4.0%         $7,478,715    6.0%
    Tier I capital
      (to average assets)           $31,678,257    13.66%       $9,278,927     4.0%        $11,598,658    5.0%
</TABLE>





                                       38
<PAGE>   43
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 19 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
  The Company is party to financial instruments with off-balance-sheet risk in
  the normal course of business to meet the financing needs of its customers.
  These financial instruments include commitments to extend credit.  Those
  instruments involve, to varying degrees, elements of credit and interest rate
  risk in excess of the amount recognized in the financial statements.  The
  contractual amounts of those instruments reflect the extent of involvement
  the Company has in particular classes of financial instruments.

  The Company's exposure to credit loss in the event of nonperformance by the
  other party to the financial instrument for commitments to extend credit is
  represented by the contractual amount of those instruments. The Company uses
  the same credit policies in making commitments and conditional obligations as
  they do for on-balance-sheet instruments.  Unless noted otherwise, the
  Company generally requires collateral to support financial instruments with
  credit risk.

  Commitments to extend credit are agreements to lend to a customer as long as
  there is no violation of any condition established in the contract.
  Commitments generally have fixed expiration dates or other termination
  clauses and may require payment of a fee.  Since the majority of the
  commitments are expected to be funded, the total commitment amounts represent
  future expected cash requirements.  The Company evaluates each customer's
  credit worthiness on a case-by-case basis.  The amount of collateral obtained
  if deemed necessary by the Company upon extension of credit is based in part
  on management's credit evaluation of the counter-part.  Collateral held
  varies, but consists principally of residential real estate and deposits.

NOTE 20 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
  The economy of the Company's market area, East Texas, has in the past been
  directly tied to the oil and gas industry.  Oil and gas prices have had an
  indirect effect on the Bank's business.  Although the Bank has a diversified
  loan portfolio, a significant portion of its loans are secured by real
  estate.  Repayment of these loans is in part dependent upon the economic
  conditions in the market area.  Part of the risk associated with real estate
  loans has been mitigated, since much of this group represents loans secured
  by residential dwellings that are primarily owner-occupied.  Losses on this
  type of loan have historically been less than those on speculative and
  commercial properties.  The Bank's loan policy requires appraisal prior to
  funding any real estate loans and outlines the appraisal requirements on
  those renewing.

NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
  The following methods and assumptions were used to estimate the fair value of
  each class of financial instruments for which it is practicable to estimate
  that value:

  CASH AND INTEREST-BEARING DEPOSITS
  For these short-term instruments, the carrying amount is a reasonable
  estimate of fair value.

  INVESTMENT AND MORTGAGE-BACKED SECURITIES
  For securities held as investments, fair value equals quoted market price, if
  available.  If a quoted market price is not available, fair value is
  estimated using quoted market prices for similar securities.

  ACCRUED INTEREST
  The carrying amounts of accrued interest approximates their fair values.





                                       39
<PAGE>   44
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
  LOANS RECEIVABLE
  For certain homogeneous categories of loans, such as residential mortgages,
  fair value is estimated using the quoted market prices for securities backed
  by similar loans, adjusted for differences in loan characteristics.  The fair
  value of other types of loans is estimated by discounting the future cash
  flows, using the current rates at which similar loans would be made to
  borrowers with similar credit ratings and for the same remaining maturities.

  DEPOSIT LIABILITIES
  The fair value of demand deposits, savings accounts, and certain money market
  deposits is the amount payable on demand at the reporting date.  The fair
  value of fixed-maturity certificates of deposit is estimated using the rates
  currently offered for deposits of similar remaining maturities.

  BORROWINGS
  Rates currently available to the Bank for debt with similar terms and
  remaining maturities are used to estimate fair value of existing debt.

  COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS-OF-CREDIT
  At September 30, 1998 and 1997, the Bank had not issued any standby
  letters-of-credit.  Commitments to extend credit totaled $5,008,444 and
  $4,821,301, at September 30, 1998 and 1997, respectively, and consisted
  primarily of agreements to fund mortgage loans at the prevailing rates based
  upon acceptable collateral.  Fees charged for these commitments are not
  significant to the operations or financial position of the Bank and primarily
  represent a recovery of underwriting costs.  The Company has not been
  required to perform on any financial guarantees during the past two years.
  The Company has not incurred any losses on its commitments in the last three
  years.

  The estimated fair values of the Company's financial instruments at September
  30, are as  follows:
<TABLE>
<CAPTION>
                                                          1998                             1997
                                            ----------------------------------------------------------------
                                              Carrying           Fair            Carrying          Fair
                                               Amount           Value             Amount           Value
                                            -------------    -------------    -------------    -------------
  <S>                                       <C>              <C>             <C>              <C>
  Financial assets:
    Cash and interest-bearing deposits       $ 10,867,646     $ 10,867,647     $  4,114,045     $  4,115,045
                                             ============     ============     ============     ============
    Investment securities                    $ 20,012,985     $ 20,107,734     $ 25,930,857     $ 25,977,760
                                             ============     ============     ============     ============
    Accrued interest receivable              $  2,090,470     $  2,090,470     $  1,952,013     $  1,952,013
                                             ============     ============     ============     ============
    Loans and mortgage-backed securities     $224,189,664                      $196,453,722
    Less:  Allowance for loan losses            1,170,322                         1,191,977
                                            -------------                      ------------
                                             $223,019,342     $226,335,745     $195,261,745     $197,461,422
                                             ============     ============     ============     ============
  Financial liabilities:
    Deposits                                 $204,489,918     $202,220,080     $192,033,298     $193,185,498
                                             ============     ============     ============     ============
    Borrowings                               $ 17,000,000     $ 17,000,000     $  2,000,000     $  2,000,000
                                             ============     ============     ============     ============
</TABLE>





                                       40
<PAGE>   45
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                   CONTINUED

NOTE 22 - CONDENSED FINANCIAL STATEMENTS OF JACKSONVILLE BANCORP, INC. (PARENT
  COMPANY ONLY)
  Jacksonville Bancorp, Inc., was organized in December 1995, and began
  operations on March 29, 1996, effective with the Reorganization.  The
  Company's condensed balance sheets as of September 30, and, related condensed
  statements of earnings for the years ended September 30, are as follows:
<TABLE>
<CAPTION>
                                                                                      1998            1997
                                                                                   -----------     -----------
                                    BALANCE SHEETS
  <S>                                                                             <C>              <C>
  ASSETS
    Cash in Bank                                                                   $   709,446     $   788,522
    Investment in subsidiary                                                        35,076,618      33,262,798
    Other assets                                                                        81,085          42,347
                                                                                   -----------     -----------
           Total assets                                                            $35,867,149     $34,093,667
                                                                                   ===========     ===========

  LIABILITIES AND STOCKHOLDERS' EQUITY
    Other liabilities                                                              $     6,300     $         -
    Dividends payable                                                                  298,768         305,464
    Stockholders' equity                                                            35,562,081      33,788,203
                                                                                   -----------     -----------
           Total liabilities and stockholders' equity                              $35,867,149     $34,093,667
                                                                                   ===========     ===========

                                 STATEMENTS OF EARNINGS

    General and administrative expenses                                            $  112,113      $    91,845
                                                                                   -----------     -----------
      Loss before income taxes and equity in undistributed
         earnings of subsidiaries                                                      112,113          91,845
    Income tax (benefit)                                                               (38,738)        (31,226)
                                                                                   -----------     -----------
      Loss before equity in earnings of subsidiaries                                    73,375          60,619
    Dividends from subsidiaries                                                      2,181,000         374,107
    Equity in undistributed earnings of subsidiaries                                 1,217,477       2,926,036
                                                                                   -----------     -----------
           Net earnings                                                            $ 3,325,102     $ 3,239,524
                                                                                   ===========     ===========
</TABLE>





                                       41
<PAGE>   46
                               STOCK INFORMATION

         Shares of Jacksonville Bancorp, Inc.'s common stock are traded
nationally under the symbol "JXVL" on the NASDAQ National Market System.  At
December 11, 1998, the Company had 2,367,547 shares of common stock outstanding
and had 398 stockholders of record.

         The following table sets forth the reported high and low sale prices
of a share of the Company's common stock as reported by NASDAQ (the common
stock commenced trading on the NASDAQ National Market System on March 29, 1996)
and cash dividends paid per share of common stock during the periods indicated.
Data prior to that data is given with respect to Jacksonville Savings & Loan
Association.

<TABLE>
<CAPTION>
                                                        HIGH            LOW                DIVIDEND
 <S>                                                <C>              <C>                   <C>
 Quarter ended December 31, 1994(1)                   $  7.40         $  7.40                $0.10

 Quarter ended March 31, 1995(1)                         7.58            7.14                $0.10

 Quarter ended June 30, 1995(1)                          7.58            7.31                $0.10

 Quarter ended September 30, 1995(1)                    12.69            8.11                $0.10

 Quarter ended December 31, 1995(1)                     11.90           10.57                $0.10

 Quarter ended March 31, 1996(1)                        11.63           10.40                $0.10

 Quarter ended June 30, 1996                            10.88            9.13                $0.125

 Quarter ended September 30, 1996                       13.13           10.00                $0.125

 Quarter ended December 31, 1996                        15.00           12.50                $0.125

 Quarter ended March 31, 1997                           15.75           13.94                $0.125

 Quarter ended June 30, 1997                            15.13           13.25                $0.125

 Quarter ended September 30, 1997                       17.25           14.75                $0.125

 Quarter ended December 31, 1997                        24.75           16.88                $0.125

 Quarter ended March 31, 1998                           23.00           19.13                $0.125

 Quarter ended June 30, 1998                            22.00           18.00                $0.125

 Quarter ended September 30, 1998                       18.50           14.50                $0.125
</TABLE>


(1) Amounts previously reported for Jacksonville stock have been restated to
    reflect the exchange of 1.41785 shares of the Company stock for each share
    of Jacksonville stock during the second quarter of fiscal 1996.


                                        42

<PAGE>   47
                        DIRECTORS AND EXECUTIVE OFFICERS



<TABLE>
 <S>                                                                  <C>
 W. G. BROWN                                                          JERRY M. CHANCELLOR
 Chairman of the Board of the Company; Retired, Owner                 Director and President and Chief Executive Officer
 of Brown Lumber Industries                                           of the Company

 RAY W. BEALL                                                         BILL W. TAYLOR
 Director of the Company; Retired senior executive                    Director and Executive Vice President of the Company
 for Beall's Department Store

 CHARLES BROADWAY                                                     DR. JOE TOLLETT
 Director of the Company, Retired Chief Executive                     Director of the Company; Retired Pediatrician
 Officer of the Company

 ROBERT BROWN
 Director of the Company; Manager, Brown Lumber
 Industries
</TABLE>


                               BANKING LOCATIONS

                                  MAIN OFFICE
                          Commerce and Neches Streets
                           Jacksonville, Texas 75766
                                 (903) 586-9861

                                 BRANCH OFFICES


<TABLE>
 <S>                                                 <C>
 1015 North Church Street                            617 South Palestine Street
 Palestine, Texas 75801                              Athens, Texas 75751
 (903) 729-3228                                      (903) 677-2511

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

 1412 Judson Road                                    515 E. Loop 281
 Longview, Texas 75601                               Longview, Texas 75608
 (903) 758-0118                                      (903) 663-9271
</TABLE>


                                      43


<PAGE>   48
                            STOCKHOLDER INFORMATION

         Jacksonville Bancorp, Inc. is a Texas-chartered corporation and
savings and loan holding company.  Its primary asset, Jacksonville Savings and
Loan Association, is a Texas-chartered stock savings and loan association which
conducts business from its main office in Jacksonville, Texas and six branch
offices in the neighboring communities.


                            TRANSFER AGENT/REGISTRAR

         Chase Mellon Shareholder Services
         451 West 33rd Street
         New York, New York  10001
         212-273-8000


                              SHAREHOLDER REQUESTS

         Requests for annual reports, quarterly reports and related stockholder
literature should be directed to Corporate Secretary, Jacksonville Bancorp,
Inc., Commerce and Neches Streets, Jacksonville, Texas 75766.

         Shareholders needing assistance with stock records, transfers or lost
certificates, please contact the Company's transfer agent, Mellon Securities
Trust Company.


                                      44