<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
               THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
              THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                         COMMISSION FILE NUMBER 0-17194

                          F.F.O. FINANCIAL GROUP, INC.
             (Exact name of registrant as specified in its charter)

           FLORIDA                                     59-2899802
  (State or other jurisdiction                         (I.R.S. Employer
of incorporation or organization)                      Identification No.)

2013 LIVE OAK BOULEVARD, ST. CLOUD, FLORIDA                34771-8462
  (Address of principal executive offices)                (Zip Code)

    Registrant's telephone number, including area code: (407) 892-1200

    Securities registered pursuant to Section 12(b) of the Act: NONE Securities
    registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $0.10 PER SHARE
                                (Title of Class)

         INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES   X    NO
                                               ---     ---

         INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ X ]

         AS OF MARCH 24, 1997, THE AGGREGATE VALUE OF THE 2,756,430 SHARES OF
COMMON STOCK OF THE REGISTRANT ISSUED AND OUTSTANDING AT SUCH DATE, EXCLUDING
5,673,570 SHARES HELD BY ALL DIRECTORS, OFFICERS AND AFFILIATES OF THE
REGISTRANT AS A GROUP, WAS APPROXIMATELY $11,370,274. THIS FIGURE IS BASED ON
THE CLOSING SALES PRICE OF $4.125 PER SHARE OF THE REGISTRANT'S COMMON STOCK ON
MARCH 21, 1997.

      AS OF MARCH 24, 1997, THERE WERE 8,430,000 OUTSTANDING SHARES OF THE
REGISTRANT'S COMMON STOCK.

                       DOCUMENTS INCORPORATED BY REFERENCE

      1. PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1996 ARE INCORPORATED INTO PART II, ITEMS 5 - 8 OF THIS ANNUAL
REPORT ON FORM 10-K.

      2. PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 23, 1997, TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO REGULATION 14A WITHIN 120 DAYS OF THE REGISTRANT'S FISCAL
YEAR END ARE INCORPORATED INTO PART III, ITEMS 10-13 OF THIS ANNUAL REPORT ON
FORM 10-K.


<PAGE>   2



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                               Page
                                                                                                               ----

Part I
------
<S>              <C>                                                                                            <C>
Item 1.          Business.................................................................................       1

                   F.F.O. Financial Group, Inc............................................................       1
                   The Association........................................................................       1
                   Lending Activities.....................................................................       2
                   Securities.............................................................................      15
                   Sources of Funds.......................................................................      17
                   Subsidiaries...........................................................................      20
                   Competition............................................................................      21
                   Employees..............................................................................      21
                   Regulation.............................................................................      21
                   Savings and Loan Holding Company Regulations...........................................      22
                   Savings Institution Regulations........................................................      24
                   Taxation...............................................................................      29
                   Federal Taxation.......................................................................      29
                   Florida Taxation.......................................................................      31
                   Impact of New Accounting...............................................................      31
                   Statistical Profile and Other Data.....................................................      32

Item 2.          Properties...............................................................................      32

Item 3.          Legal Proceedings........................................................................      33

Item 4.          Submission of Matters to a Vote
                   of Security Holders....................................................................      33

Part II

Item 5.          Market for the Registrant's Common
                   Equity and Related Stockholder Matters.................................................      34

Item 6.          Selected Financial Data..................................................................      34

Item 7.          Management's Discussion and Analysis
                   of Financial Condition and Results
                   of Operations..........................................................................      34

Item 8.          Financial Statements and Supplementary Data..............................................      34

</TABLE>



                                        i

<PAGE>   3

<TABLE>
<CAPTION>


                                                                                                              Page
                                                                                                              ----
<S>              <C>                                                                                            <C>
Item 9.          Changes in and Disagreements with
                   Accountants on Accounting and Financial
                   Disclosure.............................................................................      34

Part III

Item 10.         Directors and Executive Officers
                   of the Registrant......................................................................      35

Item 11.         Executive Compensation...................................................................      35

Item 12.         Security Ownership of Certain Beneficial
                   Owners and Management..................................................................      35

Item 13.         Certain Relationships and Related
                   Transactions...........................................................................      35

Part IV

Item 14.         Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........................      36


Signatures................................................................................................      38

Exhibit Index.............................................................................................      39


</TABLE>

                                       ii

<PAGE>   4



                                     PART I

ITEM 1.  BUSINESS

F.F.O. FINANCIAL GROUP, INC.

      F.F.O. Financial Group, Inc. (the "Holding Company") was incorporated in
the State of Florida on June 6, 1988. On October 20, 1988, the Company became
the unitary savings and loan holding company for First Federal Savings and Loan
Association of Osceola County (the "Association") (together, the "Company"). The
Company's operations are limited to ownership of the Association. The Company's
executive office is located at 2013 Live Oak Boulevard, St. Cloud, Florida
34771, and its telephone number is (407) 892-1200.

      On March 10, 1997, the Holding Company executed a letter of intent with
Republic Bancshares, Inc. ("Republic") providing for the merger of the Holding
Company with and into Republic. Mr. William R. Hough (a director of the Holding
Company) is a principal shareholder in each of Republic and the Holding Company.
Under the terms of the letter of intent, Republic will exchange shares of its
common stock for all of the outstanding shares of Holding Company Common Stock
at an exchange ratio of 0.29 share of Republic for each share of Holding Company
Common Stock. In certain circumstances the exchange ratio will adjust for
decreases in Republic's common stock price; however, in no event will the
exchange ratio exceed 0.30 share of Republic stock for each share of Holding
Company Common Stock. The Holding Company has the right to terminate the
transaction if the average of Republic's common stock price is less than $13.50
shortly before the closing of the transaction. Outstanding options for Holding
Company Common Stock will be converted into options for Republic common stock on
a basis equivalent to the exchange ratio. It is anticipated that the transaction
will be accounted for as a corporate reorganization under which Mr. Hough's
controlling interest in the Holding Company will be carried forward at its
historical cost while the minority interest in the Holding Company will be
recorded at fair value. The transaction is subject to the signing of a
definitive agreement by Republic and the Holding Company, shareholder approvals
by the parties, approval by various regulatory authorities, and the receipt of
an opinion as to the tax-free nature of the transaction.

THE ASSOCIATION

      The Association is a federally chartered savings and loan association
which conducts business from its headquarters and main office in Kissimmee,
Florida and nine branch offices located in Central Florida. The Association was
founded in 1934 as a mutual savings and loan association. On October 20, 1988,
the Association converted to a federally chartered stock association. The
Association's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") up to applicable limits through the Savings Association Insurance Fund
("SAIF"). As of December 31, 1996, the Association had consolidated assets of
$316.9 million, consolidated deposits of $286.9 million, and consolidated
stockholders' equity of $20.3 million.

      The principal business of the Association is to attract deposits,
primarily in the form of savings deposits from the general public, and to invest
these funds, together with borrowings and other funds, in loans, mortgage-backed
securities, and other investments. Loans are primarily made to enable borrowers
to purchase, refinance, construct or improve residential and other real estate
and are secured by mortgages on the real estate. Funds are also provided for the
operations of the Association through proceeds from the sale of loans, repayment
of outstanding loans, proceeds from the sale and maturity of investment and
mortgage-backed securities and borrowings from the Federal Home Loan Bank of
Atlanta (the "FHLB of Atlanta"). The Association's operating results depend
substantially on its net interest income (i.e., the difference between its
interest income and interest expense), provisions for losses on loans and real
estate owned, other income (including gains and losses on the sale of investment
and mortgage-backed securities and loans, and fees from lending and deposit
operations), other expenses, and income taxes. Net interest income is determined
primarily by interest rate spread and the relative amounts of interest-earning
assets (primarily loans, mortgage-backed securities, and other investments) and
interest-bearing liabilities (primarily deposits and borrowings).



<PAGE>   5



      The Association has one wholly-owned subsidiary, Gulf American Financial
Corporation, which is currently inactive.

LENDING ACTIVITIES

      General. At December 31, 1996, the Company's loans held for sale and net
loan portfolio totaled $219.5 million, representing approximately 69.2% of its
$316.9 million of total assets at that date. The principal categories of loans
include conventional residential mortgage loans, multifamily residential loans,
nonresidential real estate loans, loans which are insured by the Federal Housing
Administration ("FHA") or partially guaranteed by the Department of Veterans
Affairs ("VA"), residential construction loans, SBA-guaranteed loans, and
consumer loans.

      As a federally chartered savings and loan association, the Association has
general authority to originate and purchase loans secured by real estate located
throughout the United States. Notwithstanding this nationwide lending authority,
substantially all of the mortgage loans in the Association's portfolio are
secured by properties located in Florida, with the majority of such loans
secured by property located in Osceola, Brevard, and Orange Counties, Florida.
Moreover, substantially all of the Association's nonmortgage loan portfolio
consists of loans made to residents and businesses located in Florida.

      The Association is permitted by law to invest without limitation in
residential mortgage loans and up to 400% of its total capital in loans secured
by nonresidential real estate. The Association may also invest in secured and
unsecured consumer loans in an amount not to exceed 35% of the Association's
total assets; however, such 35% limit may be exceeded for certain types of
consumer loans such as home equity, property improvement, mobile home loans and
education loans. In addition, the Association may invest up to 10% of its total
assets in secured and unsecured loans for commercial, corporate, business or
agricultural purposes.

      From time to time, the Association engages in loan participation
transactions with other financial institutions. As a part of such participation
activity, the Association may participate loans to, or otherwise participate in
loans from, Republic Bank, a commercial bank headquartered in Clearwater,
Florida. Mr. William R. Hough (a director and principal shareholder of the
Company) is a director of Republic Bank and is its principal shareholder. Mr.
Alfred T. May (Chairman of the Board of the Company and the Association) is a
director of Republic Bank. See "Regulation -- Savings and Loan Holding Company
Regulations -- Transactions with Affiliates."



                                        2

<PAGE>   6



      Loan Portfolio Composition. The following table sets forth the composition
of the Association's loan portfolio at the dates indicated (dollars in
thousands):
<TABLE>
<CAPTION>

                                                     DECEMBER 31,
                             --------------------------------------------------------------
                                    1996                 1995                   1994
                             -----------------     -----------------      -----------------
                                         % OF                   % OF                   % OF
                             AMOUNT      TOTAL     AMOUNT      TOTAL      AMOUNT      TOTAL
                             ------      -----     ------      -----      ------      -----

<S>                         <C>         <C>       <C>         <C>       <C>         <C>
First mortgage loans:
Conventional 1-4 family
  residential(1)            $112,827     50.05%   $ 78,680     45.37%   $ 56,039     32.94%
FHA and VA                    10,131      4.49      11,529      6.65       9,698      5.70
Multifamily residential       19,778      8.77      18,576     10.71      45,700     26.86
Land                           8,279      3.67       6,476      3.74       6,397      3.76
Other nonresidential          34,138     15.15      26,927     15.53      26,789     15.74
Construction residential      15,156      6.72      10,288      5.93       9,469      5.56
                            --------    ------    --------    ------    --------    ------

Total mortgage loans         200,309     88.85     152,476     87.93     154,092     90.56
                            --------    ------    --------    ------    --------    ------

Deposit account loans            957       .42         868       .50         882      0.52
Credit cards                     594       .26       2,637      1.52       4,085      2.40
Consumer loans                20,537      9.12      13,717      7.91       5,757      3.38
SBA loans (2)                  3,009      1.33       3,633      2.10       5,226      3.08
Home improvement loans            55       .02          76       .04         102      0.06
                            --------    ------    --------    ------    --------    ------
Total other loans             25,152     11.15      20,931     12.07      16,052      9.44
                            --------    ------    --------    ------    --------    ------

Total loans                  225,461    100.00%    173,407    100.00%    170,144    100.00%
                            ========    ======    ========    ======    ========    ======

Deduct:
Loans in process              10,824                 6,880                 5,549
Deferred origination fees
  and deferred gains on
  sale of SBA loans               19                   199                   326
Allowance for loan losses      5,613                 5,138                 8,207
                            --------              --------              --------

Total deductions              16,456                12,217                14,082
                            --------              --------              --------

Loans receivable - net      $209,005              $161,190              $156,062
                            ========              ========              ========
</TABLE>

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

(1)   Excludes $9.9 million, $22.2 million, and $6.6 million in loans held for
      sale as of December 31, 1996, 1995 and 1994, respectively.

(2)   Excludes $600,000, $600,000, and $1.3 million in loans held for sale as of
      December 31, 1996, 1995 and 1994, respectively.


                                        3

<PAGE>   7

<TABLE>
<CAPTION>



                                              DECEMBER 31,
                                ---------------------------------------
                                      1993                   1992
                                -----------------     -----------------
                                             % OF                  % OF
                                AMOUNT      TOTAL     AMOUNT      TOTAL
                                ------      -----     ------      -----


<S>                           <C>          <C>       <C>          <C>
First mortgage loans:
Conventional 1-4 family
  residential(1)              $ 53,208      32.39%   $ 28,055      15.71%
FHA and VA                       8,013       4.88      16,563       9.27
Multifamily residential         48,614      29.60      54,554      30.54
Land                             7,776       4.73      14,442       8.08
Other nonresidential            28,644      17.44      38,008      21.28
Construction residential         2,081       1.27       6,926       3.88
Construction nonresidential       --         --          --         --
                              --------     ------    --------     ------

Total mortgage loans           148,336      90.31     158,548      88.76
                              --------     ------    --------     ------

Deposit account loans            1,061       0.65       1,359        .76
Credit cards                     4,894       2.98       5,788       3.24
Consumer loans                   2,719       1.65       6,529       3.66
SBA loans (2)                    7,119       4.33       6,124       3.43
Home improvement loans             132       0.08         272        .15
                              --------     ------    --------     ------
Total other loans               15,925       9.69      20,072      11.24
                              --------     ------    --------     ------

Total loans                    164,261     100.00%    178,620     100.00%
                              --------     ======    --------     ======
Deduct:
Loans in process                   656                  2,310
Deferred origination fees
  and deferred gains on
  sale of SBA loans                488                  1,326
Allowance for loan losses        9,333                  6,427
                              --------               --------

Total deductions                10,477                 10,063
                              --------               --------

Loans receivable - net        $153,784               $168,557
                              ========               ========
</TABLE>

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

(1)   Excludes $9.5 million and $59.9 million in loans held for sale as of
      December 31, 1993 and 1992, respectively.

(2)   Excludes $1.8 million and $2.8 million in loans held for sale as of
      December 31, 1993 and 1992, respectively.




                                        4

<PAGE>   8



     Origination and Sale of Loans. Applications for all types of loans are
taken at the Association's branch offices. Residential loan applications are
primarily attributable to referrals from builders and real estate brokers,
existing customers and, to a lesser extent, walk-in customers. Consumer loans
are primarily obtained through existing customers.

     Applications are obtained by full-time employees located at the
Association's branch offices. Mortgage loan applications are processed, and all
underwriting is done at the Association's main office or its loan production
office in Maitland, Florida. The Association believes that its centralized
approach to approving loan applications allows it to process and approve
applications faster and with greater efficiency.

     The Association has established various levels of review and approval of
loans. Under current Association loan policies, most first mortgage loans are
approved by certain designated officers or the Association's underwriter.
Mortgage loans on commercial real estate, nonconforming residential loans, loans
to employees, and loans to a single borrower of $500,000 or more (individually
or in the aggregate) require approval by the Loan Committee of the Board of
Directors. Consumer loans may be approved by certain designated officers up to
$50,000 secured and $15,000 unsecured. Consumer loans in excess of these amounts
require approval by the Board of Directors' Loan Committee.

     Substantially all of the Association's nonconstruction one-to-four family
residential first mortgage loans are originated under terms and conditions which
will facilitate their sale in the secondary mortgage market. In recent years,
the Association has sold a portion of the fixed-rate residential loans in the
portfolio while retaining the servicing of such loans. In recent years the
Association has sold substantially all non-construction fixed-rate one-to-four
family residential loans originated to the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA"), and
other institutional purchasers. Generally, such loans are sold as whole loans or
through securitization. Although such sales have in the past consisted primarily
of fixed-rate loans, the Association has on occasion sold adjustable-rate loans
("ARMs"). Such loan sales are intended to increase the Association's noninterest
income and assist the Association in better matching the maturities and
interest-rate sensitivity of its assets and liabilities. As of December 31,
1996, the Association had $9.9 million in fixed-rate one-to-four family first
mortgage loans held for sale and $600,000 in SBA loans held for sale.

     The Company's loan originations increased in 1996 compared to prior periods
primarily due to increased loan demand. In addition, the Association continued
to increase its holdings of fixed-rate residential mortgages to increase the
amount of its interest-earning assets. During the fourth quarter of 1994, in
consideration of the decision to hold increased levels of fixed-rate loans in
its portfolio, the level of residential origination volumes, and a capital
infusion of $5.2 million in September 1994, the Company modified its policy
regarding residential loans held- for-sale. Prior thereto, the Company included
all permanent fixed-rate one-to-four family residential loans (regardless of the
date of origination) in the held-for-sale portfolio. The possibility that such
loans could be sold provided an additional alternative for the Company to
increase its capital. Since the infusion of the $5.2 million in additional
capital in September 1994 and in order to reflect its intent to increase total
interest-earning assets, the Company modified its policy such that only loans
originated within the past 12 months are classified as held-for-sale. With
regard to the decision to increase holdings of fixed-rate residential mortgages,
although such fixed-rate loans in general tend to increase an institution's
sensitivity to interest rate risk, the Company anticipates that the increase in
the level of fixed-rate loans held will result in a more balanced overall
interest rate sensitivity for the Association.

     As of December 31, 1996, the Association serviced $103.6 million of loans
for others. The Association's portfolio of loans serviced for others generally
consists of loans on one-to-four family residential properties located in the
State of Florida that have been sold to FHLMC, FNMA, and other institutional
lenders, and loans made on various types of commercial properties located
throughout the southeastern United States that are partially guaranteed by the
SBA. None of the loans were sold with recourse to the Association.


                                        5

<PAGE>   9



     The following table shows total loans originated, sold and repaid
(including loans held for sale) during each of the years in the three year
period ended December 31, 1996 (dollars in thousands).
<TABLE>
<CAPTION>

                                                                DECEMBER 31
                                                     -------------------------------
                                                        1996       1995       1994


     <S>                                             <C>           <C>        <C>
     Originations:
         Residential real estate loans               $  92,680     63,807     31,867
         Nonresidential real estate loans                7,675      6,745      3,858
         Consumer and other loans                       11,998     11,328      5,273
                                                     ---------    -------    -------

              Total loans originated                   112,353     81,880     40,998
                                                     ---------    -------    -------

     Sales and principal reductions:
         Loans sold                                    (26,405)    (8,919)   (10,008)
         Loan principal reductions                     (33,894)   (52,408    (30,978)
                                                     ---------    -------    -------

              Total loans sold and
                  principal reductions                 (60,299)   (61,327)   (40,986)
                                                     ---------    -------    -------

     Increase in loans receivable
         (before net items)                          $  52,054     20,553         12
                                                     =========    =======    =======
</TABLE>

     Residential Real Estate Loans. Historically, savings institutions such as
the Association have concentrated their lending activities on the origination of
permanent loans secured primarily by first mortgage liens on existing
residential real estate. At December 31, 1996, $142.7 million or 63.3% of the
Company's total loan portfolio consisted of such loans. Of this amount, $123.0
million consisted of one-to-four family residential loans (excluding $9.9
million which were deemed held for sale at such date) and $19.8 million
consisted of multifamily residential loans, including adult congregate living
facilities ("ACLFs").

     Residential ARMs currently originated by the Association have up to 30-year
terms and an interest rate which adjusts annually based upon changes in an
index, plus a margin. Such indices are based on the weekly average yield of the
one-year, three-year, or five-year U.S. Treasury securities adjusted to a
constant maturity, as made available by the Federal Reserve Board. There is
generally a 1% to 2% cap on any increase or decrease in the interest rate per
annum, and there is generally a limit of 4% to 6% on the amount that the
interest rate can adjust over the life of the loan. Although the Association
generally offers discounts of 1% to 3% on the interest rate on its ARMs during
the first year of the mortgage loan for competitive reasons, the Association
determines a borrower's ability to pay at the higher of 200 basis points above
the initial interest rate or a minimum of 7.00%.

     ARMs decrease the risks associated with changes in interest rates, but
involve other risks because as interest rates increase the underlying payments
by the borrower increase, thus increasing the potential for default. At the same
time, the marketability of the underlying collateral may be adversely affected
by higher interest rates.

     The Association continues to originate fixed-rate residential mortgage
loans with terms up to 30 years in order to provide a full range of products to
its customers. Substantially all such loans are originated under terms,
conditions and documentation which make them eligible for sale to FHLMC, FNMA
and other secondary market investors. Although these loans generally provide for
repayments of principal over a fixed period of 15 to 30 years, it has been the
Association's experience that because of prepayments and due-on-sale clauses,
such loans generally remain outstanding for a substantially shorter period of
time.


                                        6

<PAGE>   10



     Multifamily real estate loans totaled $19.8 million or 8.8% of the
Association's total loan portfolio at December 31, 1996. These loans possess a
greater risk of collectibility compared with one-to-four family residential
property lending due to the higher loan amounts relative to the number of
borrowers, and the dependency on income production of the real estate. These
loans generally are more costly to resolve or work out than one-to-four family
loans. The payments experienced on such loans also are typically dependent on
the successful operation of the real estate project. Further, multifamily loans
can be significantly impacted by supply and demand conditions in the market, and
as such, may be subject to a greater extent to adverse conditions in the general
economy. To minimize these risks, the Association generally originates
multifamily loans of no more than $500,000 secured by property in its primary
market area. In addition, the Association examines whether the property securing
the loan will generate sufficient cash flow to adequately cover operating
expenses and debt service payments. Permanent multifamily residential real
estate loans currently are made at a loan-to-value ratio of 75% or less.

     FHA and VA Lending. In early 1991, the Association began to originate
single-family loans made pursuant to the FHA insurance programs under the
National Housing Act, and loans made pursuant to the VA program under the
Serviceman's Loan Guaranty Readjustment Act of 1944. The Association originated
an aggregate of $7.4 million and $10.4 million of FHA and VA loans during 1996
and 1995, respectively. The addition of these single-family lending programs has
enabled the Association to continue to expand the product range offered to its
customers. Substantially all of such loans originated are sold in the secondary
market. See " - Origination, Purchase and Sale of Loans."

     Nonresidential Real Estate Loans. Nonresidential real estate loans
originated by the Association are primarily secured by strip shopping centers,
office buildings, unimproved land and building lots, warehouses, hotel/motel
properties and churches located within the Association's primary market area.
Although terms are determined and may vary on a case-by-case basis,
nonresidential real estate loans secured by existing properties generally have
amortization schedules of 25 to 30 years, but require a balloon payment after
either three or five years and may have either fixed or adjustable interest
rates. The Association originally became involved in such activity in order to
increase the yield and interest rate sensitivity of its loan portfolio. The
Association is originating commercial real estate loans (other than loans to
finance the sale of real estate acquired by the Association by foreclosure or
deed in lieu thereof).

     Nonresidential real estate lending is generally considered to involve a
higher level of risk than single-family residential lending due to the
concentration of principal in a limited number of loans and borrowers, and the
dependency on income production or future development of the real estate. The
nature of these loans is also such that they are generally more difficult to
evaluate and monitor, and are more costly to resolve or work out than
residential real estate loans. Nonresidential loans amounted to $34.1 million or
15.2% of the Association's total loan portfolio at December 31, 1996.

     Construction Loans. Construction loans amounted to $15.2 million or 6.7% of
the Association's total loan portfolio at December 31, 1996. Such amount was for
the construction of single-family residential properties. The Association has
historically provided fixed-rate and adjustable-rate residential construction
loans primarily to selected local developers with whom the Association is
familiar and who have a record of successfully completing projects and, to a
lesser extent, to individuals building their primary or secondary residence.
Generally, loans to both individuals and developers are made with terms of six
to eighteen months, depending on the magnitude of the project. With respect to
individuals, the construction loan is generally made in connection with the
granting of the permanent financing on the property. Such loans convert to
permanent loans at maturity or upon completion of construction, whichever occurs
first.

     The Association has in the past offered adjustable-rate loans with terms of
up to 18 months for the construction of commercial properties such as office
buildings and shopping centers. Advances on these loans

                                        7

<PAGE>   11



were generally made on a percentage of completion basis, usually consisting of
four or more draws. There were no such construction loans outstanding at
December 31, 1996.

     Construction loans afford the Association the opportunity to increase the
interest rate sensitivity of its loan portfolio and, with respect to
nonresidential properties, to receive higher yields than those obtainable on
single-family residential loans. These higher yields correspond to the higher
risks associated with construction loans. Construction lending (especially
commercial construction lending) is generally considered to involve a higher
degree of risk than long-term financing on improved, owner-occupied real estate.
Risk of loss on construction loans is dependent largely upon the accuracy of the
initial appraisal of the property's projected value at completion of
construction as well as the estimated cost of construction, including interest.
During the construction phase, a number of factors could result in delays and
cost overruns. If either estimate proves to be inaccurate and the borrower is
unable to provide additional funds, the lender may be required to advance funds
beyond the amount originally committed to permit completion of the project
and/or be confronted at the maturity of the construction loan with a project
whose value is insufficient to assure full payment.

     SBA-guaranteed Loans. At December 31, 1996, SBA loans amounted to $3.0
million or 1.3% of total loans (excluding $600,000 of SBA loans deemed held for
sale at such date). The Association may continue to originate, on a limited
basis, SBA loans.

     Consumer and Other Loans. The Association offers certain types of consumer
loans in order to provide a full range of financial services to its customers.
Consumer and other loans, which totaled $22.1 million or 9.8% of total loans at
December 31, 1996, generally have shorter terms and higher interest rates than
mortgage loans and generally involve more risk than single-family residential
mortgage loans because of the type and nature of the collateral and, in certain
cases, the absence of collateral.

     The consumer and other loans offered by the Association include credit
cards, loans for the purchase of both new and used automobiles and boats,
deposit account loans, home improvement and home equity loans. The Association
also makes unsecured consumer loans to individuals who are established customers
of the Association. Credit lines are also offered on a secured (usually by real
estate) basis.

     Regulatory Requirements and Underwriting Policies. Under Federal
regulations, the Association was prohibited, after August 9, 1989, from making
real estate loans to one borrower including related entities in excess of 15% of
its unimpaired capital and surplus except for loans not to exceed $500,000. This
15% limitation resulted in a dollar limitation of approximately $3.1 million at
December 31, 1996. As of such date, the Association had two borrowers whose
total indebtedness exceeded that limit. While the Association is not required to
reduce or divest the loans because they existed on August 9, 1989, the
Association is unable to extend additional credit to these borrowers, and will
have very limited authority to amend or modify the existing terms on these
loans. As of December 31, 1996, loans to the Association's three largest
borrowers and related entities amounted to $5.0 million, $4.9 million and $3.7
million. The $5.0 million group of loans consists of two loans secured by
multifamily properties located in Central Florida. The $4.9 million consists of
one loan on a multifamily property located in Central Florida. The $3.7 million
group of loans consists of two loans for warehouse and office space in Central
Florida. All such loans are performing in accordance with their current
contracts.

     The Association is permitted to lend up to 100% of the appraised value of
the real property securing a loan; however, if the amount of a residential loan
originated or refinanced exceeds 90% of the appraised value, the Association is
required by federal regulation to obtain private mortgage insurance on the
portion of the principal amount of the loan that exceeds 80% of the appraised
value of the secured property. Pursuant to underwriting guidelines adopted by
the Board of Directors, private mortgage insurance must be obtained on
residential loans for which loan-to-value ratios exceed 80%. The Association
generally lends up to 95% of the appraised value of one- to four-family,
owner-occupied residential dwellings when the required private mortgage
insurance is

                                        8

<PAGE>   12



obtained. With respect to construction loans for owner-occupied properties made
in connection with permanent financing, the Association generally lends up to
95% of the appraised value (as completed). For residential construction loans
issued to developers, the loan-to-value ratio is limited to 75%. While no
statutory requirements are set out for SBA loan collateral, most of the
Association's SBA loans are secured by real estate.

     All financial institutions are required to adopt and maintain comprehensive
written real estate lending policies consistent with safe and sound banking
practices. These lending policies must reflect consideration of the Interagency
Guidelines for Real Estate Lending Policies adopted by the Federal banking
agencies, including the OTS, in December 1992 ("Guidelines"). The Guidelines set
forth uniform regulations prescribing standards for real estate lending. Real
estate lending is defined as extensions of credit secured by liens on interests
in real estate or made for the purpose of financing the construction of a
building or other improvements to real estate, regardless of whether a lien has
been taken on the property.

     The policies must address certain lending considerations set forth in the
Guidelines, including loan-to-value ("LTV") limits, loan administration
procedures, underwriting standards, portfolio diversification standards, and
documentation, approval and reporting requirements. These policies must also be
appropriate to the size of the institution and the nature and scope of its
operations, and must be reviewed and approved by the institution's board of
directors at least annually. The LTV ratio framework, with a LTV ratio being the
total amount of credit to be extended divided by the appraised value of the
property at the time the credit is originated, must be established for each
category of real estate loans. If not a first lien, the lender must combine all
senior liens when calculating this ratio. The Guidelines, among other things,
establish the following supervisory LTV limits: raw land (65%); land development
(75%); construction (commercial, multifamily and nonresidential) (80%); improved
property (85%); and one- to four-family residential (owner occupied) (no maximum
ratio; however the Guidelines state that any LTV ratio in excess of 90% should
require appropriate insurance or readily marketable collateral).

     Certain institutions can make real estate loans that do not conform with
the established LTV ratio limits up to 100% of the institution's total capital.
Within this aggregate limit, total loans for all commercial, agricultural,
multifamily and other non-one- to four-family residential properties should not
exceed 30% of total capital. An institution will come under increased
supervisory scrutiny as the total of such loans approaches these levels. Certain
loans are exempt from the LTV ratios (e.g. those guaranteed by a government
agency, loans to facilitate the sale of real estate owned and loans renewed,
refinanced or restructured by the original lender(s) to the same borrower(s)
where there is no advancement of new funds, etc.).

     All of the Association's lending is subject to its written,
nondiscriminatory underwriting standards and to loan origination procedures
prescribed by the Association's Board of Directors. In the loan approval
process, the Association assesses both the borrower's ability to repay the loan
and the adequacy of the proposed security. In connection therewith, the
Association requires an appraisal of the secured property and information
concerning the income, financial condition, employment and credit history of the
applicant. Loans must be approved at various management levels, including by the
Loan Committee and the Board of Directors of the Association, depending on the
amount and type of the loan. Commercial construction loans and commercial real
estate loans as well as SBA loans are also evaluated based on debt service
coverage provided by existing or projected cash flows.

     The Association requires title insurance insuring the priority of its lien,
as well as fire and extended coverage casualty insurance in order to protect the
developed properties securing its real estate loans. Borrowers must also obtain
flood insurance coverage when the property is in a flood plain as designated by
the Department of Housing and Urban Development. Borrowers may be required to
advance funds on a monthly basis together with each payment of principal and
interest to a mortgage loan account from which the Association makes
disbursements for items such as real estate taxes and hazard insurance premiums
as they become due.


                                        9

<PAGE>   13



     Loan Fee Income. In addition to interest earned on loans, the Association
receives income from fees in connection with loan originations, loan
modifications, late payments, prepayments and for miscellaneous services related
to its loans. Income from such activities varies with the volume and type of
loans made as well as competitive conditions.

     The Association charges loan origination fees which are calculated as a
percentage of the amount borrowed. Loan origination fees generally amount to 1%
to 2% of the amount borrowed in the case of a mortgage loan.  Loan origination
fees are not obtained in connection with consumer loans.

     The Association accounts for loan fees in accordance with Statement of
Financial Accounting Standards No. 91 ("FAS 91"), "Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases." FAS 91 requires that loan fees, net of certain specific
incremental direct loan origination costs, be deferred and accreted into income
over the life of each loan as a yield adjustment. However, upon sale of a loan,
the deferred fees related thereto are recognized into income.

     Nonperforming Loans and Foreclosed Real Estate. When a borrower fails to
make a required payment on a loan, the Association attempts to cure the
deficiency by contacting the borrower and seeking payment. Initial contact is
generally made on the fifteenth day after a payment is due. If a delinquency
extends beyond 30 days, the loan and payment history is reviewed and measures
may be instituted to remedy the default. While the Association generally prefers
to work with borrowers to resolve such problems, it does institute foreclosure
and other proceedings, including deed in lieu of foreclosure, as necessary, to
minimize any potential loss. Loans are placed on nonaccrual status when, in the
judgment of management, the probability of collection of interest is deemed to
be insufficient to warrant further accrual. When a loan is placed on nonaccrual
status, previously accrued but unpaid interest is deducted from interest income.
The Association generally does not accrue interest on loans more than 90 days
past due unless the estimated fair value of the collateral and active collection
efforts ensure full recovery.

     Property acquired by the Association as a result of foreclosure or by deed
in lieu of foreclosure is classified as foreclosed real estate ("REO"). When a
property interest is acquired, it is recorded at the lower of fair value (less
estimated selling costs) or the principal balance of the related loan on the
property at the date of acquisition. Costs incurred for the improvement or
development of such property are capitalized, while costs relating to holding
the property are charged to operations.




                                       10

<PAGE>   14



     The following table sets forth information regarding nonaccrual loans,
loans which were 90 days or more delinquent but on which the Association was
accruing interest, loans which have been restructured due to financial
difficulties with the borrowers, and REO held by the Association as of each of
the dates shown (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                            ------------------------------------------------------
                                                            1996          1995        1994        1993        1992
                                                            ----          ----        ----        ----        ----
<S>                                                            <C>         <C>         <C>         <C>         <C>
Nonperforming loans:
   Nonaccrual loans:
     Single family residential                              $2,080         887         371       1,293       1,541
     Multifamily residential                                    --          --          --         470      12,402
     Improved and unimproved land                              544         414         214          --         211
     Commercial real estate                                  1,434         623       2,178         305       1,015
     SBA loans                                                  --         751         588         382          66
     Consumer loans                                             --          --          12         143         134
                                                            ------      ------      ------      ------      ------
          Total                                              4,058       2,675       3,363       2,593      15,369
                                                            ------      ------      ------      ------      ------

   Accruing Loans 90 Days
     or more Past Due:
     SBA loan                                                   --          --          --          --       1,290
                                                            ------      ------      ------      ------      ------
          Total                                                 --          --          --          --       1,290
                                                            ------      ------      ------      ------      ------

   Troubled Debt Restructured:
     Multifamily residential                                 4,862       4,890      10,424      10,823      11,220
     Construction properties and
         improved and unimproved land                           --          --          --          --          --
                                                            ------      ------      ------      ------      ------
          Total                                              4,862       4,890      10,424      10,823      11,220
                                                            ------      ------      ------      ------      ------

          Total nonperforming loans                          8,920       7,565      13,787      13,416      27,879
                                                            ------      ------      ------      ------      ------

Foreclosed real estate:
     Single family residential                                  57          38          86       1,687       2,706
     Multifamily residential`                                   --       2,651          --          --          --
     Improved and unimproved land                              900       1,278       6,171       4,561      10,144
     Commercial real estate                                     --         515       2,255       7,799       3,882
     SBA loans                                                  --          --         415       1,237       9,008
                                                            ------      ------      ------      ------      ------
           Total foreclosed real estate                        957       4,482       8,927      15,284      25,740
                                                            ------      ------      ------      ------      ------

           Total nonperforming assets                       $9,877      12,047      22,714      28,700      53,619
                                                            ======      ======      ======      ======      ======

Nonperforming Assets to Total Assets                          3.12%       4.00%       8.96%      11.51%      17.36%
                                                            ======      ======      ======      ======      ======

Allowance for Loan Losses                                    5,613       5,138       8,207       9,333       6,427
Allowance for REO Losses                                       158       1,124       2,873          62       1,470
                                                            ------      ------      ------      ------      ------

           Total allowance for losses                       $5,771       6,262      11,080       9,395       7,897
                                                            ======      ======      ======      ======      ======

Total allowance for losses as a percentage
  of total nonperforming assets                              58.43%      51.98%      48.78%      32.74%      14.73%

Allowance for loan losses as a percentage
  of nonperforming loans                                     62.93%      67.92%      59.53%      69.57%      23.05%
</TABLE>


                                       11

<PAGE>   15



      During 1996, 1995, and 1994, interest income that would have been recorded
under the original terms of such loans and the interest income actually
recognized are summarized below (in thousands):
<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,
                                                   -----------------------------------------
                                                      1996               1995           1994
                                                      ----               ----           ----
      <S>                                          <C>                   <C>            <C>
      Interest income that would
        have been recorded                         $  863                742            971

      Interest income recognized                     (340)              (342)          (383)
                                                      ---                ---            ---

      Interest income foregone                     $  523                400            588
                                                      ===                ===            ===
</TABLE>

      At December 31, 1996, loans on nonaccrual status totaled $4.1 million,
including 10 commercial loans totaling $1.4 million. During 1996 and 1995,
approximately $523,000 and $400,000, respectively, in interest income would have
been recorded on loans accounted for on a nonaccrual basis and troubled debt
restructurings if each loan had been current in accordance with its original
contract and had been outstanding throughout the period. These amounts were not
included in the Company's interest income in the respective periods.

      There were no loans which were 90 or more days past due and continued to
accrue interest at December 31, 1996.

      At December 31, 1996, the Association's troubled debt restructurings
totaled $4.9 million and consisted of one multifamily real estate loan. The loan
is collateralized by a 172-unit apartment complex located in Seminole County,
Florida. The apartment complex was appraised for $6.4 million as of the most
recent appraisal in 1988. During December 1992, while the loan was delinquent,
the Association allowed it to be assumed by a nonprofit organization, and
reduced the interest rate from 10.75% to 7.0%. Under the restructured terms, the
loan requires monthly principal and interest payments of approximately $31,000
plus a balloon payment of $4,361,000 in December 2007. The Association retained
the personal guarantees of two individuals who executed the note at the time of
origination. Subsequent to the date of modification, the loan has performed in
accordance with the restructured terms of the contract. In conjunction with the
quarterly evaluation of the reasonableness of the carrying value of this
property, management has considered, among other factors, the appraisal of the
property performed in 1988, the indicated valuation of the property by the
nonprofit organization which assumed the loan in 1992, the location of the
property and management's assessment of the current real estate valuation of
similar properties in the local real estate market, management's assessment of
the cash flow generated by the collateral property based on current operating
information provided by the borrower, and management's assessment of the
financial capacity of the two individuals whose personal guarantees also secure
the loan.

      Foreclosed real estate includes property acquired by foreclosure or deed
in lieu of foreclosure. Total foreclosed real estate decreased from $8.9 million
at December 31, 1994 to $4.5 million at December 31, 1995 and $957,000 at
December 31, 1996. The decreases were due to sales of foreclosed real estate
properties, partially offset by foreclosures and transfers to foreclosed real
estate.

      As of December 31, 1996, the Company had one single family residence in
its inventory of foreclosed real estate. Included in foreclosed real estate at
December 31, 1996 was approximately $900,000 of improved and unimproved land.
Such properties included one parcel of developed commercial property with an
approximate area of seven acres.


                                       12

<PAGE>   16



      When a loan is transferred to foreclosed real estate, a new appraisal of
the underlying property is ordered. The Association calculates the estimated
fair value of the collateral (that is, the proceeds anticipated from the sale of
the collateral, less estimated selling costs), and the asset is carried at the
lower of the balance of the loan transferred or the estimated fair value. While
the property is held, management evaluates on at least a quarterly basis whether
the estimated fair value should be adjusted due to changes in the real estate
market or other factors which may in the opinion of management affect the
ultimate sales price. Such evaluation may consider, among other things, current
operating information available on the properties, changes in the disposition or
marketing plan of individual properties, and changes in management's assessment
of local real estate market values. If the revised fair value is below the
current carrying value of the property, the carrying value is adjusted by a
charge to earnings, and a corresponding increase in the allowance for losses on
real estate owned. The Association does not generally update the appraisal
unless requested by the regulatory authorities or unless management otherwise
believes that an updated appraisal would be beneficial in assisting it in
evaluating fair value. The Association's practice of not updating appraisals on
a more frequent periodic basis may increase the risk that the Association will
experience delays or discrepancies in recognizing and providing for adverse
changes in the valuation of its foreclosed real estate or other nonperforming
assets. The adjustments, if any, required upon the receipt of updated appraisals
could have a material adverse effect on the results of operations and financial
and capital positions of the Company.

      As to new loans, current appraisals are ordered for all real estate
mortgages at the time of loan submission. Otherwise, the Association does not
generally order an updated appraisal unless the loan has a call or a balloon
provision, in which case a new appraisal may be requested prior to reviewing the
renewal, depending upon the type of property, its location and physical
condition.

      Allowance for Losses on Loans and Foreclosed Real Estate. It is the
Association's policy to establish and maintain adequate reserves for losses on
loans and foreclosed real estate. At December 31, 1996, the Association had
reserves for losses on loans and foreclosed real estate amounting to $5.8
million. The management of the Association periodically reviews the adequacy of
the allowance for losses on loans and foreclosed real estate. Such review
includes an analysis of the Association's historical experience, the volume and
type of lending conducted by the Association, industry standards, the status of
past due principal and interest payments, directives of the OTS, general
economic conditions, particularly as they relate to the Association's market
area, the credit condition of the borrowers, current fair market values of
collateral and foreclosed real estate and other factors related to the
collectibility of the Association's loan portfolio.

      Pursuant to applicable regulations, the OTS and the FDIC have the
authority to require the Association to increase its loss allowances if either
agency determines that the allowances are inadequate. The estimation of
appropriate levels of loss allowances is a process that involves a high degree
of subjectivity, and the regulatory authorities may arrive at conclusions that
differ from management's regarding the adequacy of loss allowance levels.
Although management believes that the Association's loss allowances were
adequate as of December 31, 1995, the Company is unable to predict whether the
FDIC or the OTS will propose that the Association increase its loss allowances.
Future events, such as increased interest rates, a downturn in the Florida
economy, or adverse developments with respect to specific loans or other assets
could also require adjustments to the Association's loss allowances. Such
adjustments would likely have a material adverse effect on the Company's
operating results and could have a material adverse effect on its financial
condition.





                                       13

<PAGE>   17

      The following table summarizes activity in the Association's allowance for
loan losses during each of the years in the five year period ended December 31,
1996 (dollars in thousands).
<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                            ------------------------------------------------------
                                                              1996       1995        1994        1993        1992
                                                              ----       ----        ----        ----        ----
<S>                                                         <C>          <C>         <C>         <C>         <C>
Allowance at beginning of year                              $5,138       8,207       9,333       6,427       8,296
                                                            ------      ------      ------      ------      ------

Charge-offs:
       Single-family residential                               (36)         --         (25)       (745)     (1,362)
       Multifamily residential                                  --      (3,147)         --          --        (586)
       Commercial real estate loans                           (120)         --        (113)       (472)     (1,779)
       SBA loans                                                --        (442)        (16)       (409)     (5,899)
       Consumer loans                                         (181)         --        (141)       (203)       (258)
       Land                                                     --          --         (27)       (999)         --
                                                            ------      ------      ------      ------      ------
            Total loans charged-off                           (337)     (3,589)       (322)     (2,828)     (9,884)

Recoveries                                                      30          43          62         927         424
                                                            ------      ------      ------      ------      ------

       Net charge-offs                                        (307)     (3,546)       (260)     (1,901)     (9,460)


Reclassification due to adoption
       of SFAS 114 and 118                                      --          --         537          --          --
Provision (credit) for loan losses
       charged to operations                                   782         477      (1,403)      4,807       7,591
                                                            ------      ------      ------      ------      ------

Allowance at end of year                                    $5,613       5,138       8,207       9,333       6,427
                                                            ======      ======      ======      ======      ======


Average loans outstanding (1)                              206,755     174,203     167,192     217,167     269,082
Net charge-offs to average
       loans outstanding (1)                                   .15%       2.04%        .16%        .88%       3.52%

Period-end total loans (1)                                 235,923     196,172     175,619     175,607     241,363
Ratio of allowance to
       period-end loans (1)                                   2.38%       2.62%       4.67%       5.31%       2.66%
</TABLE>

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

(1)    Includes total loans held for sale.

                                       14

<PAGE>   18



SECURITIES

     The Association invests in mortgage-backed securities which are insured or
guaranteed by the Government National Mortgage Association ("GNMA"), FHLMC, and
FNMA. Although mortgage-backed securities generally have a lower yield than
loans, mortgage-backed securities increase the quality of the Association's
assets by virtue of the guarantees that back them, are more liquid than
individual mortgage loans, and may be used to collateralize borrowings or other
obligations of the Association. The Association also has the authority to invest
in various types of investment securities, including U.S. Treasury obligations
and securities of various federal agencies, certificates of deposit at insured
banks and thrift institutions, bankers' acceptances and federal funds. Subject
to various restrictions, federally chartered thrift institutions may also invest
a portion of their assets in commercial paper, corporate debt securities and
mutual funds whose assets conform to the investments that a federally chartered
thrift institution is authorized to make directly. At December 31, 1996, the
Association's securities were classified as either trading, available for sale,
or held to maturity according to management's intent.

     The Board of Directors has authorized the Company to purchase and sell,
from time to time, securities through third parties including through William R.
Hough & Co. ("WRHC"), an investment banking firm headquartered in St.
Petersburg, Florida. Mr. Hough (a director and principal shareholder of the
Company) is Chairman and principal shareholder of WRHC. During the years ended
December 31, 1996 and 1995, the Company purchased approximately $53.3 million
and $69.5 million of securities and sold $46.0 million and $19.7 million of
securities through WRHC. In connection with such transactions, the Company paid
WRHC an aggregate of $118,183 and $91,509 in commissions during the years ended
December 31, 1996 and 1995, respectively. See "Regulation -- Savings and Loan
Holding Company Regulations -- Transactions with Affiliates."

     The accounting treatment for collateralized mortgage obligations ("CMO")
has been the subject of recent discussion among various regulatory agencies and
the accounting profession. Certain CMOs are considered to be high risk mortgage
derivatives because they have failed the Federal Financial Institutions
Examination Council ("FFIEC") low-risk mortgage derivative test. The FFIEC test
does not address credit risk, but rather indicates whether a particular CMO has
a high level of exposure to interest-rate risk (that is, the security's market
value may be particularly sensitive to increases or decreases in market interest
rates). If a CMO security is considered to be high-risk, the security cannot be
classified as held-to-maturity as the OTS or FDIC can direct that the security
be sold. Each of the CMOs purchased by the Association in 1996 passed the FFIEC
test at the date of acquisition and at December 31, 1996. At acquisition, all
CMOs were classified as trading securities by the Association.



                                       15

<PAGE>   19



     The following table sets forth the Company's securities portfolio at
December 31, 1996 and 1995 (in thousands).
<TABLE>
<CAPTION>

                                                            GROSS       GROSS
                                               AMORTIZED  UNREALIZED  UNREALIZED      FAIR
                                                  COST      GAINS       LOSSES        VALUE
                                               ---------  ----------  ----------      ----

<S>                                             <C>             <C>         <C>      <C>
TRADING SECURITIES:
December 31, 1996:
       Agency notes and debentures              $  4,000         32        --         4,032
       Collateralized mortgage-backed
            obligations                            5,554       --            (6)      5,548
                                                --------   --------    --------    --------
                                                $  9,554         32          (6)      9,580
                                                ========   ========    ========    ========

December 31, 1995:
       Agency notes and debentures                 9,359         42        --         9,401
       Collateralized mortgage-backed
            obligations                           13,616         59        --        13,675
                                                --------   --------    --------    --------
                                                $ 22,975        101        --        23,076
                                                ========   ========    ========    ========


SECURITIES AVAILABLE FOR SALE:
December 31, 1996 -
       Mortgage-backed securities               $ 41,455        108        (118)     41,445
                                                ========   ========    ========    ========

December 31, 1995 -
       U.S. Treasury Notes                         9,996         23        --        10,019
       Mortgage-backed securities                 39,686        127        --        39,813
                                                --------   --------    --------    --------
                                                $ 49,682        150        --        49,832
                                                ========   ========    ========    ========

SECURITIES HELD TO MATURITY:
December 31, 1996 -
       Mortgage-backed securities               $ 15,343        218         (47)     15,514
                                                ========   ========    ========    ========

December 31, 1995 -
       Mortgage-backed securities               $ 17,636        204        --        17,840
                                                ========   ========    ========    ========


</TABLE>




                                       16

<PAGE>   20



       The scheduled maturities of securities (other than mortgage-backed
securities) at December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>

                                                                TRADING
                                                         ----------------------
                                                         AMORTIZED       MARKET
                                                            COST          VALUE
                                                           ------         -----
<S>                                                        <C>            <C>
Due from five years to ten years                           $4,000         4,032
                                                           ------         -----
</TABLE>


SOURCES OF FUNDS

     Deposits obtained through the Association's branch offices have
traditionally been the principal source of the Association's funds for use in
lending and for other general business purposes. To a lesser extent, the
Association also derives funds from amortization and prepayments of outstanding
loans, sales of securities and loans, and borrowings from the FHLB of Atlanta.

     Deposits. The Association currently offers deposit products including
passbook and statement savings and club accounts, demand accounts, NOW accounts
and certificates of deposit ranging in terms from three months to ten years.
Included among these deposit products are Individual Retirement Account ("IRA")
certificates. Substantially all of the Association's deposits are obtained from
individual and business residents of the State of Florida. The principal methods
used by the Association to attract deposits include offering a wide variety of
products and services, competitive interest rates and convenient office
locations and hours. The Association is a member of the HONOR and CIRRUS
networks and currently operates automatic teller machines at all 11 of its
offices, as well as one off-site location.

      The following table shows the distribution of the Association's deposits
by type of deposit as of December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>

                                                          DECEMBER 31,
                                 -------------------------------------------------------------
                                          1996                1995              1994
                                 --------------------   -----------------   ------------------
                                              % OF                 % OF                 % OF
                                   AMOUNT    DEPOSITS   AMOUNT   DEPOSITS   AMOUNT   DEPOSITS
                                   ------    --------   ------   --------   ------   --------
                                                      (dollars in thousands)

<S>                              <C>         <C>      <C>        <C>       <C>        <C>
Noninterest-bearing              $ 14,303     4.98%   $ 13,107     5.27%   $ 10,812     5.13%
NOW accounts                       28,593     9.97      22,918     9.21      23,918    11.34
Passbook and statement
    savings accounts               29,388    10.24      40,764    16.37      48,239    22.88
                                 --------   ------    --------   ------    --------   ------

                Total              72,284    25.19      76,789    30.85      82,969    39.35
                                 --------   ------    --------   ------    --------   ------

Certificate deposits:
         3-12 months              132,990    46.35      38,753    15.57      29,936    14.20
         13-24 months              53,346    18.59      70,345    28.26      28,765    13.64
         25-36 months              13,834     4.82      16,180     6.50       9,800     4.65
         37+ months                14,473     5.05      46,869    18.82      59,362    28.16
                                 --------   ------    --------   ------    --------   ------

                Total             214,643    74.81     172,147    69.15     127,863    60.65
                                 --------   ------    --------   ------    --------   ------

                Total deposits   $286,927   100.00%   $248,936   100.00%   $210,832   100.00%
                                 ========   ======    ========   ======    ========   ======
</TABLE>


    The Association has been required by market conditions to rely increasingly
on newly-authorized types of short-term certificate accounts and other types of
deposit accounts that are more responsive to market interest

                                       17

<PAGE>   21



rates than passbook accounts and fixed-rate, fixed-term certificates that were
historically the Association's primary sources of deposits. In recent years, the
Association has priced its deposits to be competitive with other financial
institutions conducting business in its market area, but has not attempted to
match the highest rates paid by competing institutions. The ability of the
Association to attract and maintain deposits and the Association's cost of funds
have been and will continue to be significantly affected by economic and
competitive conditions.

    The following table sets forth the net deposit flows of the Association
during each of the years in the three year period ended December 31, 1996. The
decrease during 1994 was primarily attributable to management's efforts to
improve the Association's capital ratios by reducing its assets, restrictions
imposed on the Association's business by Federal regulatory authorities, the
effects of conducting business under growth restrictions in a competitive
industry and the Association's financial condition during these periods, as well
as investors seeking enhanced returns on investments available through mutual
funds and other market alternatives.
<TABLE>
<CAPTION>

                                                          DECEMBER 31,
                                                -----------------------------
                                                 1996         1995       1994
                                                 ----         ----       ----
                                                     (dollars in thousands)

<S>                                             <C>          <C>       <C>
Increase (decrease) before interest credited    $  28,992    30,172    (5,950)
Interest credited                                   8,999     7,932     5,664
                                                ---------   -------   -------

Net deposit increase (decrease)                 $  37,991    38,104      (286)
                                                =========   =======   =======

</TABLE>

     The following table presents by various interest rate categories the
amounts of certificates of deposit as of December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>

                                               DECEMBER 31,
                                      -------------------------------
                                      1996        1995           1994
                                      ----        ----           ----
                                          (dollars in thousands)
       INTEREST RATE:

     <S>                           <C>          <C>          <C>
      1.00% - 3.00%                $    542     $    829     $    210
      3.01% - 4.00%                     251        2,483       32,765
      4.01% - 5.00%                  33,459       12,962       43,789
      5.01% - 6.00%                 146,338       87,815       29,395
      6.01% - 7.00%                  23,992       59,043       17,381
      7.01% - 8.00%                   9,128        6,796        1,680
      8.01% - 9.00%                     933        1,824        1,982
      9.01% - 10.00%                     --          317          342
     10.01% - 11.00%                     --           78          319
                                   --------     --------     --------

                         Total     $214,643     $172,147     $127,863
                                   ========     ========     ========
</TABLE>



                                       18

<PAGE>   22



    The following table presents by various interest rate categories the amount
of certificate accounts maturing during the periods reflected below (dollars in
thousands):
<TABLE>
<CAPTION>

                                   YEAR ENDING DECEMBER 31,
                       -----------------------------------------------------
                                                                   2001 AND
AT DECEMBER 31, 1996:    1997        1998       1999        2000  THEREAFTER      TOTAL
                         ----        ----       ----        ----  ----------      -----
     <S>               <C>          <C>        <C>        <C>        <C>       <C>
     1.00% - 3.00%     $    105        331        106         --        --         542
     3.01% - 5.00%       22,175     10,555        975          5        --      33,710
     5.01% - 7.00%      103,858     41,278     12,040     11,401     1,753     170,330
     7.01% - 9.00%        6,852      1,182        713        556       758      10,061
                       --------     ------     ------     ------     -----     -------

                       $132,990     53,346     13,834     11,962     2,511     214,643
                       ========     ======     ======     ======     =====     =======
</TABLE>



     At December 31, 1996, the Association had $24.0 million of certificate
deposits in amounts of $100,000 or more maturing as follows:

<TABLE>
<CAPTION>

       MATURITY                                           AMOUNT
       --------                                           ------
                                                  (dollars in thousands)

       <S>                                              <C>
       Three months or less                             $  2,162
       Over three through six months                       5,416
       Over six through 12 months                          5,601
       Over 12 months                                     10,791
                                                        --------

            Total                                       $ 23,970
                                                        ========
</TABLE>

     As of December 31, 1996, the Association had no deposits of public funds.

     Borrowings. The Association may obtain advances from the FHLB of Atlanta
upon the security of the common stock it owns in the Bank, certain of its
residential mortgage loans and certain U.S. Government securities provided
certain standards related to creditworthiness have been met. See "Regulation --
Savings Institution Regulations -- Federal Home Loan Bank System." Such advances
are made pursuant to several credit programs, each of which has its own interest
rate and range of maturities. Such advances are generally available to meet
seasonal and other withdrawals of deposit accounts and to permit increased
lending, as well as to assist the efforts of members to establish better asset
and liability management through the extension of maturities of liabilities. As
of December 31, 1996 and 1995, the Association had outstanding FHLB advances
totaling $7.0 million and $30.0 million, with a weighted average interest rate
of 6.95% and 5.85%, respectively.



                                       19

<PAGE>   23



     The following table sets forth certain information with respect to
short-term borrowings at December 31, 1996, 1995 and 1994, and for each of the
years in the three-year period ended December 31, 1996.
<TABLE>
<CAPTION>

                                                      FOR THE YEAR ENDING
                                                          DECEMBER 31,
                                               ----------------------------------
                                                 1996          1995        1994
                                                 ----          ----        ----
                                                      (dollars in thousands)

<S>                                            <C>             <C>         <C>
FHLB ADVANCES:
  Average balance outstanding                  $  5,604         2,705       8,672
  Maximum amount outstanding at
       any month-end during the year            $28,000        30,000      25,000
  Weighted average interest rate
       during the year                             5.59%         6.03%       4.74%

  Weighted average interest rate
       at end of year                              6.95%         5.85%       6.81%

  Total borrowings at end of year              $  7,000        30,000      21,400
</TABLE>


SUBSIDIARIES

       Under Federal regulations, investments in and extensions of credit to
subsidiaries engaged in activities which are not permissible for national banks
must generally be deducted from the Association's regulatory capital. However,
certain exemptions generally apply where (i) a subsidiary is engaged in
activities permissible for national banks solely as an agent for its customers,
(ii) the subsidiary is engaged solely in mortgage-banking activities, (iii) the
subsidiary is itself an insured depository institution or a company the sole
investment of which is an insured depository institution acquired by the parent
insured depository institution prior to May 1989, and (iv) the institution is a
federal savings bank, was chartered prior to October 1982 as a federal savings
bank, or acquired its principal assets for a federal savings bank chartered
prior to October 1982.

     The Association has one wholly owned subsidiary: Gulf American Financial
Corporation ("GAFC"). GAFC owns Gulf American SBL, Inc. ("Gulf American"), which
was an approved U.S. Small Business Administration ("SBA") lender. Gulf American
ceased operations in December 1992, when the Company sold Gulf American's SBA
license. The remaining net assets of Gulf American were transferred to the
Association in 1994. GAFC, which previously made conventional commercial loans
and commercial construction loans, is no longer originating new loans and has
ceased its operations. During 1994, GAFC transferred its remaining assets and
liabilities to the Association. GAFC owns Gulf American, which was an approved
SBA lender prior to the Company's sale of Gulf American's SBA license, which
sale occurred in December 1992. Generally, Gulf American sold the guaranteed
portion of the SBA loans, retained the non-guaranteed portion, and also retained
the servicing rights to the loans. During 1992, Gulf American sold approximately
$27.0 million of SBA loans and servicing rights related to $117.0 million of SBA
loans. These transactions were based on a decision to cease such lending in
areas not directly served by the Company's thrift branches. The remaining net
assets of Gulf American were transferred to the Association in 1994.




                                       20

<PAGE>   24



COMPETITION

     The Association faces intense competition in its market areas from major
banking and financial institutions, including many which have substantially
greater resources, name recognition and market presence than the Association.
Particularly intense competition exists for attracting and retaining deposits
and lending funds. The Association competes for deposits principally by offering
depositors a variety of deposit programs, convenient branch locations and hours,
and other services. The Association does not rely upon any individual group or
entity for a material portion of its deposits. For additional information
regarding pending and recent legislation which is expected to increase
competition further by allowing additional out-of-state bank holding companies
to conduct business in Florida, see "Regulation -- Recent Legislative
Developments -- Interstate Banking."

     The Association's competition for real estate loans comes primarily from
mortgage banking companies, other savings institutions and commercial banks,
many of which have higher legal lending limits than the Association. The
Association competes for loan originations primarily through the interest rates
and loan fees it charges, and the efficiency and quality of services it provides
borrowers, real estate brokers and builders. Factors which affect competition
include the general and local economic conditions, current interest rate levels
and volatility in the mortgage markets.


EMPLOYEES

     The Association had 146 full-time employees and 24 part-time employees as
of December 31, 1996. None of these employees is represented by a collective
bargaining agent, and the Company believes that it enjoys good relations with
its personnel.


REGULATION

     In recent years, measures have been taken to reform the thrift and banking
industries and to strengthen the insurance funds for depository institutions.
The most significant of these measures was FIRREA, which has had a major impact
on the operation and regulation of savings associations generally. In 1991, a
comprehensive deposit insurance and banking reform plan, the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), became law. Although
FDICIA's primary purpose is to recapitalize the Bank Insurance Fund ("BIF") of
the FDIC, which insures the deposits of banks, FDICIA also affects the
supervision and regulation of all federally insured depository institutions,
including federal savings institutions such as the Association.

     The Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
FIRREA, which was enacted in response to concerns regarding the soundness of the
thrift industry, brought about a significant regulatory restructuring, limited
savings institutions' business activities, and increased savings institutions'
regulatory capital requirements. FIRREA abolished the Federal Home Loan Bank
Board and the Federal Savings and Loan Insurance Corporation (the "FSLIC"), and
established the Office of Thrift Supervision ("OTS") as the primary federal
regulator for savings institutions. Deposits at the Association are insured
through the Savings Association Insurance Fund (the "SAIF"), a separate fund
managed by the FDIC for institutions whose deposits were formerly insured by the
FSLIC. Regulatory functions relating to deposit insurance are generally
exercised by the FDIC.



                                       21

<PAGE>   25



     The Federal Deposit Insurance Corporation Improvement Act of 1991. FDICIA,
which was enacted to recapitalize the BIF, effects a number of regulatory
reforms that impact both savings institutions and banks. FDICIA authorizes the
regulators to take prompt corrective action to solve the problems of critically
undercapitalized institutions. As a result, the banking regulators are required
to take certain supervisory actions against undercapitalized institutions, the
severity of which increases as an institution's level of capitalization
decreases. Pursuant to FDICIA, the federal banking agencies have established the
levels at which an insured institution is considered to be "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized." See "Savings Institution Regulations--Prompt
Corrective Action" below for a discussion of the applicable levels.

     In addition, FDICIA requires each federal banking agency to establish
standards relating to internal controls, information systems, and internal audit
systems that are designed to assess the financial condition and management of
the institution; loan documentation; credit underwriting; interest rate
exposure; asset growth; and compensation, fees and benefits. FDICIA lowered the
qualified thrift lender ("QTL") investment percentage applicable to SAIF-insured
institutions. FDICIA further requires annual on-site full examinations of
depository institutions, with certain exceptions, and annual reports on
institutions' financial and management controls. See "Savings Institution
Regulations--Qualified Thrift Lender Test" and "--Insurance of Accounts" below.

     Interstate Banking. The Riegle-Neal Interstate Banking and Branching and
Efficiency Act of 1994 provides for nationwide interstate banking and branching.
Interstate banking and consolidation of existing bank subsidiaries in different
states will be permissible beginning June 1, 1997. The Florida legislature also
has enacted a law that allows out-of-state bank holding companies (located in
states that allow Florida bank holding companies to acquire banks and bank
holding companies in that state) to acquire Florida banks and Florida bank
holding companies. The law essentially provides for out-of-state entry by
acquisition only (and not by interstate branching) and requires the acquired
Florida bank to have been in existence for at least two years.


SAVINGS AND LOAN HOLDING COMPANY REGULATIONS

     Transactions with Affiliates. The Company is a unitary savings and loan
holding company and is subject to the OTS regulations and to examination,
supervision and reporting requirements pursuant to certain provisions of the
Home Owners' Loan Act (the "HOLA") and the Federal Deposit Insurance Act. As an
insured institution and a subsidiary of a savings and loan holding company, the
Association is subject to restrictions in its dealings with companies that are
"affiliates" of the Company under the HOLA and the OTS regulations.

     As a result of FIRREA, savings institutions' transactions with its
affiliates are subject to the limitations set forth in the HOLA and the OTS
regulations, which incorporate Sections 23A, 23B, 22(g) and 22(h) of the Federal
Reserve Act and Regulation O adopted by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). Under Section 23A, an "affiliate"
of an institution is defined generally as (i) any company that controls the
institution and any other company that is controlled by the company that
controls the institution, (ii) any company that is controlled by the
shareholders who control the institution or any company that controls the
institution, or (iii) any company that is determined by regulation or order to
have a relationship with the institution (or any subsidiary or affiliate of the
institution) such that "covered transactions" with the company may be affected
by the relationship to the detriment of the institution. "Control" is determined
to exist if a percentage stock ownership test is met or if there is control over
the election of directors or the management or policies of the company or
institution. "Covered transactions" generally include loans or extensions of
credit to an affiliate, purchases of securities issued by an affiliate,
purchases of assets from an affiliate (except as may be exempted by order or
regulation), and certain other transactions. The OTS regulations and Sections
23A and 23B require that covered transactions and certain other transactions
with affiliates be on terms and conditions consistent with safe and sound
banking practices or on terms comparable to similar transactions with
non-affiliated parties, and imposes quantitative restrictions on the amount of
and collateralization requirements on covered transactions. In addition, a
savings institution is prohibited from extending credit to an affiliate (other
than a subsidiary of the

                                       22

<PAGE>   26



institution), unless the affiliate is engaged only in activities that the
Federal Reserve Board has determined, by regulation, to be permissible for bank
holding companies. Sections 22(g) and 22(h) of the Federal Reserve Act impose
limitations on loans and extensions of credit from an institution to its
executive officers, directors and principal stockholders and each of their
related interests. See "Business - Securities."

     Activities Limitations. The Company is a unitary savings and loan holding
company under applicable law and the OTS regulations and will remain so until it
acquires as a separate subsidiary another savings institution. A savings and
loan holding company whose sole subsidiary qualifies as a QTL, described below,
generally has the broadest authority to engage in various types of business
activities. A holding company that acquires another institution and maintains it
as a separate subsidiary or whose sole subsidiary fails to meet the QTL test
will become subject to the activities limitations applicable to multiple savings
and loan holding companies.

     In general, a multiple savings and loan holding company (or subsidiary
thereof that is not an insured institution) may not commence, or continue for
more than a limited period of time after becoming a multiple savings and loan
holding company (or a subsidiary thereof), any business activity other than (i)
furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or an escrow business, (iii)
holding, managing or liquidating assets owned by or acquired from a subsidiary
insured institution, (iv) holding or managing properties used or occupied by a
subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by the OTS by regulation as of
March 5, 1987 to be engaged in by multiple savings and loan holding companies,
or (vii) subject to prior approval of the OTS, those activities authorized by
the Federal Reserve Board as permissible for bank holding companies. These
restrictions do not apply to a multiple savings and loan holding company if (a)
all, or all but one, of its insured institution subsidiaries were acquired in
emergency thrift acquisitions or assisted acquisitions or (b) all of its insured
institution subsidiaries are QTLs.

     Restrictions on Acquisitions. The Company must obtain approval from the OTS
before acquiring control of any other savings association. Such acquisitions are
generally prohibited if they result in a savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association. The Company may
acquire up to 5%, in the aggregate, of the voting stock of any non-subsidiary
savings association or savings and loan holding company without being deemed to
acquire "control" of the association or holding company. In addition, a savings
and loan holding company may hold shares of a savings association or a savings
and loan holding company for certain purposes, including a bona fide fiduciary,
as an underwriter or in an account solely for trading purposes. Under certain
conditions, a savings and loan holding company may acquire up to 15% of the
shares of a savings association or savings and loan holding company in a
qualified stock issuance; such acquisition is not deemed a controlling interest.

     The Change in Bank Control Act and the savings and loan holding company
provisions of HOLA, together with the regulations of the OTS under those Acts,
require that the consent of the OTS be obtained prior to any person or company
acquiring "control" of a savings association or a savings and loan holding
company. Under all OTS regulations, control is conclusively presumed to exist if
an individual or company acquires more than 25% of any class of voting stock of
an association or holding company. Control is rebuttably presumed to exist if a
person acquires more than 10% of any class of voting stock (or more than 25% of
any class of non-voting stock) and is subject to any of several "control
factors." The control factors relate, among other matters, to the relative
ownership position of a person, the percentage of debt and/or equity of the
association or holding company controlled by the person, agreements giving the
person influence over a material aspect of the operations of the association or
holding company and the number of seats on the board of directors thereof held
by the person or his designees. The regulations provide a procedure for
challenging the rebuttable control presumption. Restrictions applicable to the
operations of savings and loan holding companies and conditions imposed by the
OTS in connection with its approval of companies to become savings and loan
holding companies may deter companies from seeking to obtain control of the
Company.


                                       23

<PAGE>   27



 SAVINGS INSTITUTION REGULATIONS

     Federal savings institutions such as the Association are chartered by the
OTS, are members of the FHLB system, and have their deposits insured by the
SAIF. They are subject to comprehensive OTS and FDIC regulations that are
intended primarily to protect depositors. SAIF-insured, federal chartered
institutions may not enter into certain transactions unless applicable
regulatory tests are met or they obtain necessary approvals. They are also
required to file reports with the OTS describing their activities and financial
condition, and periodic examinations by the OTS test compliance by institutions
with various regulatory requirements, some of which are described below.

     Insurance of Accounts. The Association's deposits are insured by the SAIF
up to $100,000 for each insured account holder, the maximum amount currently
permitted by law.

     With respect to assessments paid by associations, the FDIC historically
imposed assessments on each association based on the institution's assessment
risk classification. The rates ranged from $.23 to $.31 per each $100 of
domestic deposits. The rate at which a SAIF member institution paid assessments
was determined on the basis of capital and supervisory measures. On September
30, 1996, legislation was enacted which, among other things, imposed a special
one-time assessment on SAIF member institutions, including the Association, in
order to recapitalize the SAIF and allocate to SAIF and BIF-insured institutions
an annual assessment to cover interest payments on Financing Corp. (FICO) bonds
issued in the 1980's to assist the thrift industry. The special one-time
assessment levied by the FDIC amounted to 65.47 basis points on SAIF assessable
deposits held by an institution as of March 31, 1995. SAIF-insured institutions
were required to recognize the special assessment, which is tax deductible, as
of September 30, 1996. Accordingly, in 1996 the Association took a charge of
$1.5 million before taxes as a result of the FDIC special assessment. Beginning
on January 1, 1997, SAIF members began paying an annual assessment of 6.4 basis
points on SAIF-insured deposits to cover interest payments on the FICO bonds.
The FDIC also has issued a base assessment schedule for SAIF institutions which
ranges from 4 to 31 basis points, with an adjusted assessment schedule that
reduces those rates by 4 basis points. Accordingly, well-capitalized thrifts
effectively have an assessment rate of zero for deposit insurance, except for
FICO assessment of 6.4 basis points discussed above. The new rate applied to all
SAIF-insured institutions effective January 1, 1997.

     As an insurer, the FDIC issues regulations and conducts examinations of its
insured members. SAIF insurance of deposits may be terminated by the FDIC, after
notice and hearing, upon a finding that an institution has engaged in unsafe and
unsound practices, is in an unsafe and unsound condition to continue operations,
or has violated any applicable law, regulation, rule, order or condition imposed
by the OTS or FDIC. When conditions warrant, the FDIC may impose less severe
sanctions as an alternative to termination of insurance. The Association's
management does not know of any present condition pursuant to which the FDIC
would seek to impose sanctions on the Association or terminate insurance of its
deposits.

     Regulatory Capital Requirements. As mandated by FIRREA, the OTS adopted
capital standards under which savings institutions must currently maintain (i) a
tangible capital requirement of 1.5% of tangible assets, (ii) a leverage (or
core capital) ratio of 3.0% of adjusted total assets, and (iii) a risk-based
capital requirement of 8.0% of risk-weighted assets. These requirements apply to
the Association and its capital levels; under current law and regulations, there
are no capital requirements directly applicable to the Company. See also
"Proposed Changes to Capital Requirements" below.

     Under the current OTS regulations, "tangible capital" includes common
stockholders' equity, noncumulative perpetual preferred stock and related
surplus, certain qualifying non-withdrawable accounts and pledged deposits, and
minority interests in fully consolidated subsidiaries, less intangible assets
(except 90% of purchased mortgage servicing rights) and specified percentages of
debt and equity investments in certain subsidiaries. "Core capital" is tangible
capital and other intangible assets meeting marketability criteria. The
"risk-based capital" requirement provides that an institution's total capital
must equal 8.0% of risk-weighted assets. "Total capital" equals core

                                       24

<PAGE>   28



capital plus "supplementary capital" (which includes specified amounts of
cumulative preferred stock, certain limited-life preferred stock, subordinated
debt and other capital instruments) in an amount equal to not more than 100% of
core capital. "Risk-weighted assets" are determined by assigning designated risk
weights based on the credit risk associated with the particular asset. As
provided by the OTS regulations, representative risk weights include: 0% for
cash and assets that are backed by the full faith and credit of the United
States; 20% for FHLB stock, agency securities not backed by the full faith and
credit of the United States and certain high-quality mortgage-related
securities; 50% for qualifying mortgage loans and certain non-high-quality
mortgage-related securities; and 100% for consumer, commercial and other loans,
repossessed assets and assets that are 90 or more days past due.

     At December 31, 1996, the Association's tangible, core and risk-based
capital ratios were 5.9%, 5.9% and 12.3%, respectively.

     The OTS risk-based capital guidelines also cite concentrations of credit
risk and an institution's ability to monitor and control them as important
factors in assessing an institution's overall capital adequacy. In addition to
reviewing concentrations of credit risk, the OTS also may review an
institution's management of concentrations of credit risk for adequacy and
consistency with safety and soundness standards regarding internal controls,
credit underwriting and other relevant operational and managerial areas.

     If an institution becomes categorized as "undercapitalized" under the
definitions established by the "prompt corrective action" provisions of FDICIA,
it will become subject to certain restrictions imposed by the FDICIA.
See "Prompt Corrective Action" below.

     Prompt Corrective Action. The OTS and other federal banking regulators have
established capital levels for institutions to implement the "prompt corrective
action" provisions of FDICIA. Capital levels have been established for which an
insured institution will be categorized as well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized or critically
undercapitalized. FDICIA requires federal banking regulators, including the OTS,
to take prompt corrective action to solve the problems of those institutions
that fail to satisfy their applicable minimum capital requirements. The level of
regulatory scrutiny and restrictions imposed become increasingly severe as an
institution's capital level falls.

     A "well capitalized" institution must have risk-based capital of 10% or
more, core capital ratio of 5% or more and Tier 1 risk-based capital (based on
the ratio of core capital to risk-weighted assets) of 6% or more and may not be
subject to any written agreement, order, capital directive, or prompt corrective
action directive issued by the OTS. The Association is a well capitalized
institution under the definitions as adopted. An institution will be categorized
as "adequately capitalized" if it has total risk-based capital of 8% or more,
Tier 1 risk-based capital of 4% or more, and core capital of 4% or more;
"undercapitalized" if it has total risk-based capital of less than 8%, Tier 1
risk-based capital of less than 6%, or core capital of less than 3%;
"significantly undercapitalized" if it has a total risk-based capital ratio of
less than 6% and a Tier 1 risk-based capital ratio of less than 3%; and
"critically undercapitalized" if it has tangible capital of less than 2%. A well
capitalized, adequately capitalized or undercapitalized insured institution may
be treated as if it had a lower capital-based classification if it is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice.
Thus, an adequately capitalized institution can be subjected to the restrictions
on undercapitalized institutions and an undercapitalized institution can be
subjected to the restrictions applicable to a significantly undercapitalized
institution.

     In the case of an institution that is categorized as "undercapitalized,"
such an institution must submit a capital restoration plan to the appropriate
agency. An undercapitalized institution generally cannot make capital
distributions or pay management fees to any person, and also is generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches or engaging in any new line of business except in
accordance with an accepted capital restoration plan or with the approval of the
OTS. In addition, the OTS is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution if it determines that those actions are

                                       25

<PAGE>   29



necessary to carry out the purposes of FDICIA. A "significantly
undercapitalized" institution will be subject to additional restrictions on its
affiliate transactions, the interest rates paid by the institution on its
deposits, asset growth, senior executive officers' compensation, and activities
deemed to pose excessive risk to the institution. Regulators may also order a
significantly undercapitalized institution to hold a new election of directors,
terminate any director or senior executive officer employed for more than 180
days prior to the time the institution became significantly undercapitalized, or
hire qualified senior executive officers approved by the regulators.

     FDICIA provides that an institution that is "critically undercapitalized"
must be placed in conservatorship or receivership within 90 days of becoming
categorized as such unless the institution's regulator and the FDIC jointly
determine that some other course of action would result in a lower resolution
cost to the institution's insurance fund. Thereafter, the institution's
regulator must periodically reassess its determination to permit a particular
critically undercapitalized institution to continue to operate and must appoint
a conservator or receiver for the institution at the end of an approximately
one-year period following the institution's initial classification as critically
undercapitalized unless a number of stringent conditions are met, including a
determination by the regulator and the FDIC that the institution has positive
net worth and a certification by such agencies that the institution is viable
and is not expected to fail.

     The OTS has adopted changes to its risk-based and leverage ratio
requirements that require all intangible assets, with certain exceptions, be
deducted from Tier 1 capital.

     In addition to the foregoing prompt corrective action provisions, FDICIA
also sets forth requirements that the federal banking agencies, including the
OTS, review their capital standards every two years to ensure that their
standards require sufficient capital to facilitate prompt corrective action and
to minimize loss to the SAIF and the BIF.

     Restrictions on Dividends and Other Capital Distributions. The current OTS
regulation applicable to the payment of cash dividends by savings institutions
imposes limits on capital distributions based on an institution's regulatory
capital levels and net income. An institution that meets or exceeds all of its
fully phased-in capital requirements (both before and after giving effect to the
distribution) and is not in need of more than normal supervision would be a
"Tier 1 association." A Tier 1 association may make capital distributions during
a calendar year of up to the greater of (i) 100% of net income for the current
calendar year plus 50% of its capital surplus or (ii) 75% of its net income over
the most recent four quarters. Any additional capital distributions would
require prior regulatory approval.

     An institution that meets the minimum regulatory capital requirements but
does not meet the fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of its
net income over the most recent four-quarter period, depending on the
institution's risk-based capital level. A "Tier 3 association" is defined as an
institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS. As of December 31, 1996, the Association was a Tier 2
institution for purposes of the regulation relating to capital distributions.

     Savings institutions must provide the OTS with at least 30 days' written
notice before making any capital distributions. All such capital distributions
are also subject to the OTS' right to object to a distribution on safety and
soundness grounds.

     Qualified Thrift Lender Test. Pursuant to amendments effected by FDICIA, a
savings institution will be a QTL if its qualified thrift investments equal or
exceed 65% of the savings institution's portfolio assets on a monthly average
basis in nine of every 12 months. Qualified thrift investments, under the
revised QTL test, include (i) certain housing-related loans and investments,
(ii) certain obligations of the FSLIC, the FDIC, the FSLIC Resolution Fund and
the RTC, (iii) loans to purchase or construct churches, schools, nursing homes
and hospitals (subject to certain limitations), (iv) consumer loans (subject to
certain limitations), (v) shares of stock issued by any FHLB,

                                       26

<PAGE>   30



and (vi) shares of stock issued by the FHLMC or the FNMA (subject to certain
limitations). Portfolio assets under the revised test consist of total assets
minus (a) goodwill and other intangible assets, (b) the value of properties used
by the savings institution to conduct its business, and (c) certain liquid
assets in an amount not exceeding 20% of total assets.

     Any savings institution that fails to become or remain a QTL must either
convert to a commercial bank charter or be subject to restrictions specified in
the OTS regulations. A savings institution that converts to a bank must pay SAIF
insurance assessments until the date of its conversion to BIF membership. Any
such institution that does not become a bank will be: (i) prohibited from making
any new investment or engaging in activities that would not be permissible for
national banks; (ii) prohibited from establishing any new branch office in a
location that would not be permissible for a national bank in the institution's
home state; (iii) ineligible to obtain new advances from any FHLB; and (iv)
subject to limitations on the payment of dividends comparable to the statutory
and regulatory dividend restrictions applicable to national banks. Also,
beginning three years after the date on which the savings association ceases to
be a QTL, the savings association would be prohibited from retaining any
investment or engaging in any activity not permissible for a national bank and
would be required to repay any outstanding advances to any FHLB. A savings
institution may requalify as a QTL if it thereafter complies with the QTL Test.
At December 31, 1996, the Association exceeded the QTL requirements.

     Federal Home Loan Bank System. The Association is a member of the FHLB
system, which consists of 12 regional Federal Home Loan Banks governed and
regulated by the Federal Housing Finance Board. The Federal Home Loan Banks
provide a central credit facility for member institutions. The Association, as a
member of the FHLB of Atlanta, is required to acquire and hold shares of capital
stock in the FHLB of Atlanta in an amount at least equal to the greater of 1% of
the aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations as of the close of each calendar
year, 0.3% of its assets, or 5% of its borrowings from the FHLB of Atlanta
(including advances and letters of credit issued by the FHLB on the
Association's behalf). As of December 31, 1996, the Association was in
compliance with this requirement with a $2.4 million investment in stock of the
FHLB of Atlanta.

     The FHLB of Atlanta makes advances to members in accordance with policies
and procedures periodically established by the Federal Housing Finance Board and
the Board of Directors of the FHLB of Atlanta. Currently outstanding advances
from the FHLB of Atlanta are required to be secured by a member's shares of
stock in the FHLB of Atlanta and by certain types of mortgages and other assets.
FIRREA further limited the eligible collateral in certain respects. Interest
rates charged for advances vary depending on maturity, the cost of funds to the
FHLB of Atlanta and the purpose of the borrowing. At December 31, 1996, advances
from the FHLB of Atlanta totaled $7.0 million. See Note 9 to the Company's
Consolidated Financial Statements. FIRREA restricts the amount of FHLB advances
that a member institution may obtain, and in some circumstances requires
repayment of outstanding advances, if the institution does not meet the QTL
test. See "Qualified Thrift Lender Test" above.

     Liquidity. OTS regulations currently require member savings institutions to
maintain for each calendar month an average daily balance of liquid assets (cash
and certain time deposits, securities of certain mutual funds, bankers'
acceptances, corporate debt securities and commercial paper, and specified U.S.
government, state government and federal agency obligations) equal to at least
5% of its average daily balance during the preceding calendar month of net
withdrawable deposits and short-term borrowings (generally borrowings having
maturities of one year or less). The Director of the OTS may vary this liquidity
requirement from time to time within a range of 4% to 10%. An institution must
also maintain for each calendar month an average daily balance of short-term
liquid assets (generally those having maturities of one year or less) equal to
at least 1% of its average daily balance during the preceding calendar month of
net withdrawable accounts and short-term borrowings. Monetary penalties may be
imposed for failure to meet liquidity requirements. At December 31, 1996, the
Association's liquidity ratio (which must be at least 5%) was 7.6%, and its
short-term liquidity ratio (which must be at least 1%) was 6.2%.


                                       27

<PAGE>   31



     Enforcement Authority. Pursuant to FIRREA, the OTS was granted enhanced,
extensive enforcement authority over all savings associations. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Since the
enactment of FIRREA, the OTS has significantly increased the use of written
agreements to correct compliance deficiencies with respect to applicable laws
and regulations and to ensure safe and sound practices; violations of such
written agreements are grounds for initiation of cease-and-desist proceedings.
FIRREA significantly increased the amount of and grounds for civil money
penalties assessable against savings associations and "institution-affiliated
parties." FDICIA granted the FDIC back-up enforcement authority to recommend
enforcement action to an appropriate federal banking agency (i.e., the OTS) and
to bring such enforcement action against a savings association or an
institution-affiliated party if such federal banking agency fails to follow the
FDIC's recommendation. In addition, FIRREA requires, except under certain
circumstances, public disclosure of final enforcement actions by the OTS.

     FIRREA also expanded the grounds for appointment of a conservator or
receiver for a savings association. Grounds for such appointment include:
insolvency; substantial dissipation of assets or earnings; existence of an
unsafe or unsound condition to transact business; likelihood that the
association will be unable to pay its obligations in the normal course of
business; and insufficient capital or the incurring or likely incurring of
losses that will deplete substantially all capital with no reasonable prospect
for replenishment.

     FDICIA added additional grounds for the appointment of a conservator or
receiver of a savings association, which include: undercapitalization where the
association (i) has no reasonable prospect of becoming adequately capitalized,
(ii) fails to become adequately capitalized when required to do so, (iii) fails
to timely submit an acceptable capital restoration plan, or (iv) materially
fails to implement a capital restoration plan; or the association is "critically
undercapitalized" or "otherwise has substantially insufficient capital."

     OTS Assessments. FIRREA empowers the OTS to issue regulations for the
collection of fees in order to recover the expenses of the agency, the cost of
the supervision of savings associations, the examination of affiliates of
savings associations, and the processing of applications, filings, notices and
other requests of associations filed with the OTS. The OTS adopted a two-pronged
sliding scale approach in 1991 by which all institutions pay a general
assessment and troubled institutions pay an additional premium assessment.

     Loans-to-One Borrower Limitations. FIRREA provides that loans-to-one
borrower limits applicable to national banks will apply to savings institutions.
Generally, under current limits, loans and extensions of credit outstanding at
one time to a single borrower may not exceed 15% of the savings institution's
unimpaired capital and unimpaired surplus. Loans and extensions of credit fully
secured by certain readily marketable collateral may represent an additional 10%
of unimpaired capital and unimpaired surplus. Notwithstanding general
limitations, FIRREA additionally provides that a savings institution may make
loans to one borrower, for any purpose, in an amount not to exceed $500,000 or,
by order of the Director of the OTS, in an amount not to exceed the lesser of
$30,000,000 or 30% of unimpaired capital and unimpaired surplus to develop
residential housing if: (i) the purchase price of each single-family dwelling in
the development does not exceed $500,000; (ii) the savings institution is and
continues to be in compliance with the fully phased-in capital standards of
FIRREA; (iii) loans made under this exception to all borrowers do not, in the
aggregate, exceed 150% of the institution's unimpaired capital and unimpaired
surplus; and (iv) such loans comply with applicable loan-to-value requirements.
While the Association had loans outstanding to three borrowers at December 31,
1996 in excess of the loan limits described above, it is not required to reduce
or divest the loans because they existed prior to the enactment of FIRREA.

     Federal Reserve System. The Association is subject to certain regulations
promulgated by the Federal Reserve Board. Pursuant to such regulations, savings
institutions are required to maintain reserves against their transaction
accounts (primarily interest-bearing checking accounts) and non-personal time
deposits. The balances maintained to meet the reserve requirements imposed by
the Federal Reserve Board may be used to satisfy liquidity

                                       28

<PAGE>   32



requirements imposed by the OTS. In addition, Federal Reserve Board regulations
limit the periods within which depository institutions must provide availability
for and pay interest on deposits to transaction accounts. Depository
institutions are required to disclose their check-hold policies and any changes
to those policies in writing to customers.

     Thrift Rechartering Legislation. Bills have been introduced in Congress
which would eliminate the federal thrift charter. These bills would require that
all federal savings associations convert to national banks or state banks by no
later than January 1, 1998 and would treat all state savings associations as
state banks as of that date.  All savings and loan holding companies would
become bank holding companies under the legislative proposals and would be
subject to the activities restrictions (with some activities grandfathered)
applicable to bank holding companies. The legislative proposals would also
abolish the OTS; savings associations would be regulated by the bank regulators
depending upon the type of bank charter selected. The Board of Governors of the
Federal Reserve System would be responsible for the regulation of savings and
loan holding companies.  Management cannot predict whether or when this
legislation will be enacted.  However, any such future legislation could
eliminate the institution's ability to engage in certain activities, have
significantly adverse tax effects and otherwise disrupt operations. See
"Taxation."


TAXATION


FEDERAL TAXATION

     General. The Company and the Association are subject to the generally
applicable corporate tax provisions of the Internal Revenue Code of 1986, as
amended ("Code"), as well as certain additional provisions of the Code which
apply to thrift and other types of financial institutions. The following
discussion of Federal taxation is intended only to summarize certain pertinent
Federal income tax matters and is not a comprehensive description of the tax
rules applicable to the Company and the Association.

     Method of Accounting. For Federal income tax purposes, the Company and the
Association report their income and expenses on the accrual basis method of
accounting and use a tax year ending December 31 for filing Federal income tax
returns. The Company and the Association have filed consolidated returns since
the calendar year 1989.

     Bad Debt Reserves. For fiscal years beginning prior to January 1, 1996,
thrift institutions which qualified under certain definitional tests and other
conditions of the Code were permitted to use certain favorable provisions to
calculate their deductions from taxable income for annual additions to their bad
debt reserve. A reserve could be established for bad debts on qualifying real
property loans (generally secured by interests in real property improved or to
be improved) under (i) the Percentage of Taxable Income Method (the "PTI
Method") or (ii) the Experience Method. The reserve for nonqualifying loans was
computed using the Experience Method.

     The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 2, 1996, requires savings institutions to recapture (i.e.,
take into income) certain portions of their accumulated bad debt reserves. For
fiscal years beginning after December 31, 1995, thrift institutions that would
be treated as small banks are allowed to utilize the Experience Method
applicable to such institutions, while thrift institutions that are treated as
large banks (those generally exceeding $500 million in assets) are required to
use only the specific charge-off method. Thus, the PTI Method of accounting for
bad debts is no longer available for any financial institution.

     A thrift institution required to change its method of computing reserves
for bad debts will treat such changes as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the IRS. Any
adjustment required to be taken into income ratably over a six-taxable year
period, beginning with the

                                       29

<PAGE>   33



first taxable year beginning after December 31, 1995, subject to the residential
loan requirement. At December 31, 1996, the Association had no excess bad debt
reserves over the 1987 base year reserves and accordingly management does not
expect the change in method to affect the financial condition of the Company.

     Distributions. Distributions by the Company to its stockholders would not
cause the Association to recapture any amount of its bad debt reserves into
taxable income. However, if the Association distributes cash or property to the
Company, and the distribution is treated as being from its accumulated bad debt
reserves, the distribution will cause the Association to have additional taxable
income. A distribution to the Company would be deemed to have been made from
accumulated bad debt reserves to the extent that (a) the reserves exceed the
amount that would have been accumulated on the basis of actual loss experience,
and (b) the distribution is a "non-dividend distribution." A distribution in
respect of stock is a non-dividend distribution to the extent that, for Federal
income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a
liquidation of the institution, or (iii) in the case of a current distribution,
together with all other such distributions during the taxable year, exceeds the
Association's current and post-1951 accumulated earnings and profits. The amount
of additional taxable income created by a non-dividend distribution is an amount
that when reduced by the tax attributable to it is equal to the amount of the
distribution.

     SAIF Recapitalization Assessment. The Funds Act levied a 65.7 cent fee on
every $100 of thrift deposits held on March 31, 1995. For financial statement
purposes, this assessment of $1.5 million before taxes was recorded by the
Association as an expense for the quarter ended September 30, 1996. The Funds
Act includes a provision which states that the amount of any special assessment
paid to capitalize SAIF under this legislation is deductible under Section 162
of the Code in the year of payment.

     Minimum Tax. For taxable years beginning after December 31, 1986, the Code
imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax
generally will apply to a base of regular taxable income with certain
adjustments plus certain tax preferences ("alternative minimum taxable income"
or "AMTI"), less an exemption amount (which will be phased out to the extent
that the AMTI exceeds $150,000). The Code provides that an item of tax
preference is the excess of the bad debt deduction allowable for a taxable year
pursuant to the percentage of taxable income method over the amount allowable
under the experience method. The other items of tax preference that constitute
AMTI include (a) tax exempt interest on newly-issued (generally, issued on or
after August 8, 1986) private activity bonds other than certain qualified bonds
and (b) for taxable years beginning after 1989, 75% of the excess (if any) of
(i) adjusted current earnings (as defined) over (ii) AMTI (determined without
regard to this preference and prior to reduction by net operating losses). Net
operating losses can offset no more than 90% of AMTI. Certain payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. In addition, corporations, including thrift institutions, are
also subject to an environmental tax equal to 0.12% of the excess of AMTI for
the taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2.0 million.

     Net Operating Loss Carryovers. A financial institution may carry back net
operating losses to the preceding three taxable years and forward to the
succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. Losses incurred by savings institutions in
years beginning after 1981 and before 1986 may be carried back 10 years and
forward eight years. Losses attributable to years before 1982 may be carried
back 10 years and forward five years. At December 31, 1996, the Association has
operating loss carryforwards for Federal income tax purposes of approximately
$4.1 million, which are available to offset future Federal taxable income and
which expire in 2007, 2008 and 2010. The total net operating loss carryforwards
are subject to an annual limitation of $268,000 as a result of the capital
infusion attributable to shares sold by the Company in September 1993. In
addition, the Company has alternative minimum tax credit carryforwards of
approximately $121,000 which are available to reduce future Federal income taxes
over an indefinite period.

     Capital Gains and Corporate Dividends-Received Deduction. Corporate net
capital gains are taxed at a maximum rate of 34%. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return, and corporations

                                       30

<PAGE>   34



which own less than 20% of the stock of a corporation distributing a dividend
may deduct only 70% of dividends received or accrued on their behalf. However, a
corporation may deduct 100% of dividends from a member of the same affiliated
group of corporations. In addition to the foregoing general rules, certain
additional exceptions to the dividends-received deduction allowed to the
Association may be applicable under the Code in certain circumstances.


FLORIDA TAXATION

     The State of Florida has a corporate franchise tax which subjects the
Company's Florida taxable income to a 5.5% tax. This tax is deductible in
determining Federal taxable income.

IMPACT OF NEW ACCOUNTING ISSUES

     The FASB has issued Statement of Financial Accounting Standards No. 125
("SFAS 125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets as well as extinguishments of
liabilities. The statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 is effective for transfers and servicing of financial
assets as well as extinguishments of liabilities occurring in 1997. Management
does not anticipate SFAS 125 will have a material impact on the Company.


STATISTICAL PROFILE AND OTHER DATA

     Reference is hereby made to the statistical and financial data contained in
the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which is included in the Company's 1996
Annual Report to Stockholders and incorporated in this Report under Item 7 of
Part II, for statistical and financial data providing a review of the Company's
business activities.


ITEM 2.  PROPERTIES

     At December 31, 1996, the Company and the Association conducted business
from an administrative facility located at 2013 Live Oak Boulevard, St. Cloud,
Florida. In addition, the Association maintained a main office at 200 East
Broadway, Kissimmee, Florida and ten full service branch offices in Osceola and
Brevard Counties, Florida. As of December 31, 1996, the Association owned seven
of its offices and leased four other offices. The office and properties which
are leased by the Association have lease terms, including renewal options, of
one to 10 years.

     The following table sets forth certain information regarding the Company's
administrative office and the Association's office properties.
<TABLE>
<CAPTION>

                                                                                NET BOOK VALUE AT DECEMBER 31, 1996
                                                                                -----------------------------------

                                                                           LAND, BUILDING AND         FURNITURE, FIXTURES
    LOCATION                                 DATE ACQUIRED                LEASEHOLD IMPROVEMENTS          AND EQUIPMENT
    --------                                 -------------                ----------------------          -------------

<C>                                                <C>                        <C>                          <C>
ADMINISTRATIVE OFFICE
2013 Live Oak Boulevard                            1986                       $659,432                     $204,019
St. Cloud, FL  34771-8462

</TABLE>


                                       31

<PAGE>   35


<TABLE>

<C>                                                <C>                         <C>                          <C>
ASSOCIATION MAIN OFFICE
200 East Broadway                                  1965                        311,337                      181,226
P.O. Box 421708
Kissimmee, FL  34742-1708

ASSOCIATION BRANCH OFFICES:
1115 North Bermuda Avenue                          1973                        446,285                       33,715
Kissimmee, FL  34741-4209

1300 East Vine Street                              1981                        387,548                       68,742
Kissimmee, FL  34744-3620

1220 Ninth Street (1)                              1959                         -                            79,498
St. Cloud, FL  34769-3376

4291 13th Street                                   1989                        763,559                      130,963
St. Cloud, FL  34769-6730

1300 Babcock Street                                1973                        534,976                       40,667
Melbourne, FL  32901-3097

450 East Eau Gallie Blvd.                          1995                        275,694                       64,912
Indian Harbour Beach, FL  32937-4207

Building B, Suite 100 (1)                          1989                        229,973                      163,209
6769 N. Wickham Road, Suite 100
Melbourne, FL  32940-2019

401 Ocean Avenue (1)                               1979                         24,946                       28,146
Melbourne Beach, FL  32951-2567

6000 Babcock Street, SE (1)                        1984                         71,271                       46,966
Palm Bay, FL  32909-3921

232 South Dillard Street                           1982                        389,012                       85,169
Winter Garden, FL  34787
</TABLE>

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

(1)     Presently leased by the Association.


ITEM 3.  LEGAL PROCEEDINGS

      The Company and the Association are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business, such as
claims to enforce liens, claims involving the making and servicing of real
property loans, and other issues incident to the Association's business.
Management does not believe that there is any pending proceeding against the
Company or the Association which, if determined adversely, would have a material
adverse effect on the business, results of operations, or financial position of
the Company or the Association.






                                       32

<PAGE>   36



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

      No matters were submitted to a vote of Company security holders during the
fourth quarter of the year ended December 31, 1996.



                                       33

<PAGE>   37




                                     PART II

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

      The information contained under the section captioned "Common Stock Data"
in the Annual Report is incorporated herein by reference.


ITEM 6.  SELECTED FINANCIAL DATA

      The information contained in the table captioned "Selected Consolidated
Financial and Other Data" in the Annual Report is incorporated herein by
reference.


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

      The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The following financial statements and the supplementary financial
information included in the 1996 Annual Report to Stockholders are incorporated
herein by reference:

           1. The consolidated financial statements, together with the report
thereon of Hacker, Johnson, Cohen & Grieb dated February 11, 1997, except for
Note 21, as to which the date is March 11, 1997.

           2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and related statistical information.

      With the exception of the aforementioned information and the information
incorporated in Items 5, 6, 7 and 8, the 1996 Annual Report to Stockholders is
not to be deemed filed as part of this Form 10-K Report.


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

      Not Applicable.



                                       34

<PAGE>   38




                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information contained under the sections captioned "Directors" and
"Executive Officers" under "Election of Directors" in the registrant's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
April 23, 1997, to be filed with the SEC pursuant to Regulation 14A within 120
days of the registrant's fiscal year end (the "Proxy Statement"), is
incorporated herein by reference.


ITEM 11.  EXECUTIVE COMPENSATION

      The information contained in the sections captioned "Information About the
Board of Directors and Its Committees", "Executive Compensation and Benefits"
and "Information on Benefit Plans and Policies" under "Election of Directors" in
the Proxy Statement is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information contained in the sections captioned "Directors" and
"Management Stock Ownership" under "Election of Directors", and "Ownership of
Equity Securities" in the Proxy Statement is incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information contained in the section captioned "Certain Transactions"
under "Election of Directors" in the Proxy Statement is incorporated herein by
reference.

                                       35

<PAGE>   39



                                     PART IV

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

      (A)  THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

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

                Independent Auditors' Report (page 43 of the Annual Report)

                Consolidated Balance Sheets at December 31, 1996 and 1995 (page
                16 of the Annual Report)

                Consolidated Statements of Income for each of the years in the
                three-year period ended December 31, 1996 (page 17 of the Annual
                Report)

                Consolidated Statements of Stockholders' Equity for each of the
                years in the three-year period ended December 31, 1996 (page 18
                of the Annual Report)

                Consolidated Statements of Cash Flows for each of the years in
                the three-year period ended December 31, 1996 (pages 19 and 20
                of the Annual Report)

                Notes to Consolidated Financial Statements (pages 21 through 42
                of the Annual Report)

           2.   FINANCIAL STATEMENT SCHEDULES

                All financial statement schedules are omitted because the
                required information is either not applicable or not required,
                or the required information is shown in the Consolidated
                Financial Statements or in the notes thereto.

           3.   EXHIBITS

                The following exhibits are filed as part of this Form 10-K and
                this list includes the Exhibit index.

                3.1       Amended Articles of Incorporation *

                3.2       Articles of Amendment to Articles of Incorporation**

                3.3       Bylaws *

                3.4       Amendment to Bylaws dated September 21, 1994***

                4         Specimen form of stock certificate *

                10.1      Key Employee Stock Compensation Program */****

                13        1996 Annual Report to Stockholders



                                       36

<PAGE>   40



         22       Subsidiaries of the Registrant - Reference is made to Item 1.
                  "Business - The Association" for the required information

         27       Financial Data Schedule (for SEC use only)

         (*)      Incorporated herein by reference from the Company's
                  registration statement on Form S-1 (File No. 33-23161).

         (**)     Incorporated herein by reference from the Company's
                  Registration Statement on Form S-1 (File No. 33-79472).

         (***)    Incorporated herein by reference from the Company's Form
                  10-K for the year ending December 31, 1994.

         (****)   Represents a management contract or compensatory plan or
                  arrangement required to be filed as an exhibit.












                                       37

<PAGE>   41



                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of St.
Cloud, State of Florida, on the 31st day of March, 1997.


                                            F.F.O. FINANCIAL GROUP, INC.



                                            By: /s/ James B. Davis
                                                -------------------------
                                            James B. Davis, President and
                                            Chief Executive Officer

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

<S>                                                                    <C>
    /s/ Alfred T. May                                                  March 31, 1997
-------------------------------------------------
Alfred T. May
Chairman

    /s/ James B. Davis                                                 March 31, 1997
--------------------------------------------------
James B. Davis
President/Chief Executive Officer

    /s/ Phyllis A. Elam                                                March 31, 1997
-------------------------------------------------
Phyllis A. Elam
Chief Financial Officer

    /s/ Donald S. Brown, D.V.M.                                        March 31, 1997
-------------------------------------------
Donald S. Brown, D.V.M.
Director

    /s/ William R. Hough                                               March 31, 1997
-----------------------------------------------
William R. Hough
Director

    /s/ Edward A. Moore                                                March 31, 1997
----------------------------------------------
Edward A. Moore
Director

    /s/ Mildred W. Pierson                                             March 31, 1997
----------------------------------------------
Mildred W. Pierson
Director
</TABLE>


                                       38

<PAGE>   42


                          F.F.O. Financial Group, Inc.
                                    Form 10-K
                    For Fiscal Year Ending December 31, 1996

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit                                                                                         Page
  No.                                      Exhibit                                                No.
-------                             ------------------------------------------                  ----

<S>                                 <C>                                                        <C>
13                                  1996 Annual Report to Stockholders

27                                  Financial Data Schedule (for SEC use only)

</TABLE>


                                       39