<PAGE>   1











                           JACKSONVILLE BANCORP, INC.


                               1997 ANNUAL REPORT







<PAGE>   2
                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----
<S>                                                                                                         <C>
President's Letter to Stockholders                                                                  
                                                                                                    
Selected Consolidated Financial Data  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         5
                                                                                                    
Management's Discussion and Analysis of Financial Condition                                         
  and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         7
                                                                                                    
       Average Balances, Net Interest Income and Yields Earned and Rates Paid   . . . . . . . . . . .        10
       Rate/Volume Analysis   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        11
                                                                                                    
Comparison of Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        12
                                                                                                    
Liquidity & Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        16
                                                                                                    
Independent Auditors' 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        42
                                                                                                    
Directors and Executive Officers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        43
Banking Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        43
                                                                                                    
Stockholder Information   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        44
                                                                                                    
Transfer Agent/Registrar  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        44
                                                                                                    
Shareholder Requests  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        44
</TABLE>
<PAGE>   3



Dear Stockholder:

         We are very pleased to present Jacksonville Bancorp, Inc.'s Annual
Report to Stockholders for the fiscal year ended September 30, 1997.

         This past year included three notable corporate accomplishments.  We
announced two stock repurchase programs during the year under which we
purchased 231,100 shares at an average price of $14.81 per share.  The stock,
which is being held as treasury shares, will be used for general corporate
purposes. Buying back our stock represented an excellent investment for the
Company and was an effective use of the Company's capital.  Also during the
year, the Company's operating subsidiary, Jacksonville Savings and Loan
Association, announced the conversion to a State-chartered savings bank,
Jacksonville Savings Bank, SSB, ("JSB"), which reduced the duplication
associated with meeting the regulatory requirements of three regulatory
agencies.  In a related matter, the Company entered into an agreement with
Jacksonville I.H.C., Inc., ("IHC") a subsidiary of the Company and a Delaware
corporation whereby the Company transferred its entire interest in JSB to IHC.
As a result of the transfer JSB became a direct subsidiary of IHC and enjoys
greater operating flexibility in a Delaware holding company structure.

         Our results of operations in fiscal 1997 reflected another year of
solid performance.  Company assets increased $16.0 million, or 7.4% to $233.9
million at September 30, 1997.  Loans receivable, net rose by $16.0 million and
totaled $174.0 million or 74.4% of Company assets.  In addition the Company
originated and sold a total of $21 million in loans to Federal Home Loan
Mortgage Corporation and retained servicing rights on these loans.  The growth
in the loan portfolio is indicative of the strength of our market share in the
East Texas area.

         On the deposit side, we posted growth of $17.7 million or 10.2%.
Composite cost of funds decreased from 4.78% in 1996 to 4.73% in 1997.

         Net income for the year totaled $3.2 million or $1.30 per share as
compared to $1.6 million or $.64 per share on a comparable basis for the same
period in 1996; however, fiscal 1996 operations were significantly impacted by
a $1.1 million one-time expense to recapitalize the Savings Association
Insurance Fund (SAIF).

         Mindful of our stockholders expectations for a competitive return on
their investment, the Company paid dividends for the year totaling $.50 per
share.  Shareholder value was further enhanced by the repurchase of the 231,100
shares mentioned earlier.  On September 30, 1996, the Company's stock was
trading at $12.75 per share compared to $17.25 per share on September 30, 1997,
which, when combined with the cash dividends paid during fiscal 1997, provided
an impressive 39.22% return.

<PAGE>   4

         During the fiscal 1998 the Company looks forward to the opportunities
provided by opening its first in-store branch in the Wal-Mart Supercenter
located at 515 E. Loop 281 in Longview, Texas.  We will be providing the state
of the art banking convenience for our customers, both existing and
prospective, through "one-stop" shopping service.

         The Board of Directors, Management and Employees of your Company
remain committed to maximizing the value of your investment in Jacksonville
Bancorp, Inc.  We thank you for the confidence that you have placed in the
Company and look forward to reporting continued successes in the future.

Sincerely,




/s/ Jerry Chancellor

Jerry Chancellor
President and C.E.O.

<PAGE>   5
SELECTED CONSOLIDATED FINANCIAL DATA
--------------------------------------------------------------------------------

(Dollars in Thousands, Except Per Share Data)

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

<TABLE>
<CAPTION>
                                                                 SEPTEMBER 30,
                                       -------------------------------------------------------------------

                                         1997          1996          1995            1994           1993
                                       --------      --------      --------        --------       --------
 SELECTED FINANCIAL
 CONDITION AND OTHER DATA:
 <S>                                   <C>           <C>           <C>             <C>            <C>
 Total assets                          $233,944      $217,856      $199,251        $187,021       $189,572
 Cash and cash equivalents                4,114         5,193         8,051           7,003          7,637
 Investment securities                   25,931        33,805        42,907          44,892         41,348
 Mortgage-backed securities, net         20,678        12,107         3,442           2,995          4,214
 Loans receivable, net                  174,044       158,034       135,933         123,133        126,030
 Foreclosed real estate, net                526         1,051         2,052           2,549          4,623
 Deposits                               192,033       174,328       173,811         159,343        174,311
 Borrowings                                2000         2,000           358           4,461             --
 Stockholders' equity                    33,788        35,431        20,331          18,989         10,873
 Full-service offices                         5             5             5               4              4
</TABLE>


<TABLE>
<CAPTION>
                                                           YEAR ENDED SEPTEMBER 30,
                                       -------------------------------------------------------------------

                                         1997          1996          1995            1994           1993
                                       --------      --------      --------        --------       --------
 SELECTED OPERATING DATA:
 <S>                                    <C>           <C>           <C>             <C>          <C>
 Total interest income                  $17,172       $15,394       $13,232         $12,895        $14,586
 Total interest expense                   8,771         8,453         7,127           5,623          6,951
                                         ------        ------        ------          ------         ------
   Net interest income                    8,401         6,941         6,105           7,272          7,635
 Provision for losses on loans              110           100            25              18            325
                                         ------        ------       -------          ------         ------
   Net interest income after
     provision for losses on
     loans                                8,291         6,841         6,080           7,254          7,310
 Noninterest income                       1,392         1,290           927             970            938
 Noninterest expense                      5,063         5,846         5,045           4,638          4,564
                                         ------        ------        ------          ------         ------
 Income before income taxes               4,620         2,284         1,962           3,586          3,684
 Income taxes                             1,380           704           573           1,184          1,606
                                         ------        ------        ------          ------         ------
 Net income                             $ 3,240       $ 1,580       $ 1,389         $ 2,402        $ 2,078
                                         ======        ======        ======          ======         ======
 Earnings per share(1)                  $1.30         $ .64         $ .56           $ .43          $--
                                         ----           ---           ---             ---           --
 Dividends Payout Ratio                 34.99%        55.60%        29.47%          19.92%          --%
                                        =====         =====         =====           =====           == 
</TABLE>


                                                   (Continued on following page)





                                       1
<PAGE>   6
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                    AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                       -------------------------------------------------------------------

                                        1997           1996          1995            1994           1993
                                       --------      --------      --------        --------       --------
 SELECTED OPERATING RATIOS(2):
 <S>                                   <C>            <C>           <C>            <C>             <C>
 Return on average assets                1.45%           .76%          .73%          1.28%           1.09%
 Return on average equity                9.35           6.13          7.06          16.57           21.03
 Average equity to average              15.54          12.41         10.37           7.73            5.18
   assets
 Equity to assets at end of             14.44          16.27         10.20          10.15            5.74
   period
 Interest rate spread(3)                 3.32           2.99          3.08           3.95            4.33
 Net interest margin(3)                  3.94           3.50          3.40           4.12            4.31
 Non-performing loans and troubled
   debt restructurings to total                                                                          
   loans at end of period(4)              .59            .76           .70            .81             .95
 Non-performing assets and  troubled
   debt restructurings to total                                                                          
   assets at end of period(4)             .66           1.03          1.51           1.90            3.07
 Average interest-earning
   assets to average interest-
   bearing liabilities                 114.95         111.92        107.81         105.28           99.4
 Net interest income after
   provision for loan losses
   to total noninterest expense        163.78         117.01        120.52         156.40          160.16
 Noninterest expense to average
   total assets                          2.27           2.82          2.67           2.47            2.39
</TABLE>

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

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

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

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

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





                                       2
<PAGE>   7
                     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 and consumer loans.
It also has a significant amount of investments in mortgage-backed securities
and United States Government and federal agency obligations.

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

ASSET AND LIABILITY MANAGEMENT

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

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





                                       3
<PAGE>   8


         Jacksonville originates both fixed- and variable-rate residential real
estate loans as market conditions dictate.  Prior to November 1980,
Jacksonville, like virtually all savings associations, originated only
fixed-rate loans and held them in portfolio until maturity.  As a result of the
problems caused by holding fixed-rate loans in a rapidly increasing
interest-rate environment, changes in regulations to allow for variable-rate
loans and consumer demand for such loans during periods of high interest rates,
in the 1980s Jacksonville began to transform its portfolio into loan products
the interest rates of which adjust periodically.  As a result, Jacksonville's
loan portfolio, as of September 30, 1997 consisted of 51% of adjustable or
floating rate loans.  In order to meet its customers' demand for fixed-rate
loans during periods of lower interest rates, until 1994 Jacksonville followed
a policy of selling to third parties a high percentage of the fixed-rate loans
it originated while retaining its variable-rate loans.  The mixture of
originations for sale and originations for portfolio varies depending on the
general mix of interest-earning assets Jacksonville then currently holds in its
portfolio and other factors such as market fees for loan sales and the overall
interest-rate environment.  As interest rates declined in late 1991,
Jacksonville originated an increasingly higher percentage of fixed-rate
residential first mortgage loans and continued to sell approximately 90% of
such loans upon origination.  Since 1994, it has been Jacksonville's policy to
retain a large portion of its fixed-rate residential first mortgage loans with
terms of 15 years or less.

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

         Effective upon the Bank's conversion to Texas chartered savings bank
on July 2, 1997, it no longer was entitled to receive periodic assessments of
its sensitivity to interest rate risk from the Office of Thrift Supervision
through the net portfolio value methodology.  While no prediction about the
future movement of interest rates can be made, management does not believe,
based upon the most recently provided OTS report prior to its charter change
and the current interest rate environment, that the Bank faces a substantial
adverse interest rate risk.  Management has determined to develop alternative
means to assess its interest rate risk and is in the process of selecting a
methodology for measuring interest rate risk that would be appropriate for the
Bank while meeting regulatory requirements.

CHANGES IN FINANCIAL CONDITION

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





                                       4
<PAGE>   9


offset by a $11.4 million increase in mortgage-backed securities, available for
sale.  These adjustments in Jacksonville's investment and mortgage-backed
securities portfolio were a result of management's decision to use these funds
to invest in loan originations and to purchase adjustable mortgage-backed
securities.

         At September 30, 1996, Jacksonville's assets totaled $217.9 million,
as compared to $199.3 million at September 30, 1995.  Total assets increased
$18.6 million, or 9.3%, from September 30, 1995 to September 30, 1996 and was
principally funded by the $14.0 million of net proceeds from the Stock
Offering.  The increase in total assets during fiscal 1996 was  principally the
result of a $22.1 million or 16.3% increase in loans receivable, net from
$135.9 million at September 30, 1995 to $158.0 million at September 30, 1996.
The increase resulted from an increase in single-family residential loans of
$14.7 million or 12.5%, an increase in construction loans of $2.7 million or
62.2% and an increase in consumer loans secured by vehicles of $2.0 million or
208% during the period.  A $10.1 million, or 27.5%, decrease in investment
securities held to maturity was partially offset by a $8.7 million increase in
mortgage-backed securities held to maturity.  These adjustments in
Jacksonville's investment portfolio are the result of the use of funds from
maturing investments to fund single family residential, construction and
consumer loans.

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

         During the year ended September 30, 1996, total liabilities increased
$3.6 million or 2.0% to $182.1 million.  This increase was primarily the result
of $2 million of Federal Home loan Bank advances and a $1.1 million SAIF
special assessment.  Jacksonville had no such advances outstanding as of
September 30, 1995 and the SAIF special assessment was a one-time event.  These
increases were partially offset by the repayment of the $358,000 ESOP note.





                                       5
<PAGE>   10


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                  1997                                1996     
                                            30, 1997   ---------------------------------- ----------------------------------

                                             Yield/     Average                  Yield/    Average                  Yield/
                                              Rate      Balance     Interest      Rate     Balance    Interest       Rate 
                                           ---------   --------     --------   ---------- --------    --------     ---------
 INTEREST-EARNING ASSETS:                                                                                                  
 <S>                                         <C>       <C>          <C>        <C>        <C>         <C>         <C>      
   Loans receivable(4)                       8.28%     $163,569     $14,094      8.62%    $145,021    $12,169       8.39%  
   Mortgage-backed securities                6.87        16,434       1,135      6.91        9,561        700       7.32   
   Investment securities                     5.84        28,292       1,657      5.86       37,109      2,170       5.85   
   Other interest-earning assets(2)          5.55         5,041         286      5.68        6,446        355       5.51   
                                                        -------       -----                -------     ------              
 Total interest-earning assets                         $213,336     $17,172      8.05%    $198,137    $15,394       7.77%  
                                                        -------      ======      ====      -------     ======       ====   
 Non-interest-earning assets                              9,586                              9,565                         
                                                        -------                              -----                         
   Total assets                                        $222,922                           $207,702                         
                                                        =======                            =======                         
                                                                                                                           
 INTEREST-BEARING LIABILITIES:                                                                                             
  Transaction accounts                       2.55%       43,884       1,140      2.60%      44,661      1,124       2.52%  
  Time Deposits                              5.26       138,863       7,459      5.37      131,401      7,266       5.53   
                                                        -------       -----                -------      -----              
    Total Deposits                           4.84       182,747       8,599      4.71      176,062      8,390       4.77   
   Borrowings                                5.87         2,846         172      6.04        1,098         63       6.49   
                                                        -------       -----                -------      -----              
   Total interest-bearing liabilities                   185,593       8,771      4.73%     177,160      8,453       4.78   
                                                        -------      ------      ====      -------      =====       ====   
 Non-interest-bearing liabilities                         2,688                              4,761                         
                                                        -------                              -----                         
   Total liabilities                                    188,281                            181,921                         
                                                        =======                            -------                         
 Stockholder's Equity                                    34,641                             25,781                         
                                                        -------                             ------                         
   Total liabilities and stockholders' equity          $222,922                           $207,702
                                                        =======                            =======                         
 Net interest income; interest rate spread                          $ 8,401      3.32%                  6,941       2.99%
                                                                     ======      ====                   =====       ====   
 Net interest margin(3)                                                          3.94%                              3.50%  
                                                                                 ====                               ====   
 Average interest-earning assets to  average
   interest-bearing liabilities                                                114.95%                            111.92%
                                                                               ======                             ======   
</TABLE>


<TABLE>
<CAPTION>
                                                                        1995
                                                         ----------------------------------

                                                          Average                   Yield/
                                                          Balance     Interest       Rate
 INTEREST-EARNING ASSETS:                                ---------    --------     --------
 <S>                                                     <C>          <C>          <C>
   Loans receivable                                      $128,623     $10,337        8.04%
   Mortgage-backed securities                               3,106         249        8.02
   Investment securities                                   41,753       2,290        5.48
   Other interest-earning assets(2)                         6,227         356        5.72
                                                           ------      ------
 Total interest-earning assets                           $179,709     $13,232        7.36%
                                                          -------      ======      ======
 Non-interest-earning assets                               10,074
                                                          -------
   Total assets                                          $189,783
                                                          =======

 INTEREST-BEARING LIABILITIES:
  Transaction accounts                                     44,215       1,209        2.73%
  Time Deposits                                           119,514       5,715        4.78
                                                          -------       -----
    Total Deposits                                        163,729       6,924        4.23
   Borrowings                                               2,956         203        6.87
                                                          -------       -----
   Total interest-bearing liabilities                     166,685       7,127        4.28%
                                                          -------       -----      =======
 Non-interest-bearing liabilities                           3,414
                                                          -------
   Total liabilities                                      170,099
                                                          -------
 Stockholder's Equity                                      19,684
                                                          -------
   Total liabilities and stockholders' equity            $189,783
                                                          =======
 Net interest income; interest rate spread                             $6,105        3.08%
                                                                        =====      ======
 Net interest margin(3)                                                              3.40%
                                                                                   ======
 Average interest-earning assets to average
   interest-bearing liabilities                                                    107.81%
                                                                                   ======
</TABLE>

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

(1)     Annualized.

(2)     Consists primarily of interest-bearing deposits.

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

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





                                       6
<PAGE>   11


         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,         
                                           --------------------------------------------------------------------------------------
                                                          1997 V. 1996                                  1996 VS. 1995              
                                           ---------------------------------------       ----------------------------------------

                                                   INCREASE                                      INCREASE                        
                                                  (DECREASE)                                    (DECREASE)                       
                                                    DUE TO               TOTAL                    DUE TO                  TOTAL   
                                                                       INCREASE                                         INCREASE  
                                             RATE        VOLUME       (DECREASE)           RATE            VOLUME      (DECREASE) 
                                           -------      -------      ------------        --------         ---------   -----------
 <S>                                        <C>         <C>             <C>                 <C>              <C>          <C>    
 Interest-earning assets:                                                                                                        
   Loans                                     $340       $1,585            $1,925            $ 466            $1,366       $ 1,832
   Mortgage-backed securities                 (37)         472               435              (22)              473           451
   Investment securities                        3         (516)             (513)             147              (267)         (120)
   Other interest-earning assets               12          (81)              (69)             (13)               12            (1)
                                              ---        ------             -----            ----              ----       -------
   Total interest-earning assets             $318       $1,460            $1,778            $ 578            $1,584       $ 2,162
                                              ===        =====             =====             ====             =====        ======
                                                                                                                                 
 INTEREST-BEARING LIABILITIES:                                                                                                   
   Deposits                                 $(104)        $313              $209             $922              $544        $1,466
   Other Borrowings                            (5)         114               109              (11)             (129)         (140)
                                               ---        ----              ----            -----             -----         -----
   Total interest-bearing liabilities       $(109)       $ 427              $318             $911              $415        $1,326
                                             =====        ====               ===              ===               ===         =====
                                                                                                                                 
   Increase (decrease) in net interest                                                                                           
    income                                                                $1,460                                           $  836
                                                                          ======                                            =====
</TABLE>

<TABLE>
<CAPTION>
                                                      YEAR ENDED SEPTEMBER 30,
                                            ---------------------------------------

                                                          1995 VS. 1994
                                            ---------------------------------------
                                                  INCREASE
                                                 (DECREASE)
                                                   DUE TO                TOTAL
                                                                        INCREASE
                                              RATE         VOLUME      (DECREASE)
                                            --------     ----------    -----------
 <S>                                        <C>              <C>         <C>
 Interest-earning assets:                   
   Loans                                      $(98)          $  526        $   428
   Mortgage-backed securities                  (29)             (32)           (61)
   Investment securities                        14             (218)          (204)
   Other interest-earning assets               140               34            174
                                               ---            -----          -----
   Total interest-earning assets              $ 27           $  310        $   337
                                               ===            =====          =====
                                            
 INTEREST-BEARING LIABILITIES:              
   Deposits                                 $1,441           $ (134)        $1,307
   Other Borrowings                              3              194            197
                                             -----            -----          -----
   Total interest-bearing liabilities       $1,444           $   60        $ 1,504
                                             =====            =====          =====
                                            
   Increase (decrease) in net interest      
 income                                                                    $(1,167)
                                                                           =======
</TABLE>



                                       7


<PAGE>   12


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

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

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

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

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





                                       8
<PAGE>   13


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

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

         PROVISION FOR LOSSES ON LOANS.  Jacksonville's provision for loan
losses was $110,000 for the year ended September 30, 1997 compared to $100,000
for the year ended September 30, 1996.  Provisions for losses on loans are
charged to earnings to bring the total allowance to a level deemed appropriate
by management based on historical experience, the volume and type of lending
conducted by Jacksonville, industry standards, the amount of non-performing
assets, general economic conditions, particularly as they relate to
Jacksonville's market area, and other factors related to the collectability of
Jacksonville's loan portfolio.  While non-performing loans reduced to $644,000
during fiscal 1997, net charge-offs for the period were up $18,000.  The
Company's level of net loans outstanding increased $16.0 million which included
an increase of 68.4% in consumer loans.  Overall economic conditions remained
stable for the market area and credit quality for the applicants showed no
material change.  Upon consideration of such factors, Jacksonville determined
that $110,000 in provisions for losses on loans were appropriate in 1997,
primarily because of the increase in the loan portfolio.   Jacksonville's
allowance for losses amounted to $1.2 million at September 30, 1997 as compared
to $1.1 million at September 30, 1996.

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

         NON-INTEREST EXPENSE.  Noninterest expense amounted to $5.1 million
for the year ended September 30, 1997 compared to $5.8 million during fiscal
1996.  The primary reason for the $784,000, or 13.4% decrease in noninterest
expense during fiscal 1997 was the $1.1 million SAIF special assessment paid in
1996 combined with a reduction in insurance expense of $223,000, partially
offset by increases in compensation and benefits of $292,000; in occupancy and
equipment of $86,000; in provisions for real estate losses of $13,000, and
other noninterest expenses of $118,000.  The Bank has actively marketed and
sold foreclosed real estate and the local real estate market has continued to
improve resulting in the





                                       9
<PAGE>   14


reversal of previously established allowance for losses on foreclosed real
estate in 1997 and 1996.  The SAIF special assessment resulted from legislation
enacted into law on September 30, 1996 which, among other things recapitalized
the SAIF through the special assessment.  Pursuant to regulatory provisions
recently promulgated by the Federal Deposit Insurance Corporation, the
recapitalization resulted in a substantial reduction of deposit insurance
premiums for most SAIF members.

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

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996
AND 1995.

GENERAL.  Jacksonville had net earnings of $1.6 million for the year ended
September 30, 1996 as compared to $1.4 million for the year ended September 30,
1995.  During fiscal 1996, Jacksonville's net interest income increased by
$836,000 and its noninterest income increased by $362,000 while the provision
for losses on loans increased $75,000.  Noninterest expense increased by
$802,000, primarily as a result of the SAIF special assessment.  Without the
SAIF special assessment, Jacksonville's net earnings would have been $2.3
million for fiscal 1996, an increase of $700,000 or 44.7% as compared to the
net earnings for fiscal 1996.

         The $900,000 increase in net earnings for fiscal 1996, as calculated
without the SAIF special assessment, was primarily the result of an increase in
the average balance of interest-earning assets of $18.4 million or 10.3%.  The
amount of such assets increased primarily as a result of the deployment of the
$14.0 million of proceeds from the Stock Offering into loans receivable and
mortgage backed securities .  The amount of the increased earnings was enhanced
by generally higher interest rates during the period in which the loans were
originated which resulted in the average yield on Jacksonville's
interest-earning assets increasing by 41 basis points from 7.36% in fiscal 1995
to 7.77% in fiscal 1996.  The positive impact on earnings resulting from the
increase in average balance of and average yield on Jacksonville's
interest-earning assets was partially offset by the 50 basis point increase in
the average rate paid on interest-bearing liabilities from 4.28% in fiscal 1995
to 4.78% in fiscal 1996.  The increase in average interest-earning assets,
however, more than offset the change in the interest rate spread from 3.08% in
fiscal 1995 to 2.99% in fiscal 1996.

         NET INTEREST INCOME.  Net interest income increased by $836,000, or
13.7%, for the year ended September 30, 1996 compared to the year ended
September 30, 1995.  This increase was due primarily to a $2.2 million, or
16.3%, increase in interest income partially offset by a $1.3 million or 18.6%
increase interest expense.





                                       10
<PAGE>   15


         The $2.2 million increase in total interest income was the result of
increases in interest on loans receivable of $1.8 million or 17.7%, and
interest on mortgage-backed securities of $451,000 or 180.9%, offset by a
decrease in interest income of $120,000, or 5.2% from investment securities.
The increase in interest income from loans receivable was due primarily to a
$16.4 million, or 12.7%, increase in the average balance of Jacksonville*s loan
portfolio.  The increase in interest income from mortgage-backed securities
reflects an increase in average balance from $3.1 million in fiscal 1995 to
$9.6 million in fiscal 1996 partially offset by a decline in average yield from
8.02% to 7.32% in the respective periods.  The decrease in interest income from
investment securities reflects primarily a decrease in average balance from
$41.8 million to $37.1 million, or 11.1%.  The decrease in the average balance
of securities reflects a shift in portfolio mix by management of Jacksonville
as funds from maturing investment securities were used to purchase
mortgage-backed securities and to fund new mortgage loans.  The average yield
on loans originated and retained by Jacksonville during fiscal 1996 was 8.26%.

         The $1.3 million increase in total interest expense from $7.1 million
for the year ended September 30, 1995, to $8.5 million for the year ended
September 30, 1996, was primarily due to an increase in the average rate paid
on deposits from 4.23% in fiscal 1995 to 4.77% in fiscal 1996.  The 54 basis
point increase rates paid on deposits resulted from a general increase in
market rates of interest.

         As a result of the foregoing, Jacksonville's net interest income
increased by $836,000 or 13.7%, during fiscal 1996 compared to fiscal 1995.
Jacksonville's net interest rate spread was 2.99% for the year ended September
30, 1996 as compared to 3.08% in fiscal 1995.

         PROVISION FOR LOSSES ON LOANS.  Jacksonville's provision for loan
losses was $100,000 for the year ended September 30, 1996 compared to $25,000
for the year ended September 30, 1995.  Provisions for losses on loans are
charged to earnings to bring the total allowance to a level deemed appropriate
by management based on historical experience, the volume and type of lending
conducted by Jacksonville, industry standards, the amount of non-performing
assets, general economic conditions, particularly as they relate to
Jacksonville*s market area, and other factors related to the collectability of
Jacksonville's loan portfolio.  Upon consideration of such factors,
Jacksonville determined that $100,000 in provisions for losses on loans were
appropriate in 1996.  During fiscal 1996 Jacksonville had no chargeoffs or
recoveries.  Jacksonville's allowance for losses amounted to $1.1 million at
September 30, 1996 as compared to $1.0 million at September 30, 1995.

         Non-Interest Income.  Noninterest income amounted to $1.3 million for
the year ended September 30, 1996 compared to $928,000 in fiscal 1995.  The
$362,000 increase was due primarily to $230,000 in income from loan servicing
rights compared to no income from such rights in fiscal 1995, an increase in
fees and deposit service charges of $140,000 and an increase in income from
real estate operations, net, of $9,000, partially offset by a decrease of
$17,000 in other noninterest income.  The income from servicing rights is the
result of Jacksonville's adoption of Financial Accounting Standards Board
("FASB") No. 122 which requires the recognition of income from loans sold at
the time of sale.  The increase in





                                       11
<PAGE>   16


income from fees and deposit service charges reflects an increase in loan
originations and an increase in service charges on deposits.

         NON-INTEREST EXPENSE.  Noninterest expense amounted to $5.8 million
for the year ended September 30, 1996 compared to $5.0 million during fiscal
1995.  The primary reason for the $802,000, or 15.9% increase in noninterest
expense during fiscal 1996 was the $1.1 million SAIF special assessment which
was partially offset by a $102,000 reversal of a provision for real estate
losses compared to a $16,000 provision in fiscal 1995 and a $173,000 decrease
in other non-interest expenses.  The SAIF special assessment resulted from
legislation enacted into law on September 30, 1996 which, among other things
recapitalized the SAIF through the special assessment.  Pursuant to regulatory
provisions recently promulgated by the Federal Deposit Insurance Corporation,
the recapitalization will result in a substantial reduction of deposit
insurance premiums for most SAIF members.

         INCOME TAXES.  Income tax expense amounted to $704,000 during the year
ended September 30, 1996, compared to $573,000 in fiscal 1995.  The changes in
such amounts primarily reflect differences in gross income levels of
Jacksonville.

         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.

         Cash was generated by Jacksonville's operating activities of $3.5 and
$3.1 million during the years ended September 30, 1997 and 1996, respectively,
primarily as a result of net earnings of $3.2 million and $1.6 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, 1997, Jacksonville's investing activities used cash of
$17.3 million principally as a result of net loan originations of $16.1
million; to purchase mortgage backed securities totaling $11.4 million; to
purchase investment securities of $6.0 million partially offset by proceeds on
maturity of investment securities of $14.0 million and principal paydown on MBS
of $2.3 million.  During the year ended September 30, 1996, Jacksonville's
investing activities used cash of $21.6 million principally as a result of net
loan originations of $21.8 million; purchases of mortgage-backed securities of
$10.9 million; purchases of investment securities of $14.5 million; partially
offset by net proceeds from maturities of investment securities of $23.4
million; and principal paydowns on mortgage-backed securities of $2.2 million.
During the year ended September 30, 1997, Jacksonville's financing activities
generated cash of $12.7 million as a result of a net increase in deposits





                                       12
<PAGE>   17


of $17.7 million offset by the purchase of Treasury Stock in the amount of $3.4
million; the payment of dividends in the amount of $1.2 million and the
purchase of MRP shares totaling $836,000.  Jacksonville's financing activities
generated cash of $15.6 million during the year ended September 30, 1996 as a
result of a $14.0 million net proceeds from the sale of common stock, $2.0
million net proceeds of FHLB advances, offset by dividends of $877,000.  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, 1997, Jacksonville had $4.8 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, 1998 are
$121.8 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 Tier 1 leveraged capital requirement, a tier 1 risk based
capital requirement and a total risk-based capital requirement.  At September
30, 1997, Jacksonville's Tier 1 leveraged capital and Tier 1 risk-based
capital totaled $31.7 million or 13.66% of adjusted total assets and 25.41% of
risk-weighted assets, respectively.  These capital levels exceeded the minimum
requirements at that date by approximately $22.4 million and $26.7 million,
respectively.  Jacksonville's total risk based capital was $32.9 million at
September 30, 1997 or 26.4% of risk-weighted assets which exceeded the current
requirement of 8% of risk-weighted assets by approximately $22.9 million.

ACCOUNTING REQUIREMENTS

         In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement No. 114, "Accounting by Creditors for Impairment of a Loan," which
was later amended by Statement No. 118, "Accounting by Creditors for Impairment
of Loan--Income Recognition and Disclosures."  The Association adopted the new
standards effective October 1, 1995, and the implementation did not have a
material adverse effect on the Association's financial condition or results of
operations.

         In March 1995, the FASB issued Statement No. 121 ("SFAS No. 121"),
entitled "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."  SFAS No. 121 requires that long-lived assets,
certain identifiable intangibles, and goodwill related to those assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.





                                       13
<PAGE>   18


SFAS No. 121 is effective for financial statements for fiscal years beginning
after December 15, 1995.  The Association adopted the provisions of SFAS No.
121 effective October 1, 1996 and it did not have a material adverse effect on
financial condition or results of operations.

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

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

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.





                                       14
<PAGE>   19





                          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, 1997 and
1996, 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, 1997.  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, 1997 and 1996, and the
results of their operations and cash flows for each of the years in the three
year period ended September 30, 1997, in conformity with generally accepted
accounting principles.

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

Tyler, Texas
November 14, 1997





                                      F-1
<PAGE>   20
                           JACKSONVILLE BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                          SEPTEMBER 30, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                                         1997                   1996
                                                                                   ----------------       -----------------
<S>                                                                                <C>                     <C>
                                                              ASSETS

Cash on hand and in banks                                                            $  1,336,212           $  2,777,737
Interest-bearing deposits                                                               2,777,833              2,415,678
Investment securities:
  Held-to-maturity, approximate fair market value of
    $22,508,860 and $26,378,089, respectively                                          22,461,957             26,446,748
  Available-for-sale, carried at fair value                                             3,468,900              7,358,750
Mortgage-backed certificates:
  Held-to-maturity, approximate fair market value of
    $9,936,023 and $12,107,707, respectively                                            9,824,878             12,107,184
  Available-for-sale, carried at fair value                                            11,392,514                      -
Loans receivable, net                                                                 174,044,353            158,034,126
Accrued interest receivable                                                             1,952,013              1,633,042
Foreclosed real estate, net                                                               526,234              1,051,033
Premises and equipment, net                                                             3,388,532              3,256,065
Stock in Federal Home Loan Bank of Dallas, at cost                                      1,844,400              1,739,900
Mortgage servicing rights                                                                 437,581                231,541
Deferred tax assets                                                                       325,303                360,152
Other assets                                                                              163,776                444,088
                                                                                     ------------           ------------
         Total assets                                                                $233,944,486           $217,856,044
                                                                                     ============           ============

                                               LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
  Deposits                                                                           $192,033,298           $174,327,887
  Advance from Federal Home Loan Bank                                                   2,000,000              2,000,000
  Advances from borrowers for taxes and insurance                                       3,923,588              3,518,198
  SAIF special assessment payable                                                               -              1,070,478
  Accrued expenses and other liabilities                                                1,981,724              1,149,898
                                                                                     ------------           ------------
    Total liabilities                                                                 199,938,610            182,066,461

DEFERRED INCOME
  Gain on sale of real estate owned                                                       217,672                358,915

STOCKHOLDERS' EQUITY
  Preferred stock, no par value, 5,000,000 shares authorized; none issued                       -                      -
  Common stock, $.01 par value, 25,000,000 shares authorized;
    2,674,668 and 2,664,265 shares issued; 2,443,568 and 2,664,265
    shares outstanding in 1997 and 1996, respectively                                      26,747                 26,643
  Additional paid-in capital                                                           22,471,258             22,297,343
  Retained earnings, substantially restricted                                          16,788,491             14,746,925
  Less:
  Treasury stock, at cost (231,100 shares)                                            (3,423,528)                      -
    Shares acquired by Employee Stock Ownership Plan                                  (1,378,106)            (1,528,219)
    Shares acquired by Management Recognition Plan                                      (682,483)               (24,375)
    Net unrealized loss on investments available-for-sale, net of
      income taxes of $7,303 and $45,152, respectively                                   (14,175)               (87,649)
                                                                                     ------------           ------------
         Total stockholders' equity                                                    33,788,204             35,430,668
                                                                                     ------------           ------------
           Total liabilities and stockholders' equity                                $233,944,486           $217,856,044
                                                                                     ============           ============
</TABLE>



See accompanying notes to consolidated financial statements.

                                       F-2
<PAGE>   21
                           JACKSONVILLE BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF EARNINGS
                 YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                             1997                      1996                        1995
                                                       --------------             ---------------              ---------------
<S>                                                 <C>                         <C>                          <C>
INTEREST INCOME
  Loans receivable                                       $14,093,616                  $12,169,431                  $10,337,486
  Mortgage-backed securities                               1,134,799                      700,215                      249,244
  Investment securities                                    1,657,500                    2,170,435                    2,289,539
  Other                                                      286,566                      354,197                      355,540
                                                         -----------                  -----------                  -----------
    Total interest income                                 17,172,481                   15,394,278                   13,231,809

INTEREST EXPENSE
  Deposits                                                 8,599,136                    8,390,643                    6,924,045
  Interest on borrowings                                     171,913                       62,749                      202,941
                                                         -----------                  -----------                  -----------
    Total interest expense                                 8,771,049                    8,453,392                    7,126,986
                                                         -----------                  -----------                  -----------
    Net interest income                                    8,401,432                    6,940,886                    6,104,823

PROVISION FOR LOSSES ON LOANS                                110,084                      100,000                       25,197
                                                         -----------                  -----------                  -----------
    Net interest income after provision for
      losses on loans                                      8,291,348                    6,840,886                    6,079,626

NONINTEREST INCOME
  Fees and deposit service charges                           947,783                      906,612                      767,202
  Real estate operations, net                                179,718                       84,309                       75,095
  Other                                                      101,604                       68,245                       85,299
  Mortgage servicing rights                                  162,462                      230,491                            -
                                                         -----------                  -----------                  -----------
    Total noninterest income                               1,391,567                    1,289,657                      927,596

NONINTEREST EXPENSE
  Compensation and benefits                                3,269,947                    2,977,991                    3,005,431
  Occupancy and equipment                                    529,124                      442,633                      406,933
  Insurance expense                                          224,658                      447,528                      433,967
  Provisions for real estate losses                          (88,737)                    (102,142)                      16,136
  Other                                                    1,127,519                    1,010,016                    1,182,539
  SAIF special assessment                                          -                    1,070,478                            -
                                                         -----------                  -----------                  -----------
    Total noninterest expense                              5,062,511                    5,846,504                    5,045,006

INCOME BEFORE TAXES ON INCOME                              4,620,404                    2,284,039                    1,962,216

TAXES ON INCOME
  Current                                                  1,383,880                      623,000                      556,146
  Deferred                                                    (3,000)                      81,000                       17,000
                                                         -----------                  -----------                  -----------
    Total income tax expense                               1,380,880                      704,000                      573,146
                                                         -----------                  -----------                  -----------
      Net earnings                                       $ 3,239,524                  $ 1,580,039                  $ 1,389,070
                                                         ===========                  ===========                  ===========

      Earnings per share                                 $      1.30                  $       .64                  $       .56
                                                         ===========                  ===========                  ===========

      Average number of shares outstanding                 2,485,535                    2,483,708                    2,460,765
                                                         ===========                  ===========                  ===========
</TABLE>


See accompanying notes to consolidated financial statements.

                                     F-3
<PAGE>   22
                           JACKSONVILLE BANCORP, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995


<TABLE>
<CAPTION>

                                                                                 Unvested       Unvested
                                                                Additional        Shares         Shares
                                                    Common       Paid-in          Held by       Held by
                                                    Stock        Capital           ESOP           MRP
                                                  ---------    -----------      ---------     ----------
<S>                                                <C>          <C>            <C>            <C>
BALANCE AT SEPTEMBER 30, 1994                      $ 26,496     $6,880,380      $(460,683)     $(227,500)
  ESOP shares released                                    -         10,878        102,374              -
  Accrual of management recognition
    plan awards                                           -              -              -        105,625
  Dividends declared                                      -              -              -              -
  Change in net unrealized loss
    on securities available-for-sale                      -              -              -              -
  Shares issued under stock option plan                  14          9,986              -              -
  Net earnings                                            -              -              -              -
                                                  ---------    -----------   ------------    -----------

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


<TABLE>
<CAPTION>
                                                  Unrealized
                                                   Loss on
                                                  Securities                                    Total
                                                  Available-     Retained       Treasury    Stockholders'
                                                   For-Sale      Earnings        Stock         Equity
                                                 -----------   ------------   ------------  -------------
<S>                                               <C>         <C>            <C>             <C>
BALANCE AT SEPTEMBER 30, 1994                      $(194,125)   $12,964,133   $          -    $18,988,701
  ESOP shares released                                     -              -              -        113,252
  Accrual of management recognition
    plan awards                                            -              -              -        105,625
  Dividends declared                                       -       (409,352)             -       (409,352)
  Change in net unrealized loss
    on securities available-for-sale                 133,570              -              -        133,570
  Shares issued under stock option plan                    -              -              -         10,000
  Net earnings                                             -      1,389,070              -      1,389,070
                                                   ---------    -----------   ------------    -----------
BALANCE AT SEPTEMBER 30, 1995                        (60,555)    13,943,851              -     20,330,866
  Shares issued under stock option plan                    -              -              -         54,840
  ESOP shares released                                     -              -              -        145,300
  Accrual of management recognition
    plan awards                                            -              -              -         97,500
  Cancellation of shares held by
    Jacksonville Federal Mutual
    Holding Company                                        -              -              -              -
  Proceeds from issuance of 1,618,409
    shares of Jacksonville Bancorp, Inc.
    common stock on March 29, 1996, net
    of 140 fractional shares acquired, and
    net of offering expense of $863,178                    -              -              -     14,026,182
  Return of capital from Jacksonville
    Federal Mutual Holding Company                         -        100,000              -        100,000
  Change in net unrealized loss on
    securities available-for-sale                    (27,094)             -              -        (27,094)
  Dividends declared                                       -       (876,965)             -       (876,965)
  Net earnings                                             -      1,580,039              -      1,580,039
                                                   ---------    -----------   ------------    -----------
BALANCE AT SEPTEMBER 30, 1996                        (87,649)    14,746,925              -     35,430,668
</TABLE>

                                     F-4
<PAGE>   23
                           JACKSONVILLE BANCORP, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
                                   CONTINUED

<TABLE>
<CAPTION>

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


<TABLE>
<CAPTION>
                                       Unrealized
                                        Loss on
                                       Securities                                      Total
                                       Available-      Retained       Treasury      Stockholders'
                                        For-Sale       Earnings        Stock           Equity
                                      ------------   ------------   ------------    -------------
<S>                                      <C>         <C>            <C>             <C>
BALANCE AT SEPTEMBER 30, 1996             $(87,649)   $14,746,925    $         -    $35,430,668
  Shares issued under stock
    option plan                                  -              -              -         73,341
  ESOP shares released                           -              -              -        250,791
  Purchase of management
    recognition plan shares                      -              -              -       (835,693)
  Accrual of management
    recognition plan awards                      -              -              -        177,585
  Change in net unrealized
    loss on securities
      available-for-sale                    73,474              -              -         73,474
  Dividends declared                             -     (1,197,958)             -     (1,197,958)
  Net earnings                                   -      3,239,524              -      3,239,524
  Purchase of Treasury stock                     -              -     (3,423,528)    (3,423,528)
                                          --------    -----------    -----------    -----------
BALANCE AT SEPTEMBER 30, 1997             $(14,175)   $16,788,491    $(3,423,528)   $33,788,204
                                          ========    ===========    ===========    ===========
</TABLE>



See accompanying notes to consolidated financial statements.

                                     F-5
<PAGE>   24
                           JACKSONVILLE BANCORP, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                         1997                1996                  1995
                                                                      ----------         -------------        -------------
<S>                                                                <C>                   <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                        $  3,239,524         $   1,580,039         $  1,389,070
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Depreciation                                                       212,715               187,119              179,385
      Amortization/accretion of securities                                37,035               148,300              121,942
      Provision for losses (gains) on loans and on real
        estate                                                            21,347                (2,142)              41,333
      Loans originated for sale                                      (22,311,000)          (21,848,000)         (13,817,000)
      Loans sold                                                      22,311,000            21,848,000           13,817,000
      Net loss on sale of other real estate                              179,521               162,422              255,948
      Accrual of MRP awards                                              177,585                97,500              105,625
      Release of ESOP shares                                             250,791                85,217               10,878
      Change in assets and liabilities:
         Decrease (increase) in other assets                             280,312                24,709             (111,127)
         (Increase) decrease in deferred tax assets                       (3,000)               57,332               76,955
         (Decrease) increase SAIF assessment payable                  (1,070,478)            1,070,478                    -
         Increase in accrued expenses and
          other liabilities                                              831,826               163,262               33,717
         Decrease in deferred income                                    (141,243)              (79,137)            (131,534)
         Increase in mortgage servicing rights                          (206,040)             (231,541)                   -
         Increase in accrued interest receivable                        (318,971)             (184,694)             (73,520)
                                                                    ------------         -------------         ------------
          Net cash provided by operating activities                    3,490,924             3,078,864            1,898,672
                                                                    ------------         -------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds on maturity of investment securities                       13,955,186            23,409,535           15,542,656
  Purchase of investment securities                                   (5,995,546)          (14,474,405)         (13,474,300)
  Net principal originations on loans                                (16,062,470)          (21,825,762)         (14,450,731)
  Proceeds from sale of foreclosed real estate                           376,174               565,545            1,849,871
  Purchase of mortgage-backed securities                             (11,371,963)          (10,926,796)          (1,001,897)
  Principal paydowns on mortgage-backed securities                     2,251,044             2,238,744              551,483
  Capital expenditures                                                  (345,182)             (534,461)            (463,056)
  Purchase of stock in FHLB Dallas                                      (104,500)             (103,700)             (92,800)
  Return of capital from mutual holding company                                -               100,000                    -
                                                                    ------------         -------------         ------------
          Net cash used in investing activities                      (17,297,257)          (21,551,300)         (11,538,774)
                                                                    ------------         -------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in deposits                                            17,705,411               516,941           14,467,835
  Net increase in advance payments by
    borrowers for property taxes and insurance                           405,390               191,615              620,477
  Advances from FHLB                                                   5,000,000             4,000,000                    -
  Payment of FHLB advance                                             (5,000,000)           (2,000,000)          (4,000,000)
  Proceeds from sale of common stock                                           -            14,026,182                    -
  Proceeds from exercise of stock options                                 73,341                54,840               10,000
  Payment of ESOP loan                                                         -              (298,226)                   -
  Purchase of Treasury stock                                          (3,423,528)                    -                    -
  Purchase of MRP shares                                                (835,693)                    -                    -
  Dividends paid                                                      (1,197,958)             (876,965)            (409,352)
                                                                    ------------        --------------         ------------
          Net cash provided by financing activities                   12,726,963            15,614,387           10,688,960
                                                                    ------------        --------------         ------------
          Net (decrease) increase in cash
           and cash equivalents                                       (1,079,370)           (2,858,049)           1,048,858

CASH AND CASH EQUIVALENTS
  Beginning of year                                                    5,193,415             8,051,464            7,002,606
                                                                    ------------        --------------         ------------
  End of year                                                       $  4,114,045        $    5,193,415         $  8,051,464
                                                                    ============        ==============         ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>   25
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996



NOTE 1 - BASIS OF PRESENTATION AND REORGANIZATION

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

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

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

  On July 2, 1997, the Association consummated its conversion to a
  state-chartered savings bank, Jacksonville Savings Bank, SSB.  The main
  purpose of the conversion was to reduce the duplication associated with
  meeting the regulatory requirements of three regulators.  With the conversion
  to a state savings bank, the Bank will be regulated by the Texas Savings and
  Loan Department and 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.


                                      F-7
<PAGE>   26
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

  INVESTMENT AND MORTGAGE-BACKED SECURITIES - CONTINUED

      AVAILABLE-FOR-SALE
      Debt and equity securities that will be held for indefinite periods of
      time, including securities that may be sold in  response to changes in
      market interest or prepayment rates, needs for liquidity and changes in
      the availability of and the yield of alternative investments are
      classified as available-for-sale.  These assets are carried at market
      value.  Market value is determined using published quotes as of the close
      of business. Unrealized gains and losses are excluded from earnings  and
      reported net of tax as a separate component of retained earnings until
      realized.

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

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

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

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

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

    Uncollectible interest on loans that are contractually past due is
    charged-off or an allowance is established based on management's periodic
    evaluation.  The allowance is established by a charge to interest income
    equal to all interest previously accrued, and income is subsequently
    recognized only to the extent cash payments are received until, in
    management's judgment, the borrower's ability to make periodic interest and
    principal payments is back to normal, in which case the loan is returned to
    accrual status.



                                      F-8
<PAGE>   27
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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

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

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

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

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

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

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

  MORTGAGE SERVICING RIGHTS
  Effective October 1, 1995 with the adoption of Financial Accounting Standards
  No. 122 (SFAS No. 122) entitled "Accounting for Mortgage Servicing Rights,"
  the cost of mortgage servicing rights is amortized in proportion to, and over
  the period of, estimated net servicing revenues.  Impairment of mortgage
  servicing rights is assessed based on the estimated fair value of those
  rights.  Fair values are estimated using discounted cash flows based on
  current market interest rates and market data regarding sales of mortgage
  servicing rights.  The 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.



                                      F-9
<PAGE>   28
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

  EARNINGS PER SHARE
  Earnings per share have been calculated by dividing net income by the
  weighted average number of shares of common stock outstanding for the year.
  The effect of shares issuable under stock options has been accounted for
  using the treasury stock method.  As discussed in Note 14, the Bank accounts
  for shares issued to its Employee Stock Ownership Plans (ESOP) in accordance
  with Statement of Position 93-6.  As a result, shares controlled by the ESOP
  are not considered in the weighted average number of shares of common stock
  outstanding until the shares are committed for allocation to an employee's
  individual account.  All per share amounts and outstanding shares previously
  reported for the Bank have been adjusted to reflect the Reorganization using
  the exchange ratio of 1.41785 and adjusted for additional shares acquired by
  the ESOP.  While the number of outstanding shares has been restated for all
  periods to reflect the Reorganization, earnings on the proceeds from the
  Reorganization are reflected only in the third and fourth quarters of 1996.

  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.

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

<TABLE>
<CAPTION>
                                                                        September 30,
                                                      ------------------------------------------------
                                                            1997             1996            1995
                                                      --------------     ------------    -------------
    <S>                                                 <C>              <C>              <C>
    Cash on hand and in banks                           $  1,336,212     $  2,777,737     $  2,248,481
    Interest bearing deposits                              2,777,833        2,415,678        5,802,983
                                                        ------------     ------------     ------------
    Cash and cash equivalents                           $  4,114,045     $  5,193,415     $  8,051,464
                                                        ============     ============     ============

    Supplemental disclosure:
      Cash paid for:
         Interest                                       $  8,776,209     $  8,439,688     $  7,103,637
                                                        ============     ============     ============
         Income taxes                                   $    825,000     $    500,000     $    565,000
                                                        ============     ============     ============

    Non-cash operating activities:
      Change in deferred taxes on net unrealized
         gains and losses on securities
         available-for-sale                             $    (37,850)    $     13,957     $    (64,809)
                                                        ============     ============     ============

    Non-cash investing activities:
      Change in net unrealized gains and losses
         on securities available-for-sale               $    111,323     $    (41,051)    $    202,379
                                                        ============     ============     ============
      Transfer from loans to real estate acquired
         through foreclosure                            $    689,000     $    410,000     $    958,000
                                                        ============     ============     ============
      Loans made relating to sale of foreclosed
         real estate                                    $    569,805     $  1,308,536     $  1,502,600
                                                        ============     ============     ============

    Non-cash financing activities:
      Reduction of ESOP obligation recorded
         as compensation                                $          -     $          -     $    102,374
                                                        ============     ============     ============
</TABLE>



                                      F-10
<PAGE>   29
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 3 - INVESTMENT SECURITIES

  The amortized cost and estimated market values of investments in debt
  securities are as follows as of September 30, 1997:
<TABLE>
<CAPTION>
                                                             Available-for-sale
                                       ---------------------------------------------------------------
                                                                                           Estimated
                                         Amortized      Unrealized       Unrealized          Market
                                           Cost            Gains          Losses             Value
                                       ------------  ---------------   --------------     ------------

    <S>                                <C>           <C>               <C>                <C>
    U. S. Agency securities            $  3,493,535  $         6,400   $       31,035     $  3,468,900
                                       ============  ===============   ==============     ============
</TABLE>

<TABLE>
<CAPTION>
                                                                Held-to-maturity
                                        --------------------------------------------------------------
                                                                                           Estimated
                                          Amortized      Unrealized      Unrealized          Market
                                            Cost            Gains          Losses            Value
                                        ------------  --------------  ---------------     ------------
    <S>                                <C>            <C>             <C>                 <C>

    U. S. Treasury notes                $ 6,492,139   $       17,582   $        6,121      $ 6,503,600
    U. S. Agency securities              15,969,818           49,129           13,687       16,005,260
                                        -----------   --------------   --------------      -----------
                                        $22,461,957   $       66,711   $       19,808      $22,508,860
                                        ===========   ==============   ==============      ===========
</TABLE>

  The amortized cost and estimated market values of investments in debt
  securities are as follows as of September 30, 1996:
<TABLE>
<CAPTION>
                                                                    Available-for-sale
                                       ----------------------------------------------------------------
                                                                                            Estimated
                                         Amortized        Unrealized       Unrealized         Market
                                           Cost             Gains            Losses           Value
                                       ------------     -------------    -------------     ------------
    <S>                                <C>              <C>              <C>               <C>
    U.S. Agency securities             $  7,491,551     $          -     $     132,801     $  7,358,750
                                       ============     =============    =============     ============
</TABLE>

<TABLE>
<CAPTION>
                                                               Held-to-maturity
                                       ---------------------------------------------------------------
                                                                                            Estimated
                                         Amortized       Unrealized      Unrealized          Market
                                           Cost            Gains           Losses            Value
                                       ------------     ------------    -------------     ------------
    <S>                                <C>           <C>               <C>                <C>
    U. S. Treasury notes                $ 8,979,850     $      7,329    $      44,514      $ 8,942,665
    U. S. Agency securities              17,466,898           70,623          102,097       17,435,424
                                        -----------     ------------    -------------      -----------
                                        $26,446,748     $     77,952    $     146,611      $26,378,089
                                        ===========     ============    =============      ===========
</TABLE>

  The scheduled maturities of securities at September 30, 1997, were as
  follows:

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


                                      F-11
<PAGE>   30
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 3 - INVESTMENT SECURITIES - CONTINUED

  The scheduled maturities of securities at September 30, 1996, were as
  follows:

<TABLE>
<CAPTION>
                                               Held-to-maturity               Available-for-sale
                                                  securities                     securities
                                       -------------------------------   ----------------------------
                                                           Estimated                       Estimated
                                          Amortized          Market        Amortized         Market
                                            Cost             Value           Cost            Value
                                       ------------      ------------    ------------     ------------
    <S>                                <C>              <C>              <C>              <C>
    Due in one year or less             $ 9,004,738      $ 9,069,918     $          -     $          -
    Due from one to five years           17,442,010       17,308,171        4,491,775        4,431,250
    Due from five to ten years                    -                -        2,999,776        2,927,500
                                        -----------      -----------     ------------     ------------
                                        $26,446,748      $26,378,089     $  7,491,551     $  7,358,750
                                        ===========      ===========     ============     ============
</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
               1997                         Cost            Gains          Losses             Value
    -----------------------            ------------   --------------  ---------------     ------------
    <S>                                <C>            <C>             <C>                 <C>
    GNMA certificates                  $  1,078,879   $       47,797  $         9,000     $  1,117,676
    FHLMC certificates                    2,397,944           25,736           13,579        2,410,101
    FNMA certificates                     6,348,055           65,604            5,413        6,408,246
                                      -------------   --------------  ---------------    -------------
                                       $  9,824,878    $     139,137   $       27,992     $  9,936,023
                                       ============    =============   ==============     ============
</TABLE>


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

<TABLE>
<CAPTION>
                                                               Held-to-maturity
                                       ---------------------------------------------------------------
                                                                                            Estimated
            September 30,                Amortized       Unrealized      Unrealized           Market
               1996                         Cost            Gains          Losses             Value
    -----------------------            ------------   --------------  ---------------     ------------
    <S>                                <C>            <C>              <C>                <C>
    GNMA certificates                   $ 1,283,657   $       41,817   $       33,256      $ 1,292,218
    FHLMC certificates                    3,553,077           21,408           37,966        3,536,519
    FNMA certificates                     7,270,450            9,923            1,403        7,278,970
                                        -----------   --------------   --------------      -----------
                                        $12,107,184   $       73,148   $       72,625      $12,107,707
                                        ===========   ==============   ==============      ===========
</TABLE>

  There were no mortgage-backed securities available-for-sale at September 30,
  1996.



                                      F-12
<PAGE>   31
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 4 - MORTGAGE-BACKED SECURITIES - CONTINUED

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

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

  The scheduled maturities of mortgage-backed securities as of September 30,
1996, were as follows:

<TABLE>
<CAPTION>
                                                 Held-to-maturity               Available-for-sale
                                                    securities                      securities
                                         ------------------------------     ---------------------------
                                                             Estimated                       Estimated
                                            Amortized         Market         Amortized        Market
                                               Cost           Value            Cost           Value
                                          ------------     ------------     -----------     -----------
    <S>                                 <C>              <C>             <C>            <C>
    Due in one year or less             $     881,477    $     881,477   $            -  $           -
    Due from one to five years                794,561          794,561                -
    Due from five to ten years              2,905,467        2,915,390                -              -
    Due after ten years                     7,525,679        7,516,279                -              -
                                          -----------      -----------   --------------  -------------
                                          $12,107,184      $12,107,707   $            -  $           -
                                          ===========      ===========   ==============  =============
</TABLE>

NOTE 5 - LOANS RECEIVABLE

  Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                                                September 30,
                                                                         -----------------------------
                                                                             1997             1996
                                                                         ------------     ------------
    <S>                                                                  <C>              <C>
    Mortgage loans (principally conventional):
      Single family residential                                          $141,106,415     $132,599,211
      Multi-family residential                                              1,143,982        1,268,331
      Commercial                                                            9,491,964        8,604,174
      Construction                                                         10,799,609        6,996,272
      Land                                                                  3,445,890        4,394,732
                                                                         ------------     ------------
                                                                          165,987,860      153,862,720
    Business and Consumer loans:
      Commercial business                                                      76,261          218,984
      Consumer:
         Secured by deposits                                                2,126,445        2,289,873
         Secured by vehicles                                                6,537,021        2,961,000
         Personal real estate loans                                         4,274,291        2,685,808
         Other                                                              1,983,294          921,535
                                                                         ------------     ------------
                                                                           14,997,312        9,077,200
                                                                         ------------     ------------
         Total loans                                                      180,985,172      162,939,920
      Less:
         Undisbursed portion of loans in process                           (5,024,707)      (2,956,166)
         Unearned discounts                                                   (62,338)         (89,217)
         Net deferred loan-origination fees                                  (661,797)        (760,411)
         Allowance for loan losses                                         (1,191,977)      (1,100,000)
                                                                         ------------     ------------
           Net loans                                                     $174,044,353     $158,034,126
                                                                         ============     ============
</TABLE>

                                      F-13
<PAGE>   32
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   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 7.25% to 10.00%) as follows:

<TABLE>
<CAPTION>
                                            1997             1996
                                         ----------       ----------
         <S>                             <C>              <C>
         Variable-rate                   $  729,000       $  586,922
         Fixed-rate                       4,092,301        4,785,563
                                         ----------       ----------
                                         $4,821,301       $5,372,485
                                         ==========       ==========
</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:

<TABLE>
<CAPTION>
                                                                         September 30,
                                                        ----------------------------------------------
                                                            1997             1996              1995
                                                        ------------     ------------     ------------
    <S>                                                 <C>              <C>              <C>
    Balance at beginning of period                      $  1,100,000     $  1,000,000     $  1,000,087
      Provision charged to income                            110,084          100,000           25,197
      Charge-offs                                            (18,107)               -          (56,962)
      Recoveries                                                   -                -           31,678

    Balance at end of period                            $  1,191,977     $  1,100,000     $  1,000,000
                                                        ============     ============     ============
</TABLE>

  At September 30, 1997 and 1996, 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 $644,000 and $815,000, at September 30,
  1997 and 1996, respectively.  The Bank is not committed to lend additional
  funds to debtors whose loans have been modified.

  Loans to officers and directors totaled $354,000 and $361,000 at September
  30, 1997 and 1996, respectively.

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

<TABLE>
<CAPTION>
                                                                            September 30,
                                                         ---------------------------------------------
                                                             1997             1996            1995
                                                         -----------      -----------      -----------
  <S>                                                    <C>              <C>              <C>
  Mortgage loans underlying FHLMC
    pass-through securities                              $62,078,118      $47,171,302      $31,096,293
                                                         ===========      ===========      ===========
</TABLE>

  Custodial escrow balances maintained in connection with the foregoing loan
  servicing were approximately $1,419,000 and $1,125,000, at September 30, 1997
  and 1996, respectively.

NOTE 6 - REAL ESTATE

  An analysis of the activity in the allowance for losses in real estate
acquired in settlement of loans follows:

<TABLE>
<CAPTION>
                                                                           September 30,
                                                         ---------------------------------------------
                                                              1997            1996             1995
                                                        ------------     ------------     ------------
    <S>                                                 <C>              <C>              <C>
    Balance at beginning of period                      $  1,691,527     $  2,050,507     $  2,229,666
      Provisions for losses                                  (88,737)        (102,142)          16,136
      Charge-offs                                           (297,818)        (256,838)        (195,295)
      Recoveries                                                   -                -                -
                                                        ------------     ------------     ------------
    Balance at end of period                            $  1,304,972     $  1,691,527     $  2,050,507
                                                        ============     ============     ============
</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>   33
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 7 - ACCRUED INTEREST RECEIVABLE

  Accrued interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                                                 September 30,
                                                         ----------------------------
                                                            1997             1996
                                                         -----------      -----------
    <S>                                                  <C>              <C>
    Investment securities                                $   384,752      $   548,638
    Mortgage-backed securities                               149,218           82,575
    Loans receivable                                       1,418,043        1,001,829
                                                         -----------      -----------
                                                          $1,952,013       $1,633,042
                                                          ==========       ==========
</TABLE>

NOTE 8 - PREMISES AND EQUIPMENT

  Premises and equipment consist of the following:

<TABLE>
<CAPTION>
                                                          September 30,
                                                  ---------------------------              Estimated
                                                      1997             1996               Useful Lives
                                                  ----------       ----------            -------------
    <S>                                         <C>              <C>                     <C>
    Land                                          $  466,718       $  466,718                -
    Building and improvements                      3,393,362        3,252,841            5 to 40 years
    Furniture, fixtures and equipment              1,978,494        1,773,835            3 to 15 years
                                                  ----------       ----------
                                                   5,838,574        5,493,394
    Less accumulated depreciation                  2,450,042        2,237,329
                                                  ----------       ----------
                                                  $3,388,532       $3,256,065
                                                  ==========       ==========
</TABLE>
NOTE 9 - DEPOSITS

  Deposits are summarized as follows:
<TABLE>
<CAPTION>
                                                     1997                              1996
                                         ---------------------------      ---------------------------- 
                                          Amount             Percent         Amount           Percent  
                                        -----------         --------      -----------        --------- 
    <S>                                 <C>                  <C>          <C>                <C>       
    Transaction accounts:                                                                              
      Demand and NOW                    $18,411,158             9.60      $13,176,028             7.56 
      Money market                       15,829,107             8.24       17,648,483            10.12 
      Passbook savings                   12,202,513             6.35       11,423,531             6.55 
                                       ------------         --------     ------------        --------- 
                                         46,442,778            24.19       42,248,042            24.23 
                                       ------------         --------     ------------        --------- 
    Certificates of deposit:                                                                           
      3% to 4%                         $          -                -     $  3,973,491             2.28 
      4% to 5%                           24,305,496            12.66       46,339,139            26.58 
      5% to 6%                           99,707,956            51.92       50,047,745            28.72 
      6% to 7%                           21,280,985            11.08       31,368,135            17.99 
      7% to 8%                              150,153              .08          212,336              .12 
      8% to 9%                              145,930              .07          138,999              .08 
                                       ------------         --------     ------------        --------- 
                                        145,590,520            75.81      132,079,845            75.77 
                                       ------------         --------     ------------        --------- 
                                       $192,033,298           100.00     $174,327,887           100.00 
                                       ============         ========     ============        =========
</TABLE>

  The aggregate amount of short-term jumbo certificates of deposit with a
  minimum denomination of $100,000 was approximately $23,191,000 and
  $17,171,000, at September 30, 1997 and 1996, respectively.

  Scheduled maturities of certificates of deposit are as follows:

<TABLE>
<CAPTION>
                                                             1997
                                                ----------------------------
     Term to maturity                             Amount            Percent
    ------------------                          ------------        --------
    <S>                                         <C>                 <C>
    Within 12 months                            $121,806,474           83.66
    12 to 24 months                               13,502,534            9.27
    24 to 36 months                                   10,000             .01
    Greater than 36 months                        10,271,512            7.06
                                                ------------        --------
                                                $145,590,520          100.00
                                                ============        ========
</TABLE>


                                      F-15
<PAGE>   34
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 9 - DEPOSITS - CONTINUED

  Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
                                                             1997             1996            1995
                                                          ----------       ----------       ----------
    <S>                                                  <C>              <C>              <C>
    Money Market                                          $  597,484       $  579,466       $  642,044
    Passbook savings                                         340,422          338,728          328,008
    NOW                                                      201,920          205,815          239,489
    Certificates of deposit                                7,459,310        7,266,634        5,714,504
                                                          ----------       ----------       ----------
                                                          $8,599,136       $8,390,643       $6,924,045
                                                          ==========       ==========       ==========
</TABLE>

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

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

NOTE 10 - BORROWINGS

  During June, 1996, the Bank borrowed $4,000,000 from the Federal Home Loan
  Bank of Dallas.  The $2,000,000 balance at September 30, 1997, bears interest
  at 5.87% and is due June 2003.  The note is secured by a pledge of Federal
  Home Loan Bank stock.

NOTE 11 - FEDERAL INCOME TAXES

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

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

<TABLE>
<CAPTION>
                                                              1997            1996             1995
                                                          ----------       ----------       ----------
    <S>                                                   <C>              <C>              <C>
    Computed "expected" tax expense                       $1,570,937       $  776,573       $  667,153
    Adjustments:
      SFAS No. 122 mortgage servicing rights                 (55,237)         (78,367)               -
      Bad-debt deduction and real estate losses             (161,600)         (12,200)        (101,799)
      Other                                                   26,780           17,994            7,792
                                                          ----------       ----------       ----------
                                                          $1,380,880       $  704,000       $  573,146
                                                          ==========       ==========       ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                             1997            1996              1995
                                                         -----------      -----------      -----------
    <S>                                                  <C>              <C>              <C>
    Deferred loan fees                                   $    33,529      $    45,270      $    14,881
    Accrued pension liability                                (18,192)         (15,877)         (19,335)
    FHLB stock dividends                                      35,530           35,360           31,552
    Deferred compensation                                     31,883           21,707                -
    Deferred loan costs                                      (65,334)               -                -
    Other, net                                               (20,416)          (5,460)         (10,098)
                                                         -----------      -----------      -----------
                                                         $    (3,000)     $    81,000      $    17,000
                                                         ===========      ===========      ===========
</TABLE>

                                      F-16
<PAGE>   35
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 11 - FEDERAL INCOME TAXES - CONTINUED
  The components of the net deferred tax assets shown in the accompanying
balance sheets at September 30, were comprised of the following:
<TABLE>
<CAPTION>
                                                                             1997             1996
                                                                         ------------      -----------
    <S>                                                                  <C>               <C>
    Deferred income tax assets:
      Net unrealized losses on available-for-sale securities             $      8,376      $    45,162
      Deferred loan fees                                                      225,011          258,000
      Deferred compensation and other employee benefits                       333,872          321,000
      Deferred loan costs                                                      65,334                -
                                                                         ------------      -----------
         Total deferred income tax assets                                     632,593          624,162

    Deferred income tax liabilities:
      FHLB stock dividends                                                    165,618          130,000
      Book/tax depreciation difference                                        141,672          133,000
      Other                                                                         -            1,010
                                                                         ------------      -----------
         Total deferred income tax liabilities                                307,290          264,010
                                                                         ------------      -----------
      Net deferred income tax assets                                     $    325,303      $   360,152
                                                                         ============      ===========
</TABLE>

  Stockholders' equity at September 30, 1997 and 1996, includes approximately
  $3,000,000, for which no deferred Federal income tax liability (approximately
  $1,020,000) has been recognized.  These amounts represent an allocation of
  bad-debt deductions for tax purposes only.  Reduction of amounts so allocated
  for purposes other than tax bad-debt losses would create income for tax
  purposes only, which would be subject to the then-current corporate income
  tax rate.

NOTE 12 - STOCKHOLDERS' EQUITY

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

NOTE 13 - PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION

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

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

    Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
                                                                                  1997             1996
                                                                              -----------      -----------
      <S>                                                                     <C>                <C>
      Accumulated benefit obligation:
         Vested                                                               $   946,464       $1,453,490
         Nonvested                                                                  8,702          122,567
                                                                              -----------       ----------
                                                                                  955,166        1,576,057
      Effect of projected future compensation                                     738,890          579,773
                                                                              -----------       ----------

    Projected benefit obligation for service rendered to date                   1,694,056        2,155,830
    Plan assets at fair value; primarily cash and short-term investments        1,596,085        2,328,220
                                                                              -----------       ----------
    Plan assets in excess of (less than) projected benefit obligation         $   (97,971)      $  172,390
                                                                              ===========       ==========
</TABLE>

                                      F-17
<PAGE>   36
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 13 - PENSION PLAN, THRIFT PLAN AND DEFERRED COMPENSATION - CONTINUED

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

<TABLE>
<CAPTION>
                                                            1997              1996             1995
                                                         -----------       ----------       ----------
    <S>                                                  <C>               <C>              <C>
    Service cost - benefits earned during the year       $    95,691       $  127,148       $  118,410
    Interest cost on projected benefit obligation            149,291          155,090          148,447
    Actual return on plan assets                            (112,625)        (118,323)        (119,522)
    Net amortization and deferral                            (50,215)         (10,411)            (514)
                                                         -----------       ----------       ----------
           Net pension expense                           $    82,142       $  153,504       $  146,821
                                                         ===========       ==========       ==========

    Assumptions used to develop the net periodic
      pension cost were:
         Discount rate                                         7.00%            7.00%            6.75%
         Expected long-term rate of return on assets           6.50%            6.50%            6.50%
         Rate on increase in compensation levels               5.00%            5.00%            5.00%
</TABLE>

  The Bank has a defined contribution thrift plan in effect for substantially
  all employees.  Compensation and benefits expense includes $39,516 in 1997,
  $39,508 in 1996, and $39,710 in 1995 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 $100,000 in 1997, $73,000 in 1996, and $33,000 in 1995.  At
  September 30, 1997 and 1996, the Bank had recorded a net liability of
  $300,000 and $271,000, respectively, related to such arrangements.

NOTE 14 - EMPLOYEE STOCK OWNERSHIP PLAN

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

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





                                      F-18
<PAGE>   37
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 14 - EMPLOYEE STOCK OWNERSHIP PLAN - CONTINUED

  The Bank makes annual contributions to the ESOP equal to the debt service,
  less dividends received on the unallocated shares.  The ESOP shares have been
  pledged as collateral for the loan.  As the loan is repaid, shares are
  released from collateral and committed for allocation to active employees,
  based on the proportion of debt service paid in the year.  The shares pledged
  as collateral is reported as stock acquired by the ESOP plan in the statement
  of financial condition.  As shares are released from collateral, the Bank
  reports compensation expense equal to the average fair value of the shares
  over the period in which the shares were earned.  Also, the shares become
  outstanding for earnings per share computations.  Dividends on allocated
  shares are recorded as a reduction of retained earnings, and dividends on
  unallocated shares are recorded as a reduction of the loan and accrued
  interest.  ESOP compensation expense was $263,000, $153,000, and $114,000 for
  the years ended September 30, 1997, 1996, and 1995, respectively.  At
  September 30, 1997 and 1996, 72,374 and 49,226 ESOP shares, respectively,
  have been released for allocation, of which 42,331 and 28,792 were allocated
  to participants at September 30, 1997 and 1996, respectively.  The fair value
  of the unreleased shares of 138,297 and 161,445 at September 30, 1997 and
  1996, was approximately $2,385,600 and $2,058,000, respectively.

NOTE 15 - MANAGEMENT RECOGNITION PLAN

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

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

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

  Compensation expense in the amount of the fair market value of the common
  stock at the date of the grant to the officer or employee is being recognized
  pro rata over the period during which the shares are earned and payable. MRP
  expense included in compensation and benefits in the accompanying
  consolidated statements of earnings totaled $177,000, $97,500, and $106,000
  for the years ended September 30, 1997, 1996, and 1995, respectively.

NOTE 16 - STOCK OPTION PLANS

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

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





                                      F-19
<PAGE>   38
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 16 - 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, 1995                102,260      $   721,230            $7.05
      Options exercised                                        7,775           54,840             7.05
                                                           ---------     ------------           ------
    Options outstanding at September 30, 1996                 94,485          666,390             7.05
      Options granted                                        161,840        2,043,230            12.63
      Options exercised                                       10,403           73,341             7.05
                                                           ---------     ------------           ------
    Options outstanding at September 30, 1997
      (excise price of $7.05 to $12.63 per share)            245,922       $2,636,279           $10.70
                                                           =========       ==========           ======

    Exercisable at September 30, 1997                         84,082      $   592,778           $ 7.05
                                                           =========      ===========           ======
</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 1997, by approximately $88,000 and $.04 per
  share, respectively, had the fair values at options granted in that year been
  recognized as compensation expense on a straight-line basis over the vesting
  period of the grant.  The proforma effect on net income for 1997 is not
  representative of the proforma effect on net income for future years, because
  it does not take into effect grants made in prior years.

NOTE 17 - COMMITMENTS AND CONTINGENCIES

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

  The Bank is obligated under noncancelable operating leases for computer
  equipment.  Leases are generally short-term and the remaining commitment at
  September 30, 1997, is not significant to the Company's operations or
  financial condition.

NOTE 18 - REGULATORY MATTERS

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


                                      F-20
<PAGE>   39
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 18 - 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 risk-based capital to risk-weighted assets, and of core and
  tangible capital to total assets.  Management believes that, as of September
  30, 1997, the Bank meets all capital adequacy requirements to which it is
  subject.

<TABLE>
<CAPTION>
                                                                                               To Be Well
                                                                                            Capitalized Under
                                                                     For Capital            Prompt Corrective
                                            Actual:               Adequacy Purposes:        Action Provisions:
                                    ----------------------------------------------------------------------------
As of September 30, 1997:             Amount       Ratio          Amount      Ratio         Amount         Ratio
-------------------------           -----------    ------       ----------    -----        -----------     -----
<S>                                 <C>            <C>          <C>            <C>         <C>            <C>
    Risk-based capital
      (to risk-weighted assets)     $32,870,234    26.37%       $9,971,621     8.0%        $12,464,526     10.0%

    Leverage capital
      (to adjusted total assets)    $31,678,257    13.66%       $9,278,927     4.0%        $11,598,658      5.0%

    Tier I capital
      (to risk-weighted assets)     $31,678,257    25.41%       $4,985,810     4.0%         $7,478,715      6.0%
</TABLE>

NOTE 19 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

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

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

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

NOTE 20 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

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




                                      F-21
<PAGE>   40
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

  BORROWINGS
  Rates currently available to the 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, 1997 and 1996, the Bank had not issued any standby letters
  of credit.  Commitments to extend credit totaled $9,905,000 and $5,372,000,
  at September 30, 1997 and 1996, respectively, and consisted primarily of
  agreements to fund mortgage loans at the prevailing rates based upon
  acceptable collateral.  Fees charged for these commitments are not
  significant to the operations or financial position of the Bank and primarily
  represent a recovery of underwriting costs.  The Company has not been
  required to perform on any financial guarantees during the past two years.
  The Company has not incurred any losses on its commitments in the last three
  years.  The estimated fair values of the Company's financial instruments at
  September 30, are as follows:

<TABLE>
<CAPTION>
                                                          1997                             1996
                                             -----------------------------     -----------------------------
                                              Carrying            Fair           Carrying          Fair
                                               Amount             Value           Amount           Value
                                             ------------     ------------     ------------     ------------
  <S>                                        <C>              <C>              <C>              <C>
  Financial assets:
    Cash and interest-bearing deposits       $  4,114,045     $  4,114,045     $  5,193,415     $  5,193,415
                                             ============     ============     ============     ============

    Investment securities                    $ 25,930,857     $ 25,977,760     $ 33,805,498     $ 33,736,839
                                             ============     ============     ============     ============

    Accrued interest receivable              $  1,952,013     $  1,952,013     $  1,633,042     $  1,633,042
                                             ============     ============     ============     ============

    Loans and mortgage-backed securities     $196,453,722                      $171,241,310
    Less:  Allowance for loan losses            1,191,977                         1,100,000
                                             ------------                      ------------
                                             $195,261,745     $197,461,422     $170,141,310     $172,560,000
                                             ============     ============     ============     ============
  Financial liabilities:
    Deposits                                 $192,033,298     $193,185,498     $174,327,887     $174,138,000
                                             ============     ============     ============     ============

    Borrowings                               $  2,000,000     $  2,000,000     $  2,000,000     $  2,000,000
                                             ============     ============     ============     ============
</TABLE>


                                      F-22
<PAGE>   41
                           JACKSONVILLE BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1997 AND 1996
                                   CONTINUED


NOTE 22 - CONDENSED FINANCIAL STATEMENTS OF JACKSONVILLE BANCORP, INC. (PARENT
  COMPANY ONLY)

  Jacksonville Bancorp, Inc.,  was organized in December 1995, and began
  operations on March 29, 1996, effective with the Reorganization.  The
  Company's balance sheets as of September 30, and related statements of
  earnings, are as follows:

<TABLE>
<CAPTION>
                                                                                      1997             1996
                                                                                   -----------      -----------
  <S>                                                                              <C>              <C>
                                 BALANCE SHEET

  ASSETS
    Cash in Bank                                                                   $   788,522      $ 5,776,215
    Investment in Bank                                                                       -       28,438,091
    Investment in IHC                                                               33,262,798        1,538,274
    Other assets                                                                        42,347           11,121
                                                                                   -----------      -----------
           Total assets                                                            $34,093,667      $35,763,701
                                                                                   ===========      ===========

  LIABILITIES AND STOCKHOLDERS' EQUITY
    Dividends payable                                                              $   305,464      $  333,033
    Stockholders' equity                                                            33,788,203       35,430,668
                                                                                   -----------      -----------
           Total liabilities and stockholders' equity                              $34,093,667      $35,763,701
                                                                                   ===========      ===========

  STATEMENT OF EARNINGS
    General and administrative expenses                                            $    91,845      $    32,708
      Loss before income taxes and equity in undistributed
         earnings of subsidiaries                                                       91,845           32,708
    Income tax (benefit)                                                               (31,226)         (11,121)
                                                                                   -----------      -----------
      Loss before equity in earnings of subsidiaries                                    60,619           21,587
    Dividends from subsidiaries                                                        374,107                -
    Equity in undistributed earnings of subsidiaries                                 2,926,036          803,529
                                                                                   -----------      -----------
           Net earnings                                                            $ 3,239,524      $   781,942
                                                                                   ===========      ===========
</TABLE>



                                      F-23
<PAGE>   42
STOCK INFORMATION
--------------------------------------------------------------------------------

         Shares of Jacksonville Bancorp, Inc.'s common stock are traded
nationally under the symbol "JXVL" on the NASDAQ National Market System.  At
December 20, 1997, the Company had 2,443,568 shares of common stock outstanding
and had 426 stockholders of record.

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

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

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

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

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

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

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

 Quarter ended June 30, 1996                            10.88            9.13                $0.125

 Quarter ended September 30, 1996                       13.13           10.00                $0.125

 Quarter ended December 31, 1996                        15.00           12.50                 0.125

 Quarter ended March 31, 1997                           15.75           13.94                 0.125

 Quarter ended June 30, 1997                            15.13           13.25                 0.125

 Quarter ended September 30, 1997                       17.25           14.75                 0.125
</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.





                                      15
<PAGE>   43
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------------------------------------------------------

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

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

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

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


BANKING LOCATIONS
--------------------------------------------------------------------------------

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

                                 BRANCH OFFICES

<TABLE>
 <S>                                                 <C>
 1015 North Church Street                            617 South Palenstine Street
 Palestine, Texas 75801                              Athens, Texas 75751
 (903) 729-3228                                      (903) 677-2511
                                                     
 107 East Fourth Street                              5620 Old Bullard Road
 Rusk, Texas 75785                                   Tyler, Texas 75703
 (903) 683-2287                                      (903) 534-9144

 1412 Judson Road
 Longview, Texas 75601
 (903) 758-0118
</TABLE>





                                       16
<PAGE>   44
STOCKHOLDER INFORMATION
--------------------------------------------------------------------------------

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


TRANSFER AGENT/REGISTRAR
--------------------------------------------------------------------------------

         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.





                                       17