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                                                                      EXHIBIT 13

                               1999 ANNUAL REPORT


<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                                     ----
<S>                                                                                               <C>
President's Letter to Stockholders....................................................................1

Selected Consolidated Financial Data..................................................................3

Management's Discussion and Analysis of Financial Condition
     and Results of Operations........................................................................4

Comparison of Results of Operations..................................................................13

Independent Auditor's Report........................................................................F-1

Consolidated Financial Statements:
            Consolidated Statements of Financial Condition..........................................F-2
            Consolidated Statements of Earnings.....................................................F-3
            Consolidated Statements of Stockholders' Equity.........................................F-4
            Consolidated Statements of Cash Flows...................................................F-6

Notes to Consolidated Financial Statements..........................................................F-7

Stock Information....................................................................................43

Directors and Executive Officers.....................................................................44

Banking Locations....................................................................................45

Stockholder Information..............................................................................46

Transfer Agent/Registrar.............................................................................46

Shareholder Requests.................................................................................46
</TABLE>


<PAGE>   3


Dear Stockholder:

       We are pleased to present to our stockholders the results of fiscal 1999.
It was a year of solid performance in our earnings and steady growth in our loan
and deposit portfolios, assets and book value per share.

       Net income for the year totaled $3.64 million or $1.60 per diluted share
compared to $3.33 million or $1.38 per diluted share in 1998. This represents an
increase of 15.9% in earnings per share for the year.

       Total assets increased $27.2 million to $290.4 million as net deposit
growth totaled $10.7 million and net loan growth totaled $25.1 million. Net loan
growth increased 13.1% as a result of managements decision to portfolio some of
its high quality loans as interest rates increased.

       With our strong growth in assets our capital to asset ratio declined from
13.5% in 1998 to 11.8% in 1999. Our capital position is still in excess of most
of our industry peers. In fiscal 2000 we expect to continue to leverage the
excess capital through controlled growth in an effort to improve your rate of
return.

       Jacksonville Bancorp, Inc. repurchased 209,835 shares of stock during the
year and at September 30, 1999 outstanding shares had been reduced to 2,180,212.
Book value rose from $14.88 per share at the beginning of the year to $15.70 at
year end. Dividends were paid each quarter at $.125 per share.

       We are excited about the investment we have made in our second branch
location in Tyler, Texas which opened in October. This branch will play an
important role in our loan and deposit growth plans and profitability in the
future.

       In 1999, in an effort to grow and diversify our balance sheet and to
improve profitability, JS&L Corporation, a Company subsidiary, entered into a
real estate development and management agreement to acquire and develop a 66
acre tract of land for single-family homes in


<PAGE>   4

Hallsville, Texas, a community near Longview, Texas. At this time water and
sewer lines are being constructed in the subdivision as phase II nears
completion. Currently, there are contingency contracts executed for the purchase
of twenty-five lots out of the seventy that will be available.

       In 2000 we will strive to gain more market share in East Texas by
offering more banking products. Jacksonville Savings Bank is currently in
process of installing a voice response system and also anticipates having debit
cards available to our customers during the first calendar quarter of 2000.

       Our Company has remained diligent in becoming "Year 2000" compliant. All
systems, both in-house and those supplied by external vendors, have been tested
and implemented. Management considers your Company to be Y2-K compliant.
Policies, plans, and procedures have been developed to guide contingency
business resumption efforts in the event of some unforeseen development, such as
power or telecommunications failure. Like all companies, we face the uncertainty
of external influences on our operation at the turn of the century. However, the
substantial investment in time and resources we have made in this area allows us
to look forward to the new millennium with confidence.

       Our directors, management and staff want to thank you, our stockholders,
for your investment and belief in our effort and vision. We appreciate your
support in pursuit of our goals and we remain committed to maximizing the value
of your investment. We look forward to reporting continued successes in the new
millennium.

Sincerely,

Jerry Chancellor
President & CEO


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                      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,
                                                                 -------------------------------------------------------------
                                                                    1999                  1998                   1997
                                                                 ---------------- ---------------------- ---------------------
<S>                                                              <C>              <C>                     <C>
SELECTED FINANCIAL CONDITION AND OTHER DATA:
Total assets...................................................         $290,392               $263,160              $233,944
Cash and cash equivalents......................................            6,568                 10,868                 4,114
Investment securities..........................................           18,711                 20,013                25,931
Mortgage-backed securities.....................................           37,640                 31,866                21,217
Loans receivable, net..........................................          216,267                191,153               174,044
Foreclosed real estate, net....................................              346                    531                   526
Deposits.......................................................          215,209                204,490               192,033
Borrowings.....................................................           35,000                 17,000                 2,000
Stockholders' equity...........................................           34,219                 35,562                33,788
Full-service offices...........................................                7                      7                     6
</TABLE>


<TABLE>
<CAPTION>
                                                                               SEPTEMBER 30,
                                                                 ------------------------------------------
                                                                          1996                 1995
                                                                 ----------------------- ------------------
<S>                                                                 <C>                   <C>
SELECTED FINANCIAL CONDITION AND OTHER DATA:
Total assets...................................................                $217,856           $199,251
Cash and cash equivalents......................................                   5,193              8,051
Investment securities..........................................                  33,805             42,907
Mortgage-backed securities.....................................                  12,107              3,442
Loans receivable, net..........................................                 158,034            135,933
Foreclosed real estate, net....................................                   1,051              2,052
Deposits.......................................................                 174,328            173,811
Borrowings.....................................................                   2,000                358
Stockholders' equity...........................................                  35,431             20,331
Full-service offices...........................................                       6                  6
</TABLE>

<TABLE>
<CAPTION>
                                                                             AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                                                 -------------------------------------------------------------
                                                                         1999                  1998                   1997
                                                                 ---------------- ---------------------- ---------------------
<S>                                                               <C>              <C>                     <C>
SELECTED OPERATING DATA:
Total interest income..........................................          $20,465                $18,541               $17,172
Total interest expense.........................................           10,711                  9,628                 8,771
                                                                          ------                  -----                 -----
   Net interest income.........................................            9,754                  8,913                 8,401
Provision for losses on loans..................................               60                     35                   110
                                                                          ------                  -----                 -----
   Net interest income after provision for
     losses on loans                                                       9,694                  8,878                 8,291
Noninterest income.............................................            1,687                  1,554                 1,392
Noninterest expense............................................            5,876                  5,639                 5,063
                                                                          ------                  -----                 -----
Income before income taxes.....................................            5,505                  4,793                 4,620
Income taxes...................................................            1,867                  1,468                 1,380
                                                                          ------                  -----                 -----
Net income.....................................................         $  3,638               $  3,325              $  3,240
                                                                        ========               ========              ========
Earnings per share(1)
   Basic.......................................................         $   1.65              $    1.44             $    1.30
   Diluted.....................................................             1.60                   1.38                  1.27
                                                                        ========               ========              ========
Dividends Payout Ratio.........................................            30.07%                 34.60%                36.98%
                                                                        ========               ========              ========

Selected Operating Ratios(2):

Return on average assets.......................................             1.33%                  1.37%                 1.45%
Return on average equity.......................................            10.82                   9.98                  9.35
Average equity to average assets...............................            12.88                  13.74                 15.54
Equity to assets at end of period..............................            11.78                  13.51                 14.44
Interest rate spread(3)........................................             3.23                   3.21                  3.32
Net interest margin(3).........................................             3.72                   3.84                  3.94
Non-performing loans and troubled debt
   restructurings to total loans at end of period(4)...........              .41                    .55                   .59
Non-performing assets and troubled debt
   restructurings to total assets at end of period(4)..........              .42                    .60                   .66
Average interest-earning assets to average
   interest-bearing liabilities................................           111.90                 115.38                114.95
Net interest income after provision for loan losses
   to total noninterest expense................................           164.98                 157.45                163.78
</TABLE>

<TABLE>
<CAPTION>
                                                                     AT OR FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------    ---------------------- ------------------
                                                                              1996               1995
---------------------------------------------------------------    ---------------------- ------------------
<S>                                                                 <C>                    <C>
SELECTED OPERATING DATA:
Total interest income..........................................                  $15,394            $13,232
Total interest expense.........................................                    8,453              7,127
                                                                                   -----              -----
   Net interest income.........................................                    6,941              6,105
Provision for losses on loans..................................                      100                 25
                                                                                   -----              -----
   Net interest income after provision for
     losses on loans                                                               6,841              6,080
Noninterest income.............................................                    1,290                927
Noninterest expense............................................                    5,846              5,045
                                                                                   -----              -----
Income before income taxes.....................................                    2,284              1,962
Income taxes...................................................                      704                573
                                                                                   -----              -----
Net income.....................................................                 $  1,580           $  1,389
                                                                                ========           ========
Earnings per share(1)
   Basic.......................................................                 $    .64           $    .56
   Diluted.....................................................                      .63                 56
                                                                                ========           ========
Dividends Payout Ratio.........................................                   55.50%             29.47%
                                                                                ========           ========

Selected Operating Ratios(2):

Return on average assets.......................................                     .76%               .73%
Return on average equity.......................................                     6.13               7.06
Average equity to average assets...............................                    12.41              10.37
Equity to assets at end of period..............................                    16.27              10.20
Interest rate spread(3)........................................                     2.99               3.08
Net interest margin(3).........................................                     3.50               3.40
Non-performing loans and troubled debt
   restructurings to total loans at end of period(4)...........                      .76                .70
Non-performing assets and troubled debt
   restructurings to total assets at end of period(4)..........                     1.03               1.51
Average interest-earning assets to average
   interest-bearing liabilities................................                   111.92             107.81
Net interest income after provision for loan losses
   to total noninterest expense................................                   117.01             120.52
</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 in substance foreclosure and troubled debt
      restructurings consist of restructured debt in accordance with Statement
      of Financial Accounting Standards No. 15.

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<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. 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

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<PAGE>   7

slowly to changes in interest rates than their cost of funds.

       Jacksonville originates both fixed- and variable-rate residential real
estate loans as market conditions dictate. Prior to November 1980, Jacksonville,
like virtually all savings associations, originated only fixed-rate loans and
held them in portfolio until maturity. As a result of the problems caused by
holding fixed-rate loans in a rapidly increasing interest-rate environment,
changes in regulations to allow for variable-rate loans and consumer demand for
such loans during periods of high interest rates, in the 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, 1999 consisted of 29.0% 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 had been Jacksonville's policy to retain a large portion of its
fixed-rate residential first mortgage loans with terms of 15 years or less and
to sell those fixed rate mortgages with terms in excess of 15 years. However,
during fiscal 1999 management elected to hold in portfolio a greater percentage
of its 30 year fixed rate mortgages due to increased interest rates.

       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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

       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 one of 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,

                                       5
<PAGE>   8

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.

       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, 1999, would result
in less than a 10.3% decrease in net interest income over the next twelve
months, while a 2% decrease in rates would result in less than a .25% increase
in net interest income over the next twelve months. In 1998, management
estimated, 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, 1999, the Bank was
within the acceptable ranges set forth in the Bank's Interest Rate Risk policy.


                                       6
<PAGE>   9

"SAFE HARBOR" STATEMENT

            In addition to historical information, forward-looking statements
are contained herein that are subject to risks and uncertainties that could
cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that could cause future results to vary from
current expectations, include, but are not limited to, the impact of economic
conditions (both generally and more specifically in the markets in which
Jacksonville operates), the impact of competition for Jacksonville's customers
from other providers of financial services, the impact of government legislation
and regulation (which changes from time to time and over which Jacksonville has
no control), and other risks detailed in this Form 10-K and in Jacksonville's
other Securities and Exchange Commission filings. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. Jacksonville undertakes no
obligation to publicly revise these forward-looking statements, to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents Jacksonville
files from time to time with the Securities and Exchange Commission.

YEAR 2000 STATEMENT

       Jacksonville has been actively working since 1996 to address the Y2K
impact on the Company. Management formed a Year 2000 compliance team which
developed a plan to correct any harmful impact of Year 2000 issues on its
operations.

       The Y2K project consisted of five phases: Awareness, Assessment,
Modification, Testing, and Implementation. The in-house data system, operated
and maintained by an in-house staff of five personnel, has completed all five
phases of the Year 2000 compliance project. A full system test was completed
successfully on November 6, 1998 and all internal programs have been implemented
and placed into production. Management believes the system is Year 2000
compliant and feels the possibility of failure is minute. However, Jacksonville
employs a staff of programmers to remedy any software problems that may occur.

       Jacksonville also has completed all five compliance phases for software
supplied by external vendors and this software has been determined to be Y2K
compliant.

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

       Disruptions in the economy generally resulting from Year 2000 issues
outside our data system could adversely affect the Company. Jacksonville has
developed a contingency plan in the event that material Year 2000 situations
arise. This plan has been approved by regulatory authorities.

NEW ACCOUNTING PRONOUNCEMENTS

       SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was adopted

                                       7
<PAGE>   10

by FASB on June 30, 1998. This Statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Among other things, it supersedes
FASB Statements No. 80, "Accounting for Futures Contracts," No. 105, "Disclosure
of Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk," and No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments." It amends FASB Statement NO. 107, "Disclosures about Fair Value of
Financial Instruments, " to include in Statement 107 the disclosure provisions
about concentrations of credit risk from Statement 105. The Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transactions. This Statement precludes
designating a nonderivative financial instrument as a hedge of an asset,
liability, unrecognized firm commitment, or forecasted transaction except that a
nonderivative instrument denominated in a foreign currency may be designated as
a hedge of the foreign currency exposure of an unrecognized firm commitment
denominated in a foreign currency or a net investment in a foreign operation.

       Statement No. 137 deferred the effective date of Statement No. 133 to all
fiscal years beginning after June 15, 2000. The Statement may not be applied
retroactively to financial statements of prior periods. The Statement's adoption
will have no material impact on the Corporation's financial condition or result
of operations.

       Also in 1998, the FASB issued Statement No. 134 "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." This statement establishes
accounting standards for certain activities of mortgage banking enterprises and
for other enterprises with similar mortgage operations. This Statement amends
SFAS No. 65 which as previously amended by SFAS Nos. 115 and 125, required a
mortgage banking enterprise to classify a mortgage-backed security as a trading
security following the securitization of the mortgage loan held for sale. This
Statement further amends SFAS No. 65 to require that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking activities
must classify the resulting mortgage-backed security or other retained interests
based on the entity's ability and intent to sell or hold those investments. The
determination of the appropriate classification for securities retained after
the securitization of mortgage loans by a mortgage banking enterprise now
conforms to SFAS No. 115. The only new requirement is that if an entity has a
sales commitment in place, the security must be classified into trading. This
Statement is effective for the first fiscal quarter beginning after December 15,
1998. The Statement's adoption had no impact on the bank's financial condition
and results of operations.


                                       8
<PAGE>   11

CHANGES IN FINANCIAL CONDITION

       At September 30, 1999, Jacksonville's assets totaled $290.4 million, as
compared to $263.2 million at September 30, 1998. Total assets increased $27.2
million, or 10.3%, from September 30, 1998 to September 30, 1999. The increase
in total assets during fiscal 1999 was principally the result of a $25.1 million
or 13.1% increase in loans receivable, net from $191.2 million at September 30,
1998 to $216.3 million at September 30, 1999. The increase was primarily the
result of an increase in single-family residential loans of $14.7 million or
9.8%, an increase in construction loans, net of $5.7 million or 36.7% and an
increase in consumer loans of $3.4 million or 16.3% during the period. A $8.5
million, or 54.8% decrease in investment securities, held to maturity; and a
$2.4 million, or 33.9% decrease in mortgage-backed securities, held to maturity,
was offset by a $8.2 million increase in mortgage-backed securities, available
for sale and a $7.2 million, or 159.1% increase in investment securities
available for sale. The increase in mortgage-backed securities, available for
sale, was primarily due to Jacksonville's decision to continue a limited
wholesale growth strategy involving leveraged investing using FHLB advances to
increase earnings. Management also elected to place most investment securities
in the "available for sale" category for securities purchased during the year.

       During the year ended September 30, 1999, total liabilities increased
$28.6 million or 12.6% to $256.0 million. This increase was primarily the result
of an increase in total deposits of $10.7 million, or 5.2%; and an increase in
advances from Federal Home Loan Bank of $18 million which proceeds were used to
purchase mortgage-backed securities and for funding loan originations.

       Stockholders equity decreased from $35.6 million at September 30, 1998 to
$34.2 million at September 30, 1999, a decrease of $1.3 million or 3.8%. The
decrease was primarily the results of annual earnings after dividends less the
purchase of 209,835 Treasury shares in the amount of $3.4 million.

       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 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 the Federal Home Loan Bank of Dallas of $15.0

                                       9
<PAGE>   12

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.


                                       10
<PAGE>   13

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,
                                                  1999                                  1999
                                            ---------------- -----------------------------------------------------------
                                                 YIELD/           AVERAGE                                  YIELD/
                                                  RATE            BALANCE             INTEREST              RATE
                                            ---------------- ------------------ ------------------- --------------------
<S>                                          <C>               <C>               <C>                 <C>
INTEREST-EARNING ASSETS:
   Loans receivable(1)................                 8.15%          $205,057             $17,092                 8.34%
   Mortgage-backed securities.........                 6.70             34,029               2,223                 6.53
   Investment securities..............                 6.00             17,684                 880                 4.98
   Other interest-earning assets(2)...                 5.60              5,380                 270                 5.02
                                                                         -----                 ---
Total interest-earning assets.........                                $262,150             $20,465                 7.81%
                                                                      --------             =======                 =====
Non-interest-earning assets...........                                  11,529
                                                                        ------
      Total assets....................                                $273,679
                                                                      ========

INTEREST-BEARING LIABILITIES:
   Transaction accounts...............                 2.69%           $54,114              $1,289                 2.38%
   Time deposits......................                 5.19            155,623               8,199                 5.27
                                                                       -------               -----
      Total deposits..................                                 209,737               9,488                 4.52
                                                                       -------               -----
   Borrowings.........................                 5.39             24,542               1,223                 4.98
                                                                        ------               -----
      Total interest-bearing
         liabilities..................                                 234,279             $10,711                 4.57%
                                                                       -------             =======                ======
Non-interest-bearing liabilities......                                   5,785
                                                                         -----
      Total liabilities...............                                 240,064
                                                                       -------
Stockholder's Equity..................                                  33,615
                                                                        ------
      Total liabilities and
         stockholders' equity.........                                $273,679
                                                                      ========
Net interest income; interest
   rate spread........................                                                      $9,754                 3.23%
                                                                                            ======                 =====
Net interest margin(3)................                                                                             3.72%
                                                                                                                   =====
Average interest-earning assets to
   average interest bearing liabilities                                                                          111.90%
                                                                                                                 =======
</TABLE>

<TABLE>
<CAPTION>

                                                                        1998
                                            ------------------------------------------------------------
                                                   AVERAGE                                   YIELD/
                                                   BALANCE              INTEREST              RATE
                                            --------------------- -------------------- -----------------
<S>                                        <C>                     <C>                  <C>
INTEREST-EARNING ASSETS:
   Loans receivable(1)................                  $180,021              $15,442              8.58%
   Mortgage-backed securities.........                    22,286                1,501              6.74
   Investment securities..............                    23.502                1,261              5.36
   Other interest-earning assets(2)...                     6,326                  337              5.33
                                                           -----                  ---
Total interest-earning assets.........                  $232,135              $18,541              7.99%
                                                        --------              =======              ====
Non-interest-earning assets...........                    10,306
                                                          ------
      Total assets....................                  $242,441
                                                        ========

INTEREST-BEARING LIABILITIES:
   Transaction accounts...............                 $  47,720             $  1,217              2.55%
   Time deposits......................                   148,546                8,131              5.47
                                                         -------                -----
      Total deposits..................                   196,266                9,348              4.76
                                                         -------                -----
   Borrowings.........................                     4,923                  280              5.69
                                                           -----                  ---
      Total interest-bearing
         liabilities..................                   201,189             $  9,628              4.78%
                                                         -------             ========              ====
Non-interest-bearing liabilities......                     7,949
                                                           -----
      Total liabilities...............                   209,138
                                                         -------
Stockholder's Equity..................                    33,303
                                                          ------
      Total liabilities and
         stockholders' equity.........                  $242,441
                                                        ========
Net interest income; interest
   rate spread........................                                       $  8,913              3.21%
                                                                             ========              ====
Net interest margin(3)................                                                             3.84%
                                                                                                   ====
Average interest-earning assets to
   average interest bearing liabilities                                                          115.38%
                                                                                                 ======
</TABLE>

<TABLE>
<CAPTION>

                                                                      1997
                                          -----------------------------------------------------------
                                                AVERAGE                                   YIELD/
                                                BALANCE              INTEREST              RATE
                                          -------------------- -------------------- -----------------
<S>                                       <C>                   <C>                  <C>
INTEREST-EARNING ASSETS:
   Loans receivable(1)................               $163,569              $14,094              8.62%
   Mortgage-backed securities.........                 16,434                1,135              6.91
   Investment securities..............                 28,292                1,657              5.86
   Other interest-earning assets(2)...                  5,041                  286              5.68
                                                        -----                  ---
Total interest-earning assets.........               $213,336              $17,172              8.05%
                                                     --------              =======              ====
Non-interest-earning assets...........                  9,586
                                                        -----
      Total assets....................               $222,922
                                                     ========

INTEREST-BEARING LIABILITIES:
   Transaction accounts...............              $  43,884             $  1,140              2.60%
   Time deposits......................                138,863                7,459              5.37
                                                      -------                -----
      Total deposits..................                182,747                8,599              4.71
                                                      -------                -----
   Borrowings.........................                  2,846                  172              6.04
                                                        -----                  ---
      Total interest-bearing
         liabilities..................                185,593             $  8,771              4.73%
                                                      -------             ========              ====
Non-interest-bearing liabilities......                  2,688
                                                        -----
      Total liabilities...............                188,281
                                                      -------
Stockholder's Equity..................                 34,641
                                                       ------
      Total liabilities and
         stockholders' equity.........               $222,922
                                                     ========
Net interest income; interest
   rate spread........................                                    $  8,401              3.32%
                                                                          ========              ====
Net interest margin(3)................                                                          3.94%
                                                                                                ====
Average interest-earning assets to
   average interest bearing liabilities                                                       114.95%
                                                                                              ======
</TABLE>

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

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

(2) Consists primarily of interest-bearing deposits.

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


                                       11
<PAGE>   14


Rate/Volume Analysis

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

<TABLE>
<CAPTION>
                                                          YEAR ENDED SEPTEMBER 30,
                                          -------------------------------------------------------
                                                               1999 VS. 1998
                                          -------------------------------------------------------
                                                       INCREASE
                                                      (DECREASE)
                                                        DUE TO                       TOTAL
                                          ---------------- ------------------       INCREASE
                                                RATE             VOLUME            (DECREASE)
                                          ---------------- ------------------ -------------------
<S>                                       <C>             <C>                  <C>
INTEREST-EARNING ASSETS:
  Loans.............................               $(421)             $2,071              $1,650
  Mortgage-backed securities                         (44)                766                 722
  Investment securities.............                 (86)               (295)               (381)
  Other interest-earning assets.....                 (19)                (48)                (67)
                                                   ------             ------              ------
     Total interest-earning assets..               $(570)             $2,494              $1,924
                                                   ======             ======              ======

INTEREST-BEARING LIABILITIES:
  Deposits..........................               $(382)             $  522              $  140
  Other borrowings..................                 (30)                973                 943
                                                   ------             ------              ------
     Total interest-bearing
        liabilities.................               $(412)             $1,495              $1,083
                                                   ======             ======              ======

  Increase in net
     interest income................                                                      $  841
                                                                                          ======
</TABLE>

<TABLE>
<CAPTION>
                                                          YEAR ENDED SEPTEMBER 30,
                                        ------------------------------------------------------------
                                                               1998 VS. 1997
                                        ------------------------------------------------------------
                                                        INCREASE
                                                       (DECREASE)
                                                         DUE TO                          TOTAL
                                        -------------------- ---------------------      INCREASE
                                                RATE                 VOLUME            (DECREASE)
                                        -------------------- --------------------- -----------------
                                                            (DOLLARS IN THOUSANDS)
<S>                                       <C>             <C>                  <C>
INTEREST-EARNING ASSETS:
  Loans.............................                $  (65)                $1,413            $1,348
  Mortgage-backed securities                           (33)                   399               366
  Investment securities.............                  (133)                  (263)             (396)
  Other interest-earning assets.....                   (19)                    70                51
                                                     ------                ------            ------
     Total interest-earning assets..                 $(250)                $1,619            $1,369
                                                     ======                ======            ======

INTEREST-BEARING LIABILITIES:
  Deposits..........................                 $  94                $   655           $   749
  Other borrowings..................                   (11)                   119               108
                                                     ------                ------            ------
     Total interest-bearing
        liabilities.................                 $  83                $   774           $   857
                                                     ======               =======           =======

  Increase in net
     interest income................                                                        $   512
                                                                                            =======
</TABLE>

<TABLE>
<CAPTION>
                                                          YEAR ENDED SEPTEMBER 30,
                                          -------------------------------------------------------
                                                               1997 VS. 1996
                                           ------------------------------------------------------
                                                         INCREASE
                                                        (DECREASE)
                                                          DUE TO                        TOTAL
                                           ------------------------------------        INCREASE
                                                 RATE                VOLUME           (DECREASE)
                                           ---------------      ---------------      ------------
<S>                                       <C>             <C>                  <C>
INTEREST-EARNING ASSETS:
  Loans.............................                 $340               $1,585            $1,925
  Mortgage-backed securities                          (37)                 472               435
  Investment securities.............                    3                 (516)             (513)
  Other interest-earning assets.....                   12                  (81)              (69)
                                                     ----               ------            ------
     Total interest-earning assets..                 $318               $1,460            $1,778
                                                     ====               ======            ======

INTEREST-BEARING LIABILITIES:
  Deposits..........................               $ (104)             $   313           $   209
  Other borrowings..................                   (5)                 114               109
                                                     ----               ------            ------
     Total interest-bearing
        liabilities.................               $ (109)             $   427           $   318
                                                   ======              =======           =======

  Increase in net
     interest income................                                                      $1,460
                                                                                          ======
</TABLE>


                                       12
<PAGE>   15

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND
1998

       General. Jacksonville had net earnings of $3.6 million for the year ended
September 30, 1999 as compared to $3.3 million for the year ended September 30,
1998. During fiscal 1999, Jacksonville's net interest income increased by
$841,000 and its noninterest income increased by $133,000 while the provision
for losses on loans increased $25,000. Noninterest expense increased by
$237,000, primarily as a result of an increase in compensation and benefits of
$70,000, an increase in occupancy and equipment of $121,000, and an increase in
other noninterest expense of $48,000, offset by a decrease in insurance expense
of $2,000.

       The $313,000 increase in net earnings for fiscal 1999 was primarily the
result of an growth in interest-earning assets of $30.0 million or 12.9%. 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, and loan originations. 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 18
basis points from 7.99% in fiscal 1998 to 7.81% in fiscal 1999. The positive
impact on earnings resulting from the increase in average balance on
Jacksonville's interest-earning assets was enhanced by a 21 basis point decrease
in the average rate paid on interest-bearing liabilities from 4.78% in fiscal
1998 to 4.57% in fiscal 1999. The interest rate spread increased from 3.21% in
fiscal 1998 to 3.23% in 1999.

       NET INTEREST INCOME. Net interest income increased by $841,000, or 9.4%,
for the year ended September 30, 1999 compared to the year ended September 30,
1998. This increase was due primarily to a $1.9 million, or 10.4 %, increase in
total interest income partially offset by a $1.1 million or 11.2% increase total
interest expense.

       The $1.9 million increase in total interest income was primarily the
result of increases in interest on loans receivable of $1.6 million or 10.7%,
and interest on mortgage-backed securities of $722,000 or 48.1%, offset by a
decrease of $381,000 or 30.2% in interest income on investment securities and a
decrease in other interest income of $66,000. The increase in interest income
from loans receivable was due primarily to a $25.0 million, or 13.9%, 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 $22.3 million in fiscal 1998 to $34.0 million in fiscal 1999 with a
decrease in average yield from 6.74% to 6.53% in the respective periods. The
decrease in interest income from investment securities reflects primarily a
decrease in average balance from $23.5 million to $17.7 million, or 24.8%. 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
1999 was 8.2%.

       The $1.1 million increase in total interest expense from $9.6 million for
the year ended September 30, 1998, to $10.7 million for the year ended September
30, 1999, 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
decreased from 4.76% in fiscal 1998 to 4.52% in fiscal 1999.

       Jacksonville's net interest rate spread was 3.23 % for the year ended
September 30, 1999 as compared to 3.21% in fiscal 1998.

       PROVISION FOR LOSSES ON LOANS. Jacksonville's provision for loan losses
was $60,000 for

                                       13
<PAGE>   16

the year ended September 30, 1999 compared to $35,000 for the year ended
September 30, 1998. 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.
Non-performing loans decreased to $544,000 during fiscal 1999, and net
charge-offs for the period decreased $39,000 and totaled only $18,000 for the
year. The Company's level of net loans outstanding increased $25.1 million which
included an increase of 16.3% 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 $60,000 in provisions for losses on loans were appropriate in 1999,
primarily because of the increase in the loan portfolio. Jacksonville's
allowance for losses amounted to $1.2 million at September 30, 1999 the same
amount as allocated on September 30, 1998.

       NON-INTEREST INCOME. Noninterest income amounted to $1.7 million for the
year ended September 30, 1999 compared to $1.6 million in fiscal 1998. The
$133,000 increase was due primarily to an increase in fees and deposit service
charges of $207,000; an increase of $14,000 in other noninterest income
partially offset by a decrease in income from origination of loan servicing of
$87,000. 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 $5.9 million for
the year ended September 30, 1999 compared to $5.6 million during fiscal 1998.
The primary reason for the $237,000, or 4.2% increase in noninterest expense
during fiscal 1999 was from increases in compensation and benefits of $70,000;
in occupancy and equipment of $121,000, and other noninterest expenses of
$48,000, offset by a reduction in insurance expense of $2,000.

       INCOME TAXES. Income tax expense amounted to $1.9 million during the year
ended September 30, 1999, compared to $1.5 million in fiscal 1998. 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, 1998 AND
1997

       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

                                       14
<PAGE>   17

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 in 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.

       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

                                       15
<PAGE>   18

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.

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. At September 30, 1999 the Bank's liquidity was
$64.9 million with a liquidity ratio of 30.3%.

       Cash was generated by Jacksonville's operating activities of $3.9 and
$3.8 million during the years ended September 30, 1999 and 1998, respectively,
primarily as a result of net earnings of $3.6 million and $3.3 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,
1999, Jacksonville's investing activities used cash of $32.7 million principally
as a result of net loan originations of $24.9 million; to purchase mortgage
backed securities totaling $14.8 million; to purchase investment securities of
$13.0 million; capital expenditures of $907,000; investment in real estate of
$713,000; to purchase stock in FHLB of $353,000; partially offset by proceeds on
maturity of investment securities of $14.0 million; principal paydown on MBS of
$7.8 million; and proceeds from sale of foreclosed real estate of $133,000.

       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, 1999, Jacksonville's financing
activities generated cash of $24.6 million as a result of a net increase in
deposits of $10.7 million; net increase of $18.0

                                       16
<PAGE>   19

million in advances from FHLB, and net increase of $288,000 in advance payments
by borrowers for property taxes and insurances; offset by the purchase of
Treasury Stock in the amount of $3.4 million; and the payment of dividends in
the amount of $1.1 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. 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, 1999, Jacksonville had $3.3 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, 2000 are
$138.2 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 regulatory capital sufficient to
meet a Tier 1 leveraged capital requirement, a Tier 1 risk based capital
requirement and a total risk-based capital requirement. At September 30, 1999,
Jacksonville's Tier 1 leveraged capital and Tier 1 risk-based capital totaled
$32.0 million or 11.04% of adjusted total assets and 19.0% of risk-weighted
assets, respectively. These capital levels exceeded the minimum requirements at
that date by approximately $20.4 million and $25.2 million, respectively.
Jacksonville's total risk based capital was $33.2 million at September 30, 1999
or 19.72% of risk-weighted assets which exceeded the current requirement of 8%
of risk-weighted assets by approximately $19.7 million.

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.

                                       17
<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, 1999 and
1998, 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, 1999.

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, 1999 and 1998, and the
results of their operations and cash flows for each of the years in the three
year period ended September 30, 1999, in conformity with generally accepted
accounting principles.

                                                    HENRY & PETERS, P.C.

Tyler, Texas
November 16, 1999


                                       18
<PAGE>   21


                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           SEPTEMBER 30, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                                                      1999                1998
                                                                                                ---------------     ---------------
<S>                                                               <C>                        <C>                 <C>
                                    ASSETS

Cash on hand and in banks                                                                        $    2,995,572     $    3,086,417
Interest-bearing deposits                                                                             3,572,114          7,781,229
Investment securities:
   Held-to-maturity, approximate fair market value of
      $6,892,900 and $15,587,250 respectively                                                         6,999,329         15,492,501
   Available-for-sale, carried at fair value                                                         11,711,605          4,520,484
Mortgage-backed certificates:
   Held-to-maturity, approximate fair market value of
      $4,642,925 and $7,133,165 respectively                                                          4,657,579          7,045,343
   Available-for-sale, carried at fair value                                                         32,982,733         24,820,600
Loans receivable, net                                                                               216,267,027        191,153,399
Accrued interest receivable                                                                           2,254,158          2,090,470
Foreclosed real estate, net                                                                             346,317            530,728
Premises and equipment, net                                                                           4,582,898          3,935,778
Stock in Federal Home Loan Bank of Dallas, at cost                                                    1,974,400          1,621,900
Investment in real estate                                                                               712,796                  -
Mortgage servicing rights                                                                               587,553            534,463
Other assets                                                                                            747,529            546,862
                                                                                               ----------------   ----------------
            Total assets                                                                           $290,391,610       $263,160,174
                                                                                               ================   ================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

   Deposits                                                               $215,209,204             $204,489,918
   Advance from Federal Home Loan Bank                                      35,000,000               17,000,000
   Advances from borrowers for taxes and insurance                           4,095,425                3,807,168
   Accrued expenses and other liabilities                                    1,722,240                2,131,267
                                                                       ---------------          ---------------
      Total liabilities                                                    256,026,869              227,428,353
DEFERRED INCOME
   Gain on sale of real estate owned                                         145,815                    169,740
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 2,675,972 shares issued;
      2,180,212 and 2,390,047 shares outstanding in 1999 and
      1998, respectively                                                        26,760                   26,760
   Additional paid-in capital                                               22,722,712               22,649,848
   Retained earnings, substantially restricted                              21,507,284               18,963,133
   Accumulated other comprehensive income (loss)                              (801,201)                  74,882
   Less:
      Treasury stock, at cost (495,760 and 285,925 shares,
        respectively)                                                                                (7,771,886)        (4,413,266)
      Shares acquired by Employee Stock Ownership Plan                       (1,116,537)             (1,223,932)
      Shares acquired by Management Recognition Plan                           (348,206)               (515,344)
                                                                       ----------------         ----------------
            Total stockholders' equity                                      34,218,926               35,562,081
                                                                       ----------------           -------------
               Total liabilities and stockholders' equity                                          $290,391,610       $263,160,174
                                                                                                   ============       ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                       F-2


<PAGE>   22

                           JACKSONVILLE BANCORP, INC.
                       CONSOLIDATED STATEMENTS OF EARNINGS
                  YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                        1999                   1998                     1997
                                                   -------------         ---------------           -------------
<S>                                                <C>                   <C>                      <C>
INTEREST INCOME
   Loans receivable                                $  17,091,560          $   15,442,039           $  14,093,616
   Mortgage-backed securities                          2,223,096               1,501,491               1,134,799
   Investment securities                                 880,071               1,260,766               1,657,500
   Other                                                 270,598                 336,885                 286,566
                                                   -------------          --------------           -------------
      Total interest income                           20,465,325              18,541,181              17,172,481

INTEREST EXPENSE
   Deposits                                            9,488,048               9,348,433               8,599,136
   Interest on borrowings                              1,223,328                 279,894                 171,913
                                                   -------------          --------------           -------------
      Total interest expense                          10,711,376               9,628,327               8,771,049
                                                   -------------          --------------           -------------
      Net interest income                              9,753,949               8,912,854               8,401,432
PROVISION FOR LOSSES ON LOANS                             60,000                  35,000                 110,084
                                                   -------------          --------------           -------------
      Net interest income after provision for
         losses on loans                               9,693,949               8,877,854               8,291,348

NONINTEREST INCOME
   Fees and deposit service charges                    1,322,649               1,116,117                 947,783
   Real estate operations, net                           135,196                 135,315                 179,718
   Other                                                 176,271                 162,171                 101,604
   Mortgage servicing rights                              53,090                 140,394                 162,462
                                                   -------------          --------------           -------------
      Total noninterest income                         1,687,206               1,553,997               1,391,567

NONINTEREST EXPENSE
   Compensation and benefits                           3,829,581               3,759,893               3,269,947
   Occupancy and equipment                               650,676                 529,524                 529,124
   Insurance expense                                     165,849                 167,851                 224,658
   Provisions for real estate losses                           -                    (144)                (88,737)
   Other                                               1,229,471               1,181,369               1,127,519
                                                   -------------           -------------          --------------
      Total noninterest expense                        5,875,577               5,638,493               5,062,511
                                                   -------------          --------------           -------------

INCOME BEFORE TAXES ON INCOME                          5,505,578               4,793,358               4,620,404

TAXES ON INCOME
   Current                                             1,759,347               1,428,256               1,383,880
   Deferred                                              108,000                  40,000                  (3,000)
                                                  --------------           -------------          --------------
      Total income tax expense                         1,867,347               1,468,256               1,380,880
                                                   -------------          --------------           -------------
         Net earnings                              $   3,638,231          $    3,325,102           $   3,239,524
                                                   =============          ==============           =============

EARNINGS PER COMMON SHARE

   Basic                                           $        1.65           $        1.44           $        1.30
                                                   =============           =============           =============
   Diluted                                         $        1.60           $        1.38           $        1.27
                                                   =============           =============           =============
</TABLE>



See accompanying notes to consolidated financial statements.

                                       F-3


<PAGE>   23



                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997


<TABLE>
<CAPTION>

                                                                               Additional             Compre-
                                                                Common          Paid-in               hensive
                                                                Stock           Capital                Income
                                                              --------        ------------         -------------
<S>                                                         <C>               <C>                 <C>
BALANCE AT SEPTEMBER 30, 1996                                 $26,643          $22,297,343
   Shares issued under stock
      option plan                                                 104               73,237
   ESOP shares released                                             -              100,678
   Purchase of management
      recognition plan shares                                       -                    -
   Accrual of management
      recognition plan awards                                       -                    -
   Comprehensive income:
      Net earnings                                                  -                    -           $3,239,524
      Other comprehensive income, net
         of tax, unrealized gains on
            securities available-for-sale                           -                    -               73,474
                                                                                                     ----------
               Comprehensive income                                                                  $3,312,998
                                                                                                     ==========
   Dividends declared                                               -                    -
   Purchase of 231,000 Treasury shares                              -                    -
                                                            ---------        -------------
BALANCE AT SEPTEMBER 30, 1997                                  26,747           22,471,258
   Shares issued under stock
      option plan                                                  13                9,180
   ESOP shares released                                             -              169,410
   Accrual of management
      recognition plan awards                                       -                    -
   Comprehensive income:
      Net earnings                                                  -                    -           $3,325,102
      Other comprehensive income, net
         of tax, unrealized gains on
            securities available-for-sale                           -                    -               89,057
                                                                                                     ----------
               Comprehensive income                                                                  $3,414,159
                                                                                                     ==========
   Dividends declared                                               -                    -
   Purchase of 54,825 Treasury shares                               -                    -
                                                            ---------        -------------
BALANCE AT SEPTEMBER 30, 1998                                 $26,760          $22,649,848
</TABLE>

<TABLE>
<CAPTION>
                                                             Accumulated
                                                                Other
                                                            Comprehensive             Retained              Treasury
                                                            Income (Loss)             Earnings               Stock
                                                            -------------          --------------        -------------
<S>                                                         <C>                   <C>                    <C>
BALANCE AT SEPTEMBER 30, 1996                                  $(87,649)           $   14,746,925        $         -
   Shares issued under stock
      option plan                                                     -                         -                  -
   ESOP shares released                                               -                         -                  -
   Purchase of management
      recognition plan shares                                         -                         -                  -
   Accrual of management
      recognition plan awards                                         -                         -                  -
   Comprehensive income:
      Net earnings                                                    -                 3,239,524                  -
      Other comprehensive income, net
         of tax, unrealized gains on
            securities available-for-sale                        73,474                         -                  -

               Comprehensive income

   Dividends declared                                                 -               (1,197,958)                  -
   Purchase of 231,000 Treasury shares                                -                         -        (3,423,528)
                                                              ---------             -------------       ------------
BALANCE AT SEPTEMBER 30, 1997                                  (14,175)                16,788,491        (3,423,528)
   Shares issued under stock
      option plan                                                     -                         -                  -
   ESOP shares released                                               -                         -                  -
   Accrual of management
      recognition plan awards                                         -                         -                  -
   Comprehensive income:
      Net earnings                                                    -                 3,325,102                  -
      Other comprehensive income, net
         of tax, unrealized gains on
            securities available-for-sale                        89,057                         -                  -

               Comprehensive income

   Dividends declared                                                 -               (1,150,460)                  -
   Purchase of 54,825 Treasury shares                                 -                         -          (989,738)
                                                              ---------             -------------      -------------
BALANCE AT SEPTEMBER 30, 1998                                  $ 74,882               $18,963,133       $(4,413,266)
</TABLE>

<TABLE>
<CAPTION>
                                                                    Shares             Shares
                                                                   Acquired           Acquired                Total
                                                                      by                 by               Stockholders'
                                                                     ESOP               MRP                   Equity
                                                               -------------      ------------            -------------
<S>                                                           <C>                  <C>                    <C>
BALANCE AT SEPTEMBER 30, 1996                                  $ (1,528,219)      $   (24,375)            $ 35,430,668
   Shares issued under stock
      option plan                                                          -                 -                  73,341
   ESOP shares released                                              150,113                 -                 250,791
   Purchase of management
      recognition plan shares                                              -         (835,693)               (835,693)
   Accrual of management
      recognition plan awards                                              -           177,585                 177,585
   Comprehensive income:
      Net earnings                                                         -                 -               3,239,524
      Other comprehensive income, net
         of tax, unrealized gains on
            securities available-for-sale                                  -                 -                  73,474
               Comprehensive income

   Dividends declared                                                      -                 -             (1,197,958)
   Purchase of 231,000 Treasury shares                                     -                 -             (3,423,528)
                                                               -------------      ------------            ------------
BALANCE AT SEPTEMBER 30, 1997                                    (1,378,106)         (682,483)              33,788,204
   Shares issued under stock
      option plan                                                          -                 -                   9,193
   ESOP shares released                                              154,174                 -                 323,584
   Accrual of management
      recognition plan awards                                              -           167,139                 167,139
   Comprehensive income:
      Net earnings                                                         -                 -               3,325,102
      Other comprehensive income, net
         of tax, unrealized gains on
            securities available-for-sale                                  -                 -                  89,057
               Comprehensive income

   Dividends declared                                                      -                 -             (1,150,460)
   Purchase of 54,825 Treasury shares                                      -                 -               (989,738)
                                                               -------------      ------------            ------------
BALANCE AT SEPTEMBER 30, 1998                                   $(1,223,932)      $  (515,344)            $ 35,562,081
</TABLE>


                                       F-4


<PAGE>   24



                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
                                   (CONTINUED)

<TABLE>
<CAPTION>

                                                                      Additional            Compre-
                                                      Common           Paid-in              hensive
                                                      Stock            Capital               Income
                                                   -----------      --------------        ------------
<S>                                                <C>              <C>                 <C>
BALANCE AT SEPTEMBER 30, 1998                       $26,760          $22,649,848
   ESOP shares released                                   -               72,864
   Accrual of management
      recognition plan awards                             -                    -
   Comprehensive income:
      Net earnings                                        -                    -           $3,638,231
      Other comprehensive income, net
         of tax, unrealized (loss) on
            securities available-for-sale                 -                    -            (876,083)
                                                                                          -----------
               Comprehensive income                                                        $2,762,148
                                                                                           ==========
   Dividends declared                                     -                    -
   Purchase of 209,835 Treasury shares                    -                    -
                                                    -------          -----------
BALANCE AT SEPTEMBER 30, 1999                       $26,760          $22,722,712
                                                    =======          ===========
</TABLE>

<TABLE>
<CAPTION>
                                                 Accumulated
                                                    Other
                                                Comprehensive        Retained            Treasury
                                                Income (Loss)        Earnings             Stock
                                                -------------      ------------      ---------------
<S>                                             <C>               <C>                 <C>
BALANCE AT SEPTEMBER 30, 1998                    $   74,882         $18,963,133       $(4,413,266)
   ESOP shares released                                   -                   -                  -
   Accrual of management
      recognition plan awards                             -                   -                  -
   Comprehensive income:
      Net earnings                                        -           3,638,231                  -
      Other comprehensive income, net
         of tax, unrealized (loss) on
            securities available-for-sale         (876,083)                   -                  -

               Comprehensive income

   Dividends declared                                     -         (1,094,080)                  -
   Purchase of 209,835 Treasury shares                    -                   -        (3,358,620)
                                                 ----------         -----------       ------------
BALANCE AT SEPTEMBER 30, 1999                    $(801,201)         $21,507,284       $(7,771,886)
                                                 ==========         ===========       ============
</TABLE>

<TABLE>
<CAPTION>
                                                      Shares            Shares
                                                     Acquired          Acquired          Total
                                                        by                by         Stockholders'
                                                       ESOP              MRP             Equity
                                                   ------------      ------------     ------------
<S>                                               <C>               <C>               <C>
BALANCE AT SEPTEMBER 30, 1998                     $(1,223,932)        $(515,344)       $35,562,081
   ESOP shares released                                107,395                 -           180,259
   Accrual of management
      recognition plan awards                                -           167,138           167,138
   Comprehensive income:
      Net earnings                                           -                 -         3,638,231
      Other comprehensive income, net
         of tax, unrealized (loss) on
            securities available-for-sale                    -                 -         (876,083)

               Comprehensive income

   Dividends declared                                        -                 -       (1,094,080)
   Purchase of 209,835 Treasury shares                       -                 -       (3,358,620)
                                                  ------------        ----------       -----------
BALANCE AT SEPTEMBER 30, 1999                     $(1,116,537)        $(348,206)       $34,218,926
                                                  ============        ==========       ===========
</TABLE>



See accompanying notes to consolidated financial statements.

                                       F-5


<PAGE>   25



                           JACKSONVILLE BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                          1999                    1998                    1997
                                                                    ---------------         ---------------         ---------------
<S>                                                                <C>                      <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                        $    3,638,231          $    3,325,102          $    3,239,524
   Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
         Depreciation                                                       259,416                 165,233                 212,715
         Amortization/accretion of securities                               175,132                 166,145                  37,035
         Provision for losses on loans and on real estate                    60,000                  35,144                  21,347
         Loans originated for sale                                     (23,866,321)            (28,189,992)            (22,311,000)
         Loans sold                                                      23,866,321              28,189,992              22,311,000
         Net gain on sale of equipment                                            -                (11,640)                       -
         Net (gain) loss on sale of other real estate                     (187,400)               (132,794)                 179,521
         Accrual of MRP awards                                              167,138                 167,139                 177,585
         Release of ESOP shares                                             180,259                 323,584                 250,791
         Change in assets and liabilities:
            Decrease (increase) in other assets                             250,647               (103,661)                 277,312
            Decrease in SAIF assessment payable                                   -                       -             (1,070,478)
            (Decrease) increase in accrued expenses and
              other liabilities                                           (409,027)                 149,543                 831,826
            Decrease in deferred income                                    (23,925)                (47,932)               (141,243)
            Increase in mortgage servicing rights                          (53,090)                (96,882)               (206,040)
            Increase in accrued interest receivable                       (163,688)               (138,457)               (318,971)
                                                                     --------------          --------------          --------------
               Net cash provided by operating activities                  3,893,693               3,800,524               3,490,924
                                                                     --------------          --------------          --------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds on maturity of investment securities                         13,965,068              18,456,288              13,955,186
   Purchase of investment securities                                   (12,998,125)            (12,493,297)             (5,995,546)
   Net principal payments/originations on loans                        (24,934,510)            (17,145,410)            (16,062,470)
   Proceeds from sale of foreclosed real estate                             132,693                 129,520                 376,174
   Proceeds from sale of equipment                                                -                  33,735                       -
   Purchase of mortgage-backed securities                              (14,751,466)            (17,662,769)            (11,371,963)
   Principal paydowns on mortgage-backed securities                       7,809,676               6,937,889               2,251,044
   Capital expenditures                                                   (906,536)               (734,574)               (345,182)
   Purchase of stock in FHLB Dallas                                       (352,500)                (24,500)               (104,500)
   Sale of stock in FHLB Dallas                                                   -                 247,000                       -
   Investment in real estate                                              (712,796)                       -                       -
                                                                     --------------          --------------          --------------
               Net cash used in investing activities                   (32,748,496)            (22,256,118)            (17,297,257)
                                                                     --------------          --------------          --------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits                                             $10,719,286             $12,456,620             $17,705,411
   Increase (decrease) in advance payments by
      borrowers for property taxes and insurance                            288,257               (116,420)                 405,390
   Advances from FHLB                                                    49,500,000              20,000,000               5,000,000
   Payment of FHLB advances                                            (31,500,000)             (5,000,000)             (5,000,000)
   Proceeds from exercise of stock options                                        -                   9,193                  73,341
   Purchase of Treasury stock                                           (3,358,620)               (989,738)             (3,423,528)
   Purchase of MRP shares                                                         -                       -               (835,693)
   Dividends paid                                                       (1,094,080)             (1,150,460)             (1,197,958)
                                                                     --------------          --------------          --------------
               Net cash provided by financing activities                 24,554,843              25,209,195              12,726,963
                                                                     --------------          --------------          --------------
               Net (decrease) increase in cash and cash
                 equivalents                                            (4,299,960)               6,753,601             (1,079,370)

CASH AND CASH EQUIVALENTS
   Beginning of year                                                     10,867,646               4,114,045               5,193,415
                                                                     --------------          --------------          --------------
   End of year                                                       $    6,567,686          $   10,867,646          $    4,114,045
                                                                     ==============          ==============          ==============
</TABLE>


See accompanying notes to consolidated financial statements.

                                       F-6


<PAGE>   26



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998

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 July 2, 1997, the Bank 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.

  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. Buildings, 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 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.

                                      F-7


<PAGE>   27



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
 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.

 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.

 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. Investment in real estate is recorded
 at cost. 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 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 real estate are recognized at the date of sale.

 ESTIMATES
 The preparation of consolidated financial 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.

                                       F-8


<PAGE>   28



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
 ESTIMATES - CONTINUED
 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.

 EARNINGS PER SHARE
 The Company has adopted the provisions of Statement of Financial Accounting
 Standards No. 128, "Earnings Per Share" (FAS 128). The standard requires a dual
 presentation of basic and diluted EPS. This statement provides for 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.

 Earnings per share on a basic and diluted basis is calculated as follows:

<TABLE>
<CAPTION>
                                                                           Years Ended September 30,
                                                      ---------------------------------------------------------------
                                                           1999                    1998                    1997
                                                      ---------------         ---------------         ---------------
<S>                                                   <C>                     <C>                     <C>
      Basic net earnings per share
         Net income                                    $    3,638,231          $    3,325,102          $    3,239,524
         Weighted-average shares outstanding                2,202,425               2,304,567               2,485,535
                                                       --------------          --------------          --------------
               Per share                               $         1.65          $         1.44          $         1.30
                                                       ==============          ==============          ==============
      Diluted net earnings per share
         Net income                                    $    3,638,231          $    3,325,102          $    3,239,524
         Weighted-average shares outstanding
            plus assumed conversions                        2,278,965               2,412,993               2,554,565
                                                       --------------          --------------          --------------
               Per share                               $         1.60          $         1.38          $         1.27
                                                       ==============          ==============          ==============
      Calculation of weighted average shares
         outstanding plus assumed conversions
            Weighted-average shares outstanding        $    2,202,425          $    2,304,567          $    2,485,535
            Effect of dilutive stock options                   76,540                 108,426                  69,030
                                                       --------------          --------------          --------------
                                                       $    2,278,965          $    2,412,993          $    2,554,565
                                                       ==============          ==============          ==============
</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.

                                       F-9


<PAGE>   29



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
 COMPREHENSIVE INCOME
 In June 1997, the Financial Accounting Standards Board issued Statement of
 Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
 130). This statement establishes standards for reporting and display of
 comprehensive income and its components in a full set of general-purpose
 financial statements. The 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. The Company adopted the provisions of FAS 130,
 effective October 1, 1998, and reclassified financial statements for earlier
 periods.

 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 at
 September 30:

<TABLE>
<CAPTION>

                                                                            1999                      1998               1997
                                                                       --------------             -----------        -----------
<S>                                                                    <C>                        <C>               <C>
      Cash on hand and in banks                                        $    2,995,572             $ 3,086,417        $ 1,336,212
      Interest bearing deposits                                             3,572,114               7,781,229          2,777,833
                                                                       --------------             -----------        -----------
            Cash and cash equivalents                                  $    6,567,686             $10,867,646        $ 4,114,045
                                                                       ==============             ===========        ===========
      Supplemental disclosure:
         Cash paid for:
            Interest                                                   $   10,644,167             $ 9,567,381        $ 8,776,209
                                                                       ==============             ===========        ===========
            Income taxes                                               $    2,090,000             $ 1,441,000        $   825,000
                                                                       ==============             ===========        ===========
      Non-cash operating activities:
         Change in deferred taxes on net unrealized gains
            and losses on securities available-for-sale                $      451,315             $   (45,878)       $   (37,850)
                                                                       ==============             ===========        ===========
      Non-cash investing activities:
         Change in net unrealized gains and losses
            on securities available-for-sale                           $   (1,327,398)            $   134,935        $   111,323
                                                                       ==============             ===========        ===========
         Transfer from loans to real estate acquired
            through foreclosure                                        $      391,000             $   353,000        $   689,000
                                                                       ==============             ===========        ===========
         Loans made relating to sale of foreclosed real estate         $      630,000             $   384,000        $   569,805
                                                                       ==============             ===========        ===========
</TABLE>



                                      F-10


<PAGE>   30



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 3 - INVESTMENT SECURITIES
 The amortized cost and estimated market values of investments in debt
 securities are as follows as of September 30, 1999:

<TABLE>
<CAPTION>
                                                                        Available-for-sale
                                      -------------------------------------------------------------------------------------
                                                                                                               Estimated
                                        Amortized            Unrealized                Unrealized                Market
                                           Cost                Gains                     Losses                  Value
                                      -------------     -------------------         ---------------          --------------
<S>                                 <C>                 <C>                         <C>                       <C>
      U.S. Agency securities            $12,026,229     $                 -           $     314,624             $11,711,605
                                        ===========     ===================           =============             ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                         Held-to-maturity
                                     -------------------------------------------------------------------------------------
                                      Amortized               Unrealized              Unrealized                 Market
                                         Cost                   Gains                   Losses                   Value
                                     -------------         ---------------           -------------           -------------
<S>                                 <C>                    <C>                     <C>                       <C>
      U. S. Treasury notes            $          -          $            -            $          -            $          -
      U. S. Agency securities            6,999,329                   1,821                 108,250               6,892,900
                                     -------------         ---------------           -------------           -------------
                                      $  6,999,329          $        1,821            $    108,250            $  6,892,900
                                      ============          ==============            ============            ============
</TABLE>

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 scheduled maturities of securities at September 30, 1999, 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           $  1,999,329            $  2,001,150     $  1,000,000             $   992,500
      Due from one to five years           5,000,000               4,891,750       10,026,969               9,759,905
      Due from five to ten years                   -                       -          999,260                 959,200
                                        ------------            ------------     ------------             -----------
                                        $  6,999,329            $  6,892,900     $ 12,026,229             $11,711,605
                                        ============            ============     ============             ===========
</TABLE>



                                      F-11


<PAGE>   31


                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 3 - INVESTMENT SECURITIES - CONTINUED

   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>

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
      1999                 Cost              Gains           Losses           Value
------------------       ----------       ----------       ----------       ----------
<S>                      <C>              <C>              <C>              <C>
GNMA certificates        $  528,190       $   15,547       $    8,325       $  535,411
FHLMC certificates        1,263,090            6,293           22,276        1,247,107
FNMA certificates         2,866,299            5,834           11,726        2,860,407
                         ----------       ----------       ----------       ----------
                         $4,657,579       $   27,674       $   42,327       $4,642,925
                         ==========       ==========       ==========       ==========
</TABLE>

<TABLE>
<CAPTION>
                                                 Available-for-sale
                         -----------------------------------------------------------------
                                                                                Estimated
    September 30,         Amortized        Unrealized        Unrealized          Market
       1999                 Cost              Gains            Losses             Value
------------------       -----------       -----------       -----------       -----------
<S>                      <C>               <C>               <C>               <C>
GNMA certificates        $ 4,085,032       $         -       $   116,134       $ 3,968,898
FHLMC certificates         2,141,045                 -             8,968         2,132,077
FNMA certificates         13,008,451             3,415           290,867        12,720,999
Private label             14,647,522                 -           486,763        14,160,759
                         -----------       -----------       -----------       -----------
                         $33,882,050       $     3,415       $   902,732       $32,982,733
                         ===========       ===========       ===========       ===========
</TABLE>

<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>

                                      F-12




<PAGE>   32



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 4 - MORTGAGE-BACKED SECURITIES - CONTINUED

   The scheduled maturities of mortgage-backed securities as of September 30,
   1999, 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          $   254,271       $   249,744       $         -       $         -
Due from one to five years                 -                 -                 -                 -
Due from five to ten years         1,811,971         1,818,815         4,316,525         4,214,101
Due after ten years                2,591,337         2,574,366        29,565,525        28,768,632
                                 -----------       -----------       -----------       -----------
                                 $ 4,657,579       $ 4,642,925       $33,882,050       $32,982,733
                                 ===========       ===========       ===========       ===========
</TABLE>

   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>

NOTE 5 - LOANS RECEIVABLE

   Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                               September 30,
                                                    ----------------------------------
                                                         1999                 1998
                                                    -------------        -------------
<S>                                                 <C>                  <C>
Mortgage loans (principally conventional):
   Single family residential                        $ 164,660,709        $ 149,960,319
   Multi-family residential                               818,933            1,091,156
   Commercial                                          12,000,070            9,763,998
   Construction                                        21,171,094           15,486,672
   Land                                                 3,172,273            3,770,811
                                                    -------------        -------------
                                                      201,823,079          180,072,956
Business and Consumer loans:
   Commercial business                                      5,717               54,602
   Consumer:
      Secured by deposits                               2,182,615            2,022,974
      Secured by vehicles                              12,413,881           10,576,958
      Personal real estate loans                        5,398,994            5,171,309
      Other                                             4,019,559            2,884,160
                                                    -------------        -------------
                                                       24,020,766           20,710,003
                                                    -------------        -------------
      Total loans                                     225,843,845          200,782,959
   Less:
      Undisbursed portion of loans in process         (7,835,438)          (7,845,663)
      Unearned discounts                                 (33,746)             (45,904)
      Net deferred loan-origination fees                (496,032)            (567,671)
      Allowance for loan losses                       (1,211,602)          (1,170,322)
                                                    -------------        -------------
         Net loans                                  $ 216,267,027        $ 191,153,399
                                                    =============        =============
</TABLE>

                                      F-13


<PAGE>   33



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    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 7.00% to 10.00%) as follows:

<TABLE>
<CAPTION>
                       1999             1998
                    ----------       ----------
<S>                 <C>              <C>
Variable-rate       $  245,300       $   55,122
Fixed-rate           3,676,098        4,953,322
                    ----------       ----------
                    $3,921,398       $5,008,444
                    ==========       ==========
</TABLE>

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

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

<TABLE>
<CAPTION>
                                         1999               1998               1997
                                     -----------        -----------        -----------
<S>                                  <C>                <C>                <C>
Balance at beginning of period       $ 1,170,321        $ 1,191,977        $ 1,100,000
   Provision charged to income            60,000             35,000            110,084
   Charge-offs                           (18,719)           (56,656)           (18,107)
   Recoveries                                  -                  -                  -
                                     -----------        -----------        -----------
Balance at end of period             $ 1,211,602        $ 1,170,321        $ 1,191,977
                                     ===========        ===========        ===========
</TABLE>

   At September 30, 1999 and 1998, 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 $544,000 and $678,000, at September 30,
   1999 and 1998, respectively. The Bank is not committed to lend additional
   funds to debtors whose loans have been modified.

   Loans to executive officers and directors totaled $375,000 and $411,000, at
   September 30, 1999 and 1998, 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>
                                          1999              1998              1997
                                      -----------       -----------       -----------
<S>                                   <C>               <C>               <C>
Mortgage loans underlying FHLMC
   pass-through securities            $82,417,319       $77,445,977       $62,078,118
                                      ===========       ===========       ===========
</TABLE>

   Custodial escrow balances maintained in connection with the foregoing loan
   servicing were approximately $1,734,000 and $1,651,000, at September 30, 1999
   and 1998, 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, is as follows:

<TABLE>
<CAPTION>
                                         1999              1998               1997
                                     -----------       -----------        -----------
<S>                                  <C>               <C>                <C>
Balance at beginning of period       $ 1,304,828       $ 1,304,972        $ 1,691,527
   Provisions for losses                       -              (144)           (88,737)
   Charge-offs                                 -                 -           (297,818)
   Recoveries                                  -                 -                  -
                                     -----------       -----------        -----------
Balance at end of period             $ 1,304,828       $ 1,304,828        $ 1,304,972
                                     ===========       ===========        ===========
</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).

                                      F-14


<PAGE>   34


                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 7 - ACCRUED INTEREST RECEIVABLE

   Accrued interest receivable is summarized as follows as of September 30:

<TABLE>
<CAPTION>
                                    1999             1998
                                 ----------       ----------
<S>                              <C>              <C>
Investment securities            $  290,330       $  289,565
Mortgage-backed securities          230,137          212,242
Loans receivable                  1,733,691        1,588,663
                                 ----------       ----------
                                 $2,254,158       $2,090,470
                                 ==========       ==========
</TABLE>

NOTE 8 - PREMISES AND EQUIPMENT

  Premises and equipment consist of the following:

<TABLE>
<CAPTION>
                                               September 30,
                                        ---------------------------         Estimated
                                           1999             1998           Useful Lives
                                        ----------       ----------       -------------
<S>                                     <C>              <C>              <C>
Land                                    $1,046,057       $1,046,057             -
Building and improvements                4,078,547        3,287,552       5 to 40 years
Furniture, fixtures and equipment        2,298,227        2,175,602       3 to 15 years
                                        ----------       ----------
                                         7,422,831        6,509,211
Less accumulated depreciation            2,839,933        2,573,433
                                        ----------       ----------
                                        $4,582,898       $3,935,778
                                        ==========       ==========
</TABLE>

NOTE 9 - DEPOSITS

   Deposits at September 30, are summarized as follows:

<TABLE>
<CAPTION>
                                            1999                            1998
                               ----------------------------    ----------------------------
                                  Amount           Percent        Amount           Percent
                               ------------       ---------    ------------       ---------
<S>                            <C>                <C>         <C>                  <C>
Transaction accounts:
   Demand and NOW              $ 27,909,374           12.97    $ 24,355,223           11.91
   Money market                  12,933,426            6.01      13,858,303            6.78
   Passbook savings              13,981,896            6.50      12,683,902            6.20
                               ------------       ---------    ------------       ---------
                                 54,824,696           25.48      50,897,428           24.89
                               ------------       ---------    ------------       ---------
Certificates of deposit:
   4% to 5%                      70,521,467           32.77      39,539,063           19.34
   5% to 6%                      72,890,759           33.87      97,129,878           47.50
   6% to 7%                      16,749,804            7.78      16,674,103            8.16
   7% to 8%                          72,420             .03         106,608             .05
   8% to 9%                         150,058             .07         142,838             .06
                               ------------       ---------    ------------       ---------
                                160,384,508           74.52     153,592,490           75.11
                               ------------       ---------    ------------       ---------
                               $215,209,204          100.00    $204,489,918          100.00
                               ============       =========    ============       =========
</TABLE>

   The aggregate amount of short-term jumbo certificates of deposit with a
   minimum denomination of $100,000 was approximately $27,895,000 and
   $25,677,000, at September 30, 1999 and 1998, respectively.

   Scheduled maturities of certificates of deposit were as follows as of
   September 30, 1999:

<TABLE>
<CAPTION>
 Term to maturity               Amount           Percent
----------------------       ------------       ---------
<S>                          <C>                <C>
Within 12 months             $138,153,185           86.14
12 to 24 months                19,192,856           11.97
24 to 36 months                 2,620,072            1.63
Greater than 36 months            418,395             .26
                             ------------       ---------
                             $160,384,508          100.00
                             ============       =========
</TABLE>


                                      F-15

<PAGE>   35



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 9 - DEPOSITS - CONTINUED

   Interest expense on deposits at September 30, is summarized as follows:

<TABLE>
<CAPTION>
                                 1999             1998             1997
                              ----------       ----------       ----------
<S>                           <C>              <C>              <C>
Money Market                  $  703,551       $  648,031       $  597,484
Passbook savings                 395,352          370,980          340,422
NOW                              189,723          198,448          201,920
Certificates of deposit        8,199,422        8,130,974        7,459,310
                              ----------       ----------       ----------
                              $9,488,048       $9,348,433       $8,599,136
                              ==========       ==========       ==========
</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.

NOTE 10 - BORROWINGS

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

<TABLE>
<CAPTION>
                                                           1999               1998
                                                       -----------        -----------
<S>                                                 <C>                 <C>
Balance at end of period                               $35,000,000        $17,000,000
Average amount outstanding during the period            24,541,667          4,923,000
Maximum amount outstanding during the period            39,000,000         19,000,000
Weighted average interest rate during the period             4.98%               5.7%
Interest rates at end of period                      4.93% - 5.66%       4.9% - 5.56%
</TABLE>

   These borrowings are payable at maturity and may be subject to earlier call
   by Federal Home Loan Bank.

   Scheduled repayments and potential calls of Federal Home Loan Bank borrowings
   at September 30, 1999 were as follows:

<TABLE>
<CAPTION>
Maturing             Callable
------------------- -----------
<S>                 <C>               <C>
Under 1 year        $ 7,500,000       $10,000,000
1 to 5 years         12,500,000        10,000,000
6 to 10 years        15,000,000                 -
Over 10 years                 -                 -
                    -----------       -----------
                    $35,000,000       $20,000,000
                    ===========       ===========
</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 were met in determining taxable
   income, the Bank was 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 was repealed for years beginning
   after January 1, 1997.

   The provision for Federal income taxes differs from that computed at the
   statutory corporate tax rate as follows:

<TABLE>
<CAPTION>
                                                       1999               1998               1997
                                                   -----------        -----------        -----------
<S>                                                <C>                <C>                <C>
Computed "expected" tax expense                    $ 1,871,897        $ 1,629,742        $ 1,570,937
Adjustments:
   SFAS No. 122 mortgage servicing rights             (18,051)           (32,940)           (55,237)
   Bad-debt deduction and real estate losses          (43,316)           (33,299)          (161,600)
   Other                                                56,817           (95,247)             26,780
                                                   -----------        -----------        -----------
                                                   $ 1,867,347        $ 1,468,256        $ 1,380,880
                                                   ===========        ===========        ===========
</TABLE>

                                      F-16


<PAGE>   36



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 11 - FEDERAL INCOME TAXES - CONTINUED

   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>
                                  1999           1998            1997
                                --------       --------        --------
<S>                             <C>            <C>             <C>
Deferred loan fees              $ 18,668       $ 20,842        $ 33,529
Accrued pension liability         19,230          8,678         (18,192)
FHLB stock dividends              32,893              -          35,530
Deferred compensation                196          5,738          31,883
Deferred loan costs                2,492           (428)        (65,334)
Other, net                        34,521          5,170         (20,416)
                                --------       --------        --------
                                $108,000       $ 40,000        $ (3,000)
                                ========       ========        ========
</TABLE>

   The components of the net deferred tax assets (included in other assets) at
   September 30, were comprised of the following:

<TABLE>
<CAPTION>
                                                                1999           1998
                                                              --------       --------
<S>                                                           <C>            <C>
Deferred income tax assets:
   Net unrealized loss on available-for-sale securities       $412,740       $      -
   Deferred loan fees                                          185,501        204,169
   Deferred compensation and other employee benefits           300,633        320,099
   Deferred loan costs                                          63,270         65,762
                                                              --------       --------
      Total deferred income tax assets                         962,144        590,030

Deferred income tax liabilities:
   Net unrealized gain on available-for-sale securities              -         38,575
   FHLB stock dividends                                        198,511        165,618
   Book/tax depreciation difference                            180,893        146,200
                                                              --------       --------
      Total deferred income tax liabilities                    379,404        350,393
                                                              --------       --------
   Net deferred income tax assets                             $582,740       $239,637
                                                              ========       ========
</TABLE>

   Stockholders' equity at September 30, 1999 and 1998, 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 - 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.


                                      F-17



<PAGE>   37



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 12 - PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION - CONTINUED

   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>
                                                                               1999               1998
                                                                           -----------        -----------
<S>                                                                        <C>                <C>
   Accumulated benefit obligation:
      Vested                                                               $ 1,421,986        $ 1,215,554
      Nonvested                                                                 21,857             18,875
                                                                           -----------        -----------
                                                                             1,443,843          1,234,429
   Effect of projected future compensation                                     762,416            965,165
                                                                           -----------        -----------

Projected benefit obligation for service rendered to date                    2,206,259          2,199,594
Plan assets at fair value; primarily cash and short-term investments         2,081,287          1,796,216
                                                                           -----------        -----------
Plan assets in excess of (less than) projected benefit obligation          $ (124,972)       $  (403,378)
                                                                           ===========        ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                        1999             1998             1997
                                                     ---------        ---------        ---------
<S>                                                  <C>              <C>              <C>
Service cost - benefits earned during the year       $ 120,801        $  89,998        $  95,691
Interest cost on projected benefit obligation          141,472          116,967          149,291
Actual return on plan assets                         (105,165)        (102,787)        (112,625)
Net amortization and deferral                          (3,046)         (11,786)         (50,215)
                                                     ---------        ---------        ---------
         Net pension expense                         $ 154,062        $  92,392        $  82,142
                                                     =========        =========        =========

Assumptions used to develop the net
  periodic pension cost were:
      Discount rate                                      6.50%            6.50%            7.00%
      Expected long-term rate of return on assets        6.00%            6.00%            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 $49,679 in 1999,
   $43,870 in 1998, and $39,516 in 1997 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 1999, $112,000 in 1998, and $100,000 in 1997. At
   September 30, 1999 and 1998, the Bank had recorded a net liability of
   $300,000, related to such arrangements.


                                      F-18




<PAGE>   38



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 13 - 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.

   In prior years the ESOP acquired 202,048 shares of Company stock through
   borrowings from IHC. 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 are 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 $131,000, $285,000, and
   $223,000, for the years ended September 30, 1999, 1998, and 1997,
   respectively. At September 30, 1999 and 1998, 102,787 and 86,902 ESOP shares,
   respectively, have been released for allocation, of which 93,327 and 72,152
   were allocated to participants at September 30, 1999 and 1998, respectively.
   The fair value of the unreleased shares of 99,261 and 115,146 at September
   30, 1999 and 1998, was approximately $1,514,000 and $1,439,000, respectively.

NOTE 14 - MANAGEMENT RECOGNITION PLAN

   In prior years, the Bank has adopted a Management Recognition Plan (MRP) 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
   41,472 shares of common stock, all of which were awarded to officers. The
   shares granted were 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 were in the form of restricted stock to be
   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, $167,000, and $177,000
   for the years ended September 30, 1999, 1998, and 1997, respectively.

NOTE 15 - STOCK OPTION PLANS

   Certain directors and officers have options to purchase shares of the Bank'
   common stock under its 1994 and 1996 Stock Incentive Plans. The option price
   is the fair market value at the date of grant and all shares have been
   granted. The option price ranges from $7.05 to $1,263 per share and expire
   between March 2004 and October 2007.



                                      F-19

<PAGE>   39



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 15 - STOCK OPTION PLANS - CONTINUED

   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, 1997                 245,922       $2,636,279       $   10.70
   Options granted                                              -                -               -
   Options exercised                                        1,304            9,193            7.05
                                                       ----------       ----------       ---------
Options outstanding at September 30, 1998                 244,618        2,627,086           10.74
   Options granted                                              -                -               -
   Options exercised                                            -                -               -
                                                       ----------       ----------       ---------
Options outstanding at September 30, 1999
   (exercise price of $7.05 to $12.63 per share)          244,618       $2,627,086       $   10.74
                                                       ==========       ==========       =========

Exercisable at September 30, 1999                         147,514       $1,401,200       $    9.50
                                                       ==========       ==========       =========
</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 1999 and 1998, by approximately $88,000 each
   year, respectively, had the fair values of 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 1999 and 1998 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.

NOTE 16 - 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, 1999, is not significant to the Company's operations or
   financial condition.

NOTE 17 - 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.



                                      F-20



<PAGE>   40



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 17 - REGULATORY MATTERS - CONTINUED

   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, 1999 and 1998,
   the Bank met 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, 1999:                Amount           Ratio       Amount           Ratio      Amount        Ratio
-------------------------             ------------       -------   ------------       -------    ---------      -----
<S>                                   <C>                 <C>       <C>                 <C>      <C>            <C>
   Risk-based capital
      (to risk-weighted assets)       $33,163,000         19.7%     $13,453,290         8.0%     $16,817,400    10.0%

   Tier I capital
      (to risk-weighted assets)       $31,952,000         19.0%     $ 6,726,960         4.0%     $10,090,440     6.0%

   Tier I capital
      (to average assets)             $31,952,000         11.0%     $11,575,600         4.0%     $14,469,500     5.0%

As of September 30, 1998:
-------------------------
   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>

NOTE 18 - 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.



                                      F-21



<PAGE>   41



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 19 - 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 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

   The following methods and assumptions were used to estimate the fair value of
   each class of financial instruments for which it is practicable to estimate
   that value:

   CASH AND INTEREST-BEARING DEPOSITS

   For these short-term instruments, the carrying amount is a reasonable
   estimate of fair value.

   INVESTMENT AND MORTGAGE-BACKED SECURITIES

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

   ACCRUED INTEREST

   The carrying amounts of accrued interest approximates their fair values.

   LOANS RECEIVABLE

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

   DEPOSIT LIABILITIES

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

   BORROWINGS

   Rates currently available to the 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, 1999 and 1998, the Bank had not issued any standby
   letters-of-credit. Commitments to extend credit totaled $3,921,398 and
   $5,008,444, at September 30, 1999 and 1998, 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.



                                      F-22



<PAGE>   42



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED

   The estimated fair values of the Company's financial instruments at September
   30, are as follows:

<TABLE>
<CAPTION>
                                                            1999                                  1998
                                              -------------------------------       -------------------------------
                                                 Carrying           Fair              Carrying             Fair
                                                  Amount            Value              Amount              Value
                                              ------------       ------------       ------------       ------------
<S>                                           <C>                <C>                <C>                <C>
Financial assets:
   Cash and interest-bearing deposits         $  6,567,686       $  6,567,686       $ 10,867,646       $ 10,867,647
                                              ============       ============       ============       ============
   Investment securities                      $ 18,710,934       $ 18,604,505       $ 20,012,985       $ 20,107,734
                                              ============       ============       ============       ============
   Accrued interest receivable                $  2,254,158       $  2,254,158       $  2,090,470       $  2,090,470
                                              ============       ============       ============       ============
   Loans and mortgage-backed securities       $255,118,941                          $224,189,663
   Less:  Allowance for loan losses              1,211,602                             1,170,321
                                              ------------                          ------------
                                              $253,907,339       $253,606,198       $223,019,342       $226,335,745
                                              ============       ============       ============       ============
Financial liabilities:
   Deposits                                   $215,209,204       $208,817,490       $204,489,918       $202,220,080
                                              ============       ============       ============       ============
   Borrowings                                 $ 35,000,000       $ 35,000,000       $ 17,000,000       $ 17,000,000
                                              ============       ============       ============       ============
</TABLE>

NOTE 21 - 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>
                                                                                                    1999                 1998
                                                                                                ------------        ------------
                                 BALANCE SHEETS
<S>                                                                                             <C>                 <C>
ASSETS
     Cash in Bank                                                                               $  1,162,127        $    709,446
     Investment in subsidiary                                                                     33,324,014          35,076,618
     Other assets                                                                                     32,781              81,085
                                                                                                ------------        ------------
            Total assets                                                                        $ 34,518,922        $ 35,867,149
                                                                                                ================================
LIABILITIES AND STOCKHOLDERS' EQUITY
     Other liabilities                                                                          $      7,200        $      6,300
     Dividends payable                                                                               272,539             298,768
     Stockholders' equity                                                                         34,239,183          35,562,081
                                                                                                ------------        ------------
               Total liabilities and stockholders' equity                                       $ 34,518,922        $ 35,867,149
                                                                                                ================================
                             STATEMENTS OF EARNINGS

    General and administrative expenses                                                         $    110,876        $    112,113
                                                                                                ------------        ------------
         Loss before income taxes and equity in undistributed
            earnings of subsidiaries                                                                 110,876             112,113
    Income tax (benefit)                                                                             (37,537)            (38,738)
                                                                                                ------------        ------------
         Loss before equity in earnings of subsidiaries                                               73,339              73,375
    Dividends from subsidiaries                                                                    4,955,746           2,181,000
    Equity in undistributed earnings of subsidiaries                                              (1,223,920)          1,217,477
                                                                                                ------------        ------------
               Net earnings                                                                     $  3,658,487        $  3,325,102
                                                                                                ================================
</TABLE>


                                      F-23



<PAGE>   43



                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998
                                    CONTINUED

NOTE 20 - YEAR 2000 ISSUE

   The Year 2000 issue relates to electronic data processing systems and other
   electronic equipment that have used a two-digit field rather than a
   four-digit field to represent the year. As a result, system failures and data
   processing errors could occur and have an adverse effect on the Company's
   operations. Management has implemented an action plan in order to prepare its
   systems and equipment for the Year 2000 date change. The Company's action
   plan is complete and consisted of five phases which include awareness,
   assessment, renovation, validation, and implementation. In addition,
   management has developed a business resumption contingency plan that
   addresses both internal and external system failures. The Company is
   following the Year 2000 project management process as prescribed by the
   Federal Financial Institution's Examination Council. Because of the
   unprecedented nature of the Year 2000 issue, its effects and the success of
   related remediation efforts will not be fully determinable until the Year
   2000 and thereafter.



                                      F-24


<PAGE>   44

                                STOCK INFORMATION

            Shares of Jacksonville Bancorp, Inc.'s common stock are traded
nationally under the symbol "JXVL" on the Nasdaq National Market. At December
10, 1999, the Company had 2,133,712 shares of common stock outstanding and had
1,477 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 on March 29, 1996) and cash
dividends paid per share of common stock during the periods indicated. Data
prior to that date is given with respect to Jacksonville Savings & Loan
Association.

<TABLE>
<CAPTION>
                                                     HIGH                  LOW                        DIVIDEND
<S>                                                     <C>                  <C>                             <C>
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

Quarter ended December 31, 1998                          17.50                14.13                          0.125

Quarter ended March 31, 1999                             16.75                14.75                          0.125

Quarter ended June 30, 1999                              16.13                13.25                          0.125

Quarter ended September 30, 1999                         16.50                15.00                          0.125
</TABLE>



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



                                       43


<PAGE>   45




                        DIRECTORS AND EXECUTIVE OFFICERS

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

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

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

ROBERT BROWN                                        JERRY HAMMONS
Vice Chairman and Director of the Company;          Director and Senior Vice President of the
Manager, Brown Lumber  Industries                   Company
</TABLE>



                                       44


<PAGE>   46




                                BANKING LOCATIONS

                                   MAIN OFFICE

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

                                 BRANCH OFFICES

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

                              (Under Construction)
                            2507 University Boulevard
                               Tyler, Texas 75707


                                       45


<PAGE>   47


                             STOCKHOLDER INFORMATION

            Jacksonville Bancorp, Inc. is a Texas-chartered corporation and
savings and loan holding company. Its primary asset, Jacksonville Savings Bank,
SSB, is a Texas-chartered stock savings bank 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.



                                       46