<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [FEE REQUIRED]
          For the fiscal year ended March 31, 1997
                                      OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
          For the transition period from __________________ to _________________

          Commission file number:  0-21328

                            FORT BEND HOLDING CORP.
          -----------------------------------------------------------
          (Name of small business issuer as specified in its charter)

          Delaware                                             76-0391720
-------------------------------                            ------------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                             Identification No.)
                 
 
3400 Avenue H, Rosenberg, Texas                                   77471
--------------------------------------------------------------------------------
(Address of principal executive offices)                        (Zip Code)
 
Registrant's telephone number, including area code:  (281) 342-5571
                                                     
          Securities Registered Pursuant to Section 12(b) of the Act:

                                     None
                                     
          Securities Registered Pursuant to Section 12(g) of the Act:

The Nasdaq National Market                Common Stock, par value $.01 per share
--------------------------                --------------------------------------
(Name of each exchange on                              (Title of Class) 
    which registered)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such requirements for the past 90 days.  YES [X]. NO [ ].

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]

     State the issuer's revenues for its most recent fiscal year:  $22,121,161.

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock on the
Nasdaq Stock Market as of June 12, 1997 was $19 million. (The exclusion from
such amount of the market value of the shares owned by any person shall not be
deemed an admission by the Registrant that such person is an affiliate of the
Registrant.)

     As of June 12, 1997, there were issued and outstanding 827,215 shares of
the Registrant's Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

Part III of Form 10-KSB - Portions of Proxy Statement for 1997 Annual Meeting of
                                 Stockholders.
        Transitional Small Business Disclosure Format:  YES [ ]. NO [X].
<PAGE>
 
                                    PART I

ITEM. 1   DESCRIPTION OF BUSINESS

GENERAL

     Fort Bend Holding Corp. (the "Company") is a Delaware corporation which was
organized in 1993 for the purpose of becoming the savings and loan holding
company of Fort Bend Federal Savings and Loan Association of Rosenberg ("Fort
Bend" or the "Association"). The Company owns all of the outstanding stock of
the Association, issued on June 30, 1993 in connection with the completion of
the Association's conversion from the mutual to the stock form of organization
(the "Conversion").  The Association was originally organized in 1933. The
Association amended its charter in June 1993 in connection with the Conversion
to become a federal stock savings and loan association.  In January 1997, the
Association acquired a majority interest in Mitchell Mortgage Company, L.L.C., a
mortgage banking company.  See "Recent Acquisitions."  All references to the
Company, unless otherwise indicated, at or before June 30, 1993 refer to the
Association.  Unless the context otherwise requires, all references herein to
the Association or the Company include the Company and Association on a
consolidated basis.  The Company's common stock, par value $.01 per share (the
"Common Stock"), is quoted on The Nasdaq National Market under the symbol
"FBHC."

     The Company and the Association are subject to comprehensive regulation,
examination and supervision by the Office of Thrift Supervision, Department of
the Treasury ("OTS") and the Federal Deposit Insurance Corporation ("FDIC").
The Association is a member of the Federal Home Loan Bank ("FHLB") System and
its deposits are insured by the Savings Association Insurance Fund ("SAIF") to
the maximum extent permitted by law.

     The Company serves its primary market area, Fort Bend County, Texas and
portions of Harris, Montgomery and Wharton Counties, Texas, through the
Association's four retail banking offices and the operations of Mitchell
Mortgage Company, L.L.C.  At March 31, 1997, the Company had total assets of
$295.1 million, deposits of $250.2 million and stockholders' equity of $18.4
million.

     The Company has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Company attracts deposits from the general
public and uses such deposits, together with borrowings and other funds, to
originate single family residential loans, construction loans, and commercial
real estate loans.  The Company also originates commercial loans and consumer
loans, including loans for the purchase of automobiles and home improvement
loans.  The Company also invests in mortgage-backed securities which are insured
by or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Government National Mortgage Association ("GNMA") or the Federal National
Mortgage Association ("FNMA") or have an investment grade, and securities issued
by the U.S. government or agencies thereof.

     The Company's revenues are derived principally from interest on loans and
securities, servicing fee income, income from deposit account service charges
and gains on the sale of loans, and income from the Company's financial services
operations.  The Company's operations

                                       2
<PAGE>
 
may be materially affected by general economic conditions, competition in the
Company's market area, the monetary and fiscal policies of the federal
government and the policies of the various regulatory authorities, including the
OTS and the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board").  The Company's results of operations are largely dependent upon
its net interest income, which is the difference between the interest it
receives on its loan portfolio and its investment securities portfolio and the
interest it pays on its deposit accounts and borrowings.

     The executive offices of the Company and the Association are located at
3400 Avenue H, Rosenberg, Texas 77471.  The telephone number at that address is
(281) 342-5571.

FORWARD-LOOKING STATEMENTS

     When used in this Form 10-KSB or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," "believe" or similar expressions are intended to identify "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995.  The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made, and to advise readers that various factors, including regional and
national economic conditions, changes in levels of market interest rates, credit
risks of lending activities, and competitive and regulatory factors, could
affect the Company's financial performance and could cause the Company's actual
results for future periods to differ materially from those anticipated or
projected.

     The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.

RECENT ACQUISITIONS

     MITCHELL MORTGAGE.  On January 3, 1997, the Association completed its
purchase of a 51% interest in the assets of Mitchell Mortgage Company ("Old
Mitchell"), a full-service mortgage banking affiliate of The Woodlands
Corporation.  The transaction was effected through the transfer of certain
assets of Old Mitchell to a newly incorporated limited liability company,
Mitchell Mortgage Company, L.L.C. ("Mitchell"), in which the Association
acquired a 51% interest in exchange for approximately $2.6 million in cash.  Old
Mitchell received the remaining 49% interest in Mitchell in exchange for certain
mortgage loans and its mortgage servicing portfolio and the liabilities of Old
Mitchell.  Subsequent to the closing of the transaction, Old Mitchell merged
into The Woodlands Corporation with The Woodlands Corporation as the surviving
entity.

     In connection with the transaction, Old Mitchell (and The Woodlands
Corporation, as successor) was granted an option to convert, upon the occurrence
of certain events, its ownership interest in Mitchell into shares of the common
stock of the Company, at a rate of 41.152 shares

                                       3
<PAGE>
 
for each $1,000 of ownership interest in Mitchell, in an amount not to exceed
9.9% of the Company's outstanding common stock.  Any amount that would otherwise
be required to be issued exceeding 9.9% of the Company's outstanding common
stock will be paid in cash.  The option becomes exercisable on January 2, 1998
and expires on January 2, 2002.

     Mitchell will, as did Old Mitchell, engage in the mortgage banking
business, including the origination and servicing of single family purchase
loans, single family construction loans and commercial and multifamily real
estate loans.  Old Mitchell was formed in 1974 and has had a mortgage banking
relationship with the Company for seven years.  At March 31, 1997, Mitchell's
loan servicing portfolio was approximately $600 million of which $21.0 million
was being serviced for the Association.

     FIRSTBANC SAVINGS.  On August 16, 1996, the Company completed its
acquisition of FirstBanc Savings Association of Texas ("FirstBanc"), a Texas-
chartered savings and loan association with one full service office, located in
Missouri City, Texas.  Upon consummation of the transaction, FirstBanc was
merged with and into the Association, with the Association as the surviving
entity.  As of August 16, 1996, FirstBanc reported unaudited total assets and
deposits of approximately $30.0 million and $26.8 million, respectively.

LENDING ACTIVITIES

     GENERAL.  Since the mid 1980s, in order to reduce its exposure to changes
in interest rates, the Company has emphasized the origination and retention of
Adjustable Rate Mortgage ("ARM") loans and loans with shorter terms to maturity
than traditional 30-year, fixed-rate loans.  Management's strategy has been to
increase the percentage of assets in the Company's portfolio with assets which
more frequently reprice or which have shorter maturities.  In response to strong
customer demand, however, the Company continues to originate conventional fixed-
rate mortgages generally for sale in the secondary market.

     The Company's primary focus in lending activities is on the origination of
loans secured by first mortgages on owner-occupied, one- to four-family
residences, residential construction, commercial real estate and consumer loans
in its market area.  To supplement loan origination activities prior to January
1, 1997, the Company purchased one- to four-family residential loans from Old
Mitchell and a bank in Central Texas, and participations in certain residential
construction loans from Old Mitchell.  See "- Originations, Purchases and Sales
of Loans and Mortgage-Backed Securities."  At March 31, 1997, the Company's net
loan portfolio totaled $140.9 million.

     Loan applications are initially considered at various levels of authority,
depending on the type, amount and loan-to-value ratio of the loan.  Most single-
family residential mortgage loans underwritten to FHLMC or FNMA guidelines are
approved by the Company's chief loan underwriter, then reviewed by the loan and
appraisal review committee.  All other portfolio mortgage real estate loan
commitments generally must be approved by a majority vote of the members of the
Company's loan and appraisal review committee.  Other loans up to $600,000 with
confirmed take out commitments may be approved by an underwriter of the Company.
The members of the Company's loan and appraisal review committee include
Chairman of the Board Robert W. Lindsey, Vice Chairman of the Board and
President Lane Ward, Director Wayne O. Poldrack,

                                       4
<PAGE>
 
Executive Vice President David D. Rinehart, and Senior Vice President
Larry J. Dobrava.  The members of the Mitchell loan committee and appraisal
review committee include Chairman of the Board Lane Ward, Director William A.
Little and President Dale Andreas. Generally, unsecured consumer loans and
consumer loans secured by assets other than real estate in amounts less than
$5,000 and $30,000, respectively, are approved by the reviewing loan officer.
Loans in excess of these amounts generally require the additional approval of
either one or two members of the Company's loan and appraisal review committee.

     All of the Company's lending is subject to its written underwriting
standards and to loan origination procedures.  Decisions on loan applications
are made on the basis of detailed applications and property valuations
(consistent with the Company's written appraisal policy) by independent
appraisers (generally with respect to loans in excess of $250,000) or by the
Company's staff appraiser.  The loan applications are designed primarily to
determine the borrower's ability to repay, and are verified through use of
credit reports, financial statements, tax returns and/or confirmations.

     An appraisal of the security property is obtained on all loans secured by
real property from Board-approved independent fee appraisers or the Company's
staff appraiser.   The Company requires evidence of marketable title and lien
position as well as appropriate title insurance on all loans secured by real
property, and requires fire and extended coverage casualty insurance in amounts
at least equal to the principal amount of the loan or the value of improvements
on the property, depending on the type of loan.  The Company may also require
flood insurance to protect the property securing its interest.

     The aggregate amount of loans that the Company is permitted to make under
applicable federal regulations to any one borrower, including related entities,
is limited generally to the greater of 15% of unimpaired capital and surplus or
$500,000.  See "Regulation - Federal Regulation of Savings Associations."  At
March 31, 1997, the maximum amount which the Company could lend to any one
borrower and the borrower's related entities was approximately $3.2 million.  At
March 31, 1997, the Company had no loans to one borrower which exceeded this
amount.  At March 31, 1997, the principal balance of the largest amount
outstanding to any one borrower, or group of related borrowers, was
approximately $2.0 million.

                                       5
<PAGE>
 
      LOAN PORTFOLIO COMPOSITION.  The following information shows the
composition of the Company's loan portfolio (including loans held for sale) in
dollar amounts and in percentages (before deductions for loans in process,
deferred fees and discounts and allowances for losses) as of the dates
indicated.

<TABLE> 
<CAPTION> 
                                                                           March 31,
                             ---------------------------------------------------------------------------------------------------
                                    1997                1996                 1995               1994                 1993
                             ------------------  --------------------  -----------------  ------------------  ------------------
                              Amount   Percent   Amount     Percent    Amount   Percent    Amount   Percent    Amount   Percent
                             --------  --------  -------  -----------  -------  --------  --------  --------  --------  --------
                                                                    (Dollars in Thousands)
<S>                          <C>       <C>       <C>      <C>          <C>      <C>       <C>       <C>       <C>       <C>       

Real Estate Loans:
 One- to four-family         $ 77,736    47.72%  $59,637       59.93%  $49,157    58.87%   $47,970    59.32%   $51,729    63.39%
 Multi-family                   3,241     1.99     4,565        4.59     4,522     5.42      6,889     8.52      6,876     8.43
 Commercial                     7,411     4.55     7,999        8.04     7,757     9.29      9,197    11.37      9,066    11.11
 Construction, development
  and land                     48,888    30.01     8,708        8.75     7,832     9.38      4,105     5.08      2,661     3.27
                             --------   ------   -------      ------   -------   ------    -------   ------    -------   ------
 Total real estate loans      137,276    84.27    80,909       81.31    69,268    82.96     68,161    84.29     70,332    86.20
                             --------   ------   -------      ------   -------   ------    -------   ------    -------   ------
 
Other Loans:
 Consumer Loans:
  Deposit account               3,191     1.96     2,718        2.73     2,571     3.08      2,838     3.51      2,470     3.03
  Student                         ---      ---       ---         ---       ---      ---        ---      ---          2      ---
  Automobile                   10,469     6.42    10,116       10.17     7,726     9.25      6,646     8.22      4,999     6.12
  Home improvement              5,304     3.26     4,240        4.26     3,253     3.90      2,813     3.48      3,070     3.76
  Other - secured               5,394     3.31       761        0.77       347     0.41        239      .30        586      .72
  Other - unsecured             1,275     0.78       757        0.76       332     0.40        172      .20        137      .17
                             --------   ------   -------      ------   -------   ------    -------   ------    -------   ------
 Total consumer loans          25,633    15.73    18,592       18.69    14,229    17.04     12,708    15.71     11,264    13.80
                             --------   ------   -------      ------   -------   ------    -------   ------    -------   ------
 Total gross loans            162,909   100.00%   99,501      100.00%   83,497   100.00%    80,869   100.00%    81,596   100.00%
                                        ======                ======             ======              ======              ======
 
Less:
 Loans in process              19,381              3,437                 4,116               1,629               1,023
 Deferred fees and                                                                                                     
  discounts                       939                930                   827                 451                 494 
 Allowance for losses           1,701              1,350                 1,650               1,712               1,742
                             --------            -------               -------             -------             -------
 Total loans receivable,                                                                                               
  net                        $140,888            $93,784               $76,904             $77,077             $78,337 
                             ========            =======               =======             =======             ======= 
</TABLE>

                                       6
<PAGE>
 
   The following table shows the composition of the Company's loan portfolio
(including loans held for sale) by fixed and adjustable-rate categories at the
dates indicated.

<TABLE>
<CAPTION>
 
 
                                                               March 31,
                                        --------------------------------------------------------
                                               1997               1996              1995
                                        ------------------  -----------------  -----------------   
                                         Amount   Percent   Amount   Percent   Amount   Percent
                                        --------  --------  -------  --------  -------  --------
                                                         (Dollars in Thousands)
<S>                                     <C>       <C>       <C>      <C>       <C>      <C>       
 
Fixed-Rate Loans:
 Real estate:
  One- to four-family                   $ 23,347    14.33%  $21,853    21.96%  $22,029    26.38%
  Multi-family                             2,671     1.64     4,464     4.49     4,522     5.42
  Commercial                               4,963     3.05     5,652     5.68     6,465     7.74
  Construction, development and land       5,879     3.61     1,341     1.35     1,125     1.35
                                        --------   ------   -------   ------   -------   ------
     Total real estate loans              36,860    22.63    33,310    33.48    34,141    40.89
 Consumer                                 25,250    15.50    18,523    18.62    14,202    17.01
                                        --------   ------   -------   ------   -------   ------
     Total fixed-rate loans               62,110    38.13    51,833    52.10    48,343    57.90
                                        --------   ------   -------   ------   -------   ------
 
Adjustable-Rate Loans:
 Real estate:
  One- to four-family                     54,389    33.39    37,784    37.97    27,128    32.49
  Multi-family                               570     0.35       101     0.10       ---      ---
  Commercial                               2,448     1.50     2,347     2.36     1,292     1.55
  Construction, development and land      43,009    26.40     7,367     7.40     6,707     8.03
                                        --------   ------   -------   ------   -------   ------
     Total real estate loans             100,416    61.64    47,599    47.83    35,127    42.07
 Consumer                                    383      .23        69     0.07        27     0.03
                                        --------   ------   -------   ------   -------   ------
     Total adjustable-rate loans         100,799    61.87    47,668    47.90    35,154    42.10
                                        --------   ------   -------   ------   -------   ------
     Total gross loans                   162,909   100.00%   99,501   100.00%   83,497   100.00%
                                        --------   ======   -------   ======             ======
Less:
 Loans in process                         19,381              3,437              4,116
 Deferred fees and discounts                 939                930                827
 Allowance for loan losses                 1,701              1,350              1,650
                                        --------            -------            -------
    Total loans receivable, net         $140,888            $93,784            $76,904
                                        ========            =======            =======
 
</TABLE>

                                       7
<PAGE>
 
   The following schedule illustrates the maturities of the Company's loan
portfolio at March 31, 1997.  Mortgages which have adjustable or renegotiable
interest rates are shown as maturing in the period during which the contract is
due.  The schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
 
 
                                             Real Estate
                         ----------------------------------------------------
                                                          Other                                  Consumer
                              One- to Four-Family     Mortgage Loans     Construction           and Other           Total  
                         ---------------------------  --------------- ---------------------  ----------------  --------------------
                                     Weighted              Weighted              Weighted            Weighted              Weighted 
                                      Average               Average               Average             Average               Average 
                          Amount       Rate      Amount      Rate     Amount       Rate      Amount    Rate      Amount      Rate   
                         ---------   ---------   -------   ---------  -------   ---------    ------  --------   --------   ---------

<S>                      <C>         <C>         <C>        <C>       <C>       <C>          <C>     <C>         <C>        <C> 
                                                                         (Dollars in Thousands)
Maturity:
 
Zero to twelve months     $   553      9.37%     $ 2,301     9.25%   $43,650      9.74%     $ 4,216     9.12%   $ 50,720      9.66% 

More than one year                   
 through three years          697      8.53        1,989     9.56        341      9.27        6,850    10.16       9,877      9.89
More than three years                                                                                                     
 through five years         1,464      9.11        4,215     9.14        ---       ---        8,879     9.24      14,557      9.20
More than five years                                                                                                             
 through ten years          7,300      8.80        8,131     8.96        ---       ---          351    10.29      15,782      8.91
More than ten years                                                                                                               
 through twenty years      22,961      8.19        4,190     9.44        ---       ---           33    11.50      27,185      8.39
More than twenty years     44,788      7.46          ---      ---        ---       ---          ---      ---      44,788      7.46  
                          -------                -------             -------                -------             --------            
     Total                $77,763      7.85%     $20,826     9.18%   $43,991      9.73%     $20,329     9.55%   $162,909      8.74% 
                          =======                =======             =======                =======             ========   
 
</TABLE>

                                       8
<PAGE>
 
  As of March 31, 1997, the total amount of loans due after March 31, 1998 which
had fixed interest rates was $54.9 million while the total amount of loans due
after such date which had floating or adjustable interest rates was $57.3
million.

  ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LENDING.  Residential loan
originations are generated by the Company's marketing efforts, its present
customers, walk-in customers and referrals from real estate brokers and
builders.  The Company has focused its lending efforts primarily on the
origination of loans secured by first mortgages on owner-occupied, single-family
residences in its market area.  The Association uses the table funding method to
close a substantial portion of its single family loans.  This method requires
that, prior to the closing, the Association prepare and send checks along with
any closing documents and instructions to the Title Company.  Once the Title
Company has all the required documents it arranges for the closing and, upon
completion of the closing, returns the executed documents to the Association and
disburses the checks to the appropriate parties.  The closing normally occurs at
the Title Company and it has sole discretion for the timing of the closing.
During fiscal 1997, the Company also purchased $5.5 million in mortgage loans
from Old Mitchell and $2.6 million in mortgage loans from a bank in Central
Texas. These purchases complied with Fort Bend's underwriting guidelines, and
generally were reviewed prior to purchase on an individual basis. At March 31,
1997, the Company's one- to four-family residential mortgage loans, excluding
mortgage-backed securities, totaled $77.8 million, or 47.7% of the Company's
loan portfolio before net items, substantially all of which are conventional
loans secured by properties located in the Company's primary market area. At
March 31, 1997, $2.7 million of these residential mortgage loans were held for
sale and carried at the lower of cost or market.

  The Company's fixed-rate loans conform to secondary market standards (i.e.,
FHLMC and FNMA standards) and, since 1990, have been primarily originated for
sale in the secondary market.  Most of the Company's fixed-rate residential
loans have contractual terms to maturity of 30 years.  As a part of its
asset/liability management strategy, the Company also originates 15-year, fully
amortizing loans. Interest rates charged on these fixed-rate loans are
competitively priced according to market conditions.

  The Company has offered ARM loans at rates, terms and fees determined in
accordance with market and competitive factors.  The programs currently offered
primarily meet the standards and requirements of the secondary market for
residential loans.  The Company's current one- to four-family residential ARMs
are fully amortizing loans with contractual maturities of up to 30 years.   The
interest rates on the ARMs originated by Fort Bend are subject to adjustment at
stated intervals and are subject to annual and lifetime adjustment limits below
and above the initial rate.  Most of the Company's ARMs have interest rates
which adjust annually, although the Company offers ARM loans with initial
adjustments occurring after a three or five year period.  Adjustments are based
on a margin generally over the one-year U.S. Treasury Security constant maturity
index.  These loans' annual and lifetime caps on interest rate increases reduce
the extent to which they can protect the Company against interest rate risk. The
Company has from time to time offered ARMs at below the fully-indexed rate;
however, borrowers of adjustable-rate loans are qualified at the lower of the
maximum first year adjustment or fully-indexed rates.  Certain of the Company's
ARMs by their terms may permit convertibility into fixed-rate loans.

                                       9
<PAGE>
 
  The Company retains ARMs in its portfolio consistent with its ongoing
asset/liability objectives.  ARM loans decrease the risks associated with
changes in interest rates but involve other risks, primarily because as interest
rates rise, the payment by the borrower rises to the extent permitted by the
terms of the loan, thereby increasing the potential for default.  At the same
time, the marketability of the underlying property may be adversely affected by
higher interest rates.  The Company believes that these risks, which have not
had a material adverse effect on the Company to date, generally are less than
the risks associated with holding fixed-rate loans in an increasing interest
rate environment.  In this regard, the Company's delinquency experience on its
ARMs has generally been similar to its experience on fixed-rate residential
loans.

  The Company evaluates both the borrower's ability to make principal, interest
and escrow payments and the value of the property that will secure the loan.
Fort Bend originates residential mortgage loans with loan-to-value ratios up to
95%.  On any mortgage loan exceeding an 80% loan-to-value ratio at the time of
origination, Fort Bend generally will require private mortgage insurance in an
amount intended to reduce the Company's exposure to 80% or less of the appraised
value of the underlying property.

  The Company's general loan policy is to limit residential mortgage loans to
the FHLMC and FNMA maximum, currently $214,600.  As of March 31, 1997, the
Company had 61 residential mortgage loans with original balances in excess of
$214,600 ("jumbo loans") having an aggregate balance of $17.0 million.  The
Company's delinquency experience on its jumbo residential loans has been similar
to its experience on its other residential loans.

  The Company's residential mortgage loans customarily include a due-on-sale
clause giving the Company the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
The Company has generally enforced due-on-sale clauses in its mortgage contracts
for the purpose of increasing its loan portfolio yield.  The yield increase is
obtained through the authorization of assumptions of existing loans at higher
rates of interest, assuming the current rates are higher than the existing note
rate, and the imposition of assumption fees.  ARM loans may be assumed provided
home buyers meet the Company's underwriting standards and the applicable fees
are paid.

  MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING.  At March 31, 1997, the
Company had $3.2 million and $7.4 million in multi-family and commercial real
estate loans, respectively, representing 2.0% and 4.6%, respectively, of the
Company's loan portfolio before net items. The Company's multi-family and
commercial real estate loan portfolio includes loans secured by apartment
buildings, office buildings, retail stores and other properties located in the
Company's primary market area.  At March 31, 1997, most of the Company's multi-
family and commercial real estate loan portfolio was seasoned.  From 1990
through fiscal 1997, the Company had no significant originations of such loans
for portfolio, except for loans to facilitate the sale of real estate owned
secured by property located in the Company's market area.

  The Board of Directors revised the Company's loan policy in fiscal 1996 to
permit the origination of new commercial real estate loans in individual amounts
of up to $1.0 million with the approval of the Company's loan and appraisal
review committee.  Commercial real estate

                                       10
<PAGE>
 
loans in excess of $1.0 million must be approved by the Board of Directors.
During fiscal 1997 the Company originated two multi-family and one commercial
real estate loans totaling $2.7 million.   A $1.2 million multi-family loan
originated by Mitchell was sold during the period, and a $1.3 million multi-
family loan was originated by the Association on a previously foreclosed
property.

  The Company intends to originate a limited amount of multi-family and
commercial real estate loans in the future for its loan portfolio, subject to
regulatory restrictions; however, through Mitchell, the Company expects to
originate a significant amount of multifamily loans for resale in the secondary
market and may also broker loans to third party lenders. Multi-family and
commercial real estate loans generally are originated in amounts up to 80% of
the appraised value of the property securing the loan. Commercial and multi-
family loans are made at both fixed and adjustable interest rates for terms of
up to 25 years. Currently, the other terms of multi-family and commercial real
estate loans are negotiated on a case-by-case basis.

  Appraisals on properties securing multi-family and commercial real estate
loans originated by the Company are performed at the time the loan is made by
either an independent appraiser or, subject to regulatory guidelines, the
Company's staff appraiser.  All appraisals on multi-family and commercial real
estate loans are reviewed by the Company's management and staff appraiser.  In
addition, the Company's underwriting procedures generally require verification
of the borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property.  Personal
guarantees are generally obtained for the multi-family and commercial real
estate loans originated for portfolio.

  The Company's largest multi-family and commercial real estate loans at March
31, 1997 were $1.3 million and $1.2 million, respectively.  At such date, the
Company had no other multi-family or commercial real estate loans in excess of
$1.0 million.  At March 31, 1997, these loans were current and not classified.

  Multi-family and commercial real estate lending affords the Company an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending.  Nevertheless, loans secured by
such properties are generally larger and involve a greater degree of risk than
one- to four-family residential mortgage loans.  Because payments on loans
secured by multi-family and commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market or
the economy.  If the cash flow from the project is reduced (for example, if
leases are not obtained or renewed), the borrower's ability to repay the loan
may be impaired.  In addition, adjustable-rate multi-family and commercial real
estate loans are subject to increased risk of delinquency or default as interest
rates increase.  The Company has attempted to minimize these risks through its
underwriting standards and by lending primarily on existing income-producing
properties.

  The Company also maintains an escrow account for most of its loans secured by
real estate (as well as for loans serviced for others), in order to ensure that
the borrower provides funds to cover property taxes in advance of the required
payment.  These accounts are analyzed annually to confirm that adequate funds
are available.  For loans which do not include an escrow requirement, an annual
review of tax payments is performed by the Company in order to

                                       11
<PAGE>
 
confirm payment.  In order to monitor the adequacy of cash flows on income-
producing properties, the borrower or lead lender is notified periodically and
asked to provide financial information including rental rates and income,
maintenance costs and an update of real estate property tax payments.

  RESIDENTIAL CONSTRUCTION LENDING.  The Company originates and purchases
participations in loans to finance the construction of single-family residences.
Many of these loans are made to individuals who will ultimately be the owner-
occupier of the residence.  Such loans are generally made with permanent
financing on the constructed property to be provided by the Company, although
that is not a requirement.  Construction loans are generally made with up to a
nine-month term on an adjustable-rate, interest-only basis.  During fiscal 1997
and prior to the acquisition of Old Mitchell, the Company purchased $8.3 million
of construction loans and participations in construction loans secured by
single-family residential properties from Old Mitchell.  The participations
comply with Fort Bend's underwriting guidelines, including the loan draw
procedures, and generally are reviewed prior to purchase on an individual basis.
As of March 31, 1997, the Company had $2.5 million of such loans outstanding.

  At March 31, 1997, the Company had loans to finance the construction of
single-family residences totaling $45.0 million, or 27.6% of the Company's loan
portfolio before net items, of which approximately $39.6 million were loans to
52 different builders. The Company expects the construction loan portfolio to
grow as a result of the acquisitions of FirstBanc and Old Mitchell, due to the
location of each acquired company as well as their respective histories and
reputations as residential construction lenders.  The Company's policy is to
generally limit loans to any builder to a maximum of $3.0 million.  The Company
generally limits the amount of speculative loans to any one builder to 50
percent of the total loan commitment.  Of the Company's total construction loans
at March 31, 1997, $4.6 million were to borrowers who represented that they
intended to live in the properties upon completion of construction.  Residential
construction loans to owner-occupants are generally underwritten using the same
criteria as for one- to four-family residential loans.  Loan proceeds are
disbursed in increments as construction progresses and inspections warrant.

  Construction loans afford the Company the opportunity to charge loan
origination fees, to increase the frequency of repricing of its loan portfolio
and to earn yields higher than those obtainable on loans secured by existing
one- to four-family residential properties.  The higher yields reflect the
higher risks associated with construction lending, which include principally the
difficulty in evaluating accurately the total funds required to complete a
project and the post-completion value of the project.  As a result, the Company
places a strong emphasis upon the borrower's ability to repay and the experience
and expertise of the builder who has contracted to construct the property.

  CONSUMER LENDING.  Management considers consumer lending to be an important
component of its strategic plan.  Specifically, consumer loans generally have
shorter terms to maturity (thus reducing the Company's exposure to changes in
interest rates) and carry higher rates of interest than do one- to four-family
residential mortgage loans.  In addition, management believes that the offering
of consumer loan products helps to expand and create stronger ties to its
existing customer base by increasing the number of customer relationships and
providing cross-marketing opportunities.  At March 31, 1997, the Company's
consumer loan portfolio

                                       12
<PAGE>
 
totaled $25.6 million, or 15.7% of its loan portfolio before net items.  Under
applicable federal law, the Company is authorized to invest up to 35% of its
adjusted assets in consumer loans.

  The Company offers a variety of secured consumer loans, including home
improvement loans, auto loans and loans secured by savings deposits.  The
Company also offers a limited amount of unsecured loans.  The Company currently
originates all of its consumer loans in its market area.  The Company's home
improvement loans comprised approximately 20.7% of the Company's total consumer
loan portfolio at March 31, 1997.  These loans are generally originated in
amounts, together with the amount of the existing first mortgage, of up to 85%
of the appraised value of the property securing the loan.  The term to maturity
on such loans may be up to 15 years.  Other consumer loan terms vary according
to the type of collateral, length of contract and creditworthiness of the
borrower.  The Company's consumer loans generally have fixed rates of interest.
The Company does not currently originate any consumer loans on an indirect basis
(i.e., where loan contracts are purchased from retailers of goods or services
which have extended credit to their customers).

  The underwriting standards employed by the Company for consumer loans include
a determination of the applicant's payment history on other debts and an
assessment of the ability to meet existing obligations and payments on the
proposed loan.  Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.

  Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured, or secured by
rapidly depreciable assets, such as automobiles.  In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation.  In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be affected by adverse personal circumstances.  Furthermore, the
application of various federal and state laws, including bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans.
Although the level of delinquencies in the Company's consumer loan portfolio
generally has been low (at March 31, 1997, $140,000, or approximately .55% of
the consumer loan portfolio, was 60 days or more delinquent), there can be no
assurance that delinquencies will not increase in the future.

  MORTGAGE-BACKED SECURITIES.  The Company has a substantial portfolio of
mortgage-backed securities and utilizes the portfolio as collateral for
borrowings when required to fund heavy loan demand.  At March 31, 1997,
mortgage-backed securities totaled $97.6 million, including $521,000 available
for sale and carried at market value.  At that date, mortgage-backed securities
represented 33.1% of the Company's total assets. For information regarding the
carrying and market values of the Company's mortgage-backed securities
portfolio, see Note 3 to the Consolidated Financial Statements contained in
Part II, Item 7.

  Historically, most of the Company's mortgage-backed securities were long-term,
fixed-rate federal agency securities.  In recent years, the Company has
purchased other types of mortgage-backed securities consistent with its
asset/liability management and balance sheet objectives.  In this regard, the
Company emphasizes the purchase of adjustable-rate or short or

                                       13
<PAGE>
 
intermediate effective term fixed-rate mortgage-backed securities for
asset/liability management purposes and to supplement the Company's origination
of ARM loans.  At March 31, 1997, $52.8 million, or 54% of the Company's
mortgage-backed securities carried adjustable rates of interest.  The Company
also has pooled fixed-rate loans in its existing loan portfolio to create
mortgage-backed securities.  At March 31, 1997, $7.4 million, or 7.6%, of the
Company's mortgage-backed securities were secured by loans originated by the
Company.

  The Company also has purchased adjustable-rate or short and intermediate
tranche fixed-rate CMOs and real estate mortgage investment conduits ("REMICs")
having estimated average lives of five years (ten years with respect to
adjustable-rate CMOs and REMICs).  CMOs and REMICs are securities derived by
reallocating cash flows from mortgage pass-through securities or from pools of
mortgage loans.  These securities are subjected to annual tests required by the
Company's regulatory authority and applied to determine if any of the CMOs or
REMICs are "high risk."  At March 31, 1997, none of the Company's securities
failed the annual test and none were considered "high risk."  The CMOs and
REMICs acquired by the Company are not interest-only, principal-only or residual
interests.  At March 31, 1997, the book value of these securities was $39.4
million.

  Under the OTS' risk-based capital requirements, GNMA mortgage-backed
securities have a zero percent risk-weighting and FNMA, FHLMC and AA- or higher
rated mortgage-backed securities have a 20% risk-weighting, in contrast to the
50% risk-weighting carried by performing one- to four-family residential
mortgage loans. None of the mortgage-backed securities held by the Company had a
risk-weight for regulatory capital purposes above 20%. All of the Company's
mortgage-backed securities are backed by FHLMC, GNMA or FNMA, or rated AA or
higher.  Accordingly, management believes that the Company's mortgage-backed
securities generally are resistant to credit problems.

      The following table sets forth the carrying values and contractual
maturities of the Company's mortgage-backed securities held to maturity at
March 31, 1997.

<TABLE>
<CAPTION>
 
                                                              Due in                             
                      ---------------------------------------------------------------------------  March 31, 1997 
                      6 Months   6 Months      1 to      3 to 5    5 to 10    10 to 20    Over 20     Carrying
                      or Less    to 1 Year    3 Years    Years      Years      Years       Years       Value  
                      --------   ---------    -------    ------    -------    --------    -------     --------
                                                          (In Thousands)                                          
<S>                  <C>        <C>          <C>        <C>       <C>        <C>         <C>          <C>      
AA- and AAA-                                                                                                 
  Private Issue                                                                                              
  Securities            $ ---       $ ---     $  ---    $  ---     $  366      $  ---    $ 3,493      $ 3,859
                                                                                        
CMO's and REMIC's         ---         ---      2,195       983      9,898       8,169     18,196       39,441
FHLMC                     525         ---      1,354     1,425      1,288       2,465     13,848       20,905
FNMA                      ---         ---      1,368     2,159        ---       3,897     16,368       23,792
GNMA                      ---         ---        ---       ---        ---         ---      9,088        9,088
                     --------   ---------     ------    ------    -------     -------    -------      -------
     Total               $525   $     ---     $4,917    $4,567    $11,552     $14,531    $60,993      $97,085
                     ========   =========     ======    ======    =======     =======    =======      =======
 
</TABLE>

                                       14
<PAGE>
 
ORIGINATIONS, PURCHASES AND SALES OF LOANS AND MORTGAGE-BACKED SECURITIES

          As described previously, the Company originates real estate loans
through marketing efforts, the Company's customer base, walk-in customers, and
referrals from real estate brokers and builders.  The Company originates both
adjustable-rate and fixed-rate loans.  Its ability to originate loans is
dependent upon the relative customer demand for fixed-rate or ARM loans in the
origination market, which is affected by the term structure of interest rates
(short-term compared to long-term) as well as the current and expected future
level of interest rates.

          The Company purchased $8.1 million of  residential loans during fiscal
1997, and management may consider making additional purchases in the future
depending upon market conditions.  At March 31, 1997, the Company had no
commitments to purchase or sell mortgage-backed securities from its held to
maturity portfolio, or to sell mortgage-backed securities under its hedging
program for loans available for sale.  At that same date, the Company had loan
commitments of approximately $13.8 million and forward commitments to sell loans
of $1.9 million.  At March 31, 1997, the Company had $2.7 million of loans
available for sale, all of which were held by Mitchell.

          The Company generally has sold its long-term, fixed-rate loan
originations since 1990. When loans are sold, the Company generally retains the
responsibility for servicing such loans. The Company had $868.0 million in loans
serviced for others as of March 31, 1997, and $298,000 in loans serviced by
others at that date.

                                       15
<PAGE>
 
          The following table sets forth the loan origination, purchase, sale
and repayment activities of the Company for the periods indicated.


<TABLE>
<CAPTION>
                                                       Year Ended March 31,
                                                   ----------------------------
                                                     1997       1996     1995
                                                   ---------  --------  -------
                                                          (In Thousands)
<S>                                                <C>        <C>       <C>
Originations by type:
Adjustable rate:
  Real estate - one- to four-family                $ 49,792   $16,552   $13,496
              - multi-family                            ---       102       ---
              - commercial                              176     1,175       ---
Non-real estate-commercial business                     ---       ---        18
                                                   --------   -------   -------
         Total adjustable rate                       49,968    17,829    13,514
                                                   --------   -------   -------
Fixed rate:
  Real estate - one- to four-family                $ 20,309   $14,925     7,012
              - multifamily                           2,482       ---       ---
              - commercial                              720       640       ---
              - land                                  1,932       715       457
Non-real estate - consumer                           17,928    14,777    10,851
                  - commercial business               1,596       652       215
                                                   --------   -------   -------
         Total fixed-rate                            44,967    31,709    18,535
                                                   --------   -------   ------- 
         Total loans originated                      94,935    49,538    32,049
                                                   --------   -------   -------
 
Purchases:
Real estate - one- to four-family                    15,228    16,401    14,411
Real estate - land                                      968       ---       ---
Mortgage-backed securities (exclud-                                              
  ing REMICs and CMOs)                                  ---     2,456    13,607  
REMICs and CMOs                                         ---       ---    12,931
                                                   --------   -------   -------
         Total purchased                             16,196    18,857    40,949
                                                   --------   -------   -------
 
Sales and Repayments:
Real estate:
  Sales/(1)/                                         27,272    14,116     7,008
                    
  Principal repayments                               78,225    48,653    51,634
                                                   --------   -------   -------
         Total reductions                           105,497    62,769    58,642
 
Loans Acquired through Acquisition of FirstBanc      20,756       ---       ---
Loans Acquired through Acquisition of Mitchell       16,856       ---       ---
Increase (decrease) in other items, net              (4,514)     (663)      281
                                                   --------   -------   -------
         Net increase                              $ 38,732   $ 4,963   $14,637
                                                   ========   =======   =======
</TABLE>

-------------------
/(1)/  Consists primarily of one- to four-family residential loans.

 
ASSET QUALITY

     The Company's loans delinquent 60 days or more decreased from .93% of total
loans at March 31, 1996 to .50% at March 31, 1997.  When a borrower fails to
make a required payment on a loan, the Company attempts to cause the delinquency
to be cured by contacting

                                       16
<PAGE>
 
the borrower.  In the case of residential loans, a late notice is sent 16 days
after the due date. If the delinquency is not cured within 30 days, contact with
the borrower is made by phone or a letter is sent.  Additional written and
verbal contacts are made with the borrower between 35 and 70 days after the due
date.

     In the event a real estate loan payment is past due for 45 days or more,
the Company generally performs an in-depth review of the loan status, the
condition of the property and the circumstances of the borrower.  Based upon the
results of its review, the Company may negotiate and accept a repayment program
with the borrower, accept a voluntary deed in lieu of foreclosure or, when
deemed necessary, initiate foreclosure proceedings.  If foreclosed on, real
property is sold at a public sale and the Company may bid on the property to
protect its interest.  A decision as to whether and when to initiate foreclosure
proceedings is based on such factors as the amount of the outstanding loan in
relation to the original indebtedness, the extent of delinquency and the
borrower's ability and willingness to cooperate in curing delinquencies.

     Delinquent consumer loans are handled in a generally similar manner, except
that initial contacts are made when the payment is 10 days past due and
telephone contact begins when a loan is 30 days past due.  If these efforts fail
to bring the loan current, appropriate action may be taken to collect any loan
payment that remains delinquent.  The Company's procedures for repossession and
sale of consumer collateral are subject to various requirements under Texas
consumer protection laws.

     Loans are placed on non-accrual status after 90 days delinquency.  When a
loan is placed on non-accrual status, the Company's general policy is to reverse
and charge against current income previously accrued but unpaid interest.
Interest income on such loans is subsequently recognized only to the extent that
cash is received and future collection of principal is deemed by management to
be probable.

                                       17
<PAGE>
 
     DELINQUENT LOANS.  The following table sets forth the Company's loan
delinquencies by type, by amount and by percentage of type at March 31, 1997.
<TABLE>
<CAPTION>
                                           Loans Deliquent For:
                           ---------------------------------------------------    
                                                                                        Total Loans
                                   60-89 Days             90 Days and Over      Deliquent 60 Days or More
                           -------------------------  ------------------------  -------------------------- 
                                             Percent                   Percent                   Percent
                                             of Loan                   of Loan                   of Loan
                            Number  Amount  Category  Number  Amount  Category  Number  Amount  Categary
                           ------- ------- --------- ------- ------- --------- ------- ------- -----------
                                                           (Dollars in Thousands)
<S>                           <C>   <C>       <C>     <C>     <C>       <C>       <C>    <C>       <C>
Real Estate:                                                                          
 One- to four-family          10    $130      .17%      3      $ 71       .09%    13     $201      .26%
 Construction,                                                                                 
  development and land        21     106      .22      10       106       .22     31      212      .44
Commercial                   ---     ---      ---       1       268      3.62      1      268     3.62
Consumer                      12      96      .38       6        44       .17     18      140      .55
                              --    ----      ---      --      ----      ----     --     ----     ----
                                                                                               
     Total                    43    $332      .20%     20      $489       .30%    63     $821      .50%
                              ==    ====      ===      ==      ====      ====     ==     ====     ====
 
</TABLE>

   The table below sets forth the amounts and categories of non-performing
assets in the Association's loan portfolio.  Loans are placed on non-accrual
status after 90 days delinquency. Foreclosed assets include assets acquired in
settlement of loans.

<TABLE>
<CAPTION>
 
                                                         March 31,
                                        -------------------------------------------
                                         1997     1996     1995     1994     1993
                                        -------  -------  -------  -------  -------
                                                 (Dollars in Thousands)
<S>                                     <C>      <C>      <C>      <C>      <C>

Non-accruing loans:
  One- to four-family                   $   71   $  105   $   43   $  161   $  275
  Commerical real estate                   268      592    1,626      210      ---
  Construction, development and land       106      ---      ---      ---      ---
  Consumer                                  44       32       29       17        5
  Commercial business                      ---      ---       --      ---       13
                                        ------   ------   ------   ------   ------
     Total                                 489      729    1,698      388      293
                                        ------   ------   ------   ------   ------
 
Troubled Debt Restructurings:
  Multi-family                             ---    2,037    2,036    2,353    2,371
  Commercial real estate                   405      271      ---    1,437    1,710
                                        ------   ------   ------   ------   ------
     Total                                 405    2,308    2,036    3,790    4,081
                                        ------   ------   ------   ------   ------
 
Foreclosed assets:
  One- to four-family                      266      123       68       68       74
  Commercial real estate                   180      ---      ---      ---    2,249
Less:
  Reserves                                 ---      ---      ---      ---      (46)
                                        ------   ------   ------   ------   ------
     Total                                 446      123       68       68    2,277
                                        ------   ------   ------   ------   ------
 
Total non-performing assets             $1,340   $3,160   $3,802   $4,246   $6,651
                                        ======   ======   ======   ======   ======
Total non-performing assets as a        
 percentage of total assets                .45%    1.29%    1.66%    2.00%    3.15%
                                        ======   ======   ======   ======   ======  
</TABLE>

                                       18
<PAGE>
 
  For the year ended March 31, 1997, gross interest income which would have been
recorded had the non-accruing loans and troubled-debt restructurings been
current in accordance with their original terms amounted to $59,000.  The amount
that was included in interest income on such loans was $48,000 for the year
ended March 31, 1997.

  NON-ACCRUING LOANS. As of March 31, 1997, the Company had $489,000 in net book
value of non-accruing loans. Of this balance, $268,000 is secured by commercial
real estate and $100,000 by a single family construction loan. The remainder
consisted of three single family residential loans totaling $71,000, six
consumer loans totaling $44,000 and $6,000 in residential lot loans representing
the Company's 5% participation ownership in the loans. See Management's
Discussion and Analysis or Plan of Operation, Asset Quality, filed as Part II,
Item 6.

  TROUBLED DEBT RESTRUCTURINGS.  As of March 31, 1997, the Association had one
loan with a net book value of 405,000, classified as a troubled debt
restructuring. The loan is secured by a commercial property located in Houston,
Texas. The borrower has been current since 1994. See Management's Discussion and
Analysis or Plan of Operation, Asset Quality contained in Part II, Item 6.

  FORECLOSED ASSETS.  As of March 31, 1997, the Association had net book value
of $446,000 in foreclosed assets, which consisted of one commercial property,
one single family house and claims against FHA and VA on 12 foreclosed
residential loans serviced by Mitchell. The commercial property and the house
were subsequently sold at a gain of $45,000 and loss of $12,000 on April 16,
1997 and April 4, 1997, respectively. See Management's Discussion and Analysis
or Plan of Operation, Asset Quality, contained in Part II, Item 6.

  OTHER LOANS OF CONCERN.  In addition to the non-performing assets set forth in
the table above, there was one commercial real estate loan with a net book value
of $1.2 million on which management has concern.  The original terms of the loan
required a balloon payment on November 1, 1996.  The borrower's attempt to
refinance the loan with another lender was delayed as a result of a possible
environmental problem with the property securing the loan. The Association
granted a nine month extension to the borrower at terms similar to the original
note.

  CLASSIFIED ASSETS.  Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities considered by the OTS
to be of lesser quality, as "substandard," "doubtful" or "loss."  An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected.  Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable."  Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.  Management also
classifies as "special mention" assets which do not currently expose the insured
institution to sufficient risk to warrant classification in one of the
aforementioned categories but nonetheless possess certain weaknesses.

                                       19
<PAGE>
 
  When an insured institution classifies problem assets as either substandard or
doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management.  General allowances represent loss allowances
which have been established to recognize the inherent risk associated with
lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets.  When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount.  An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, which may order the
establishment of additional general or specific loss allowances.

  In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Company regularly
reviews the problem loans in its portfolio to determine whether any loans
require classification in accordance with applicable regulations.  Classified
assets of the Company at March 31, 1997, all of which are included in the
previous table of non-performing assets or are described under the caption "-
Other Loans of Concern" or are described under " - Subsidiary and Other
Activities," were as follows:

<TABLE>
<CAPTION>
                                         March 31,
                                           1997   
                                         ---------
                                      (In Thousands)                                  
  <S>                                    <C>                                                        
  Substandard(1)                            $  970
  Doubtful                                       5
  Loss                                         ---
                                            ------
  Total classified assets                      975
  Special mention assets                       786
                                            ------
  Total criticized assets(1)                $1,761
                                            ====== 
</TABLE>

  ----------------
  /(1)/  Includes foreclosed assets of $446,000.


  ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's quarterly asset
classification review and evaluation of the risk inherent in its loan portfolio
and changes in the nature and volume of its loan activity. Such evaluation,
which includes a review by management of all loans of which full collectibility
may not be reasonably assured, considers, among other matters, the estimated
value of the underlying collateral, economic conditions, cash flow analyses,
historical loan loss experience, discussions held with delinquent borrowers and
other factors that warrant recognition in providing for an adequate loan
allowance. Although management believes it uses the best information available
to make such determinations, future adjustments to reserves may be necessary,
and net income could be significantly affected, if circumstances differ
substantially from the assumptions used in making the initial determinations.
The Company's quarterly asset classification review determines which loans to
charge-off. At March 31, 1997, management believed the Company's allowance for
loan losses of $1.7 million to be adequate.

  There are no agreements or understandings with the regulators to provide
additions to the allowance for loan losses nor were additional loss provisions
required as a result of their examination of the Association as of December 31,
1996. Recoveries on charge-offs are limited

                                       20
<PAGE>
 
because the Company generally recognizes recoveries as a gain on the sale of
foreclosed assets. Net gains on sales of foreclosed assets totaled $213,000,
$26,000 and $14,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.  Gains on sale of foreclosed assets have generally been limited
because the number of foreclosed assets sold declined and because such sales
were generally made at approximately carrying value, which approximated market
value. Loan net charge-offs increased from $422,000 in fiscal 1996 to $708,000
in fiscal 1997.  The increase in charge-offs in fiscal 1997 was attributable to
one commercial real estate loan, which had been a nonaccruing loan and one
multi-family loan which matured November 1, 1996, was foreclosed upon and sold.

          The Company defines a loan as impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement.  The Company uses the same criteria in placing a loan on nonaccrual
status, exclusive of residential mortgage loans and consumer loans which are
placed on nonaccrual status when they become 90 days past due.  When interest
accrual is discontinued, all unpaid accrued interest is reversed.  Interest
income is subsequently recognized only to the extent cash payments are received.
At March 31, 1997 and 1996, the Company had impaired loans totaling
approximately $807,000 and $3.9 million, respectively, with no related allowance
for loan losses in fiscal 1997 and $150,000 in related allowance for loan losses
in fiscal 1996.  See Note 4 to the Consolidated Financial Statements contained
in Part II, Item 7.

                                       21
<PAGE>
 
  The following table sets forth an analysis of the Company's allowance for loan
losses at the dates indicated.

<TABLE>
<CAPTION>
                                                                     Year Ended March 31,
                                                         ---------------------------------------------
                                                          1997     1996     1995      1994      1993
                                                         -------  -------  -------  --------  --------
                                                                   (Dollars in Thousands)
<S>                                                      <C>      <C>      <C>      <C>       <C>

 
Balance at beginning of period                           $1,350   $1,650   $1,712    $1,742    $1,126
Addition due to acquisitions                                735      ---      ---       ---       ---
                                                       --------   ------   ------    ------    ------
 
Charge-offs:
  One- to four-family                                       ---      ---      ---       ---       ---
  Consumer                                                   22      ---        6       ---       ---
  Commercial Real Estate                                    203      430      360        32        98
  Multi-family                                              582      ---      ---       ---       ---
                                                       --------   ------   ------    ------    ------
     Total                                                  807      430      366        32        98
                                                       --------   ------   ------    ------    ------
Recoveries:
  One- to four-family/1/                                    ---      ---       45       ---       ---
  Consumer                                                   99      ---        1       ---       ---
  Commercial Real Estate                                    ---        3      ---       ---       ---
  Multi-family                                              ---        4      ---       ---       ---
                                                       --------   ------   ------    ------    ------
     Net charge-offs                                        708      423      320        32        98
Additions charged to operations                             324      123      258         2       714
                                                       --------   ------   ------    ------    ------
Balance at end of period                                 $1,701   $1,350   $1,650    $1,712    $1,742
                                                       ========   ======   ======    ======    ======
 
Ratio of net charge-offs during the period to average
 loans, excluding mortgage-backed securities             
 outstanding during the period                             0.60%    0.49%    0.42%     0.04%     0.12%
                                                       ========   ======   ======    ======    ======
 
Allowance for loan losses to non-performing loans, at
 the end of the period                                   190.20%   44.46%   44.17%    40.98%    39.82%
                                                       ========   ======   ======    ======    ======
 
Allowance for loan losses to total loans, excluding
 loans held for sale at end of period                      1.22%    1.43%    2.10%     2.21%     2.22%
                                                       ========   ======   ======    ======    ======  
</TABLE>
______________________
/1/ The Company generally recognizes recoveries as gains on the sale of
foreclosed assets.

                                       22
<PAGE>
 
     The distribution of the Company's allowance for loan losses at the dates
indicated is summarized as follows:

<TABLE>
<CAPTION>
 
                                                                   Year Ended March 31,
                          -------------------------------------------------------------------------------------------------------
                                 1997                  1996                1995                 1994                  1993
                          -------------------  -------------------  -------------------  -------------------  -------------------
                                  Percent of           Percent of           Percent of           Percent of           Percent of
                                   Loans in             Loans in             Loans in             Loans in             Loans in
                                     Each                 Each                 Each                 Each                 Each
                                   Category             Category             Category             Category             Category
                                   to Total             to Total             to Total             to Total             to Total
                          Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans
                          ------  -----------  ------  -----------  ------  -----------  ------  -----------  ------  -----------
<S>                       <C>       <C>       <C>        <C>       <C>         <C>       <C>        <C>       <C>        <C> 
                                                                 (Dollars in Thousands)
 
One-to four-family        $  ---     47.72%   $   20      59.93%    $   42      58.87%   $   37      59.32%   $   37     63.39%
Multi-family                 102      1.99       504       4.59        653       5.42       754       8.52       760      8.43
Commercial                   184      4.55       769       8.04        899       9.29       859      11.37       876     11.11
Construction, develop-                                                                                                 
  ment and land            1,264     30.01       ---       8.75        ---       9.38       ---       5.08       ---      3.27
Consumer                     151     15.73        57      18.69         56      17.04        62      15.71        69     13.80
                          ------    ------    ------     ------     ------     ------    ------     ------    ------    ------
     Total                $1,701    100.00%   $1,350     100.00%    $1,650     100.00%   $1,712     100.00%   $1,742    100.00%
                          ======    ======    ======     ======     ======     ======    ======     ======    ======    ======
 
</TABLE>

INVESTMENT ACTIVITIES

  Fort Bend must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations.  Liquidity may increase or decrease depending upon
the availability of funds and comparative yields on investments in relation to
the return on loans.  Historically, the Association has maintained liquid assets
at levels above the minimum requirements imposed by the OTS regulations and at
levels believed adequate to meet the requirements of normal operations,
including repayments of maturing debt and potential deposit outflows.  Cash flow
projections are regularly reviewed and updated to ensure that adequate liquidity
is maintained. At March 31, 1997, the Association's liquidity ratio (liquid
assets as a percentage of net withdrawable savings deposits and current
borrowings) was 11.65%.

  Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds.  Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds the assets of which
conform to the investments that a federally chartered savings institution is
otherwise authorized to make directly.

  Generally, the investment policy of the Company is to invest funds among
various categories of investments and maturities based upon the Company's
asset/liability management policies, investment quality and marketability,
liquidity needs and performance objectives.

  At March 31, 1997, the Company's interest-bearing deposits with banks totaled
$14.4 million, or 4.9% of total assets, and its investment securities totaled
$14.1 million, or 4.8% of total assets.  As of such date, the Company also had a
$1.9 million investment in FHLB stock, satisfying its requirement for membership
in the FHLB of Dallas.   It is the Company's general policy to purchase
investment securities which are U.S. Government securities and federal agency
obligations and other issues that are rated investment grade or have credit
enhancements.

                                       23
<PAGE>
 
At March 31, 1997, the average term to maturity or repricing of the investment
securities portfolio was 0.79 years.

The following table sets forth the composition of the Company's investment
portfolio at the dates indicated.

<TABLE> 
<CAPTION> 

                                                                   March 31,
                                        ---------------------------------------------------------------
                                                 1997               1996                  1995
                                        -------------------  -------------------  ---------------------
                                         Carrying    % of     Carrying    % of     Carrying     % of
                                          Value      Total     Value      Total     Value       Total
                                        ----------  -------  ----------  -------  ----------  ---------
                                                               (Dollars in Thousands)
<S>                                     <C>         <C>        <C>       <C>      <C>         <C>        
                                       
AVAILABLE FOR SALE:                    
Investment Securities:                 
 U.S. government securities                $   500   17.73%     $   491   18.52%     $   ---       ---%
 Equity securities                           2,320   82.27        2,194   81.48          ---       ---
                                           -------  ------      -------  ------      -------   -------
                                           $ 2,820  100.00%     $ 2,685  100.00%     $   ---       ---%
                                           =======  ======      =======  ======      =======   =======
                                       
HELD TO MATURITY:                      
Investment Securities:                 
 U.S. government securities                $   999    3.62%     $   997    4.08%     $ 2,446     12.69%
 Federal agency obligations                 10,236   37.10        8,237   33.71       12,232     63.46
                                           -------  ------      -------  ------      -------   -------
   Total investment securities              11,235   40.72        9,234   37.79       14,678     76.15
                                       
FHLB stock                                   1,933    7.01        1,460    5.97        1,370      7.10
                                           -------  ------      -------  ------      -------   -------
   Total investment securities         
    and FHLB stock                          13,168   47.73       10,694   43.76       16,048     83.25
                                           -------  ------      -------  ------      -------   -------
                                       
 Average remaining life of                         
  investment securities/(1)/              2.05 years           3.02 years           3.91 years
                                       
Other Interest-Earning Assets:         
 Interest-bearing deposits             
  with banks                                14,421   52.27       13,742   56.24        3,240     16.75
                                           -------  ------      -------  ------      -------   -------
   Total                                   $27,589  100.00%     $24,436  100.00%     $19,288    100.00%
                                           =======  ======      =======  ======      =======   =======
                                       
 Average remaining life or term        
  to repricing of investment           
  securities and other interest-       
  earning assets excluding             
  FHLB stock/(1)/                         0.79 years           1.02 years           1.43 years

</TABLE>

-------------------------
/(1)/  The average remaining lives of securities with "call" features are
calculated using the date of maturity.

                                       24
<PAGE>
 
     The composition and maturities of the investment securities portfolio,
excluding FHLB of Dallas stock and equity securities, are indicated in the
following table.


<TABLE>
<CAPTION>
                                                March 31, 1997
                              --------------------------------------------------
                               Less Than     1 to 5       5 to 10       Over          Total Investment
                                1 Year        Years        Years      10 Years           Securities
                              -----------  -----------  -----------  -----------  -------------------------
                              Book Value   Book Value   Book Value   Book Value   Book Value   Market Value
                              -----------  -----------  -----------  -----------  -----------  ------------
                                                        (Dollars in Thousands)
<S>                           <C>          <C>          <C>          <C>          <C>          <C>
AVAILABLE FOR SALE:
U.S. government securities        $  ---       $  500   $      ---   $      ---      $   500        $   491
Equity securities                  2,320          ---          ---          ---        2,320          2,319
                                  ------       ------   ----------   ----------      -------        -------
     Total                        $2,320       $  500   $      ---   $      ---      $ 2,820        $ 2,810
                                  ======       ======   ==========   ==========      =======        =======
Weighted average yield              6.19%        5.13%         ---%         ---%        6.00%
 
HELD TO MATURITY:
U.S. government securities        $  999   $     ---    $      ---   $      ---      $   999        $ 1,000
Federal agency obligations         2,001        5,237        2,998          ---       10,236          9,789
                                  ------       ------   ----------   ----------      -------        -------
     Total                        $3,000       $5,237       $2,998   $      ---      $11,235        $10,789
                                  ======       ======   ==========   ==========      =======        =======
Weighted average yield              5.35%        5.77%        4.25%         ---%        5.25%
                                                    
</TABLE>

     The Company's investment securities portfolio at March 31, 1997 contained
neither tax-exempt securities nor securities of any issuer with an aggregate
book value in excess of 10% of the Company's retained earnings, excluding
securities issued by the United States Government, or its agencies.  The
Company's investment securities portfolio is managed in accordance with a
written investment policy adopted by the Board of Directors.  Investments may be
made by the Company's Investment Committee.

SOURCES OF FUNDS

     GENERAL.  The Company's primary sources of funds are deposits, amortization
and prepayment of loan principal (including mortgage-backed securities), sales
or maturities of loans, maturities of investment securities, mortgage-backed
securities and short-term investments, borrowings and funds provided from
operations.

     Borrowings, predominantly from the FHLB of Dallas, may be used on a short-
term basis to compensate for seasonal reductions in deposits or deposit inflows
at less than projected levels, and may be used in the future on a longer-term
basis to support lending and investing activities. FHLB borrowings are
collateralized through pledges of loans and other assets.

     DEPOSITS.  The Company offers a variety of deposit accounts having a wide
range of interest rates and terms.  The Company's deposits consist of passbook,
statement savings, NOW accounts and money market and certificate accounts.  The
Company relies primarily on advertising, competitive pricing policies and
customer service to attract and retain these deposits. The Company solicits
deposits from its primary market area only, and does not use brokers to obtain
deposits.

                                       25
<PAGE>
 
     The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition.  During the fiscal year ended March 31, 1997, total deposits
increased by $46.3 million, of which $26.8 million was obtained through the
acquisition of FirstBanc. The Company manages the pricing of its deposits in
keeping with its asset/liability management and profitability objectives.

     Based on its experience, the Company believes that its passbook, statement
savings, NOW and non-interest-bearing checking accounts are relatively stable
sources of deposits. However, the ability of the Company to attract and maintain
certificate deposits, and the rates paid on these deposits, has been and will
continue to be significantly affected by market conditions.

     The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Company at the dates indicated.

<TABLE>
<CAPTION>
 
                                                          Year Ended March 31,
                                      -------------------------------------------------------------
                                             1997                 1996                 1995
                                      -------------------  -------------------  -------------------
                                                 Percent              Percent              Percent
                                       Amount   of Total    Amount   of Total    Amount   of Total
                                      --------  ---------  --------  ---------  --------  ---------
                                                          (Dollars in Thousands)
<S>                                   <C>       <C>        <C>       <C>        <C>       <C>      
Transactions and Savings Deposits:
 
Passbook and Statement Savings
  Accounts                            $ 22,806      9.11%  $ 21,045     10.32%  $ 21,784     11.20%
NOW Accounts                            38,774     15.50     20,076      9.85     17,763      9.13
Money Market Accounts                   24,000      9.59     17,426      8.55     17,202      8.85
                                      --------    ------   --------    ------   --------    ------
 
Total Non-Certificates                  85,580     34.20     58,547     28.72     56,749     29.18
                                      --------    ------   --------    ------   --------    ------
 
Certificates:
 
 0.00 -  2.99%                             587      0.24        642      0.31        964      0.50
 3.00 -  4.99%                          25,424     10.16     37,079     18.18     57,381     29.51
 5.00 -  6.99%                         131,622     52.60     99,150     48.62     65,124     33.49
 7.00 -  8.99%                           7,005      2.80      8,496      4.17     14,249      7.32
 9.00 - 10.99%                             ---       ---        ---       ---        ---       ---
11.00% and over                            ---       ---        ---       ---        ---       ---
                                      --------    ------   --------    ------   --------    ------
 
Total Certificates                     164,638     65.80    145,367     71.28    137,718     70.82
                                      --------    ------   --------    ------   --------    ------
Total Deposits                        $250,218    100.00%  $203,914    100.00%  $194,467    100.00%
                                      ========    ======   ========    ======   ========    ======
 
</TABLE>

          The following table sets forth the savings flows at the Company during
the periods indicated.  Net deposits (withdrawals) refers to the amount of
deposits during a period less the amount of withdrawals during the period.
Deposit flows at savings institutions may also be influenced by external factors
such as governmental credit policies and, particularly in recent periods,
depositors' perceptions of the adequacy of federal insurance of accounts.  The
primary reasons for the increase in net deposits during fiscal 1997 were the
acquisition of FirstBanc, the deposit of custodial accounts by Mitchell and the
opening of a new branch in Katy, Texas in May 1996.

                                       26
<PAGE>
 
<TABLE>
<CAPTION>
 
                                  Year Ended March 31,
                             -------------------------------
                               1997       1996       1995
                             ---------  ---------  ---------
                                 (Dollars in Thousands)
    <S>                      <C>        <C>        <C>
    Opening balance          $203,914   $194,467   $189,733
    Acquired deposits          26,767        ---        ---
    Deposits                  443,163    230,208    214,665
    Withdrawals               431,945    228,424    215,987
    Interest credited           8,319      7,663      6,056
                             --------   --------   --------
                      
    Ending balance           $250,218   $203,914   $194,467
                             ========   ========   ========
                      
    Net increase             $ 46,304   $  9,447   $  4,734
                             ========   ========   ========
                      
    Percent increase            22.71%      4.86%      2.50%
                             ========   ========   ========
 
</TABLE>

     The following table shows rate and maturity information for the Company's
certificates of deposit as of March 31, 1997.

<TABLE>
<CAPTION>
 
<S>                                 <C>      <C>       <C>        <C>      <C>       <C>
                                     0.00-     3.00-      5.00-    7.00-             Percent
                                      2.99%     4.99%      6.99%    8.99%  Total     of Total
                                    -------   -------   --------  ------- --------  ---------
                                                      (Dollars in Thousands)
Certificate accounts maturing
in quarter ending:
 
June 30, 1997                       $  214   $ 9,140   $ 26,619   $  126   $ 36,099     21.93%
September 30, 1997                      25    11,826     17,350       49     29,250     17.77
December 31, 1997                      ---       220     17,908      ---     18,128     11.01
March 31, 1998                          50         9     20,477       52     20,588     12.51
June 30, 1998                            8       179     17,297      ---     17,484     10.62
September 30, 1998                       3     1,995      8,896      ---     10,894      6.62
December 31, 1998                        1     1,057      1,049       12      2,119      1.29
March 31, 1999                           7       684      2,373      ---      3,064      1.85
June 30, 1999                          ---       300      1,567        7      1,874      1.14
September 30, 1999                       4       ---      3,302        3      3,309      2.01
December 31, 1999                      107       ---      2,526       65      2,698      1.64
March 31, 2000                          18       ---      1,440    6,503      7,961      4.84
Thereafter                             150        14     10,818      188     11,170      6.77
                                    ------   -------   --------   ------   --------    ------
 
   Total                            $  587   $25,424   $131,622   $7,005   $164,638    100.00%
                                    ======   =======   ========   ======   ========    ======
 
   Percent of total                    .36%    15.43%     79.95%    4.26%
                                    ======   =======   ========   ======
</TABLE>

                                       27
<PAGE>
 
     The following table indicates the amount of the Company's certificates of
deposit by time remaining until maturity as of March 31, 1997.

<TABLE>
<CAPTION>
 
 
                                              Maturity
                                -------------------------------------
                                           Over     Over
                                3 Months  3 to 6   6 to 12    Over
                                or Less   Months   Months   12 months   Total
                                --------  -------  -------  ---------  --------
                                          (Dollars in Thousands)
<S>                             <C>       <C>      <C>      <C>        <C>
Certificates of deposit less
 than $100,000                   $31,432  $25,826  $32,915    $53,614  $143,787
 
Certificates of deposit of
 $100,000 or more                  4,646    3,321    5,778      6,688    20,433
 
Public funds/(1)/                     21      103       23        271       418
                                 -------  -------  -------    -------  --------
 
Total certificates of
 deposit and public funds        $36,099  $29,250  $38,716    $60,573  $164,638
                                 =======  =======  =======    =======  ========
</TABLE>
_______________
/(1)/  Certificates of deposit from governmental and other public entities.


     From time to time the Company has had varying amounts of public funds.  The
largest amount of public funds held by the Company since 1990 was $418,000.  The
Company is required to pledge collateral against such funds equal to 110% of
such funds. For additional information regarding the composition of the
Company's deposits, see Note 7 to the Consolidated Financial Statements
contained in Part II, Item 7.
 
     BORROWINGS.  Although deposits are the Company's primary source of funds,
the Company's policy has been to utilize borrowings when there is a net outflow
of deposits, when advances are a less costly source of funds or when funds from
advances can be invested at a positive spread.  In addition, the Company has
relied upon selected borrowings for short-term liquidity needs.

     The Company may obtain advances from the FHLB of Dallas upon the security
of its capital stock of the FHLB of Dallas and certain of its mortgage loans,
investment securities and mortgage-backed securities.  Such advances may be made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities.  At March 31, 1997, the Company had $3.9
million in FHLB borrowings outstanding.

     In December 1995, the Company issued $12.1 million of 8% Convertible
Subordinated Debentures due December 1, 2005 (the "Debentures").  The Debentures
are redeemable, in whole or in part, as of December 1, 1998, are convertible at
any time prior to maturity, unless previously redeemed, into Common Stock of the
Company at a conversion rate of 46.296 shares of Common Stock for each $1,000
principal amount of Debentures (subject to adjustment in certain events), have
no sinking fund and are unsecured general obligations of the Company. The
Company is using the net proceeds for general corporate purposes, which has
included the recent acquisitions of FirstBanc and Mitchell, and may include
future acquisitions as well as

                                       28
<PAGE>
 
investments in or extensions of credit to the Association and other existing or
future subsidiaries of the Association or the Company.  See Note 8 to the
Consolidated Financial Statements contained in Part II, Item 7.

     The following table sets forth the maximum month-end balance and average
daily balance of FHLB advances, Debentures and other borrowings for the periods
indicated.

 
                                       Year Ended March 31,    
                                     ------------------------- 
                                      1997     1996     1995   
                                     -------  -------  ------- 
                                          (In Thousands)       
                                                               
Maximum Balance:                                               
  FHLB advances                      $13,928  $11,500  $15,500 
  Debentures                          12,100   12,100      --- 
  Other borrowings                       395      483      570 
                                                               
Average Daily Balance:                                         
  FHLB advances                      $ 4,974  $ 5,873  $ 5,984 
  Debentures                          12,097    3,879      --- 
  Other borrowings                       351      440      526  
 

     The following table sets forth certain information as to the Company's FHLB
advances, Debentures and other borrowings at the dates indicated.  As of March
31, 1997, $20,000 in debentures had been converted into 925 shares of the
Company Common Stock.

 
                                              March 31,
                                     -------------------------
                                      1997     1996     1995   
                                     -------  -------  ------- 
                                          (In Thousands)       

 
FHLB advances                        $ 3,920  $ 3,969  $11,500   
Debentures                            12,080   12,100      ---   
Other borrowings                         307      395      483   
                                     -------  -------  -------   
                                                                 
     Total borrowings                $16,307  $16,464  $11,983   
                                     =======  =======  =======   
 
Weighted average interest rate
 of FHLB advances, Debentures and
 other borrowings                       7.87%    7.54%    6.13%
 

SUBSIDIARY AND OTHER ACTIVITIES

     As a federally chartered savings and loan association, Fort Bend is
permitted by OTS regulations to invest up to 2% of its assets, or $5.9 million
at March 31, 1997, in the stock of, or in unsecured loans to, service
corporation subsidiaries.  As of such date, the net book value of Fort Bend's
investment in and unsecured loans to its service corporations was $215,000.
Fort Bend may invest an additional 1% of its assets in service corporations
where such additional funds are used for inner-city or community development
purposes.

     One of Fort Bend's active wholly owned subsidiaries, Fairview, Inc.
("Fairview"), is engaged in the sale of developed lots, lending, and providing
appraisal and other real estate

                                       29
<PAGE>
 
related services.  Fairview has developed Cambridge Village, a single-family
residential development located in Rosenberg, Texas, consisting of 235 developed
residential lots and eight acres of additional land.  At March 31, 1997, only
one residential lot remained unsold.  At March 31, 1997, Fort Bend's investment
in Fairview was $215,000, of which $14,000 was classified as substandard due to
the slower than expected sale of the remaining property.

     Fairview recognized net income of $155,000 for the fiscal year ended March
31, 1997, $48,000 for the fiscal year ended March 31, 1996 and a net loss of
$18,000 for the fiscal year ended March 31, 1995. As required by federal law,
the Association has been deducting its investment in Fairview from capital, over
a six-year period beginning July 1, 1990, for purposes of determining the
Association's capital requirements.  See "- Regulation - Regulatory Capital
Requirements."

     Beginning in the third quarter of fiscal 1996, the Company, through
Fairview, began to offer its customers and members of the general public various
financial services in the form of mutual funds, annuity and brokerage services
through a third-party registered broker-dealer.

     The Association also leases space in its Rosenberg branch to an insurance
agency and provides financial and related services to the agency.  The
Association primarily provides accounting, administrative and other ministerial
support to the insurance agency.  Revenues received from such services totaled
$358,000,  $78,000 and $165,000 for the years ended March 31, 1997, 1996 and
1995, respectively.

     As noted elsewhere in this Report, on January 2, 1997, the Association
acquired a 51% interest in Mitchell Mortgage Company, L.L.C., which is engaged
in the mortgage banking business.  See "-- Recent Acquisitions--Mitchell
Mortgage."  Mitchell was formed for the purpose of engaging in the mortgage
banking business, including the origination and servicing of single family
purchase loans, single family construction loans and commercial and multi-family
real estate loans.  It is anticipated that the newly formed entity will operate
in a manner similar to that of its predecessor.  Mitchell Mortgage Company had a
loan servicing portfolio of approximately $600 million and a loan portfolio of
approximately $18.4 million as of March 31, 1997.


                                   REGULATION


GENERAL

     Fort Bend is a federally chartered savings and loan association, the
deposits of which are federally insured and backed by the full faith and credit
of the United States government. Accordingly, Fort Bend is subject to broad
federal regulation and oversight extending to all of its operations.  The
Association is a member of the FHLB of Dallas and is subject to certain limited
regulation by the Federal Reserve Board.  As the savings and loan holding
company of Fort Bend, the Company also is subject to federal regulation and
oversight.  The purpose of the regulation of the Company and other holding
companies is to protect subsidiary savings associations.  The Association is a
member of the SAIF and the deposits of the Association are

                                       30
<PAGE>
 
insured by the FDIC.  As a result, the FDIC has certain regulatory and
examination authority over the Association.

     Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

FEDERAL REGULATION OF SAVINGS ASSOCIATIONS

     The OTS has extensive authority over the operations of savings
associations.  As part of this authority, Fort Bend is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS and the
FDIC.  The last regular OTS and FDIC examinations of the Association were as of
December 31, 1996 and January 31, 1992, respectively.  When these examinations
are conducted by the OTS and the FDIC, the examiners may require the Association
to provide for higher general or specific loan loss reserves.  All savings
associations are subject to a semi-annual assessment, based upon the savings
association's total assets.  The Association's OTS assessment for the fiscal
year ended March 31, 1997 was $74,000.

     The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Fort Bend and the Company.
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.  Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS.  Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.

     In addition, the investment, lending and branching authority of the
Association is prescribed by federal laws, and the Association is prohibited
from engaging in any activities not permitted by such laws.  For instance, no
savings institution may invest in non-investment grade corporate debt
securities.  In addition, the permissible level of investment by federal
associations in loans secured by non-residential real property may not exceed
400% of total capital, except with approval of the OTS.  Federal savings
associations are also generally authorized to branch nationwide.  Fort Bend is
in compliance with the noted restrictions.

     The Association's general permissible lending limit for loans-to-one-
borrower is equal to the greater of $500,000 or 15% of unimpaired capital and
surplus (except for loans fully secured by certain readily marketable
collateral, in which case this limit is increased to 25% of unimpaired capital
and surplus).  At March 31, 1997, the Association's lending limit under this
restriction was $3.2 million.  The Association is in compliance with its loans-
to-one-borrower limitation.   See "Business  -  Lending Activities."

     The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits.  Any
institution which fails to comply with these standards must submit a compliance
plan.  A failure to submit a plan or to comply with an approved plan will
subject the institution to further enforcement action.  The OTS and the other
federal banking

                                       31
<PAGE>
 
agencies have also proposed additional guidelines on asset quality and earnings
standards.  No assurance can be given as to whether or in what form the proposed
regulations will be adopted.

                                       32
<PAGE>
 
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC

     Fort Bend is a member of the SAIF, which is administered by the FDIC.  Fort
Bend's deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
government.  As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured
institutions.  The FDIC also may prohibit any FDIC-insured institution from
engaging in any activity the FDIC determines by regulation or order to pose a
serious risk to the FDIC.  The FDIC also has the authority to initiate
enforcement actions against savings associations, after giving the OTS an
opportunity to take such action, and may terminate the institution's deposit
insurance if it determines that the institution has engaged in unsafe or unsound
practices, or is in an unsafe or unsound condition.

     The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation.  Under the system, institutions classified
as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier
1 or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium, while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.

     The FDIC is authorized to increase assessment rates, on a semi-annual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits.  In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC.  The FDIC also may impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.

     For the first six months of 1995, the assessment schedule for members of
the Bank Insurance Fund (the "BIF")  and SAIF members ranged from .23% to .31%
of deposits.  As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the BIF of the FDIC in
order to maintain the reserve ratio of the BIF of the FDIC in order to maintain
the reserve ratio of the BIF at 1.25% of BIF insured deposits.  As a result of
the BIF reaching its statutory reserve ratio the FDIC revised the premium
schedule for BIF insured institutions to provide a range of .04% to .31% of
deposits.  The revisions became effective in the third quarter of 1995.  In
addition, the BIF rates were further revised, effective January 1996, to provide
a range of 0% to .27%.  The SAIF rates, however, were not adjusted.  At the time
the FDIC revised the BIF premium schedule, it noted that, absent legislative
action (as discussed below), the SAIF would not attain its designated reserve
ratio until the year 2002.  As a result, SAIF insured members would continue to
be generally subject to higher deposit insurance premiums that BIF insured
institutions until, all things being equal, the SAIF attained its required
reserve ratio.

                                       33
<PAGE>
 
     In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF.  It also provides for the merger of the BIF and the SAIF on January 1,
1999 if no savings associations then exist.  The special assessment rate was
established at .657% of deposits by the FDIC and the resulting assessment on the
Association of $1.5 million was paid in November 1996.  This special assessment
significantly increased noninterest expense and adversely affected the
Association's results of operations for the year ended March 31, 1997. As a
result of the special assessment, the Association's deposit insurance premiums
were reduced to .063% based upon its current risk classification and the new
assessment schedule for SAIF insured institutions.  These premiums are subject
to change in future periods.

     Prior to the enactment of the legislation, a portion of the SAIF assessment
imposed on savings associations was used to repay obligations issued by a
federally chartered corporation to provide financing ("FICO") for resolving the
thrift crisis in the 1980s.  Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing obligation.  Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
effective January 1, 1997, that assessment will be limited to 20% of the rate
imposed on SAIF assessable deposits until the earlier of December 31, 1999 or
when no savings association continues to exist, thereby imposing a greater
burden on SAIF member institutions such as the Association.  Thereafter,
however, assessments on BIF-member institutions will be made on the same basis
as SAIF-member institutions.  The rates to be established by the FDIC to
implement this requirement for all FDIC-insured institutions is uncertain at
this time, but are anticipated to be about a 6.3 basis points assessment on SAIF
deposits and 1.26 basis points on BIF deposits until BIF insured institutions
participate fully in the assessment.

REGULATORY CAPITAL REQUIREMENTS

     Federally insured savings associations, such as Fort Bend, are required to
maintain a minimum level of regulatory capital.  The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings associations.  These capital requirements must be generally as stringent
as the comparable capital requirements for national banks.  The OTS is also
authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.

     The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation).  Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income.  In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement.

     The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries.  In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities

                                       34
<PAGE>
 
solely as agent for its customers are "includable" subsidiaries that are
consolidated for capital purposes in proportion to the association's level of
ownership.  For excludable subsidiaries, the debt and equity investments in such
subsidiaries are deducted from assets and capital.  At March 31, 1997, the
Association had tangible capital of $19.5 million, or 6.71% of adjusted total
assets, which was approximately $15.2 million above the minimum requirement of
1.5% of adjusted total assets in effect on that date.

     The capital standards also require core capital equal to at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships.  As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio.  At March 31, 1997, the
Association had no intangible assets which were subject to these tests.

     At March 31, 1997, the Association had core capital equal to $19.5 million,
or 6.71% of adjusted total assets, which was $10.8 million above the minimum
leverage ratio requirement of 3.0% as in effect on that date.

      The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets.  Total capital consists of core
capital, as defined above, and supplementary capital.  Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets.  Supplementary capital may be
used to satisfy the risk-based requirement only to the extent of core capital.
The OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities.  At March 31, 1997, the Association
had no capital instruments that qualify as supplementary capital and $1.5
million of general loss reserves, which was less than 1.25% of risk-weighted
assets.

     Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital.  Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments.  The Association had
$215,000 of investments in and advances to nonincludable subsidiaries and
$754,000 of excess qualifying purchased or originated mortgage loan servicing
which were excluded from capital and assets for the purpose of calculating total
capital at March 31, 1997.

     In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset.  For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.

     The OTS has adopted a final rule that requires every savings association
with more than normal interest rate risk exposure to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal to 50% of its interest-rate risk exposure

                                       35
<PAGE>
 
multiplied by the present value of its assets.  This exposure is a measure of
the potential decline in the net portfolio value of a savings association,
greater than 2% of the present value of its assets, based upon a hypothetical
200 basis point increase or decrease in interest rates (whichever results in a
greater decline).  Net portfolio value is the present value of expected cash
flows from assets, liabilities and off-balance sheet contracts.  The rule
provides for a two-quarter lag between calculating interest rate risk and
recognizing any deduction from capital. The rule will not become effective until
the OTS evaluates the process by which savings associations may appeal an
interest rate risk deduction determination.  It is uncertain as to when this
evaluation may be completed.  Any savings association with less than $300
million in assets and a total capital ratio in excess of 12% is exempt from this
requirement unless the OTS determines otherwise.  Currently, the Association
would be exempt from this rule.

     At March 31, 1997, Fort Bend had total capital of $21.0 million (including
$19.5 million in core capital and $1.5 million in qualifying supplementary
capital) and risk-weighted assets of $142.5 million; or total capital of 14.8%
of risk-weighted assets.  This amount was $9.7 million above the 8% requirement
in effect on that date.

     The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements.  The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-
based capital ratio or an 8% risk-based capital ratio).  Any such association
must submit a capital restoration plan and until such plan is approved by the
OTS may not increase its assets, acquire another institution, establish a branch
or engage in any new activities, and generally may not make capital
distributions.  The OTS is authorized to impose the additional restrictions that
are applicable to significantly undercapitalized associations.

      As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.

     Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association.  An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations.  In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized.  Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.

     The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.

                                       36
<PAGE>
 
     The imposition by the OTS or the FDIC of any of these measures on Fort Bend
may have a substantial adverse effect on the Company's operations and
profitability.  Company stockholders do not have preemptive rights, and
therefore, if the Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Company.

LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS

     OTS regulations impose various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account.  OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.

     Generally, savings associations, such as Fort Bend, that before and after
the proposed distribution meet their capital requirements, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS.  Fort Bend may
pay dividends in accordance with this general authority.

     Savings associations proposing to make any capital distribution need only
submit written notice to the OTS 30 days prior to such distribution.  Savings
associations that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution, however, must obtain OTS
approval prior to making such distribution.  The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns.  See "- Regulatory Capital Requirements."

     The OTS has proposed regulations that would revise the current capital
distribution restrictions.  Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution.  The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year.  A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution.  As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice.  No assurance can be given as to
whether or in what form the regulations may be adopted.

                                       37
<PAGE>
 
LIQUIDITY

     All savings associations, including Fort Bend, are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the sum
of its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less.  This liquid asset ratio requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations.  At the present time, the minimum liquid
asset ratio is 5%.

     In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the association's average daily balance
of net withdrawable deposit accounts and current borrowings.  Penalties may be
imposed upon associations for violations of either liquid asset ratio
requirement.  At March 31, 1997, the Association was in compliance with both
requirements, with an overall liquid assets ratio of 10.65% and a short-term
liquid assets ratio of 8.56%.

ACCOUNTING

     An OTS policy statement applicable to all savings associations clarifies
and re-emphasizes that the investment activities of a savings association must
be in compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with Generally Accepted
Accounting Principles. Under the policy statement, management must support its
classification of and accounting for loans and securities (i.e., whether held
for investment, sale or trading) with appropriate documentation. Fort Bend is in
compliance with these amended rules.

     The OTS has adopted an amendment to its accounting regulations, which the
OTS may make more stringent than generally accepted accounting principles, to
require that transactions be reported in a manner that best reflects their
underlying economic substance and inherent risk and that financial reports must
incorporate any other accounting regulations or orders prescribed by the OTS.

QUALIFIED THRIFT LENDER TEST

     All savings associations, including the Association, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations.  This test requires a savings association to have at least 65% of
its portfolio assets (as defined by regulation) in qualified thrift investments
on a monthly average for nine out of every 12 months on a rolling basis.  As an
alternative, the savings association may maintain 60% of its assets in those
assets specified in Section 7701(a)(19) of the Internal Revenue Code.  Under
either test, such assets primarily consist of residential housing related loans
and investments.  As March 31, 1997, the Association met the test and has always
met the test since its effectiveness.

     Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL.  If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF.  If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a

                                       38
<PAGE>
 
savings association and a national bank, and it is limited to national bank
branching rights in its home state.  In addition, the association is immediately
ineligible to receive any new FHLB borrowings and is subject to national bank
limits for payment of dividends.  If such association has not requalified or
converted to a national bank within three years after the failure, it must
divest of all investments and cease all activities not permissible for a
national bank.  In addition, it must repay promptly any outstanding FHLB
borrowings, which may result in prepayment penalties.  If any association that
fails the QTL test is controlled by a holding company, then within one year
after the failure, the holding company must register as a bank holding company
and become subject to all restrictions on bank holding companies.  See "--
Holding Company Regulation."

COMMUNITY REINVESTMENT ACT

     Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods.  The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of the
Association, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by Fort Bend.
An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.

     The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA.  Due to the heightened attention being given to the CRA in the
past few years, the Association may be required to devote additional funds for
investment and lending in its local community.  The Association was last
examined for CRA compliance in February 1996 and received a rating of
satisfactory.

TRANSACTIONS WITH AFFILIATES

     Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the association
as transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital.  Affiliates of Fort Bend include the Company and any
company which is under common control with Fort Bend.  In addition, a savings
association may not lend to any affiliate engaged in activities not permissible
for a bank holding company or acquire the securities of most affiliates.  The
Association's subsidiaries are not deemed affiliates. The OTS, however, has the
discretion to treat subsidiaries of savings associations as affiliates on a
case-by-case basis.

     Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS.  These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests.

                                       39
<PAGE>
 
Among other things, such loans must be made on terms substantially the same as
for loans to unaffiliated individuals.

HOLDING COMPANY REGULATION

     The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS.  As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS.  In addition, the OTS has enforcement authority over the Company and
its non-savings association subsidiaries which also permits the OTS to restrict
or prohibit activities that are determined to be a serious risk to the
subsidiary savings association.

     As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions.  If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than Fort Bend or any other SAIF-insured savings
association) would become subject to such restrictions unless such other
associations each qualify as a QTL and were acquired in a supervisory
acquisition.

     If the Association fails the QTL test, the Company must obtain the approval
of the OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries.  In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies.  The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company.  See "-
Qualified Thrift Lender Test."

     The Company must obtain approval from the OTS before acquiring control of
any other SAIF-insured association.  Such acquisitions are generally prohibited
if they result in a multiple 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.

FEDERAL SECURITIES LAW

     The stock of the Company is registered with the Commission under the
Exchange Act. The Company is subject to the information, proxy solicitation,
insider trading restrictions and other requirements of the Commission under the
Exchange Act.

     Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions.  If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.

FEDERAL RESERVE SYSTEM

     The Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW

                                       40
<PAGE>
 
and Super NOW checking accounts).  At March 31, 1997, the Association was in
compliance with these reserve requirements.  The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS.  See "- Liquidity."

     Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require associations to
exhaust other reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.

FEDERAL HOME LOAN BANK SYSTEM

     The Association is a member of the FHLB of Dallas, which is one of 12
regional FHLBs that administer the home financing credit function of savings
associations.  Each FHLB serves as a reserve or central bank for its members
within its assigned region.  It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System.  It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board.  All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB.  In addition,
all long-term advances are required to provide funds for residential home
financing.

     Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately-priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects.  These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future.  These contributions
could also have an adverse effect on the value of FHLB stock in the future.  A
reduction in value of the Association's FHLB stock may result in a corresponding
reduction in the Association's capital.

     As a member of the FHLB of Dallas, the Association is required to purchase
and maintain stock in the FHLB of Dallas.  At March 31, 1997, the Association
had $1.9 million in FHLB stock, which was in compliance with this requirement.
Fort Bend has received dividends on its FHLB stock, which have averaged 5.3%
over the past five calendar years and were 5.9% for calendar year 1996.

     For the fiscal year ended March 31, 1997, stock dividends paid by the FHLB
of Dallas to the Association totaled $103,000, which constitutes a $13,000
increase over the amount of dividends received in fiscal year 1996.  The $27,000
dividend received for the quarter ended March 31, 1997 reflects an annualized
rate of 5.8%, or 0.1% below the rate for calendar 1996.

FEDERAL AND STATE TAXATION

     FEDERAL TAXATION.  Prior to the enactment of recent legislation (discussed
below), savings associations such as the Association that met certain
definitional tests relating to the composition of assets and other conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), had
been permitted to establish reserves for bad debts and to make annual additions
thereto which could, within specified formula limits, be taken as a deduction in
computing

                                       41
<PAGE>
 
taxable income for federal income tax purposes.  The amount of the bad debt
reserve deduction for "non-qualifying loans" was computed under the experience
method.  The amount of the bad debt reserve deduction for "qualifying real
property loans" (generally loans secured by improved real estate) is computed
under the experience method.

     In August 1996, legislation was enacted that repeals the percentage of
taxable income method of accounting used by many thrifts to calculate their bad
debt reserve for federal income tax purposes.  As a result, small thrifts such
as the Association must recapture that portion of the reserve that exceeds the
amount that could have been taken under the experience method for post-1987 tax
years.  The legislation also requires thrifts to account for bad debts for
federal income tax purposes on the same basis as commercial banks for tax years
beginning after December 31, 1995.  The recapture will occur over a six-year
period, the commencement of which will be delayed until the first taxable year
beginning after December 31, 1997, provided the institution meets certain
residential lending requirements.  The management of the Association does not
believe that the legislation will have a material impact on the Association.

     In addition to regular income tax, corporations, including savings
associations such as the Association, generally are subject to a minimum tax.
An alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption.  The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of alternative minimum taxable income.  For taxable years
beginning after 1986 and before 1996, corporations, including savings
associations such as the Association, are also subject to an environmental tax
equal to 0.12% of the excess of alternative minimum taxable income for the
taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2 million.

     To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a stockholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses).  As of March 31, 1997, the Association's Excess for tax purposes
totaled approximately $1.5 million.  Under present law should the Association
cease to be a savings institution, the Company would be required to recapture
the Association's bad debt reserves in its Excess.

     The Company files consolidated federal income tax returns with the
Association and its subsidiaries on a fiscal year basis using the accrual method
of accounting.  The Company and its consolidated subsidiaries have been audited
by the IRS with respect to consolidated federal income tax returns through March
31, 1985.  With respect to years examined by the IRS, either all deficiencies
have been satisfied or sufficient reserves have been established to satisfy
asserted deficiencies.  In the opinion of management, any examination of still
open returns (including returns of subsidiaries and predecessors of, or entities
merged into, the Association) would not

                                       42
<PAGE>
 
result in a deficiency which could have a material adverse effect on the
financial condition or results of operations of the Company and its consolidated
subsidiaries.

     TEXAS TAXATION.  The State of Texas does not have a corporate income tax,
but it does have a corporate franchise tax.  Legislation enacted in August 1991
subjected savings and loan associations to such franchise tax effective January
1, 1992.  The tax is the higher of 0.25% of taxable capital (usually the total
of stated capital,  paid in capital and retained earnings) or 4.5% of "net
taxable earned surplus."  "Net taxable earned surplus" is net income for federal
income tax purposes increased by the compensation of directors and executive
officers and decreased by interest on obligations guaranteed by the U.S.
government.  Net income cannot be reduced by net operating loss carryforwards
from years prior to 1991, and operating loss carryovers are limited to five
years.  To the extent that the Company has "Texas" taxable income, it also will
be subject to taxation.

     DELAWARE TAXATION.  As a Delaware holding company, the Company is exempted
from Delaware corporate income tax but is required to file an annual report with
and pay an annual fee to the State of Delaware.  The Company is also subject to
an annual franchise tax imposed by the State of Delaware.

COMPETITION

     Fort Bend faces strong competition, both in originating real estate and
other loans and in attracting deposits.  Competition in originating real estate
loans comes primarily from mortgage bankers, other savings institutions,
commercial banks and credit unions, located in the Association's market areas.
Other commercial banks, savings institutions, and credit unions provide vigorous
competition in consumer lending.

     The Association attracts all of its deposits through its branch offices,
primarily from the communities in which those branch offices are located;
therefore, competition for those deposits is principally from other savings
institutions and commercial banks located in the same communities as well as
brokerage firms.  The Association competes for these deposits by offering a
variety of deposit accounts at competitive rates, convenient business hours, and
convenient branch locations with interbranch deposit and withdrawal privileges
at each.  An automated teller machine ("ATM") facility is available at the
Rosenberg, Needville, East Bernard and Missouri City branches.

EMPLOYEES

     At March 31, 1997, the Company and its subsidiaries had a total of 159
employees, including 20 part-time employees.  Such employees are not represented
by any collective bargaining group.  Management considers its employee relations
to be good.

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

     The following is a description of the Company's and the Association's
executive officers who were not also directors as of March 31, 1997.

     Larry J. Dobrava.  Mr. Dobrava, age 57, is the Senior Vice President of the
Association in charge of loan operations.  His primary responsibilities include
overall administration of the

                                       43
<PAGE>
 
Association's lending operations, including real estate, construction, consumer
and commercial lending.  Mr. Dobrava joined the Association in 1966 and served
in several capacities in the Association's lending department prior to being
promoted to his present position in 1981.

     David D. Rinehart.  Mr. Rinehart, age 55, joined the Association in 1988 as
Senior Vice President and Chief Financial Officer.  Mr. Rinehart is primarily
responsible for planning and directing the Association's accounting, savings and
investment functions.  He is also responsible for the overall administration of
branch operations, internal audit/compliance and data processing of the
Association.  The Board of Directors of the Company elected Mr. Rinehart Senior
Vice President and Chief Financial Officer of the Company in 1993 and Executive
Vice President in 1996.

     Sandra C. Samford.  Ms. Samford, age 47, has been Vice President in charge
of corporate planning and investor relations and the Association's Corporate
Secretary since 1988. In this capacity, she is responsible for planning and
coordinating the Association's management information system.  Ms. Samford has
been employed by the Association since 1970.  The Board of Directors of the
Company elected Ms. Samford Vice President and Secretary of the Company in 1993.

                                       44
<PAGE>
 
ITEM 2.  DESCRIPTION OF PROPERTY

     The following table sets forth information relating to each of the
Association's current offices.  The total net book value of the Association's
premises and equipment at March 31, 1997 was $4.6 million.

 
                               Date      Net Book Value     Branch
 Location                    Acquired   at March 31, 1997  Deposits
------------                 ---------  -----------------  --------
                                                 (In Thousands)

Main Office:

3400 Avenue H                    1965        $3,073        $161,747
Rosenberg, TX                                             
                                                          
Branch Offices:                                           
                                                          
3328 School Street               1994           379          32,660
Needville, TX                                             
                                                          
10881 Bissonnet                    (1)           33          12,246
Houston, TX                                               
                                                          
9212 Highway 60                  1995           348          14,563
East Bernard, TX                                          
                                                          
919 Avenue C                       (2)           91           4,137
Katy, TX                                                  
                                                          
5819 Highway 6, Suite 100          (3)          660          24,865
Missouri City, TX

 
___________________
(1)  This location is leased through March 1999.
(2)  This location is leased through February 1999.
(3)  This location is leased through June 2001.



     The Association maintains depositor and borrower customer files on an on-
line basis with Fiserv Financial Systems Inc., Beaumont, Texas.  The net book
value of the data processing and computer equipment utilized by the Association
at March 31, 1997 was approximately $452,600.

ITEM 3.  LEGAL PROCEEDINGS

     The Company and its subsidiaries, from time to time, are involved as
plaintiff or defendant in various legal actions arising in the normal course of
their businesses.  While the ultimate outcome of any such proceedings cannot be
predicted with certainty, it is the opinion of management that no proceedings
exist which, if determined adversely to the Company and its subsidiaries, would
have a material effect on Fort Bend's consolidated results of operations.

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

     No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended March 31, 1997.

                                       45
<PAGE>
 

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

STOCK PRICE INFORMATION

Fort Bend Holding Corp.'s common stock is listed on the Nasdaq National Market 
under the symbol "FBHC". As of June 5, 1997, the Holding Corp. had approximately
827,215 shares of common stock outstanding and 606 shareholders of record. The 
number of shareholders of record does not reflect shares held in nominee or 
"street" name.

The table below shows the reported high and low price range of the common stock 
during the fiscal year ended March 31, 1997. The stock was phased into the 
NASDAQ National Market on October 16, 1995, which reports the high and low price
range. The change from high and low bid prices to high and low price range is 
reflected in the third and fourth quarters of fiscal 1996. The first and second 
quarters of Fiscal 1996 reflect high and low bid prices. The stock began 
trading on June 30, 1993.

 
                                 1997                          1996
                      ---------------------------    --------------------------
                      High      Low     Dividends    High      Low    Dividends

First Quarter         18 1/2   17 1/2     $0.07      16 3/4    15       $0.07
Second Quarter        19 1/2   16 3/4     $0.07      19 1/4    16 3/4   $0.07
Third Quarter         26       18 3/4     $0.07      18 3/4    18       $0.07
Fourth Quarter        24 3/4   22         $0.07      18 3/4    18       $0.07


     In addition, listed below are the Company's dividends on common stock 
payout ratio for the years indicated:

                                                Year Ended March 31,
                                           -------------------------------
                                             1997       1996         1995
                                           -------------------------------

     Dividends Paid                        229,457     237,298     251,876
     Net Income                            774,773   1,687,036   1,770,679
     Dividend Payout Ratios                  29.62%      14.07%      14.22%





<PAGE>
 
6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

FORWARD-LOOKING INFORMATION

When used in this report, the words "believes," "anticipates," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially, including, but not limited to, those set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Fort
Bend Holding Corp. (the "Holding Corp.") undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

GENERAL

The Holding Corp. was incorporated under the laws of the State of Delaware to
become a savings and loan holding company with Fort Bend Federal Savings and
Loan Association of Rosenberg (the "Association") as its subsidiary. The Holding
Corp. was incorporated at the direction of the Board of Directors of the
Association, and on June 30, 1993 acquired all of the capital stock of the
Association upon its conversion from mutual to stock form (the "Conversion").
Prior to the Conversion, the Holding Corp. did not engage in any material
operations and, at March 31, 1997, had no significant assets other than the
investment in the capital stock of the Association, investment securities,
deferred charges from subordinated debt issue and cash and cash equivalents.
However, during the fiscal year, the Holding Corp. did participate in
multifamily loans originated by Mitchell Mortgage Company, L.L.C. for the sale
to the Federal Home Loan Mortgage Co. and Federal National Mortgage Co. It is
anticipated that this will continue in fiscal year 1998.

The Association is principally engaged in the business of attracting retail
deposits from the general public and investing those funds in first mortgage
loans in owner occupied, single-family residential loans and mortgage-backed
securities. The Association originates residential construction loans and
commercial real estate loans. The Association also originates commercial loans
and consumer loans, including loans for the purchase of automobiles and home
improvement loans.

The most significant outside factors influencing the operations of the
Association and other banks and savings institutions include general economic
conditions, competition in the local market place and the related monetary and
fiscal policies of agencies that regulate financial institutions. More
specifically, the cost of funds, primarily consisting of deposits, is influenced
by interest rates on competing investments and general market rates of interest.
Lending activities are influenced by the demand for real estate financing and
other types of loans, which in turn is affected by the interest rates at which
such loans may be offered and other factors affecting loan demand and funds
availability.

The deposits of savings institutions such as the Association are presently
insured by the Savings Association Insurance Fund (the "SAIF"), which, along
with the Bank


<PAGE>
 
Insurance Fund (the "BIF"), are the two insurance funds administered by the
Federal Deposit Insurance Corporation (the "FDIC"). Financial institutions which
are members of the BIF have experienced substantially lower deposit insurance
premiums because the BIF has achieved its required level of reserves, while the
SAIF prior to September, 1996 had not yet achieved its required reserves. A
recapitalization plan for the SAIF was signed by the President on September 30,
1996 as part of the Economic Growth and Regulatory Paperwork Reduction Act and
provided for a one-time special assessment of .657% of deposits imposed on all
SAIF insured institutions to enable the SAIF to achieve its required level of
reserves. The assessment of .657% was assessed based on deposits as of March 31,
1995 and the Association's special assessment amounted to approximately $985,000
after taxes. Accordingly, this special assessment significantly increased non-
interest expense, and adversely affected the Company's results of operations.
Conversely, depending upon the Association's capital level and supervisory
rating, future annual deposit insurance premiums are expected to decrease for
periods beginning January 1, 1997, to approximately .064% from .23% of deposits
previously paid by the Association.

On August 16, 1996, the Holding Corp. acquired all the outstanding stock of
FirstBanc Savings Association of Texas ("FirstBanc"). FirstBanc was a state
chartered savings and loan association with one full service office located in
Missouri City, Texas. The Missouri City/Sugarland area is located in east Fort
Bend County. This is a strategic location for the Association as east Fort Bend
County has several master planned communities including the rapidly growing
First Colony and a new 7,000 acre project known as Sienna Plantation. The
transaction value was approximately $4.2 million. FirstBanc had approximately
$30 million in assets and $26.8 million in deposits at the time of acquisition.

On January 2, 1997, the Holding Corp. closed a transaction with The Woodlands
Corporation to acquire a controlling interest in Mitchell Mortgage Company,
L.L.C., ("Mitchell"). A new entity was formed for the purpose of engaging in the
mortgage banking business, including the origination and servicing of single
family purchase loans, single family construction loans and commercial and
multifamily real estate loans. The Woodlands Corporation contributed certain
mortgage loans and its mortgage servicing portfolio and liabilities of its
wholly-owned mortgage banking subsidiary, Mitchell Mortgage Company, in exchange
for a 49% ownership interest in Mitchell. Fort Bend contributed cash of
approximately $2.6 million in exchange for a 51% ownership interest in Mitchell.
It is anticipated that the newly formed entity will operate in a manner similar
to that of its predecessor. Mitchell Mortgage Company had a loan servicing
portfolio of approximately $600 million and a loan portfolio of approximately
$18.4 million as of March 31, 1997.

In order to continue to meet the financial services needs of the communities it
serves, the Association intends to continue to grow in a reasonable, prudent
manner which may include expansion of the existing branch network, the
acquisition of other financial institutions' branches, or whole institutions.
Prior to the Conversion, such growth was limited due to capital restrictions. As
a part of this intended growth, the Association has increased the portfolio
allocation of single-family construction lending, consumer lending and
commercial lending. Certain improvements and expansion of facilities have been
completed and should assist in the expansion of the Association's core deposit
base. Finally, the Association continues to look for opportunities to expand the
loan servicing portfolio.


<PAGE>
 
Growth of the Association may be financed by either increasing the deposit
portfolio or from borrowed funds. The acquisition of branches from other
financial institutions in the Association's geographic area is one other
possible source. In addition, the use of borrowed funds to purchase short
duration, mortgage-backed securities or single family mortgage loans may be
considered to add to the Association's portfolio.

Loan servicing has been one of the stable income providers for the Association
and will continue to be expanded, to the extent possible, through the retention
of servicing for loans originated and sold into the secondary market, as well as
through the purchase of mortgage servicing rights, to the extent deemed
appropriate (and subject to market conditions at the time). In fiscal year 1997,
the Association purchased the right to service approximately $128 million of
mortgage loans. Management believes these purchases have allowed the Association
to take advantage of some economies of scale as related to servicing.

The Holding Corp.'s strategic plan will continue to be reviewed quarterly for
progress by the Board of Directors. The Board will modify the plan as deemed
appropriate to reflect the operational environment of the Association.

Interest rates increased moderately during the fiscal year ended March 31, 1997,
and had no apparent impact on lending. The Association had a higher volume of
permanent single family lending activity, resulting in a net gain on sale of
loans and an increase to loans receivable, net. In a declining rate environment,
prices for loans sold in the secondary market normally increase and generally
create a gain when the loans are sold. Since rates increased only moderately,
the Association was still able to generate gains on loans sold in the secondary
market. In addition the Association has been able to generate new sources of
single family construction lending, consumer lending, and commercial real estate
lending to compliment the volume of permanent single family lending.

It is difficult to determine the exact impact of rising interest rates on the
net interest margin. Prepayment tendencies on loans and mortgage-backed
securities may vary from historical experience and depositors' preference for
various deposit products and maturities may also vary. The Association's
favorable liquidity position of 10.65% allows some flexibility in adjusting to
cash flow requirements brought on by interest rate changes. The Association's
one year interest-rate sensitivity gap was a positive 11.69% of total assets at
March 31, 1997. A positive gap indicates there are more interest-earning assets
repricing during a stated period than interest-bearing liabilities. This
suggests that in a declining rate environment the net interest margin would
decrease and in a rising rate environment the margin would increase. See
"Interest Rate Risk Management."

At March 31, 1997, the Holding Corp. had unrealized gains and losses in its
investment securities and mortgage-backed securities portfolio which are being
held to maturity. The Holding Corp. has both the intent and ability to hold
these securities until maturity. In addition, management believes the Holding
Corp. will be able to collect all amounts due according to the contractual terms
of the debt securities and is not aware of any information that would indicate
the inability of any issuer of such securities to make contractual payments in a
timely manner. As such the Holding Corp. believes that these unrealized losses
will not ultimately be realized and therefore, should not be recognized in the
financial statements since such losses are not other than temporary.


<PAGE>
 
Most of the Association's mortgage-backed securities are agency securities and
are either guaranteed by the full faith and credit of the United States
Government (GNMA) or are insured by a Government Sponsored Enterprise (FNMA &
FHLMC). In addition, the Association holds some private issue mortgage-backed
securities which consist of the "A" piece of "A-B" structured securities, where
the "B" piece is subordinate to the "A" piece, and which have been rated one of
the two highest categories by at least one of the rating agencies. These
securities have pool insurance and/or reserve funds in addition to the
subordination of the "B" piece. Collateral for these securities is mortgage
whole loans. None of these securities are considered "high risk" as defined by
the Office of Thrift Supervision ("OTS") and none have failed to pass the
Federal Financial Institution Examination Council (FFIEC) mandatory test for
"High Risk" securities. The Association does not invest in such "High Risk"
securities.

Management of the investment portfolio is not designed to be the primary source
of funds for the Holding Corp.'s operations. Rather, it is viewed as a use of
funds generated by the Holding Corp. to be invested in interest-earning assets
to be held to maturity or available for sale. Cash flow mismatches between
sources and uses of funds should not require any of the securities to be
liquidated. While cash flows from the securities varies depending on the
prepayment speeds associated with each particular security, the variance in the
prepayment speeds does not impact the over-all cash flow needs of the Holding
Corp. since the Association has the ability to borrow funds from the Federal
Home Loan Bank of Dallas. Currently, the Association has the ability to borrow
up to an additional $143 million if cash flow requirements cannot be met by
attracting deposits from its customer base (its primary source of funds), or
from repayment of loans and other sources. See "Liquidity and Capital
Resources."


<PAGE>
 
RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEARS ENDED
MARCH 31, 1997 AND 1996

Net income for the fiscal year ended March 31, 1997 was $775,000 or $.91 per
share, compared to $1,687,000 or $1.94 per share for fiscal 1996. Fully diluted
earnings per share were $.91 and $1.81 for the fiscal year ended March 31, 1997
and 1996, respectively. The decrease in net income resulted from an increase in
noninterest expense of $3.6 million, a substantial part of which was a one-time
assessment on all SAIF insured institutions, partially offset by increases of
$1.5 million and $974,000 in noninterest income and net interest income, before
provision for loan losses, respectively.

NET INTEREST INCOME. Net interest income before provision for loan losses
increased $974,000 to $7.4 million for the fiscal year 1997 compared to $6.4
million in fiscal 1996. The increase primarily reflects the .14% increase in net
yield on average earning assets to 2.95% in fiscal 1997 compared to 2.81% for
fiscal 1996. The improvement in net yield primarily reflects an increase of .28%
in the yield on average interest-earning assets to 7.51% for fiscal 1997
compared to 7.23% for fiscal 1996 partially offset by an increase of .02% in
cost of interest-bearing liabilities in fiscal 1997 compared to fiscal 1996. Net
interest income in fiscal year 1997 was favorably impacted by an increase of
$32.3 million in the average balance of loans receivable representing the loans
acquired in the FirstBanc and Mitchell acquisitions. The gross amount of loans
included in the calculation of the average monthly balance for FirstBanc and
Mitchell was approximately $21 million and $19.2 million, respectively.
Partially offsetting the increase in loans receivable growth was a decrease in
average balance of mortgage-backed securities of $13.4 million. The
Association's loan demand was given preference over investment in mortgage-
backed securities. Average deposits increased $20.6 million and primarily
reflects the gross deposits acquired from FirstBanc Savings in August, 1996.
Average borrowings increased $7.1 million and primarily reflects a full year of
the $12.1 million, 8% Convertible Subordinated Debentures issued in December,
1995. See "Liquidity and Capital Resources".

PROVISION FOR LOAN LOSSES. Provisions for loan losses for fiscal 1997 increased
$201,000 to $324,000 from $123,000 for fiscal 1996. In fiscal 1997 loan loss
provisions were primarily established in recognition of the $45 million increase
in the loan portfolio from March 31, 1996 to March 31, 1997 and the decrease of
 .21% to 1.22% in allowance for loan losses to total loans at March 31, 1997. 
Non-performing assets to total assets decreased to .45% at March 31, 1997
compared to 1.29% at March 31, 1996. Management maintains an allowance for loan
losses in an amount which, in management's judgment, is adequate to absorb
reasonable foreseeable losses inherent in the loan portfolio. The amount of the
provision is based on management's regular review of the loan portfolio and
consideration of such factors as historical loss experience, generally
prevailing economic conditions, changes in size and composition of the loan
portfolio and considerations relating to specific loans, including the ability
of the borrower to repay the loan and the estimated value of the underlying
collateral. Ultimately, the adequacy of the allowance is dependent upon the
economy, changes in real estate values and interest rates and regulatory
requirement regarding asset classifications. See "Asset Quality."


<PAGE>
 
NONINTEREST INCOME. Noninterest income increased $1.5 million to $3.4 million in
fiscal 1997 compared to $1.9 million in fiscal 1996. Gain on sale of loans in
fiscal 1997 was $568,000 compared to $313,000 in fiscal 1996. The volume of loan
sales increased $10.5 million in fiscal 1997 compared to fiscal 1996. The
increase in volume was directly related to the acquisition of Mitchell which
actively sells mortgage loans in the secondary market, in January, 1997. Loan
fees and charges increased $337,000 primarily reflecting increases in appraisal
fees of $133,000, construction loan fees of $44,000, most of which reflected the
$15.8 million increase in loan origination, late payment fees of $50,000 and
$114,000 of construction loan fees at Mitchell. Loan servicing income increased
$477,000 which primarily reflected the $147 million of purchased and originated
servicing and the $600 million of servicing acquired with the acquisition of
Mitchell Mortgage. Service charges on deposit accounts increased $158,000
primarily reflecting fees on transaction accounts which reflects an increase in
the number of accounts resulting from the acquisition of FirstBanc and the new
branch office opened in Katy, Texas. Other income increased $231,000 primarily
reflecting an increase in the earnings from the sales of insurance products and
discount brokerage services of $263,000 reflecting renewal commissions earned on
approximately $6 million of fixed annuities. The increase was partially offset
by a decrease of $30,000 in earnings from the sale of developed lots.

NONINTEREST EXPENSE. Noninterest expense increased $3.6 million to $9.2 million
in fiscal 1997 compared to $5.6 million in fiscal 1996. A significant portion of
the increase was the result of a one-time assessment of $1.5 million by the
Savings Association Insurance Fund (SAIF), which is administered by the Federal
Deposit Insurance Corporation. Approximately $191,000 of this assessment related
to the FirstBanc deposits. The assessment was based on deposits as of March 31,
1995, and was assessed at a rate of .657%. In addition to the SAIF assessment,
compensation and benefits increased $1.3 million and primarily reflected
additional personnel retained from the acquisition of FirstBanc in August, 1996
and Mitchell Mortgage in January, 1997, staffing for a new branch office opened
in Katy, Texas, normal salary increases and other additions to staff, partially
offset by a decrease in contributions to the retirement plan. Office occupancy
increased $465,000 and primarily reflected increases of $122,000 in rent and
utilities relating to the acquisition of FirstBanc and opening of the Katy
Branch office, $133,000 in depreciation relating to remodeling of the Katy
Branch, acquisition of FirstBanc, and upgrading computer and telephone systems,
$122,000 relating to office occupancy costs at Mitchell Mortgage and $38,000 in
building taxes and maintenance contracts. Data processing fees increased
$101,000 and primarily reflected costs associated with the addition of FirstBanc
and the new branch office opened in Katy, Texas, creation of a wide area network
connecting all branch and main offices into one system and the fees incurred by
Mitchell for data processing. Real estate operations, net decreased $195,000 and
primarily reflected a $167,000 gain on sale of a multifamily property previously
held as foreclosed real estate. Other expense increased $526,000 and primarily
reflected an increase in stationery and supplies of $54,000 and postage of
$30,000 all of which represent expenses associated with the Katy branch
expansion and the acquisition of FirstBanc. Capitalized loan origination cost
decreased $73,000 since most loans were originated for sale, eliminating the
ability to credit expense for loan origination cost. Goodwill amortization of
$51,000, associated with the FirstBanc acquisition, began in fiscal year 1997.
Approximately $60,000 was related to other expenses at Mitchell.


<PAGE>
 
PROVISION FOR INCOME TAXES. Income tax provision decreased approximately
$550,000 in fiscal 1997 compared to fiscal 1996. The decrease reflected lower
net income, primarily as a result of the one-time SAIF assessment. At March 31,
1997 and 1996, the Holding Corp. has recorded a net deferred tax asset of
$306,000 and $419,000, respectively. A valuation allowance has not been recorded
since the Holding Corp. has generated sufficient levels of taxable income to
insure realization of the deferred tax asset.

COMPARISON OF FISCAL YEARS ENDED
MARCH 31, 1996 AND 1995

Net income for the fiscal year ended March 31, 1996 was $1.7 million or $1.94
per share, compared to $1.8 million or $1.94 per share for fiscal 1995. Fully
diluted earnings per share were $1.81 and $1.94 for the fiscal years ended March
31, 1996 and 1995, respectively. The decrease in net income resulted from a
decrease in net interest income, before provision for loan losses, of $493,000
and an increase of $385,000 in noninterest expense partially offset by an
increase of $603,000 in noninterest income.

NET INTEREST INCOME. Net interest income before provision for loan losses is the
difference between interest earned on interest-earning assets and interest paid
on interest-bearing liabilities. Net interest income before provision for loan
losses decreased $493,000 to $6.4 million for the fiscal year 1996 compared to
$6.9 million in fiscal 1995. The decrease primarily reflects the .43% decrease
in net yield on average earning assets to 2.81% in fiscal 1996 compared to 3.24%
for fiscal 1995. The decrease in net yield primarily reflects an increase of
 .87% in the cost of interest-bearing liabilities to 4.79% for fiscal 1996
compared to 3.92% for fiscal 1995 partially offset by an increase of .37% in
yield on average interest-earning assets in fiscal 1996 compared to fiscal 1995.
Yield on average assets increased primarily reflecting .17% increase in average
yield on loans receivable and .58% increase in average yield on mortgage-backed
securities. Approximately 55% of the mortgage-backed securities are adjustable
and interest rates reset during the early part of the fiscal 1996. The increase
in the cost of interest-bearing liabilities reflected the increase of 2.21% in
average cost of borrowings to 7.04% for fiscal 1996 compared to 4.83% for fiscal
1995. In December, 1995 the Holding Corp. issued $12.1 million of Convertible
Subordinated Debentures with a fixed interest rate of 8% which was the primary
cause of the increase in cost of borrowings. The Holding Corp. continues its
intent to utilize these proceeds for possible acquisitions of other financial
services institutions, purchasing branches or establishing new branches in
suitable locations within a 100 mile radius of Rosenberg, Texas.

PROVISION FOR LOAN LOSSES. The provision for loan losses for the twelve months
ended March 31, 1996 decreased $135,000 as compared to the same period in the
last fiscal year. A reduction of approximately $968,000 in non-accruing loans
was primarily responsible for the decrease in provision. A partial charge-off
and partial pay-off of a $1.4 million commercial real estate loan had previously
been reflected as a non-accruing loan.

NONINTEREST INCOME. Noninterest income was $1.9 million in fiscal 1996 compared
to $1.3 million in fiscal 1995. Gain on sale of loans in fiscal 1996 was
$313,000 compared to a loss on sale of loans of $69,000 in fiscal 1995. The
volume of loan sales increased $7.1 million in fiscal 1996 compared to fiscal
1995 and favorable pricing was obtained from the secondary market on loans sold
in fiscal 


<PAGE>
 
1996. The increase in volume and favorable pricing was directly related to the
decrease in interest rates that began in January 1995. The increase in
noninterest income was further enhanced by an increase of $47,000 in loan
servicing income resulting from the $20 million of servicing purchased in late
fiscal 1996. Loan fees and charges increased $76,000 and primarily reflected
increases of $28,000 in appraisal fees and $22,000 in construction loan fees.

The Association's subsidiary recognized $58,000 profit from sales of developed
residential lots and commercial real estate during fiscal 1996 compared to a
loss of $2,000 for fiscal 1995.

NONINTEREST EXPENSE. Noninterest expense increased $398,000 to $5.6 million in
fiscal 1996 compared to $5.2 million in fiscal 1995. Compensation and benefits
increased approximately $326,000 and primarily reflected normal salary
increases, several additions to the staff, and contributions to the employee
stock ownership plan. Real estate operations, net decreased approximately
$43,000 primarily reflecting a decrease of $38,000 in real estate expense and an
increase of $7,000 in profit on sale of real estate.

PROVISION FOR INCOME TAXES. Income tax provision decreased approximately $56,000
in fiscal 1996 compared to fiscal 1995. The decrease primarily reflected the
lower pre-tax income in fiscal 1996. At March 31, 1996 and 1995, the Holding
Corp. had recorded a net deferred tax asset of $419,000 and $505,000,
respectively. A valuation allowance has not been recorded since the Holding
Corp. has generated sufficient levels of taxable income to insure realization of
the deferred tax asset.


<PAGE>
 
AVERAGE BALANCES, INTEREST YIELDS AND RATES

The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made and
all average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.

<TABLE>
<CAPTION>
                                                                     Year ended March 31,
                                                                    (Dollars in Thousands)
                                            1997                              1996                              1995
                             --------------------------------   -------------------------------   ------------------------------- 
                                  Average   Interest                Average   Interest                Average   Interest
                              Outstanding    Earned/   Yield/   Outstanding    Earned/   Yield/   Outstanding    Earned/   Yield
                                  Balance       Paid     Rate       Balance       Paid     Rate       Balance       Paid    Rate
<S>                           <C>           <C>        <C>      <C>           <C>        <C>      <C>           <C>        <C> 
Interest-Earning Assets:
 Loans receivable (1)            $118,560    $10,251    8.65%      $ 86,289    $ 7,375    8.55%     $ 76,017    $  6,367   8.38%
 Mortgage-backed securities       104,070      6,925    6.65        117,444      7,719    6.57       119,175       7,144   5.99
 Investment securities and
 other interest-earning assets     27,137      1,590    5.86         23,476      1,323    5.64        17,635       1,083   6.14
                                 --------    -------    ----       --------    -------    ----      --------     -------   ----   
   Total interest-earning
     assets (1)                  $249,767    $18,766    7.51%      $227,209    $16,417    7.23%     $212,827     $14,594   6.86%
                                 ========    =======    ====       ========    =======    ====      ========     =======   ====   
Interest-Bearing Liabilities:
  NOW deposits                   $ 21,437    $   491    2.29%      $ 17,049    $   401    2.35%     $ 16,076     $   364   2.26%
 Savings deposits and MMA          42,456      1,185    2.79         38,140      1,046    2.74        41,982       1,055   2.51
 Certificates of deposit          155,453      8,350    5.37        143,508      7,847    5.47       130,988       5,927   4.52
 Borrowings                        17,468      1,372    7.86         10,370        730    7.04         7,494         362   4.83
                                 --------    -------    ----       --------    -------    ----      --------     -------   ----   
   Total interest-bearing
     liabilities                 $236,814    $11,398    4.81%      $209,067    $10,024    4.79%     $196,540     $ 7,708   3.92%
                                 ========    =======    ====       ========    =======    ====      ========     =======   ====   
Net interest income                          $ 7,368                           $ 6,393                           $ 6,886
                                             =======                           =======                           =======
Net interest rate spread                                2.70%                             2.44%                            2.94%
                                                        ====                              ====                             ====
Net interest-earning assets      $ 12,953                          $ 18,142                         $ 16,287
                                 ========                          ========                         ========
Net yield on average
 interest-earning assets                                2.95%                             2.81%                            3.24%
                                                        ====                              ====                             ====
Average interest-earning
 assets to average interest-
 bearing liabilities                          105.47%                           105.47%                           108.68%
                                             =======                           =======                           =======
</TABLE> 
(1) Calculated net of deferred loan fees, loans in process and loss reserves


<PAGE>
 
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities and distinguishes between the increase related to
higher outstanding balances and the volatility of interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of the table, changes
attributable to both rate and volume, which cannot be segregated have been
allocated proportionately to the change due to volume and the change due to
rate.

RATE VOLUME ANALYSIS

<TABLE>
<CAPTION>
                                                     Year Ended March 31
                                                    (Dollars in Thousands)
                                           1997 v 1996                   1996 v 1995
                                    Increase (Decrease) due to    Increase (Decrease) due to
                                    --------------------------    -------------------------- 
                                    Volume     Rate     Total     Volume     Rate     Total
<S>                                 <C>       <C>       <C>       <C>       <C>       <C> 
Interest-Earnings Assets:
Loans receivable                    $2,789    $   87    $2,876    $  876    $  132    $1,008
Mortgage-backed securities            (889)       95      (794)     (101)      676       575
Investment securities and other                                                       
  interest-earning assets              214        53       267       318       (78)      240
                                    ------    ------    ------    ------    ------    ------
Total interest-earning assets       $2,114    $  235    $2,349    $1,093    $   730   $1,823
                                    ======    ======    ======    ======    =======   ======

Interest-Bearing Liabilities:                                                             
NOW deposits                        $  100    $  (10)   $   90    $   22    $    15   $   37
Savings deposits and MMA               120        19       139       (97)        88       (9)
Certificates of deposit                645      (142)      503       600      1,320    1,920
Borrowings                             549        94       643       168        200      368
                                    ------    ------    ------    ------    ------    ------
Total interest-bearing liabilities  $1,414    $  (39)   $1,375    $  693    $ 1,623   $2,316
                                    ======    ======    ======    ======    =======   ======

Net interest income                                     $  974                        $ (493)   
                                                        ======                        ======
</TABLE> 


<PAGE>
 
AVERAGE YIELDS EARNED AND RATES PAID

The following table presents the weighted average yields earned on loans,
investments, and other interest-earning assets, and the weighted average rates
paid on deposits and borrowings and the resultant interest rate spreads at the
dates indicated. Weighted average balances are based on the monthly balances at
the end of the period.

                                                       AT MARCH 31,
                                                 ------------------------- 
                                                 1997      1996      1995

     WEIGHTED AVERAGE YIELD ON:                                 
          Loans receivable                       8.61%     8.37%     8.32%
          Mortgage-backed securities             6.74%     6.79%     6.48%
          Investment securities and other                       
             interest-earnings assets            5.86%     5.07%     6.15%
     COMBINED WEIGHTED AVERAGE YIELD ON                         
          INTEREST-EARNINGS ASSETS               7.65%     7.24%     7.12%
     WEIGHTED AVERAGE RATE PAID ON:                             
          Savings deposits                       2.77%     2.74%     2.74%
          NOW deposits                           2.25%     2.34%     2.02%
          Certificates of deposit                5.42%     5.46%     5.27%
          Borrowings                             7.54%     7.54%     6.13%
     COMBINED WEIGHTED AVERAGE RATE PAID ON                     
          INTEREST-BEARING LIABILITIES           4.76%     4.88%     4.55%
     SPREAD                                      2.89%     2.36%     2.57%


<PAGE>
 
INTEREST RATE RISK MANAGEMENT

The Association attempts to maximize net interest income by achieving a positive
interest rate spread that can be sustained during fluctuations in prevailing
interest rates. The Holding Corp.'s policies are designed to reduce the impact
of changes in interest rates on its net interest income by maintaining a
favorable match between the maturities or repricing dates of its interest-
earning assets and interest-bearing liabilities. The Association has implemented
these policies by generally selling long term fixed-rate mortgage loans that are
originated, retaining adjustable-rate mortgage loans that are originated,
originating and retaining short-term consumer loans, and purchasing adjustable
rate or short-term to maturity loans, mortgage-backed securities or
collateralized mortgage obligations. As of March 31, 1997 the Association had
55.2% of its total loans and mortgage-backed securities in adjustable rate
instruments compared to 51.8% at March 31, 1996. As a result of these policies,
the Association's cumulative one year interest-rate sensitivity gap at March 31,
1997 was a positive 11.69%. A positive gap would expose the Association to a
decrease in the net interest margin in a declining interest rate environment as
interest earned on assets may decline more rapidly than interest expense paid on
deposits. An increase in rates would be expected to cause interest income to
increase more rapidly than interest expense.

The following table sets forth the assumed repricing and maturity periods of the
Association's interest-earning assets and interest-bearing liabilities at March
31, 1997 and the interest rate sensitivity gap percentages at the dates
indicated. The interest rate sensitivity gap is defined as the amount by which
assets repricing within the respective periods exceed liabilities repricing
within such periods. All loans, mortgage and consumer, are assumed to prepay at
annual rate of 10% per year. Adjustable rate mortgage-backed securities with
current market indices (treasury yields, LIBOR, prime) are assumed to prepay at
annual rates ranging from 1% to 20% per year. Adjustable-rate mortgage-backed
securities with lagging indices (cost of funds) are assumed to prepay at annual
rates ranging from 5% to 15% per year. The annual prepayment rate on consumer
loans is assumed to be 10%. The decay rate on savings deposits and NOW accounts
is assumed to be 32% and it is assumed that fixed-rate certificates of deposit
will not be withdrawn prior to maturity.

The effect of these assumptions is to quantify the dollar amount of items that
are interest-rate sensitive and can be repriced within each of the periods
specified. Such repricing can occur in one of three ways: (1) the rate of
interest to be paid on an asset or liability may adjust periodically on the
basis of an index; (2) an asset or liability such as a mortgage loan may
amortize, permitting reinvestment of cash flows at the then-prevailing interest
rates; or (3) an asset or liability may mature, at which time the proceeds can
be reinvested at current market rates.


<PAGE>
 
 
<TABLE> 
<CAPTION> 
                                                                                 Maturing or Repricing Amount
                                                          -------------------------------------------------------------------------
                                                           Within         Over 1 to 3       Over 3 to 5       Over
                                                          One Year           Years             Years        5 Years         Total
                                                                                  (Dollars in Thousands)
<S>                                                       <C>             <C>               <C>             <C>            <C>  
Fixed rate one-to four-family (including
  mortgage-backed securities), commercial real 
  estate  & construction loans                            $  14,524       $  31,796         $  16,905       $  23,289      $ 86,514
Adjustable rate one- to four- family
  (including mortgage-backed securities), 
  commercial real estate and construction loans             104,631          13,342            13,357           2,732       134,062
Consumer loans                                                7,257          10,120             2,845              45        20,267
Investment securities & other                                25,918           3,982               997             ---        30,897
                                                          ---------       ---------         ---------       ---------      -------- 

Total interest-earning assets                               152,330          59,240            34,104          26,066       271,740
                                                          ---------       ---------         ---------       ---------      -------- 
Savings deposits & MMA                                       12,000          24,118             4,039           4,039        44,196
Demand & NOW deposit                                            ---          15,821             5,274           5,274        26,369
Certificates of deposit                                     105,676          47,791            11,083              87       164,637
Borrowings                                                      307             ---             3,920             ---         4,227
                                                          ---------       ---------         ---------       ---------      -------- 

   Total interest-bearing liabilities                       117,983          87,730            24,316           9,400       239,429
                                                          ---------       ---------         ---------       ---------      -------- 

Interest-earning assets less
   interest-bearing liabilities                           $  34,347       $ (28,490)        $   9,788       $  16,666      $ 32,311
                                                          =========       =========         =========       =========      ========
Cumulative interest-rate sensitivity gap                                  $   5,857         $  15,645       $  32,311 
                                                                          =========         =========       =========
Cumulative interest-rate sensitivity gap
  as a percentage of total assets at
  March 31, 1997                                              11.69%           1.99%             5.33%          11.00%
Cumulative interest-rate sensitivity gap
  as a percentage of total assets at
  March 31, 1996                                               6.40%
</TABLE> 
 
As prepayment activity changes however, the resulting gap is expected to be 
affected.  A decrease in prepayment speeds would be expected to move the gap 
towards a matched or negative position.  The opposite would be expected to occur
if prepayment speeds increase.  Prepayment speeds are influenced by fluctuation 
in interest rates and may not produce the same results as reflected in the 
previous table.  Also, certain assets and liabilities may have similar 
maturities or repricing periods but could react differently to changes in 
interest rates.  Assets which have adjustable-rate features may have a 
limitation on the periodic interest rate adjustments and could result in a rate 
that is still below existing market rates.  This same feature may also limit the
downward adjustment in a declining rate environment.

The Office of Thrift Supervision ("OTS") provides a Net Portfolio Value ("NPV") 
approach to the quantification of interest rate risk.  This approach calculates 
the difference between the present value of expected cash flows from assets and
the present value of expected cash flows from liabilities, as well as cash flows
from off-balance sheet contracts.

The OTS issued a regulation, effective January 1, 1994, which uses a net market 
value methodology to measure the interest rate risk exposure of thrift 
institutions.  OTS has delayed the implementation of the regulation pending the 
testing of an OTS appeals process for certain institutions.  Under OTS 
regulations, an institution's "normal" level of interest rate risk in the event 
of an assumed change in interest rates is a decrease in the institution's NPV in
an amount not exceeding 2% of the present value of its assets.  Thrift 
institutions with greater than "normal" interest rate exposure must take a 
deduction from their total capital available to meet their risk-based capital 
requirement.  The amount of that deduction is one-half of the difference between
(i) the


<PAGE>
 
institution's actual calculated exposure to a 200 basis point interest rate
increase or decrease (whichever results in the greater proforma decrease in NPV)
and (ii) its "normal" level of exposure which is 2% of the present value of its
assets. Because of the Association's asset size and level of risk-based capital,
the Association is exempt from this requirement. As of March 31, 1997, (the
latest information available) a change in interest rates of a positive 200 basis
points would have resulted in a .50% decrease in the present value of the
Association's assets, while a change in interest rates of a negative 200 basis
points would have resulted in a 1.20% decrease in the present value of the
Association's assets. Under OTS guidelines, the Association's level of interest
rate risk as of March 31, 1997 would be considered "normal".

Presented on the table that follows as of March 31, 1997, is an analysis of the
Association's interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve, in 100 basis point increments,
up and down 400 basis points in accordance with OTS regulations. As illustrated
in the table, the Association's NPV is more sensitive to declining rates than
rising rates, eventhough the Association had a positive gap (as previously
discussed). This occurs principally because, as rates rise, the market value of
fixed-rate loans declines due to both the rate increase and slowing prepayments
(and the NPV focuses on the Association's entire portfolio, not just assets that
are subject to adjustment or maturity within one year). When rates decline, the
Association does not experience a significant rise in market value for these
loans because borrowers prepay at relatively high rates.


                                       Net Portfolio Value

               Change in               At March 31, 1997 
               Interest Rate           -----------------
               (Basis Points)          $ Change     % Change
                                        (000's)

                      +400               -6,776         -18
                      +300               -4,198         -11 
                      +200               -1,992         - 5
                      +100               -  441         - 1
                         0                    0           0
                      -100               -1,114         - 3
                      -200               -3,856         -10
                      -300               -6,928         -18
                      -400               -8,729         -23

Management reviews the OTS measurements on a quarterly basis. In addition to
monitoring selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates. This measure is
used by management in conjunction with NPV measures to identify excessive
interest rate risk.

Certain shortcomings are inherent in the method of analysis presented in the
foregoing tables. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as ARM loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, prepayment and
early withdrawal levels would likely deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
debt may decrease in the event of an interest rate increase.


<PAGE>
 
In addition, the previous tables do not necessarily indicate the impact of
general interest rate movements on the Association's net interest income because
the repricing of certain categories of assets and liabilities is subject to
competitive and other pressures beyond the Association's control. As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may in fact mature or reprice at different times and at
different volumes.


ASSET QUALITY

The allowance for loan losses is established through a provision for loan losses
based on management's quarterly asset classification review and evaluation of
the risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which includes a review of all loans for
which full collectibility may not be reasonably assured, considers among other
matters, the estimated fair value of the underlying collateral, economic
conditions, cash flow analysis, historical loan loss experience, discussions
held with delinquent borrowers and other factors that warrant recognition in
providing for allowance for loan losses.

As a result of the review process, management recorded a $324,000 provision for
loan losses during the fiscal year ended March 31, 1997. The allowance for loan
losses was further increased by the addition of $385,000 in allowance for loan
loss held by FirstBanc at the time of acquisition and $350,000 established by
Mitchell Mortgage at the time of its acquisition. The Holding Corp.'s allowance
for loan losses increased to $1.7 million or 1.22% of total loans at March 31,
1997, as compared to $1.4 million at March 31, 1996 or 1.43% of total loans. Net
charge-offs for the fiscal year ended March 31, 1997 totaled $708,000,
attributed primarily to one commercial real estate loan, which was a nonaccrual
loan and one multifamily loan which matured November 1, 1996, was foreclosed
upon and sold. While management believes it uses the best information available
to make determinations regarding the adequacy of the allowance, there is no
assurance that the subsequent evaluations of the loan portfolio may not require
additional provisions for loan losses.

The non-performing assets to total assets ratio is one indicator of the exposure
to credit risk. Non-performing assets of the Holding Corp. consist of non-
accruing loans, troubled debt restructurings, and real estate which was acquired
as a result of foreclosure. The following table summarizes the various
categories of the Holding Corp.'s non-performing assets.



                                                      March 31,
                                              ------------------------
                                                 1997           1996

Non-accruing loans                            $   489,251  $   729,274
Troubled debt restructurings                      405,097    2,307,947
Foreclosed assets                                 446,119      123,215
                                              -----------  -----------   
Total non-performing assets                   $ 1,340,467  $ 3,160,436
                                              ===========  ===========
Total non-performing assets
  as a percentage of total assets                    0.45%        1.29%

Total non-performing assets decreased by $1.8 million for the fiscal year ended
March 31, 1997. The decrease resulted primarily from the foreclosure and partial
charge-off of two loans, and subsequent sale of each of the properties, one of
which was previously classified as trouble debt restructuring and the other was
a non-accruing loan.

At March 31, 1997 foreclosed assets consisted of one commercial property, one
single family house and a 5% participation ownership in 13 residential developed
lots. The commercial property and the single family house were sold at a gain of
$45,000 and loss of $12,000 on April 16, 1997 and April 4, 1997, respectively.
The residential lots are being marketed by Mitchell Mortgage.


<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

The Association's primary sources of funds are deposits, sales of mortgage
loans, principal and interest payments on loans and mortgage-backed securities,
borrowings, and funds provided by operations. While scheduled loan and mortgage-
backed securities principal repayments are a relatively predictable source of
funds, deposit flows, prepayments of principal on loans and mortgage-backed
securities, and sales of mortgage loans are greatly influenced by general
interest rates, economic conditions, and competition. Current OTS regulations
require the Association to maintain cash and eligible investments in an amount
equal to at least 5% of customer accounts and short-term borrowings to assure
its ability to meet demands for withdrawals and repayment of short-term
borrowings. As of March 31, 1997, the Association's liquidity ratio was 10.65%
which was in excess of the minimum regulatory requirements.

During the fiscal year ended March 31, 1997, total deposits increased by $46.3
million. This growth primarily reflected the acquisition of FirstBanc, the
deposit of custodial accounts by Mitchell and the opening of a new branch in
Katy, Texas in May, 1996.

The Association uses its capital resources principally to meet its ongoing
commitments to fund maturing certificates of deposit and loan commitments,
maintain its liquidity and meet operating expenses. At March 31, 1997, the
Association had commitments to originate loans totaling $13.8 million. The
Association considers its liquidity and capital resources to be adequate to meet
its foreseeable short and long-term needs. The Association expects to be able to
fund or refinance, on a timely basis, its material commitments and long-term
liabilities.

During the fiscal year ended March 31, 1997, the Association decreased its
borrowings from the Federal Home Loan Bank of Dallas by $49,000. It is
anticipated that the amount of outstanding borrowings will fluctuate during the
next fiscal year depending upon cash flows from the various sources of funds and
financing to be provided to Fort Bend's new subsidiary, Mitchell Mortgage
Company L.L.C.

In fiscal 1997, the Holding Corp. paid dividends of $.28 per share. On April 17,
1997, the Holding Corp. declared a cash dividend of $0.07 per share payable on
May 29, 1997 to the shareholders of record on May 8, 1997.

The Association is required to maintain specific amounts of regulatory capital
pursuant to regulations of the OTS. The table below presents the Association's
capital position at March 31, 1997 relative to the existing regulatory capital
requirements. Such requirements may increase if proposed capital regulations are
implemented. Management believes the Association will meet the requirements of
the proposed capital regulations.



                                           Amount                Percent
                                           (000's)               Assets (1)

Tangible capital                          $  19,515                   6.71%
Tangible capital requirement                  4,365                   1.50
                                          ---------              ---------
  Excess                                  $  15,150                   5.21%
                                          =========              ========= 

Core capital                              $  19,515                   6.71%
Core capital requirement                      8,730                   3.00
                                          ---------              --------- 
  Excess                                  $  10,785                   3.71%
                                          =========              ========= 

Total capital (i.e., core &
  supplemental capital)                   $  21,055                  14.77%
Risk- based capital requirement              11,401                   8.00
                                          ---------              ---------  
  Excess                                  $   9,654                   6.77%
                                          =========              ========= 

(1) Based upon adjusted assets for purposes of the tangible capital and core
capital requirements, and risk-weighted assets for purposes of the risk-based
capital requirements.


<PAGE>
 
NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 1997, the Holding Corp. adopted the requirements of
Financial Accounting Standards Board Statement No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
The provisions of Statement 125 have not significantly impacted the consolidated
financial statements as the Holding Corp. has not entered into transactions
which give rise to differences in existing accounting as a result of Statement
125. The primary activity of the Holding Corp. impacted by Statement 125 is the
selling of loans with servicing retained. The accounting for sales of loans with
servicing retained required by Statement 125 is generally consistent with
previous authoritative accounting literature.

In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share." Statement 128 is effective for the year ending after
December 15, 1997, for both interim and annual periods, and replaces the
presentation of primary and fully diluted earnings per share with a presentation
of basic and diluted earnings per share. The adoption of Statement 128 is not
expected to have a material impact on earnings per share reported by the Holding
Corp.

In February 1997, the Financial Accounting Standards Board issued Statement No.
129, "Disclosure of Information about Capital Structure." Statement 129 is
effective for financial statements for periods ending after December 15, 1997.
Statement 129 consolidates the existing requirements to disclose certain
information about an entity's capital structure.


<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
Fort Bend Holding Corp.:

We have audited the accompanying consolidated statement of
financial condition of Fort Bend Holding Corp. and Subsidiaries
as of March 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1997. 
These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Fort Bend Holding Corp. and Subsidiaries
as of March 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended March 31, 1997, in conformity with
generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for mortgage
servicing rights effective April 1, 1995.


/s/ Coopers & Lybrand L.L.P.

Houston, Texas
May 1, 1997


<PAGE>
 
FORT BEND HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
March 31, 1997 and 1996

<TABLE> 
<CAPTION>
 
                                Assets               1997            1996     
<S>                                             <C>             <C> 
Cash and due from banks                         $   6,369,675   $   3,451,880 
Short-term investments                             14,220,516      13,541,782 
Certificates of deposit                               200,000         200,000
                                                -------------   -------------

     Total cash and cash equivalents               20,790,191      17,193,662 


Securities available for sale                       3,331,139       3,558,109
Securities held to maturity (fair value of 
  $107,473,870 and $119,740,932 at March 31, 
  1997 and 1996, respectively)                    108,319,264     119,723,122
Loans held for sale                                 2,660,415         922,422 
Loans receivable, net                             138,227,705      92,861,594
Premises and equipment, net                         4,970,011       3,635,046
Mortgage servicing rights, net                      7,537,571       1,235,714
Other assets                                        9,243,802       5,038,964
                                                -------------   -------------

     Total assets                               $ 295,080,098   $ 244,168,633
                                                =============   =============

        Liabilities and Stockholders' Equity

Liabilities:                                    
  Deposits                                      $ 250,218,152   $ 203,913,715 
  Convertible subordinated debentures              12,080,000      12,100,000 
  Borrowings                                        4,226,676       4,363,688
  Advances from borrowers for taxes and 
    insurance                                       4,750,945       4,224,796
  Other liabilities                                 2,868,177       1,994,063
                                                -------------   -------------

     Total liabilities                            274,143,950     226,596,262
                                                -------------   -------------

Commitments and contingencies

Minority interest in consolidated subsidiary        2,508,214

Stockholders' equity:
  Serial preferred stock, $.01 par value, 
    500,000 shares authorized, none outstanding
  Common stock, $.01 par value, 2,000,000 
    shares authorized, 910,475 shares issued 
    and 822,301 shares outstanding at March 31, 
    1997, and 905,572 shares issued and 817,398 
    shares outstanding at March 31, 1996                9,104           9,055
  Additional paid-in capital                        8,704,987       8,514,562 
  Deferred compensation                               (82,324)        (98,668)
  Unearned employee stock ownership plan shares      (307,125)       (394,875)
  Retained earnings (substantially restricted)     11,565,900      11,020,584
  Net unrealized loss on securities available 
    for sale, net of tax                               (6,107)        (21,786)
  Treasury stock, at cost, 88,174 shares           (1,456,501)     (1,456,501)
                                                -------------   -------------

     Total stockholders' equity                    18,427,934      17,572,371
                                                -------------   -------------

       Total liabilities and stockholders' 
         equity                                 $ 295,080,098   $ 244,168,633
                                                =============   =============

</TABLE> 

The accompanying notes are an integral part of the consolidated financial
statements.


<PAGE>
 
FORT BEND HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the years ended March 31, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 


                                       1997           1996           1995
<S>                               <C>             <C>           <C> 
Interest income:                                                   
  Loans                           $ 10,251,364    $ 7,375,117   $  6,367,190 
  Short-term investments               809,779        544,684        249,448
  Investment securities                779,993        778,603        833,701
  Mortgage-backed securities         6,924,939      7,718,765      7,143,515
                                  ------------    -----------   ------------
     Total interest income          18,766,075     16,417,169     14,593,854
                                  ------------    -----------   ------------

Interest expense:
  Deposits                          10,025,946      9,293,724      7,345,930 
  Borrowings                         1,372,403        729,979        361,678
                                  ------------    -----------   ------------
     Total interest expense         11,398,349     10,023,703      7,707,608
                                  ------------    -----------   ------------

     Net interest income             7,367,726      6,393,466      6,886,246

Provision for loan losses              324,000        123,053        258,000
                                  ------------    -----------   ------------
     Net interest income after 
       provision for loan losses     7,043,726      6,270,413      6,628,246
                                  ------------    -----------   ------------

Noninterest income:
  Loan servicing income                815,466        338,183        291,180
  Service charges on deposit 
    accounts                           757,027        599,287        527,796
  Loan fees and charges                659,331        322,207        245,958
  Gain (loss) on sale of loans         567,776        313,438        (69,323)
  Other income                         555,486        324,034        285,759
                                  ------------    -----------   ------------
     Total noninterest income        3,355,086      1,897,149      1,281,370
                                  ------------    -----------   ------------

Noninterest expenses:
  Compensation and benefits          4,413,226      3,107,963      2,782,292
  Office occupancy and equipment     1,121,085        656,541        570,644
  SAIF special assessment            1,492,686                      
  Deposit insurance premiums           406,877        465,421        456,955
  Data processing fees                 292,887        192,066        178,758
  Real estate operations, net         (213,127)       (18,029)        24,751
  Other expense                      1,689,468      1,163,135      1,155,851
                                  ------------    -----------   ------------
     Total noninterest expenses      9,203,102      5,567,097      5,169,251
                                  ------------    -----------   ------------

     Income before income tax  
       expense                       1,195,710      2,600,465      2,740,365
                                  ------------    -----------   ------------

Income tax expense                     363,009        913,429        969,686
                                  ------------    -----------   ------------

     Net income before minority 
       interest in income of
       consolidated subsidiary         832,701      1,687,036      1,770,679
                                  ------------    -----------   ------------

Minority interest in income of 
  consolidated subsidiary               57,928     
                                  ------------    -----------   ------------

     Net income                   $    774,773    $ 1,687,036   $  1,770,679
                                  ============    ===========   ============

     Primary earnings per common 
       share                      $       0.91    $      1.94   $       1.94 
                                  ============    ===========   ============

     Fully diluted earnings per 
       common share               $       0.91    $      1.81   $       1.94
                                  ============    ===========   ============


     Average number of common
       shares:
       Primary                         851,972        869,671        913,295 
       Fully diluted                   851,972      1,047,215        913,295

</TABLE> 

The accompanying notes are an integral part of the consolidated financial
statements.


<PAGE>
 
FORT BEND HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the years ended March 31, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 


                                                                            DEFERRED    UNEARNED                    NET
                                 NUMBER OF SHARES                         COMPENSATION  EMPLOYEE                UNREALIZED
                                -----------------                         RECOGNITION     STOCK                   LOSS ON
                                COMMON    COMMON            ADDITIONAL       AND        OWNERSHIP                SECURITIES
                                STOCK    STOCK IN  COMMON    PAID-IN      RETENTION       PLAN       RETAINED     AVAILABLE
                                ISSUED   TREASURY   STOCK    CAPITAL         PLAN        SHARES      EARNINGS     FOR SALE
<S>                             <C>      <C>       <C>      <C>          <C>           <C>           <C>         <C> 
Balance at March 31, 1994       894,352            $ 8,943  $ 8,281,223  $ (134,816)   $ (570,375)   $ 8,052,043  
                              
Issuance of common stock to   
 the recognition and retention   
 plan                             1,700                 17       22,083     (22,100)
                              
Deferred compensation         
 amortization                                                                38,124
                              
Release of employee stock     
 ownership plan shares                                                                     87,750
                              
Appreciation in employee 
 stock ownership plan shares
 released                                                        33,131
                              
Exercise of stock options         7,020                 70       70,130
                              
Purchase of treasury stock                 45,153
                              
Net income                                                                                             1,770,679
                              
Cash dividends ($.28 per      
 common share)                                                                                          (251,876)
                                --------  ------   -------  -----------  ----------   ----------     -----------
                              
Balance at March 31, 1995        903,072  45,153   $ 9,030  $ 8,406,567  $ (118,792)  $ (482,625)    $ 9,570,846
                              
Issuance of common stock to   
 the recognition and retention
 plan                              1,500                15       22,485     (22,500)

Deferred compensation         
 amortization                                                                42,624
                              
Release of employee stock     
 ownership plan shares                                                                    87,750 
                              
Appreciation in employee 
 stock ownership plan shares 
 released                                                        70,020

Exercise of stock options         1,000                 10       15,490

Purchase of treasury stock                43,021
                              
Net income                                                                                            1,687,036
                              
Cash dividends ($.28 per      
 common share)                                                                                         (237,298)

Other, net of deferred        
 taxes of $11,224                                                                                                  $ (21,786)
                                --------  ------   -------  -----------  ----------   ----------    -----------    ---------
                              
Balance at March 31, 1996        905,572  88,174   $ 9,055  $ 8,514,562  $  (98,668)  $ (394,875)   $11,020,584    $ (21,786)


                                                 TOTAL
                                TREASURY      STOCKHOLDERS
                                 STOCK           EQUITY
<S>                             <C>           <C> 
Balance at March 31, 1994                     $ 15,637,018
                              
Issuance of common stock to   
 the recognition and retent   
 plan                         
                              
Deferred compensation         
 amortization                                       38,124
                              
Release of employee stock     
 ownership plan shares                              87,750
                              
Appreciation in employee stock
 ownership plan shares release                      33,131
                              
Exercise of stock options                           70,200

Purchase of treasury stock      $  (666,007)      (666,007)

Net income                                       1,770,679

Cash dividends ($.28 per      
 common share)                                    (251,876)
                                -----------   ------------

Balance at March 31, 1995       $  (666,007)  $ 16,719,019

Issuance of common stock to   
 the recognition and retention  
 plan  
                              
Deferred compensation                               42,624
 amortization                                                                  
                              
Release of employee stock                           
 ownership plan shares                              87,750

Appreciation in employee 
 stock ownership plan shares 
 released                                           70,020

Exercise of stock options                           15,500
                              
Purchase of treasury stock         (790,494)      (790,494)
                                                                               
Net income                                       1,687,036

Cash dividends ($.28 per      
 common share)                                    (237,298)

Other, net of deferred        
 taxes of $11,224                                  (21,786)
                                -----------   ------------

Balance at March 31, 1996       $(1,456,501)  $ 17,572,371

</TABLE> 

                                   continued


<PAGE>
FORT BEND HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY, CONTINUED
for the years ended March 31, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 



                                                                            DEFERRED    UNEARNED                    NET
                                 NUMBER OF SHARES                         COMPENSATION  EMPLOYEE                  UNREALIZED
                                -----------------                         RECOGNITION     STOCK                     LOSS ON
                                COMMON    COMMON            ADDITIONAL       AND        OWNERSHIP                  SECURITIES
                                STOCK    STOCK IN  COMMON    PAID-IN      RETENTION       PLAN       RETAINED       AVAILABLE
                                ISSUED   TREASURY   STOCK    CAPITAL         PLAN        SHARES      EARNINGS        FOR SALE
<S>                             <C>      <C>       <C>      <C>          <C>           <C>           <C>           <C> 
Balance at March 31, 1996       905,572   88,174   $ 9,055   $ 8,514,562  $ (98,668)   $  (394,875)  $ 11,020,584  $ (21,786)

Issuance of common stock to   
 the recognition and retention  
 plan                             1,800                 18        32,832    (32,850)
                              
Deferred compensation                               
 amortization                                                                49,194
                              
Release of employee stock                           
 ownership plan shares                                                                      87,750

Appreciation in employee 
 stock ownership plan shares 
 released                                                        101,784

Exercise of stock options         2,178                 22        37,004
                              
Net income                                                                                                774,773

Cash dividends ($.28 per      
 common share)                                                                                           (229,457)

Other, net of deferred        
 taxes of $7,234                    925                  9        18,805                                              15,679
                                -------   ------   -------   -----------  ---------    -----------   ------------  ---------

Balance at March 31, 1997       910,475   88,174   $ 9,104   $ 8,704,987  $ (82,324)   $  (307,125)  $ 11,565,900  $  (6,107)
                                =======   ======   =======   ===========  =========    ===========   ============  =========



                                                 TOTAL
                                TREASURY      STOCKHOLDERS
                                 STOCK           EQUITY
<S>                             <C>           <C> 
Balance at March 31, 1995       $(1,456,501)  $ 17,572,371

Issuance of common stock to   
 the recognition and retention  
 plan  
                              
Deferred compensation                               
 amortization                                       49,194
                              
Release of employee stock                           
 ownership plan shares                              87,750

Appreciation in employee 
 stock ownership plan shares 
 released                                          101,784

Exercise of stock options                           37,026
                              
Net income                                         774,773

Cash dividends ($.28 per      
 common share)                                    (229,457)

Other, net of deferred        
 taxes of $7,234                                    34,493 
                                -----------   ------------

Balance at March 31, 1996       $(1,456,501)  $ 18,427,934
                                ===========   ============

</TABLE> 


The accompanying notes are an integral part of the consolidated financial 
statements.

<PAGE>
 
FORT BEND HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended March 31, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 


                                        1997            1996           1995
<S>                                 <C>             <C>            <C> 
Operating activities:
  Net income                        $    774,773   $  1,687,036   $  1,770,679
  Adjustments to reconcile net
   income to net cash provided
   by operating activities:
   provision for loan losses             324,000        123,053        258,000
   Depreciation                          359,674        198,719        146,256
   Compensation charge related to
    release of ESOP shares               101,784         70,020         33,131
   Amortization of deferred 
    compensation                          49,194         42,624         38,124
   Amortization of debt issue costs       79,085         25,791
   Amortization of premiums and 
    discounts on securities, net          15,300         77,310        170,450
   Amortization of loan premiums,
    discounts, and deferred fees,
    net                                 (231,412)      (179,878)      (185,851)
   Amortization of goodwill               51,196
   Amortization of mortgage 
    servicing rights                     475,864        207,646        220,000
   Deferred income taxes                 115,096         97,162        127,351
   Minority interest in income of
    consolidated subsidiary               57,928
   Gain on sales of real estate, 
    net                                 (211,683)       (79,707)       (14,016)
   (Gain) loss on sales of loans, 
    net                                 (567,776)      (313,438)        69,323
   Dividends on Federal Home Loan
    Bank Stock                          (103,200)       (89,800)       (88,200)
   Origination of loans held for 
    sale and servicing rights        (23,692,912)   (14,831,325)    (5,567,281)
   Proceeds from sales of loans       24,585,408     14,156,206      6,819,654
   Other, net                         (1,065,971)       161,235       (360,411)
                                    ------------   ------------   ------------

     Net cash provided by 
      operating activities             1,116,348      1,352,654      3,437,209
                                    ------------   ------------   ------------

Investing activities:
  Purchase of investment securities 
   available for sale                   (120,577)    (2,200,000)  
  Purchase of investment securities 
   held to maturity                   (6,987,394)    (2,485,347)   (31,486,912)
  Proceeds from maturities of
   investment securities held 
   to maturity                         5,000,000      5,000,000      1,000,000 
  Principal repayment of mortgage-
   backed securities                  13,746,412     13,523,742     14,458,770 
  Net increase in loans receivable   (10,958,495)   (15,841,794)    (1,308,308) 
  Purchase of premises and 
   equipment                            (594,146)      (136,449)    (1,031,620) 
  Proceeds from sale of premises 
   and equipment                           2,964                        75,500
  Purchase of mortgage servicing 
   rights                             (1,505,166)      (300,778)      (858,784) 
  Improvements to real estate           (135,741)        (2,130)        (9,693) 
  Proceeds from sale of real estate    1,275,196         85,102        118,243 
  Proceeds from redemption of FHLB 
   stock                                                               374,500 
  Acquisition of FirstBanc, net        3,569,943 
  Investment in Mitchell Mortgage 
   Company, L.L.C., net                 (395,405)
                                    ------------   ------------   ------------

     Net cash provided by (used in) 
      investing activities             2,897,591     (2,357,654)   (18,668,304) 
                                    ------------   ------------   ------------

</TABLE> 

                                   continued


<PAGE>
 
FORT BEND HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
for the years ended March 31, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 

                                        1997            1996           1995     
<S>                                 <C>            <C>            <C> 
Financing activities:
  Net increase in deposits          $ 19,537,844   $  9,446,211   $  4,734,294 
  Net increase (decrease) in 
   short-term borrowings             (20,079,203)   (11,500,000)    11,500,000
  Proceeds from long-term 
   borrowings                                        15,295,640      
  Payments on long-term borrowings       (49,262)       (31,187)
  Increase (decrease) in advances 
   from borrowers for taxes and 
   insurance                             365,642       (832,022)     1,124,300
  Net proceeds from issuance of 
   common stock                           37,026         15,500         70,200
  Dividends paid                        (229,457)      (237,298)      (251,876) 
  Purchase of treasury stock                           (790,494)      (666,007) 
                                    ------------   ------------   ------------

     Net cash provided by (used 
      in) financing activities          (417,410)    11,366,350     16,510,911 
                                    ------------   ------------   ------------

Net increase in cash and cash 
 equivalents                           3,596,529     10,361,350      1,279,816


Cash and cash equivalents at 
 beginning of year                    17,193,662      6,832,312      5,552,496 
                                    ------------   ------------   ------------

Cash and cash equivalents at 
 end of year                        $ 20,790,191   $ 17,193,662   $  6,832,312
                                    ============   ============   ============


Supplemental Cash Flow Information:
  Interest paid                     $ 11,327,730   $  9,629,276   $  7,636,000
  Income taxes paid                      420,000        755,000        775,000 
  Non-cash investing and financing 
   activities:                 
   Loans transferred to foreclosed 
    real estate                        2,521,538        190,859        181,660
   Loans to facilitate sale of 
    foreclosed real estate             1,743,816        297,349         94,600
   Transfer of securities held to 
    maturity to securities 
    available for sale                                1,515,363
   Issuance of common stock to RRP        32,850         22,500         22,100
   Reduction of ESOP debt by the 
    ESOP                                  87,750         87,750         87,750 
   Conversion of subordinated 
    debentures to common stock            20,000 

</TABLE> 


The accompanying notes are an integral part of the consolidated financial
statements.


<PAGE>
 
FORT BEND HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     NATURE OF OPERATIONS

     Fort Bend Holding Corp. ("Holding Corp.") through its subsidiary, Fort Bend
     Federal Savings and Loan Association of Rosenberg ("Association"), is
     principally engaged in the business of attracting retail deposits from the
     general public and investing those funds in first mortgage single-family
     residential loans and in mortgage-backed securities. In addition, the
     Association originates residential construction loans, commercial real
     estate loans, consumer loans and services loans for others. Mitchell
     Mortgage Company, L.L.C. is engaged in the mortgage banking business,
     including the origination and servicing of single family purchase loans,
     single family construction loans and commercial and multifamily real estate
     loans.

     PRINCIPLES OF CONSOLIDATION

     The Holding Corp. is a savings and loan holding company with one
     subsidiary, the Association. The Association has two subsidiaries,
     Fairview, Inc. and Mitchell Mortgage Company, L.L.C. Fairview, Inc. is a
     wholly-owned subsidiary of the Association. Mitchell Mortgage Company,
     L.L.C. is 51% owned by the Association and 49% owned by The Woodlands
     Corporation. The Holding Corp. and the Association are collectively
     referred to as the "Company" herein. All significant intercompany
     transactions and balances have been eliminated in consolidation.

     USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the amounts reported in the financial statements
     and notes thereto. Actual results could differ from those estimates.

     CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include cash on hand, amounts deposited with
     other financial institutions and short-term liquid investments with
     original maturities of three months or less.

     SECURITIES HELD TO MATURITY

     Bonds, notes and mortgage-backed securities for which the Company has the
     positive intent and ability to hold to maturity are reported at cost,
     adjusted for premiums and discounts that are recognized in interest income
     using the interest method over the period to maturity.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     SECURITIES AVAILABLE FOR SALE

     Securities available for sale consist of bonds, notes, mortgage-backed
     securities and certain equity securities not classified as trading
     securities nor as securities held to maturity. Unrealized holding gains and
     losses, net of tax, are reported as a net amount in a separate component of
     stockholders' equity until realized. Gains and losses are determined using
     the specific-identification method. Premiums and discounts are recognized
     in interest income using the interest method over the period to maturity.

     Declines in the fair value of individual held-to-maturity and available-
     for-sale securities below their cost that are other than temporary would
     result in write-downs of the individual securities to their fair value.
     Management believes that none of the unrealized losses should be considered
     other than temporary.

     Transfer of securities between classifications are accounted for at fair
     value. In November 1995, the Financial Accounting Standards Board issued "A
     Guide to Implementation of Statement 115 on Accounting for Certain
     Investments in Debt and Equity Securities" which provided a one-time
     opportunity to reassess the appropriateness of the classification of all
     securities. Based on such reassessment, one investment security and one
     mortgage-backed security with an aggregate amortized cost of $1,515,363
     were transferred from the held-to-maturity classification to the available
     for sale classification on December 31, 1995. Such reassessment does not
     change management's intent to hold other debt securities to maturity.

     SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

     The Company enters into sales of securities under agreements to repurchase
     (reverse repurchase agreements). Fixed coupon reverse repurchase agreements
     are treated as financing arrangements, and obligations to repurchase
     securities sold are reflected as a liability in the consolidated statement
     of financial condition. The dollar amounts of securities underlying the
     agreements are recorded in the respective asset accounts.

     LOANS HELD FOR SALE

     Loans held for sale are carried at the lower of cost or market in the
     aggregate. Net unrealized losses are recognized in a valuation allowance by
     charges to income. If loans receivable are transferred to loans held for
     sale, the lower of cost or market method is applied immediately.

     LOANS RECEIVABLE

     Loans receivable that management has the intent and ability to hold for the
     foreseeable future or until maturity or pay-off are reported at their
     outstanding principal balance net of allowance for loan losses, undisbursed
     construction loans in process, and unearned discounts, premiums and loan
     fees.

     Loan origination fees and certain direct origination costs are capitalized
     and recognized as an adjustment of the yield of the related loan.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     LOANS RECEIVABLE

     The Company defines a loan as impaired when, based on current information
     and events, it is probable that the Company will be unable to collect all
     amounts due according to the contractual terms of the loan agreement. The
     Company uses the same criteria in placing a loan on nonaccrual status,
     exclusive of residential mortgage loans and consumer loans which are placed
     on nonaccrual status when they become 90 days past due. When interest
     accrual is discontinued, all unpaid accrued interest is reversed. Interest
     income is subsequently recognized only to the extent cash payments are
     received.

     ALLOWANCE FOR LOAN LOSSES

     The allowance for loan losses is increased by charges to income and
     decreased by charge-offs (net of recoveries). Management's periodic
     evaluation of the adequacy of the allowance is based on the Association's
     past loan loss experience, known and inherent risks in the portfolio,
     adverse situations that may affect the borrower's ability to repay, the
     estimated value of any underlying collateral, and current economic
     conditions.

     REAL ESTATE OWNED

     Real estate owned (REO), which is included in other assets, includes
     properties on which the Company has foreclosed and taken title. REO is
     reported at the lower of the carrying value of the loan or the fair value
     as the property obtained, less estimated selling costs. The excess, if any,
     of the loan over the fair value of the property at the time of transfer
     from loans to REO is charged to allowance for loan losses. Subsequent
     declines in the fair value of the property and net operating results of the
     property are recorded in noninterest expenses.

     PREMISES AND EQUIPMENT

     Land is carried at cost. Premises and equipment are carried at cost, less
     accumulated depreciation, computed principally by the straight-line method
     over the estimated useful lives of the related assets.

     PURCHASE METHOD OF ACCOUNTING

     Net assets of entities acquired in purchase transactions are recorded at
     fair value at date of acquisition. The excess of cost over net assets
     purchased (goodwill) is amortized using the straight-line method over 15
     years.

     LOAN SERVICING

     Mortgage servicing rights are amortized in proportion to, and over the
     period of, estimated net servicing income which approximates the level-
     yield method. The Company stratifies mortgage servicing rights based on one
     or more of the predominant risk characteristics of the underlying loans.
     The Company periodically evaluates the carrying value of the mortgage
     servicing rights in relation to the present value of the estimated future
     net servicing revenue based on management's best estimate of remaining loan
     lives. Impairment is recognized through a valuation allowance for an
     individual stratum, and the amount of impairment is the amount by which the
     mortgage servicing rights for a stratum exceed their fair value.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     LOAN SERVICING, CONTINUED

     For originated mortgage servicing rights, the Company allocates the total
     cost of the mortgage loans to the mortgage servicing rights and the loans
     (without the mortgage servicing rights) based on their relative fair
     values. Fair values are based on quoted market prices in active markets for
     loans and loan servicing rights. For purchased mortgage servicing rights,
     the cost of acquiring loan servicing contracts is capitalized to the extent
     such costs do not exceed the amount by which the present value of estimated
     future servicing revenue exceeds the present value of expected future
     servicing costs.

     On April 1, 1995, the Company adopted the requirements of Financial
     Accounting Standards Board ("FASB") Statement No. 122, "Accounting for
     Mortgage Servicing Rights" ("Statement 122"). Statement 122 requires that
     the Company recognize as separate assets rights to service mortgage loans
     for others, regardless of how those mortgage servicing rights are acquired.
     This eliminates the distinction between purchased servicing rights which
     are capitalized and originated servicing rights, for which no value could
     be capitalized under the previous standard. The adoption of Statement 122
     increased gain on sale of loans by approximately $114,000 during 1996.
     Statement 122 also requires that capitalized mortgage servicing rights be
     evaluated for impairment based on the fair value of those rights on a
     disaggregated basis.

     INCOME TAXES

     The Company utilizes the liability method of accounting for income taxes,
     whereby deferred income taxes are recognized for the tax consequences in
     future years of differences in the tax bases of assets and liabilities and
     their financial reporting amounts based on enacted tax laws and statutory
     tax rates applicable to the periods in which the differences are expected
     to affect taxable income. Valuation allowances are established, if
     necessary, to reduce deferred tax assets to the amount expected to be
     realized.

     EARNINGS AND DIVIDENDS PER COMMON SHARE

     Primary earnings per common share is computed by dividing net income by the
     weighted average number of common shares and common share equivalents
     outstanding during the period. When dilutive, stock options are included as
     share equivalents using the treasury stock method. Additionally, net income
     and shares outstanding are adjusted to assume the conversion of the
     convertible subordinated debentures for fully diluted earnings per common
     share.

     Cash dividends per common share represent the historical cash dividends of
     the Company.

     On April 17, 1997, the company declared a cash dividend of $.07 per share
     payable on May 29, 1997 to shareholders of record on May 8, 1997.

     STOCK-BASED COMPENSATION

     The Company applies Accounting Principles Board Opinion No. 25, "Accounting
     for Stock Issued to Employees" ("APB 25") and related interpretations in
     accounting for its stock-based compensation plans.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

   STOCK-BASED COMPENSATION, CONTINUED

   In 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
   Compensation" ("Statement 123") which was effective for fiscal years
   beginning after December 15, 1995. Under Statement 123, the Company may elect
   to recognize stock-based compensation expense based on the fair value of the
   awards or continue to account for stock-based compensation under APB 25. The
   Company has elected to continue to apply the provisions of APB 25.

   EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")

   The debt of the ESOP is recorded as debt and the shares pledged as collateral
   are reported as unearned ESOP shares in the statement of financial condition.
   As shares are released from collateral, the Company reports compensation
   expense equal to the difference between the current market price of the
   Company's stock and the price at which the stock was acquired for the
   establishment of the ESOP times the number of shares being released. In
   addition, compensation expense is recognized for debt service and
   discretionary contributions.

   All ESOP shares are considered outstanding for earnings per share
   computations. Dividends on allocated ESOP shares are recorded as a reduction
   of retained earnings; dividends on unallocated ESOP shares are recorded as a
   reduction of debt and accrued interest.

   IMPACT ON NEW ACCOUNTING STANDARDS

   In February 1997, the FASB issued Statement No. 128, "Earnings Per Share"
   ("Statement 128") and Statement No. 129, "Disclosure of Information About
   Capital Structure" ("Statement 129"). These statements will be adopted by the
   Company effective December 31, 1997. Statement 128 simplifies the computation
   of earnings per common share by replacing primary and fully diluted
   presentations with the new basic and diluted disclosures. Statement 129
   establishes standards for disclosing information about an entity's capital
   structure.

   RECLASSIFICATIONS

   Certain previously reported amounts have been reclassified to conform to the
   1997 financial statement presentation. These reclassifications had no effect
   on net income or stockholders' equity.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


2. BUSINESS COMBINATIONS:

   FIRSTBANC SAVINGS ASSOCIATION OF TEXAS

   On August 16, 1996, the Company acquired all of the outstanding shares of
   FirstBanc Savings Association of Texas ("FirstBanc") for approximately $4.2
   million in cash. The FirstBanc acquisition was recorded using the purchase
   method of accounting and, accordingly, the purchase price of approximately
   $4.2 million, was allocated to the assets based on their estimated fair
   values at the date of acquisition. The operating results of FirstBanc have
   been included in the Company's results of operations commencing August 16,
   1996. The excess of purchase price over the fair value of net assets acquired
   was approximately $1.4 million and has been recorded as goodwill. FirstBanc
   had assets of approximately $30 million as of the acquisition date.

   The purchase price has been allocated to the assets purchased on the
   liabilities assumed based upon the fair values on the date of acquisition, as
   follows:



     Loans                                           $  20,756,113 
     Premises and equipment, net                           690,069 
     Goodwill                                            1,370,428 
     Other assets                                        1,055,414 
     Deposits                                          (26,766,593) 
     Other liabilities                                    (675,374) 
                                                     -------------

     Cash received in excess of purchase price       $  (3,569,943)
                                                     =============

   The following summarized unaudited pro forma results of operations for the
   Company for the years ended March 31, 1997 and 1996 assume the FirstBanc
   acquisition occurred as of April 1, 1995. These pro forma results have been
   prepared for comparative purposes only and do not purport to be indicative of
   the results of operations that actually would have resulted had the
   acquisition occurred at the beginning of the periods presented, or that may
   result in the future.

                                                  Years Ended March 31,
                                               ---------------------------
                                                    1997           1996     

     Interest income                           $ 19,914,075   $ 19,303,169
                                               ============   ============

     Net income                                $    690,773   $  1,796,036
                                               ============   ============

     Primary earnings per share                $        .81   $       2.07 
                                               ============   ============


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


2. BUSINESS COMBINATIONS, CONTINUED:

   MITCHELL MORTGAGE COMPANY, L.L.C.

   On January 2, 1997 the Company executed an agreement with The Woodlands
   Corporation to acquire a controlling interest in a new limited liability
   company, Mitchell Mortgage Company, L.L.C. ("Mitchell"). Mitchell was formed
   for the purpose of engaging in the mortgage banking business, including the
   origination and servicing of single family purchase loans, single family
   construction loans and commercial and multifamily real estate loans. The
   Woodlands Corporation contributed certain mortgage loans and its mortgage
   servicing portfolio and liabilities of its wholly-owned mortgage banking
   subsidiary, Mitchell Mortgage Company ("Old Mitchell"), in exchange for 49%
   ownership interest in Mitchell and the Company contributed cash of
   approximately $2.6 million in exchange for a 51% ownership interest in
   Mitchell. Old Mitchell was formed in 1974 and has had a mortgage banking
   relationship with the Company for seven years. It is anticipated that
   Mitchell will continue to operate in a manner consistent with that previously
   engaged in by Old Mitchell. Mitchell had approximately $600 million of loan
   servicing at March 31, 1997.

   The purchase price has been allocated to the assets purchased on the
   liabilities assumed based upon the fair values on the date of acquisition, as
   follows:

     Loans                                              $ 16,856,498 
     Premises and equipment, net                             413,388 
     Mortgage servicing rights                             5,000,583 
     Other assets                                            961,045 
     Borrowings                                          (20,079,203) 
     Other liabilities                                    (2,756,906) 
                                                        ------------  

     Purchase price in excess of cash received          $    395,405
                                                        ============

3. DEBT AND EQUITY SECURITIES:

   The carrying amount of securities and their approximate fair values were as
   follows:

<TABLE> 
<CAPTION> 
                                                                 March 31, 1997
                                       ---------------------------------------------------------------
                                                               Gross Unrealized               
                                          Amortized      ------------------------------       Fair 
                                           Cost             Gains            Losses           Value         

<S>                                    <C>              <C>              <C>              <C> 
   Available for sale:                                                                         
     U.S. government securities         $    499,870                      $     9,245     $    490,625 
     Equity securities                     2,320,497     $       3,000          3,852        2,319,645 
     Mortgage-backed securities              520,869                                           520,869 
                                        ------------     -------------    -----------     ------------

                                        $  3,341,236     $       3,000    $    13,097     $  3,331,139 
                                        ============     =============    ===========     ============

   Held to maturity: 
     U.S. government securities         $ 11,234,763     $       5,468    $   450,791     $ 10,789,440 
     Mortgage-backed securities           97,084,501           853,590      1,253,661       96,684,430 
                                        ------------     -------------    -----------     ------------

                                        $108,319,264     $     859,058    $ 1,704,452     $107,473,870
                                        ============     =============    ===========     ============

</TABLE> 


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


3. DEBT AND EQUITY SECURITIES, CONTINUED:

<TABLE> 
<CAPTION> 

                                                                 March 31, 1997
                                       ---------------------------------------------------------------
                                                               Gross Unrealized                     
                                          Amortized     ------------------------------         Fair 
                                           Cost             Gains            Losses            Value         

<S>                                    <C>              <C>              <C>              <C> 
   Available for sale:            
     U.S. government securities        $     499,790                      $    9,165       $     490,625 
     Equity  securities                    2,200,000                           6,018           2,193,982 
     Mortgage-backed securities              891,329                          17,827             873,502
                                       -------------                      ----------       -------------

                                       $   3,591,119                      $   33,010       $   3,558,109
                                       =============                      ==========       =============


     Held to maturity: 
       U.S. government securities      $   9,233,505      $    41,320     $  210,672       $   9,064,153 
       Mortgage-backed securities        110,489,617        1,118,136        930,974         110,676,779 
                                       -------------      -----------     ----------       -------------
                                                                      
                                       $ 119,723,122      $ 1,159,456     $1,141,646       $ 119,740,932 
                                       =============      ===========     ==========       =============



   The scheduled maturities of debt securities were as follows:

                                                                                March 31, 1997                           
                                                                        --------------------------------
                                                                          Amortized             Fair
                                                                             Cost               Value

   Available for sale:                                                                                              
     Due after one year through five years                              $    499,870       $     490,625 
     Equity securities                                                     2,320,497           2,319,645 
     Mortgage-backed securities                                              520,869             520,869 
                                                                        ------------       -------------

                                                                        $  3,341,236       $   3,331,139
                                                                        ============       =============

   Held to maturity:                                                                                                
     Due within one year                                                $  2,999,552       $   2,986,421
     Due after one year through five years                                 5,236,755           5,207,870
     Due after five years through ten years                                2,998,456           2,595,149 
                                                                        ------------       -------------
                                                                          11,234,763          10,789,440

   Mortgage-backed securities                                             97,084,501          96,684,430 
                                                                        ------------       -------------

                                                                        $108,319,264       $ 107,473,870 
                                                                        ============       =============
</TABLE> 



   Mortgage-backed securities carried at approximately $2,500,000 and $1,025,000
   were pledged to collateralize certain deposits at March 31, 1997 and March
   31, 1996, respectively. Certain securities, with a carrying value of
   approximately $109,000,000 at March 31, 1997, also collateralize a FHLB
   Advance.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


4. LOANS RECEIVABLE:

   Loans receivable are summarized as follows:

<TABLE> 
<CAPTION> 

                                                                                MARCH 31,     
                                                                 -----------------------------------
                                                                      1997                   1996     
<S>                                                               <C>                   <C> 
     Mortgage loans (approximately $75.6 million and $58.7           
       million, respectively, are single family residential)      $ 86,749,042          $ 71,275,199 
     Construction, development and land loans (primarily single 
       family residential)                                          50,246,522             8,708,524 
     Consumer                                                       25,633,233            18,594,717 
                                                                  ------------          ------------
                                                                   162,628,797            98,578,440

                                                                                                                
   Less:                                                                                   
     Net deferred loan fees, premiums and discounts                    811,117               929,958 
     Undisbursed construction loans in process                      21,888,967             3,436,666
     Allowance for loan losses                                       1,701,008             1,350,222 
                                                                  ------------          ------------

                                                                  $138,227,705          $ 92,861,594 
                                                                  ============          ============


The following is a summary of changes in the allowance for loan
losses: 

                                                                  Years Ended March 31,
                                                 -----------------------------------------------------
                                                       1997            1996                  1995     

<S>                                              <C>              <C>                   <C> 
   Balance, beginning of year                     $  1,350,222    $  1,649,591          $  1,712,229 
   Allowance associated with acquisition               385,284
   Allowance transferred from Old Mitchell             350,000
   Loans charged off                                  (807,702)       (430,519)             (366,659) 
   Recoveries                                           99,204           8,097                46,021 
                                                  ------------    ------------          ------------

     Net loans charged off                            (708,498)       (422,422)             (320,638)

   Provision for loan losses                           324,000         123,053               258,000
                                                  ------------    ------------          ------------

   Balance, end of year                           $  1,701,008    $  1,350,222          $  1,649,591
                                                  ============    ============          ============


The following table summarizes impaired loan information:

                                                                                March 31,                                
                                                                 ------------------------------------
                                                                       1997                   1996     

<S>                                                               <C>                   <C> 
   Recorded investment in impaired loans                          $    807,317          $  3,863,000 
   Average recorded investment in impaired loans                       691,090             3,159,000 
   Interest income on impaired loans                                    58,574               300,000

</TABLE> 


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


4. LOANS RECEIVABLE, CONTINUED:

   Loans to officers and directors are made upon approval by the Board of
   Directors. Such loans to these parties and their affiliates amounted to
   approximately $422,762 at March 31, 1997. During 1997, new loans to such
   related parties amounted to $767,291 and repayments amounted to $611,741.


5. LOAN SERVICING:

   Mortgage loans serviced for others are not included in the consolidated
   statement of financial condition. The unpaid principal balances of mortgage
   loans serviced for others was $868,015,785, $164,278,343 and $176,110,255 at
   March 31, 1997, 1996 and 1995, respectively.

   Custodial escrow balances maintained in connection with the foregoing loan
   servicing, and included in demand deposits, were approximately $12,600,000
   and $700,000 at March 31, 1997 and 1996, respectively.

   Following is an analysis of the changes in mortgage loan servicing rights:

<TABLE> 
<CAPTION> 

                                                 Years Ended March 31, 
                                        ---------------------------------------
                                             1997          1996        1995     


<S>                                     <C>          <C>            <C> 
     Balance, beginning of year         $  1,235,714  $  1,028,577  $  389,793 
     Rights acquired from Old Mitchell     5,000,583          
     Purchased rights                      1,505,166       300,778     858,784 
     Originated rights                       271,972       114,005 
     Amortization                           (475,864)     (207,646)   (220,000) 
                                        ------------  ------------  ----------

     Balance, end of year               $  7,537,571  $  1,235,714  $1,028,577 
                                        ============  ============  ==========


6. PREMISES AND EQUIPMENT:

   Premises and equipment are summarized as follows:    

                                                             March 31,
                                                  ----------------------------
                                                        1997           1996     


<S>                                                <C>           <C> 
     Land                                          $    670,477   $    556,477
     Buildings and improvements                       4,963,291      4,385,281 
     Furniture, fixtures and equipment                3,226,263      1,573,263 
     Automobiles                                         38,369         52,869
     Construction in progress                               315         12,201 
                                                   ------------   ------------

                                                      8,898,715      6,580,091

     Less accumulated depreciation                   (3,928,704)    (2,945,045) 
                                                   ------------   ------------

                                                   $  4,970,011   $  3,635,046
                                                   ============   ============

</TABLE> 


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


6. PREMISES AND EQUIPMENT, CONTINUED:

   The Association has operating lease agreements involving bank premises for
   branch locations. The leases are noncancelable and expire in 1999. The leases
   included two renewal options ranging from three to five year terms.

   The following is a schedule by fiscal year of future minimum rental payments
   required under operating leases that have initial or remaining noncancelable
   lease terms in excess of one year:

     1998                                $  522,616 
     1999                                $  514,584 


   Rental expense for the years ended March 31, 1997, 1996 and 1995 was
   $215,584, $27,243, and $28,476, respectively.


7. DEPOSITS:

   A summary of deposits by type of account is as follows:

                                                  March 31, 
                                        ----------------------------
                                             1997           1996     

     NOW and money market accounts      $ 62,774,720    $ 37,501,419 
     Savings                              22,805,744      21,044,906
     Certificates of deposit             164,637,688     145,367,390
                                        ------------    ------------

                                        $250,218,152    $203,913,715 
                                        ============    ============


   Included in savings and NOW accounts are approximately $16,350,000 and
   $3,412,000 of noninterest bearing deposits at March 31, 1997 and 1996,
   respectively. The scheduled maturities of certificates of deposit outstanding
   at March 31, 1997 were as follows:

        Year ending 
         March 31,

           1998                                    $104,065,083 
           1999                                      33,560,381
           2000                                      15,842,078
           2001                                       6,119,844
           2002 and thereafter                        5,050,302 
                                                   ------------

                                                   $164,637,688
                                                   ============


   The aggregate amount of deposit accounts with a minimum denomination of
   $100,000 was approximately $32,564,000 and $21,355,000 at March 31, 1997 and
   1996, respectively.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


7. DEPOSITS, CONTINUED:

   Interest expense by type of deposit is as follows:

<TABLE> 
<CAPTION> 

                                               Years Ended March 31,
                                    -----------------------------------------
                                        1997          1996           1995     

<S>                                 <C>            <C>            <C> 
     NOW and money market accounts  $ 1,104,852    $   920,303    $   889,544 
     Savings                            570,929        526,713        529,464 
     Certificates of deposit          8,350,165      7,846,708      5,926,922
                                    -----------    -----------    -----------

                                    $10,025,946    $ 9,293,724    $ 7,345,930
                                    ===========    ===========    ===========

</TABLE> 


   Certain executive officers and directors had amounts on deposit with the
   Company of $3,809,240 at March 31, 1997.



8. CONVERTIBLE SUBORDINATED DEBENTURES:

   On December 5, 1995, the Holding Corp. issued $12,100,000 of 8% Convertible
   Subordinated Debentures, with interest payable June 1 and December 1 of each
   year through maturity, and principal due December 1, 2005. They may be
   converted at any time prior to maturity at a conversion rate of 46.296 shares
   of common stock for each $1,000 principal amount of debentures or $21.60 per
   share. The debentures are redeemable, in whole or in part, at the option of
   the Holding Corp. at any time on or after December 1, 1998, at the redemption
   prices set forth below plus accrued interest. The debentures are subordinated
   to all senior indebtedness and all general obligations of the Holding Corp.
   The covenants of the Debenture restrict the Holding Corp. from paying
   dividends or other distributions on any junior securities of the Holding
   Corp. if a default in payment of interest or principal exists on any
   security. The following are redemption prices, expressed as a percentage of
   principal amount, during the twelve month period beginning December 1 of the
   years indicated:



        1998            105.6%          2002            102.4%  
        1999            104.8%          2003            101.6%  
        2000            104.0%          2004            100.8%  
        2001            103.2%          


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


9. BORROWINGS:

   Borrowings are summarized as follows:

                                                     1997           1996     

        FHLB advances                            $ 3,919,551    $ 3,968,813
        Employee stock ownership plan debt           307,125        394,875
                                                 -----------    -----------

                                                 $ 4,226,676    $ 4,363,688
                                                 ===========    ===========

   SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

   At March 31, 1995 securities sold under agreements to repurchase were
   maintained in safekeeping with the Federal Home Loan Bank of Dallas ("FHLB").
   The weighted average maturity of these agreements was ten days and the
   weighted average interest rate was 6.09%. The average balance during the year
   ended March 31, 1995 was approximately $3,400,000 and the maximum month end
   balance was approximately $15,500,000. The carrying value and market value of
   the underlying mortgage-backed securities were approximately $12,100,000 and
   $11,800,000 respectively. There were no securities sold under agreements to
   repurchase during 1997 or 1996.

   FHLB ADVANCE

   The $4.0 million advance from the FHLB bears interest at a rate of 6.2%
   amortizing based on a 30-year term and matures on June 20, 2000. The advance
   is collateralized by all FHLB stock owned by the Company, amounts on deposit
   with the FHLB and all of the securities owned by the Company which are held
   in safekeeping by the FHLB. In addition, a Floating Blanket Lien has been
   executed whereby qualifying 1-4 family residential loans are pledged as
   collateral for the advances obtained from the FHLB. At March 31, 1997, the
   Company had the ability to borrow an additional $143,000,000 from the FHLB.

   EMPLOYEE STOCK OWNERSHIP PLAN DEBT

   The Holding Corp. established an employee stock ownership plan financed by a
   third-party loan from a bank in the amount of $614,250 collateralized by the
   outstanding shares. The borrowing is guaranteed by the Holding Corp. but does
   not constitute a legally binding contribution commitment by the Association.
   The borrowing is payable in semi-annual principal payments of $43,875 over a
   7-year period plus interest at a variable rate determined by the creditor
   (6.25% at March 31, 1997). The borrowing is governed by various debt
   covenants, the most restrictive of which is the maintenance of certain
   regulatory capital ratios by the Association.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


9.   BORROWINGS, CONTINUED:

     FUTURE REPAYMENTS

     The following is a schedule by fiscal year of future principal payments
     required under the Company's borrowings:

        1998                                  $  140,156
        1999                                     143,503
        2000                                     147,061
        2001                                   3,795,956                        
                                              ----------

                                              $4,226,676                        
                                              ==========


10.  INCOME TAXES:

     Income tax expense consisted of the following:



                                               Years Ended March 31,
                                    ----------------------------------------
                                         1997         1996           1995     


        Current                     $   247,913    $  816,267     $  842,335 
        Deferred                        115,096        97,162        127,351 
                                    -----------    ----------     ----------

                                    $   363,009    $  913,429     $  969,686
                                    ===========    ==========     ==========


     The reasons for the difference between income tax expense and the amount
     computed by applying the statutory federal income tax rate of 34% to income
     before tax expense were as follows for the year ended March 31, 1997:



        Income before income tax expense                   $ 1,195,710  
                                                           ===========  
                                                                        
        Federal income tax expense at statutory rate       $   406,541  
        Appreciation in employee stock ownership plan                   
         shares released                                        39,414  
        Other                                                  (82,946) 
                                                           -----------  
                                                                        
                                                           $   363,009  
                                                           ===========   


     The income tax expense reported in the statement of income for 1996 and
     1995 approximated income tax expense based upon the statutory rate.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


10.  INCOME TAXES, CONTINUED:

     Deferred tax assets and liabilities included in other assets consist of the
     following:
<TABLE> 
<CAPTION> 

                                                        March 31,
                                                    1997         1996     
<S>                                             <C>          <C> 
        Deferred tax assets:  
          Allowance for loan losses             $  459,343   $  459,075 
          Vacation accrual                          52,329       44,787 
          Capitalized interest on loans             35,917       37,110 
          Deferred loan fees                        29,862       44,649 
          Other                                     22,317       20,730 
                                                ----------   ----------

                                                   599,768      606,351 
                                                ----------   ----------

        Deferred tax liabilities: 
          Depreciation                            (125,017)     (85,803) 
          Originated mortgage servicing rights     (68,943)     (37,350)
          FHLB stock dividends                     (55,743)     (55,743) 
          Other                                    (44,104)      (8,506)
                                                ----------   ----------

                                                  (293,807)    (187,402)
                                                ----------   ----------

        Net deferred tax asset                  $  305,961   $  418,949
                                                ==========   ==========

</TABLE> 


     It is expected that the Company's deferred tax assets at March 31, 1997
     will be realized from the reversal of existing deferred tax liabilities and
     from the recognition of future taxable income, without relying on tax
     planning strategies that the Company might not ordinarily follow.

     Retained earnings at March 31, 1997 includes approximately $1,531,000 for
     which no deferred income tax liability has been recognized. This amount
     represents an allocation of income to bad-debt deductions for tax purposes
     only. Reduction of amounts so allocated for purposes other than tax bad-
     debt losses or adjustments arising from carryback of net operating losses
     would create income for tax purposes only, which would be subject to the
     then-current corporate income tax rate.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


11.  STOCK-BASED COMPENSATION PLANS:

     INCENTIVE STOCK OPTIONS

     The Company sponsors the 1993 Stock Option and Incentive Plan (the "Plan"),
     a stock-based compensation plan which is described below. The Company
     applies APB 25 and related interpretations in accounting for its Plan. In
     1995, the FASB issued Statement 123 which, if fully adopted by the Company,
     would change the methods the Company applies in recognizing the cost of it
     Plan. Adoption of the cost recognition provisions of Statement 123 is
     optional and the Company has decided not to elect these provisions of
     Statement 123. However, pro forma disclosures as if the Company adopted the
     cost recognition provisions of Statement 123 in 1995 are required by
     Statement 123 and are presented below.

     Under the Plan, the Company is authorized to issue 87,750 shares of common
     stock pursuant to "Awards" granted to officers, key employees and directors
     in the form of incentive stock options qualified under Section 422 of the
     Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
     options not qualified under Section 422 of the Code, stock appreciation
     rights, limited stock appreciation rights, and restricted stock. The
     Company granted incentive stock options in the numbers shown in the table
     below.

     The incentive stock options granted during 1997 have an exercise price
     greater than the fair market value of the common stock on the date of
     grant. All the options granted have contractual terms of 10 years. The
     stock options vest according to various schedules. In accordance with APB
     25, the Company has not recognized any compensation cost for the stock
     options granted during 1997.

     A summary of the status of the Company's stock options as of March 31, 1997
     and March 31, 1996 and the changes for the years then ended is presented
     below:

<TABLE> 
<CAPTION> 

                                                                Stock Options
                                                ----------------------------------------
                                                    Year ended          Year ended
                                                  March 31, 1997      March 31, 1996
                                                -----------------  ---------------------
                                                        Weighted               Weighted         
                                                         Average                Average          
                                                        Exercise               Exercise         
                                                Shares    Price     Shares      Price   

<S>                                             <C>     <C>         <C>       <C> 
     Options outstanding, beginning of year     51,139  $  10.22    52,139     $  10.32   
     Granted                                    25,678     20.76 
     Exercised                                  (2,178)    17.00    (1,000)       15.50  
                                               -------             -------                 

     Options outstanding, end of year           74,639     13.64    51,139        10.22  
                                               =======             =======

     Options exercisable, end of year           59,139     11.13    51,139        10.22  
                                               =======             =======

     Weighted average fair market value of  
       options granted during the year               $0.26                                                                   

</TABLE> 


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


11.  STOCK-BASED COMPENSATION PLANS, CONTINUED:

     INCENTIVE STOCK OPTIONS, CONTINUED

     The fair value of each stock option granted during 1997 was estimated on
     the date of grant using the Black-Scholes option-pricing model with the
     following weighted-average assumptions: dividend yield of 2.80%; expected
     volatility of 18.81%; a range of risk-free interest rates of 6.05% to
     6.56%; and expected lives of 5 years.

     During 1995, 3,000 options were granted at $15.50 per share and 7,020
     options were exercised at $10 per share. There were 52,139 options
     outstanding and exercisable at March 31, 1995.

     The following table summarizes information about stock options outstanding
     at March 31, 1997:

<TABLE> 
<CAPTION> 

                                            OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE 
                                   --------------------------------------     ----------------------------
                                                   WEIGHTED                                     
                                                    AVERAGE     WEIGHTED                        WEIGHTED         
                                                   REMAINING     AVERAGE                         AVERAGE          
                                       NUMBER     CONTRACTUAL   EXERCISE          NUMBER        EXERCISE
        RANGE OF EXERCISE PRICES    OUTSTANDING   LIFE (YEARS)    PRICE         EXERCISABLE      PRICE    

<S>     <C>                         <C>           <C>           <C>             <C>             <C> 
        $10.00 to $15.00                 49,139       6.25      $ 10.00             49,139      $ 10.00  
        $15.01 to $23.25                 25,500       9.46        20.66             10,000        16.66

</TABLE> 


     RESTRICTED STOCK

     The Company established a Recognition and Retention Plan ("RRP") as a
     method of providing key officers with a proprietary interest in the Company
     in a manner designed to encourage such individuals to remain with the
     Company. Pursuant to the RRP, restricted stock awards for shares
     representing an aggregate of approximately 2% of the shares of common stock
     issued during the conversion were granted. This amounted to an additional
     16,852 shares being issued as of the conversion date. Stockholders' equity
     is reduced by unearned compensation in the amount of $82,326, $98,668 and
     $118,792 which represents the unvested portion of the RRP at March 31,
     1997, 1996 and 1995, respectively.

     All shares of restricted stock vest at the rate of 20% per year, beginning
     on the first anniversary of the date of grant. The fair value of the
     restricted stock awarded by the Company during 1997 and 1996 was $18.25 and
     $15.00, respectively. In accordance with APB 25, the Company has recognized
     a compensation cost of $49,194, $42,624 and $38,124 in 1997, 1996 and 1995,
     respectively.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


11.  STOCK-BASED COMPENSATION PLANS, CONTINUED:

     RESTRICTED STOCK, CONTINUED

     A summary of the status of the Company's restricted stock shares as of
     March 31, 1997 and March 31, 1996, and the changes for the years then
     ended, is presented below:

<TABLE> 
<CAPTION> 


                                                            Restricted Stock
                                        ---------------------------------------------------
                                               Year ended                 Year ended 
                                             March 31, 1997             March 31, 1996 
                                        -------------------------  ------------------------
                                                      Weighted                    Weighted
                                                       Average                    Average
                                                     Fair Market                Fair Market      
                                          Shares        Value        Shares        Value    
                                                                                   
<S>                                       <C>         <C>           <C>         <C> 
     Share balance, beginning of year       20,052    $   10.63      18,552     $  10.27  
     Awards                                  1,800        18.25       1,500        15.00
                                         ---------                  -------                
     Share balance, end of year             21,852        11.25      20,052        10.63  
                                         =========                  =======              
     Vested, end of year                    11,091        10.32       7,081        10.14 
                                         =========                  =======              
</TABLE> 


PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE

Had the compensation cost for the Company's stock-based
compensation plans been determined consistent with Statement
123, the Company's net income and net income per common share
for 1997 and 1996 would not have been materially different than
those reported.

The effects of applying Statement 123 in this pro forma
disclosure are not indicative of future amounts.  Statement 123
does not apply to awards prior to 1996.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

12.  EMPLOYEE BENEFIT PLANS:

     The Company sponsors a leveraged ESOP that covers all full-time employees
     who have attained the age of 21 and completed twelve consecutive months of
     service. The Company makes annual contributions to the ESOP at least equal
     to the ESOP's debt service less dividends received by the ESOP. All
     dividends received by the ESOP are used to pay debt service. The ESOP
     shares are initially placed as collateral for its debt. As the debt is
     repaid, shares are released from collateral and allocated to eligible
     employees, based on the proportion of debt service paid in the year. ESOP
     compensation expense was $197,596, $152,396 and $118,225 for the years
     ended March 31, 1997, 1996 and 1995, respectively. The ESOP shares are
     summarized as follows:


                                                       MARCH 31, 
                                                ---------------------     
                                                    1997        1996
                                                          
     Allocated shares                              24,677      15,173
     Shares released for allocation                 9,029       9,504
     Unreleased shares                             27,719      36,748
                                                ---------   ---------

        Total ESOP shares                          61,425      61,425
                                                =========   =========

        Fair value of unreleased shares         $ 665,256   $ 670,651
                                                =========   =========


     A noncontributory trusteed profit sharing plan covering substantially all
     employees provides for lump sum distributions in cash upon termination or
     retirement in accordance with the plan's vesting provisions. Contributions,
     if any, are funded annually, and are determined by the board of directors.
     No profit sharing contributions were made in 1997 or 1995. During 1996,
     $29,000 in contributions were recorded.

     An incentive savings plan has been established which is a qualified profit
     sharing plan under Section 401(k) of the Internal Revenue Code.
     Contributions to the incentive savings plan are determined by the Board of
     Directors. Employees may also make contributions to the incentive savings
     plan based upon a percentage of qualified compensation in accordance with
     the Internal Revenue Service rules and regulations. No contributions were
     made to this plan in 1997, 1996, or 1995.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


13.  REGULATORY MATTERS:

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

     Quantitative measures established by regulation to ensure capital adequacy
     require the Association to maintain minimum amounts and ratios (set forth
     in the table below) of tangible and core capital (as defined in the
     regulations) to total assets (as defined), and of risk-based capital (as
     defined) to risk-weighted assets (as defined). Management believes, as of
     March 31, 1997, that the Association meets all capital adequacy
     requirements to which it is subject.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


13.  REGULATORY MATTERS, CONTINUED:

     As of March 31, 1997, the most recent notification from the Office of
     Thrift Supervision categorized the Association as well capitalized under
     the regulatory framework for prompt corrective action. To be categorized as
     well capitalized the Association must maintain minimum total tangible, core
     and risk-based capital ratios as set forth in the table. There are no
     conditions or events since that notification that management believes have
     changed the institution's category. The Association's actual capital
     amounts (in thousands) and ratios are presented in the following table:


<TABLE> 
                                                                             MARCH 31, 1997
                                                  ---------------------------------------------------------------------
                                                                                                 TO BE WELL CAPITALIZED
                                                                          MINIMUM FOR CAPITAL     FOR PROMPT CORRECTIVE
                                                       ACTUAL              ADEQUACY PURPOSES        ACTION PROVISIONS
                                                  ------------------      -------------------    ----------------------   
                                                  RATIO       AMOUNT       RATIO       AMOUNT       RATIO       AMOUNT
     <S>                                          <C>        <C>          <C>         <C>           <C>       <C> 
     Stockholders' equity, and ratio  
      to total assets                             6.59%      $ 19,324
     Minority interest                                          2,508
     Intangible assets                                         (1,348)
     Other                                                       (969)
                                                             --------
                                      
     Tangible capital, and ratio to   
      adjusted total assets                       6.71%        19,515       1.5%       $  4,365  
                                                             ========                  ========
     Tier 1 (core) capital, and ratio 
      to adjusted total assets                    6.71%        19,515       3.0%          8,730       5.0%      $  14,550
                                                             ========                  ========                 =========
                                      
     Tier 1 capital, and ratio to     
      risk-weighted assets                       13.69%        19,515                                 6.0%          8,551
                                                                                                                ========= 
                                      
     Allowance for loan losses-       
      Tier 2 capital                                            1,540
                                                             --------
                                      
     Total risk-based capital, and    
      ratio to risk-weighted assets              14.77%        21,055       8.0%         11,401      10.0%         14,252
                                                             ========                   =======                 =========
                                      
     Total assets                                            $293,307
                                                             ========
                                      
     Adjusted total assets                                   $290,990
                                                             ========
                                      
     Risk-weighted assets                                    $142,516
                                                             ========  
</TABLE> 


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

13.  REGULATORY MATTERS, CONTINUED:

<TABLE> 

                                                                             MARCH 31, 1996
                                                  ---------------------------------------------------------------------
                                                                                                 TO BE WELL CAPITALIZED
                                                                          MINIMUM FOR CAPITAL     FOR PROMPT CORRECTIVE
                                                       ACTUAL              ADEQUACY PURPOSES        ACTION PROVISIONS
                                                  ------------------      -------------------    ----------------------   
                                                  RATIO       AMOUNT       RATIO       AMOUNT       RATIO       AMOUNT
     <S>                                          <C>        <C>          <C>         <C>           <C>       <C> 

     Stockholders' equity, and ratio 
      to total assets                             7.16%      $  17,478
     Other                                                        (271)
                                                             ---------        
                                     
     Tangible capital, and ratio to               
      adjusted total assets                       7.06%         17,207      1.5%      $  3,655
                                                             =========                ========
     Tier 1 (core) captial, and ratio
      to adjusted total assets                    7.06%         17,207      3.0%         7,309        5.0%       $ 12,182
                                                             =========                ========                   ========
                                     
     Tier 1 capital, and ratio to    
      risk-weighted assets                       17.69%         17,207                                6.0%          5,836
                                                                                                                 ========
                                     
     Allowance for loan losses-      
      Tier 2 capital                                             1,028
                                                             ---------

     Total risk-based capital, and   
      ratio to risk-weighted assets              18.75%         18,235      8.0%         7,782       10.0%          9,727
                                                             =========                ========                   ======== 
                                     
     Total assets                                            $ 244,140
                                                             =========
                                     
     Adjusted total assets                                   $ 243,646
                                                             =========
                                     
     Risk-weighted assets                                    $  97,274
                                                             =========

</TABLE> 

14.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, AND CONCENTRATIONS OF
     CREDIT RISK:

     The Company invests a portion of its cash in deposit accounts with various
     financial institutions in amounts which may exceed the insured amount of
     $100,000. The Company has not experienced any losses on these investments
     which typically are payable on demand. The Company performs ongoing
     evaluations of the financial institutions in which it invests deposits and
     periodically assesses its credit risk with respect to these accounts.

     The Company originates commercial, residential, home improvement and
     consumer loans primarily to customers in the greater Houston, Texas area
     and, accordingly, a substantial portion of its debtors' ability to honor
     their contracts is dependent upon the local Houston economy and real estate
     market.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
 

14.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
     CREDIT RISK, CONTINUED:

     The Company is a party to financial instruments with off-balance-sheet risk
     in the normal course of business to meet the financing needs of its
     customers and to reduce exposure to fluctuation in interest rates. These
     financial instruments include commitments to extend credit and sell loans.
     Those instruments involve, to varying degrees, elements of credit risk in
     excess of the amount recognized in the consolidated statement of financial
     condition. The contract or notional amounts of these instruments as
     detailed below reflect the extent of involvement in particular classes of
     financial instruments.

     The exposure to credit loss in the event of nonperformance by the other
     party to the financial instrument for commitments to extend credit is
     represented by the contractual amount of those instruments. The Company
     uses the same credit policies in making commitments and conditional
     obligations as it does for on-balance-sheet instruments. For forward
     commitments, the Company is exposed to credit loss in the event of
     nonperformance by the counter parties. However, the Company does not
     anticipate nonperformance by the counter parties.

     Financial instruments with off-balance-sheet risk include the following:

          
                                                  CONTRACT OR NOTIONAL
                                                 AMOUNTS (IN THOUSANDS)
                                                        MARCH 31,
                                                 ----------------------
                                                    1997       1996

        Financial instruments whose contract
         amounts represent credit risk:
          Commitments to extend credit           $  13,757    $   4,136
          Forward commitments to sell loans          1,858          357


     Commitments to extend credit are agreements to lend to a customer as long
     as there is no violation of any condition established in the contract.
     Commitments generally have fixed expiration dates or other termination
     clauses and may require payment of a fee. Since some of the commitments may
     expire without being drawn upon, the total commitment amounts do not
     necessarily represent future cash requirements.

     The Company evaluates each customer's credit worthiness on a case-by-case
     basis. The amount of collateral obtained if deemed necessary upon extension
     of credit is based on management's credit evaluation of the counter party.
     Collateral obtained upon funding of the commitment consists primarily of
     residential and commercial real estate.


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

15.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The assumptions used in estimating fair values were based upon subjective
     assessments of market conditions and perceived risks of the financial
     instruments at a certain point in time. The fair value estimates can be
     subject to significant variability with changes in assumptions.
     Furthermore, these fair value estimates do not reflect any premium or
     discount that could result from offering for sale at one time the Company's
     entire holdings of a particular financial instrument, nor are the tax
     ramifications related to the realization of unrealized gains and losses
     permitted to be considered in the estimation of fair value. In addition,
     fair value estimates are based solely on existing on- and off-balance sheet
     financial instruments without attempting to estimate the value of
     anticipated future business and the value of assets and liabilities that
     are not considered financial instruments. Examples would include portfolios
     of loans serviced for others, investments in real estate, premises and
     equipment, and deferred tax assets. Fair value estimates, methods and
     assumptions are set forth below for the Company's financial instruments.

     CASH AND CASH EQUIVALENTS

     The carrying amounts of cash and cash equivalents approximate their fair
     value.

     DEBT AND EQUITY SECURITIES

     Fair values for U.S. Government and agency obligations, equity securities
     and mortgage-backed securities are based on quoted market prices.

     LOANS HELD FOR SALE

     Fair values of loans held for sale are estimated based on outstanding
     commitments from investors or current market prices for similar loans.

     LOANS RECEIVABLE

     Fair values are estimated for portfolios of loans with similar financial
     characteristics. Mortgage loans are segregated by type, including but not
     limited to residential, commercial and construction. Consumer loans are
     segregated by type, including but not limited to home improvement loans,
     automobile loans, loans secured by deposits and secured and unsecured
     personal loans. Each loan category may be segmented, as appropriate, into
     fixed and adjustable interest rate terms, ranges of interest rates,
     performing and nonperforming, and repricing frequency.

     For certain homogeneous categories of loans, such as some residential
     mortgages, fair value is estimated using the quoted market prices for
     securities backed by similar loans, adjusted for differences in loan
     characteristics. The fair values of other types of loans are estimated by
     discounting the future scheduled and unscheduled cash flows using the
     current rates at which similar loans should be made to borrowers with
     similar credit ratings and for the same remaining maturities. Unscheduled
     cash flows take the form of estimated prepayments and may be based upon
     historical experience as well as anticipated experience derived from
     current and prospective economic and interest rate environments. For
     certain types of loans, anticipated prepayment experience exists in
     published tables from securities dealers.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

15.  FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:

     LOANS RECEIVABLE, CONTINUED

     The fair value of significant nonperforming mortgage loans is based on
     estimated value of the collateral. Where appraisals are not available,
     estimated cash flows are discounted using a rate commensurate with the
     credit risk associated with those cash flows. Assumptions regarding credit
     risk, cash flows and discount rates are judgmentally determined using
     available market information and specific borrower information. The fair
     value of nonperforming consumer loans is based on historical experience
     with such loans.

     FEDERAL HOME LOAN BANK STOCK

     The fair value of stock in the Federal Home Loan Bank of Dallas is
     estimated to be equal to its carrying amount given it is not a publicly
     traded equity security, it has an adjustable dividend rate, and
     transactions in the stock have been executed at the stated par value.

     DEPOSITS AND ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE

     The fair value of deposits with no stated maturity, such as interest-
     bearing or non-interest-bearing checking accounts, passbook and statement
     savings accounts, money market accounts and advances from borrowers for
     taxes and insurance is equal to the amount payable upon demand. The fair
     value of certificates of deposit is based on the lower of redemption or
     discounted value of contractual cash flows. Discount rates for certificates
     of deposit are estimated using current market rates.

     BORROWINGS AND CONVERTIBLE SUBORDINATED DEBENTURES

     Borrowings include the ESOP debt, an amortizing FHLB advance and
     convertible subordinated debentures. The estimated fair value of the ESOP
     debt, FHLB advance and convertible subordinated debentures is based upon
     the discounted value of the differences between contractual interest rates
     and current market rates for similar agreements.

     ACCRUED INTEREST

     The fair values of accrued interest approximates their carrying values.

     OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

     The fair value of commitments to extend credit is estimated using the fees
     currently charged to enter into similar agreements, taking into account the
     remaining terms of the agreements and the present creditworthiness of the
     counterparties. For fixed-rate loan commitments, fair value also considers
     the difference between current levels of interest rates and the committed
     rates. The fair value of guarantees and letters of credit is based on fees
     currently charged for similar agreements or on the estimated cost to
     terminate them or otherwise settle the obligations with the counterparties
     at the reporting date.


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

15.  FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:

     OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

     The fair value of off-balance sheet financial instruments is estimated to
     equal the carrying amount at March 31, 1997 and 1996.

     The carrying values and estimated fair values of financial instruments are
     as follows:

<TABLE> 
<CAPTION> 
                                                                 MARCH 31, 1997              MARCH 31, 1996 
                                                          --------------------------   ---------------------------
                                                            CARRYING    ESTIMATED         CARRYING     ESTIMATED 
                                                             VALUE      FAIR VALUE         VALUE       FAIR VALUE 
      <S>                                                 <C>           <C>             <C>          <C> 
      Financial assets:                                                                                 
       Cash and cash equivalents                          $ 20,790,191  $ 20,790,191    $ 17,193,662  $ 17,193,662 
       Securities available for sale                         3,331,139     3,331,139       3,558,109     3,558,109 
       Securities held to maturity                         108,319,264   107,473,870     119,723,122   119,740,932 
       Loans held for sale                                   2,660,415     2,660,415         922,422       922,422 
       Loans receivable, net                               138,227,705   139,438,499      92,861,594    96,403,404 
       Federal Home Loan Bank stock                          1,933,000     1,933,000       1,460,200     1,460,200 
       Accrued interest receivable                           1,816,415     1,816,415       1,466,272     1,466,272 
      Financial liabilities:                         
       Deposits                                            250,218,152   251,113,824     203,913,715   205,633,188 
       Convertible subordinated debentures                  12,080,000    11,420,717      12,100,000    12,100,000 
       Borrowings                                            4,226,676     4,093,764       4,363,688     4,280,668 
       Advance from borrowers for taxes and insurance        4,750,945     4,750,945       4,224,796     4,224,796 
       Accrued interest payable                                638,278       638,278         646,744       646,744 

</TABLE> 


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

16.  PARENT COMPANY CONDENSED FINANCIAL STATEMENTS:

     The following condensed statement of financial condition as of March 31,
     1997 and 1996 and statements of income and cash flows for the three years
     ended March 31, 1997 for the Holding Corp. should be read in conjunction
     with the consolidated financial statements and notes thereto.



                            STATEMENT OF FINANCIAL CONDITION     
      
<TABLE> 
<CAPTION> 
                             

                                                                           MARCH 31,             
                                                             -----------------------------------
                                                                  1997                 1996
                                                                                               
      <S>                                                    <C>                    <C> 
      Assets:                                                                        
       Cash and cash equivalents                             $  5,587,194           $ 11,200,209 
       Securities available for sale                              490,625                490,625 
       Investment in subsidiary                                19,323,927             17,477,456 
       Receivable from Association                              4,233,750                        
       Other assets                                             1,381,878                948,869 
                                                             ------------           ------------
                                                    
        Total assets                                         $ 31,017,374           $ 30,117,159 
                                                             ============           ============
                                                                                              
      Liabilities:                                                                  
       Convertible subordinated debentures                   $ 12,080,000           $ 12,100,000 
       Other liabilities                                          427,116                346,120 
                                                             ------------           ------------
                                                    
        Total liabilities                                      12,507,116             12,446,120 
                                                             ------------           ------------
                                                                                              
      Stockholders' equity:                                                                 
       Common stock                                                 9,104                  9,055 
       Additional paid-in capital                               8,704,987              8,514,562 
       Unearned ESOP shares                                      (307,125)              (394,875) 
       Retained earnings                                       11,565,900             11,020,584 
       Net unrealized loss on securities available                                                           
        for sale, net of tax                                       (6,107)               (21,786) 
       Treasury stock                                          (1,456,501)            (1,456,501) 
                                                             ------------           ------------
                                                                                              
        Total stockholders' equity                             18,510,258             17,671,039 
                                                             ------------           ------------
                                                                                              
         Total liabilities and stockholders' equity          $ 31,017,374           $ 30,117,159 
                                                             ============           ============

</TABLE> 


<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

16.  PARENT COMPANY CONDENSED FINANCIAL STATEMENTS, CONTINUED:

<TABLE> 
<CAPTION> 



                                                                                      YEARS ENDED MARCH 31,  
                                                                    --------------------------------------------------------  
                STATEMENT OF INCOME                                      1997                  1996                  1995 
       <S>                                                          <C>                   <C>                   <C>  
       Interest income                                              $     43,621          $     25,775          $     25,704 
       Interest expense                                                1,048,428               338,878                          
                                                                    ------------          ------------          ------------
         Net interest income                                          (1,004,807)             (313,103)               25,704 
       Other expense                                                     307,922               239,931               282,231 
       Income tax benefit                                               (446,300)             (152,800)              (87,200) 
       Equity in earnings of Association                               1,641,202             2,087,270             1,940,006 
                                                                    ------------          ------------          ------------
                                                                                                                                 
         Net income                                                 $    774,773          $  1,687,036          $  1,770,679 
                                                                    ============          ============          ============



                                                                                      YEARS ENDED MARCH 31,  
                                                                    --------------------------------------------------------  
                STATEMENT OF CASH FLOWS                                  1997                  1996                  1995 

       Operating activities:                                                                                       
        Net income                                                  $    774,773          $  1,687,036          $  1,770,679 
        Equity in earnings of Association, less dividends             (1,641,202)           (1,237,270)           (1,090,006) 
        Changes in other assets and other liabilities                   (353,255)              297,838               (83,580) 
        Increase in accounts receivable from Association              (4,233,750)                                             
                                                                    ------------          ------------          ------------
                                                                                                                     
         Net cash provided by (used in) operating activities          (5,453,434)              747,604               597,093 
                                                                    ------------          ------------          ------------
                                                                                                                                 
      
       Financing activities:                                                                                      
        Net proceeds from issuance of convertible 
         subordinated debentures                                                            11,295,640                      
        Net proceeds from issuance of common stock                        69,876                38,000                92,300 
        Decrease in receivable from Association for shares issued                                                    168,520 
        Dividends paid                                                  (229,457)             (237,298)             (251,876) 
        Purchase of treasury stock                                                            (790,494)             (666,007) 
                                                                    ------------          ------------          ------------
                                                                                                                                 
         Net cash provided by (used in) financing activities            (159,581)           10,305,848              (657,063) 
                                                                    ------------          ------------          ------------
                                                                                                                                 
         Net increase (decrease) in cash and cash equivalents         (5,613,015)           11,053,452               (59,970) 
         Cash and cash equivalents at beginning of year               11,200,209               146,757               206,727 
                                                                    ------------          ------------          ------------
                                                                                                                                 
         Cash and cash equivalents at end of year                   $  5,587,194          $ 11,200,209          $    146,757 
                                                                    ============          ============          ============

</TABLE> 


<PAGE>
 
ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     None.

                                    PART III


ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS

     Information concerning Directors of the Company is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on July 29, 1997, a copy of which will be filed not
later than 120 days after the close of the fiscal year.

EXECUTIVE OFFICERS

     Information regarding the business experience of the executive officers of
the Corporation and the Association who are not also directors contained in Part
I of this Form 10-KSB is incorporated herein by reference.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company.  Officers, directors and greater than 10% stockholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.

     To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended March 31, 1997, the Company
complied with all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners.

ITEM 10.  EXECUTIVE COMPENSATION

     Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on July 29, 1997, a copy of which will be filed not
later than 120 days after the close of the fiscal year.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on July 29, 1997, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.

                                       99
<PAGE>
 
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on July 29, 1997, a copy of which will
be filed not later than 120 days after the close of the fiscal year.

                                      100
<PAGE>
 
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
 
(A)  EXHIBITS
 
 
 
                                                                
                                                                REFERENCE TO    
REGULATION                                                      PRIOR FILING OR 
S-B EXHIBIT                                                     EXHIBIT NUMBER  
  NUMBER                          DOCUMENT                      ATTACHED HERETO
-----------                       --------                      ---------------

2                Plan of acquisition, reorganization, arrangement,
                 liquidation or succession                               None

3                (a) Certificate of Incorporation                         *

                 (b) By-Laws                                              *

4                Instruments defining the rights of securityholders,
                 including debentures                                     **

                 (a) Form of Common Stock Certificate                     *

                 (b) Form of Indenture dated as of December 5, 1995
                 with respect to the Registrant's 8% Convertible
                 Subordinated Debentures, due December 1, 2005            **

                 (c) Form of Debenture                                    **

9                Voting Trust Agreement                                  None

10               Material contracts

                 (a) 1993 Stock Option and Incentive Plan                 *
                 (b) Employment Agreement with Lane Ward                  *
                 (c) Employment Agreement with David D. Rinehart          *
                 (d) Employment Agreement with Larry J. Dobrava           *
                 (e) Recognition and Retention Plan                       *
                 (f) Profit Sharing Plan and Trust                        *

11               Statement re:  computation of per share earnings        11

12               Statement re:  computation of ratios                    12

13               Portions of Annual Report to Security Holders           None

16               Letter re:  change in certifying accountants            None

18               Letter re:  change in accounting principles             None

21               Subsidiaries of Registrant                              21

22               Published report regarding matters submitted to 
                 vote of security holders                                None

23               Consent of Independent Accountants                      23

24               Power of Attorney                                  Not required

27               Financial Data Schedule                                 27

99               Annual Report on Form 11-K                              None

_____________________
*  Filed as an exhibit to the Registrant's Form S-1 registration statement (File
   No. 33-57722) and incorporated herein by reference in accordance with Item
   601 of Regulation S-B.

** Filed as an exhibit to the Registrant's Form SB-2 registration statement
   (File No. 33-97920) and incorporated herein by reference in accordance with
   Item 601 of Regulation S-B.

                                      101
<PAGE>
 
(B)  REPORTS ON FORM 8-K

     There were two reports on Form 8-K filed during the quarter ended 
March 31, 1997:

     1)   a)  Report dated January 3, 1997.
          b)  Item 5 - Reporting the issuance of a press release announcing the
              acquisition of Mitchell Mortgage.
          c)  No financial statements were filed.

     2)   a)  Report dated January 29, 1997.
          b)  Item 5 - Reporting the issuance of a press release announcing the
              declaration of a cash dividend and earnings for the quarter ended
              December 31, 1996.
          c)  No financial statements were filed.

                                      102
<PAGE>
 
                                  SIGNATURES

     Pursuant to the requirements of Section 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                              FORT BEND HOLDING CORP.


Date: June 26, 1997                           By: /s/ Lane Ward
      ---------------                             --------------------------
                                                  Lane Ward, Vice Chairman,
                                                  President, Chief Executive
                                                  Officer and Director (Duly
                                                  Authorized Representative)

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


/s/ Lane Ward                                 /s/ Robert W. Lindsey
------------------------------------          ----------------------------------
Lane Ward, Vice Chairman,                     Robert W. Lindsey, 
President, Chief Executive Officer            Chairman of the Board  
and Director (Principal Executive 
Officer)


Date: June 26, 1997                           Date: June 26, 1997
      --------------------                          ----------------------


/s/ David D. Rinehart                         /s/George C. Brady
------------------------------------          ----------------------------------
David D. Rinehart, Executive Vice             George C. Brady, Director
President and Chief Financial
Officer (Principal Financial
and Accounting Officer)


Date: June 26, 1997                           Date: June 26, 1997               
      -------------------                           -----------------

/s/ J. Patrick Gubbels                        /s/ William A. Little
------------------------------------          ----------------------------------
J. Patrick Gubbels, Director                  William A. Little, Director


Date: June 26, 1997                           Date: June 26, 1997               
      -------------------                           -----------------

                                              /s/Doyle G. Callender
------------------------------------          ----------------------------------
Wayne O. Poldrack, Director                   Doyle G. Callender, Director


Date:                                         Date: June 26, 1997               
      -------------------                           -----------------
/s/ Ron L. Workman
------------------------------------
Ron L. Workman, Director


Date: June 26, 1997                           
      -------------------